<PAGE>
USAA Life Insurance Company
Variable Universal Life
=========================================================
Annual Report
December 31, 1999
<PAGE>
this page left blank intentionally
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
====================================================================================================================================
<S> <C> <C>
President's Message........................................................... iii
USAA Life Variable Universal Life Insurance
Separate Account
Overview of the Variable Universal Life Fund Accounts....................... A-2
Independent Auditors' Report................................................ A-4
Statements of Assets and Liabilities........................................ A-5
Statements of Operations.................................................... A-6
Statements of Changes in Net Assets......................................... A-8
Notes to Financial Statements...............................................A-10
USAA Life Investment Trust
USAA Life Fund Overviews.................................................... B-3
Independent Auditors' Report................................................B-21
Portfolios of Investments...................................................B-22
Notes to Portfolios of Investments..........................................B-41
Statements of Assets and Liabilities........................................B-42
Statements of Operations....................................................B-43
Statements of Changes in Net Assets.........................................B-44
Notes to Financial Statements...............................................B-46
Scudder Variable Life Investment Fund (VLIF)
Capital Growth Portfolio
Letter from the Fund's President............................................ C-3
Portfolio Management Discussion............................................. C-4
Performance Update.......................................................... C-5
Portfolio Summary........................................................... C-6
Investment Portfolios, Financial Statements, and Financial Highlights....... C-7
Notes to Financial Statements............................................... C-15
Report of Independent Accountants........................................... C-18
Tax Information............................................................. C-19
About the Fund's Adviser.................................................... C-20
The Alger American Fund
Alger American Growth Portfolio
Portfolio Highlights........................................................ D-4
Schedule of Investments..................................................... D-5
Financial Highlights........................................................ D-7
Statement of Assets and Liabilities......................................... D-8
Statement of Operations..................................................... D-9
Statement of Changes in Net Assets.......................................... D-10
Notes to Financial Statements............................................... D-11
Report of Independent Public Accountants.................................... D-13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table of Contents, continued
====================================================================================================================================
<S> <C> <C>
BT Insurance Funds Trust
Equity 500 Index Fund
Letter to Shareholders................................................... E-5
Schedule of Investments.................................................. E-7
Statement of Assets and Liabilities...................................... E-12
Statement of Operations.................................................. E-13
Statements of Changes in Net Assets...................................... E-14
Financial Highlights..................................................... E-15
Notes to Financial Statements............................................ E-16
Report of Independent Auditors........................................... E-18
Proxy Voting Results..................................................... E-19
Small Cap Index Fund
Letter to Shareholders................................................... E-23
Schedule of Investments.................................................. E-25
Statement of Assets and Liabilities...................................... E-42
Statement of Operations.................................................. E-43
Statements of Changes in Net Assets...................................... E-44
Financial Highlights..................................................... E-45
Notes to Financial Statements............................................ E-46
Report of Independent Auditors........................................... E-48
Proxy Voting Results..................................................... E-49
EAFE(R) Equity Index Fund
Letter to Shareholders................................................... E-53
Schedule of Investments.................................................. E-56
Statement of Assets and Liabilities...................................... E-64
Statement of Operations.................................................. E-65
Statements of Changes in Net Assets...................................... E-66
Financial Highlights..................................................... E-67
Notes to Financial Statements............................................ E-68
This report is for the information of USAA Life
Variable Universal Life policyowners. The USAA Report of Independent Auditors........................................... E-70
Life Variable Universal Life policy is
distributed by USAA Investment Management Proxy Voting Results..................................................... E-71
Company, a registered broker dealer.
</TABLE>
<PAGE>
USAA Life Variable Universal Life Insurance Annual Report
- --------------------------------------------------------------------------------
President's Message
from the desk of Ed Rosane
I am delighted to report that 1999 marked another year of solid growth for the
Dow Jones Industrial Average, which closed at 11,497 on December 31. However,
the Bond Market didn't fare as well. The 30-year Treasury Bond yield rose to
6.45%, the highest level since October 1997, causing a decrease in bond prices.
The Federal Funds Rate also increased by .25% in June, August and November.
Whether you selected stocks or bonds to fund your Variable Universal Life*
policy, remember that conventional wisdom still holds that one of the best ways
to plan for retirement is to diversify your portfolio. As you know, USAA Life's
Variable Universal Life can help you do just that. See page A-2 of this report
for accumulation unit values and an overview of historical performance of your
funds.
*Known in some states as Flexible Premium Variable Life.
----------------------------
1999 ANNUAL REPORT iii
<PAGE>
USAA Life Variable Universal Life Insurance Annual Report
- --------------------------------------------------------------------------------
President's Message
Owning a Variable Universal Life insurance policy is the result of innovative
thinking. You need life insurance protection, and you want to benefit from its
tax advantages. The policy's flexibility and its self-directed investments are
features that make your policy a unique choice for your long-term financial
plan. The basics are simple. . .
With your Variable Universal Life insurance policy you get permanent life
insurance protection along with investment choices. You choose the investment
allocation of your contribution as well as how much and when you'll pay your
premiums. The way you structure and maintain your policy should reflect your
objectives and become an important component of your long-term financial plan.
Tax-Wise Funding of Your Policy
To make the most of your life insurance policy's tax advantages, it is important
to maximize premiums into your policy in the early years to build sufficient
cash value that could be accessed and/or pay the cost of insurance in later
years.
Point to remember: Many tax advantages disappear if your policy funding exceeds
certain Internal Revenue Service premium payment restrictions.
Maintaining Sufficient Cash Value
For convenience, you determine the amount and frequency of your premium
payments, but you must maintain sufficient cash value to keep your policy in
effect.
At a minimum, be sure your personal payment strategy includes paying premiums
sufficient to cover the cost of insurance and the monthly maintenance and
mortality and expense risk charges. Otherwise, the policy may lapse. And
remember to contribute enough in the early years to allow the cash value to help
pay for the higher cost of insurance as you age.
Reducing Investment Risk
Even during times of market volatility, keeping the investment portion of your
policy on track may be simpler than you think, if you apply the time-honored
strategies of diversification and dollar-cost averaging.
Diversification
By their very nature, Variable Universal Life fund accounts are diversified. The
12 fund accounts invest in an underlying mix of stocks and/or bonds. They may be
domestic, international, or a combination of the two. You can further diversify
by allocating dollars to fund accounts with different objectives, in order to
achieve a balance of growth, income, and risk.
Dollar-Cost Averaging
Another financial planning strategy is to make regular contributions with a
program called dollar-cost-averaging. By allocating a fixed amount or percentage
every month, you're able to buy more units when prices are low, and fewer when
prices are high. Over time, this strategy may be more effective than attempting
to selectively time the market with your minimum premium payments. Keep in mind
there is no guarantee that dollar-cost-averaging will result in a profit or
protect against a loss. Systematic investing involves continuous investment in
securities regardless of fluctuations in the price of these securities, and you
should consider your ability to continue through periods of both low and high
price levels.
You may wish to invest your Variable Universal Life premium payments in various
funds. Through dollar-cost averaging, you may place your premium amount into a
money market fund and systematically over time have your money invested into one
or more additional selected funds.
24-Hour Access to Policy Values
You can access current daily fund account values, 24 hours a day, 7 days a week,
through USAA TouchLine(R) at 1-800-531-8233.
To access this information, you need your USAA number and a unique TouchLine(R)
personal identification number (PIN). To establish a PIN, use the last four
digits of your Social Security number to get started, then decide on a new four-
digit number.
Looking Forward
I have enjoyed serving as your president and chief executive officer. However as
of March 1, I am retiring from USAA Life Insurance Company. Upholding our
standards of excellence will be Jim Middleton. Jim joined USAA in 1988 and most
recently served as senior vice president of USAA Life's Operations Integration
and Program Control. Jim is a retired Air Force Colonel whose service includes
two tours at the Pentagon and a variety of executive positions, including
serving as the Executive Officer to a Major Air Command. I am confident that you
will continue to enjoy USAA's commitment to integrity demonstrated in our
exceptional products and services.
As always, we continue to look for ways to improve our Variable Universal Life
policy to ensure we are providing you with the value and service you expect from
USAA. If you would like to discuss your personal financial goals, or learn more
about payment strategies, diversification, or dollar-cost-averaging, please call
one of my associates at 1-800-531-8303 any time.
Sincerely,
/s/ Edwin Rosane
- --------------------------
Edwin L. Rosane, CLU, FLMI
President
USAA Life Insurance Company
* USAA Life's Variable Universal Life is distributed by USAA Investment
Management Company, a registered broker dealer. *The Variable Universal Life
insurance policy is subject to surrender charges and possible tax consequences.
The surrender charge can be as much as 50% of the annual target premium in the
first year. The charge declines each policy year and is eliminated after 10
policy years. *A 10% federal penalty tax may apply to withdrawals made before
age 59 1/2. *This material should be preceded by a USAA Life Variable Universal
Life prospectus. *An investment in a money market fund is not insured or
guaranteed by the FDIC or any other government agency. Although the fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the fund. *The variable universal life insurance
product is subject to market risk, including potential fluctuations in
investment return and the potential loss of principal.
- ----------------------------
iv ANNUAL REPORT 1999
<PAGE>
USAA Life Variable Universal Life
Insurance Separate Account
================================================================================
Annual Report
December 31, 1999
[USAA LOGO APPEARS HERE]
<PAGE>
<TABLE>
<CAPTION>
Variable Universal Life Insurance Separate Account of USAA Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
An Overview
December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
AUV
Average AUV Average
Accumulation Annual Annual Total
Unit Value Total Return Return Since
Fund Account Objective (AUV) One Year Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USAA Life Seeks the highest level of current 2.58%
Money Market income consistent with preservation of (7-day yield
capital and maintenance of liquidity $ 1.23 2.65% is 3.56%)
USAA Life Seeks maximum current income without
Income undue risk to principal $13.26 -7.29% -4.29%
USAA Life Growth and Seeks capital growth and current
Income income $23.30 12.52% 25.31%
USAA Life
World Growth* Seeks long-term capital appreciation $23.21 28.46% 36.95%
USAA Life Seeks long-term capital growth, consistent
Diversified with preservation of capital and balanced
Assets by current income $19.19 5.41% 12.95%
USAA Life
Aggressive Growth** Seeks appreciation of capital $26.99 91.33% 117.12%
USAA Life Seeks capital appreciation with current
International* income as a secondary objective $13.27 25.70% 28.81%
Scudder VLIF Capital
Growth Portfolio Seeks to maximize long-term capital growth $32.82 32.82% 51.00%
Alger American
Growth Portfolio Seeks long-term capital appreciation $35.58 31.46% 54.92%
BT Equity Seeks to match as closely as possible the
500 Index performance of the S&P 500(R) Index, before
the deduction of Fund expenses $13.15 18.20% 36.15%
BT Small Cap Seeks to match as closely as possible the
Index performance of the Russell 2000(R) Small
Stock Index before the deduction of Fund expenses $10.53 17.88% 33.25%
BT EAFE(R) Seeks to match as closely as possible the
Equity Index* performance of the Morgan Stanley Capital
International Europe Australia Far East (EAFE(R))
Index before the deduction of Fund expenses $13.15 25.12% 31.92%
- ---------------------
</TABLE>
The 7-day yield quotation more closely reflects the current earnings of the
fund than the total return quotation. An investment in the USAA Life Money
Market Fund is not insured or guaranteed by the FDIC or any other Government
agency. Although the fund seeks to preserve a stable value, it is possible
to lose money by investing in the fund. The 7-day yield reflects the 7-day
period ending December 31, 1999.
* Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability.
** The performance of the USAA Life Aggressive Growth Fund Account will reflect
the volatility of investments in small cap stocks and initial public
offerings.
The performance data quoted represent past performance and do not represent the
actual experience of amounts invested by a particular owner. Past performance is
not a guarantee of future results. The variable insurance products are subject
to market risk, including potential fluctuations in investment return and the
potential loss of principal. Inception date for all variable fund accounts for
Variable Universal Life is 8/31/98 when sale of USAA Life's Variable Universal
Life insurance policy began. Since inception performance numbers reflect
experience since USAA Life began selling the product. All other data reflects
the actual performance of the underlying funds in which the Life Insurance
Separate Account invests, adjusted to reflect a deduction of the M&E risk charge
and a $5 monthly maintenance charge. M&E charges total 0.75% on an annual basis.
The performance figures above do not reflect the cost of insurance protection
and other insurance policy fees and, if they did, the performance quoted above
would be significantly lower. Investors should ask for a personal illustration
that shows the effect on performance of the cost of insurance, other charges,
and other variables. Because accumulation units are part of an insurance
policy, actual performance should always be considered in conjunction with the
policy's fees, cash value, and death benefit. This product is not yet
available in all states. This product is known in some states as Flexible
Premium Variable Life.
- ----------------------------
A-2 ANNUAL REPORT 1999
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<PAGE>
Variable Universal Life Insurance Separate Account of
USAA Life Insurance Company
- --------------------------------------------------------------------------------
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
------------------------------
KPMG LLP
San Antonio, Texas
February 4, 2000
- ----------------------------
A-4 ANNUAL REPORT 1999
<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
=======
Fund Account Accumulation
Units Unit Value Reserves
----------- ----------- --------
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 on page A-10.
----------------------------
1999 ANNUAL REPORT A-5
<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 Money USAA Life USAA Life Growth and USAA Life World
Market Fund Account Income Fund Account Income Fund Account Growth Fund Account
--------------- --------------- ----------------- ------------------
1999 1998* 1999 1998* 1999 1998* 1999 1998*
------ ------- ------ ------- ------ -------- ------- ---------
<S> <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 $ -
=============== =============== ================= ==================
Scudder VLIF
Capital Growth Alger American Growth BT Equity 500 Index BT Small Cap Index
Portfolio Fund Account Portfolio Fund Account Fund Account Fund Account
--------------- --------------- ----------------- ------------------
1999 1998* 1999 1998* 1999 1998* 1999 1998*
------ ------- ------ ------- ------ -------- ------- ---------
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 - 1 -
Capital gains distributions 9 - 7 - 2 - - -
--------------- --------------- ----------------- ------------------
Net realized gain 9 - 4 - 10 - 1 -
Change in net unrealized appreciation/
depreciation 38 1 53 - 46 - 3 -
--------------- --------------- ----------------- ------------------
Net realized and unrealized
gain (loss) on
investments 47 1 57 - 56 - 4 -
--------------- --------------- ----------------- ------------------
Increase (decrease) in net assets
resulting from operations $ 46 $ 1 $ 56 $ - $ 58 $ - $ 4 $ -
=============== =============== ================= ==================
</TABLE>
- ----------------------------
A-6 ANNUAL REPORT 1999
<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 Diversified USAA Life Aggressive USAA Life International
Assets Fund Account Growth Fund Account Fund Account
--------------- --------------- -----------------
1999 1998* 1999 1998* 1999 1998*
------ ------- ------ ------- ------ --------
<S> <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 $ -
=============== =============== =================
BT EAFE(R) Equity Index
Fund Account
---------------
1999 1998*
------ -------
Net investment income (loss):
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 1 -
Capital gains distributions - -
---------------
Net realized gain 1 -
Change in net unrealized appreciation/
depreciation 1 -
---------------
Net realized and unrealized
gain (loss) on
investments 2 -
---------------
Increase (decrease) in net assets
resulting from operations $ 2 $ -
===============
</TABLE>
* Variable fund accounts commenced operations August 31, 1998.
See accompanying Notes to Financial Statements on page A-10.
----------------------------
A-7 ANNUAL REPORT 1999
<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 Money USAA Life USAA Life Growth and USAA Life World
Market Fund Account Income Fund Account Income Fund Account Growth Fund Account
--------------- --------------- ----------------- ------------------
1999 1998* 1999 1998* 1999 1998* 1999 1998*
------ ------- ------ ------- ------ -------- ------- ---------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 8 $ - $ 11 $ - $ 3 $ - $ (1) $ -
Net realized gain - - 3 - 28 - 8 -
Change in net unrealized
appreciation/depreciation - - (15) - (20) - 1 -
--------------- --------------- ----------------- ------------------
Increase (decrease in net assets
resulting from operations 8 - (1) - 11 _ 8 -
--------------- --------------- ----------------- ------------------
From policy transactions:
Purchases and transfers in 2,623 48 122 - 325 3 47 -
Monthly deduction charges (13) (1) (1) - (6) - (1) -
Other redemptions (2,280) (46) (1) - (57) - (3) -
--------------- --------------- ----------------- ------------------
Increase in net assets
from policy transactions 330 1 120 - 262 3 43 -
--------------- --------------- ----------------- ------------------
Net increase in net assets 338 1 119 1 273 3 51 -
Net assets:
Beginning of period 1 - - - 3 - - -
--------------- --------------- ----------------- ------------------
End of period $ 339 $ 1 $ 119 $ - $ 276 $ 3 $ 51 $ -
=============== =============== ================= ==================
Units issued and redeemed:
Beginning balance 1 - - - 1 - - -
Units issued 3,043 46 9 - 14 1 2 -
Units redeemed (2,768) (45) - - (3) - - -
--------------- --------------- ----------------- ------------------
Ending balance 276 1 9 - 12 1 2 -
=============== =============== ================= ==================
Scudder VLIF
Capital Growth Portfolio Alger American Growth BT Equity 500 Index BT Small Cap Index
Fund Account Portfolio Fund Account Fund Account Fund Account
--------------- --------------- ----------------- ------------------
1999 1998* 1999 1998* 1999 1998* 1999 1998*
------ ------- ------ ------- ------ -------- ------- ---------
From operations:
Net investment income (loss) $ (1) $ - $ (1) $ - $ 2 $ - $ - $ -
Net realized gain 9 - 4 - 10 - 1 -
Change in net unrealized
appreciation/depreciation 38 1 53 - 46 - 3 -
--------------- --------------- ----------------- ------------------
Increase (decrease in net assets
resulting from operations 46 1 56 - 58 - 4 -
--------------- --------------- ----------------- ------------------
From policy transactions:
Purchases and transfers in 379 4 578 - 851 3 84 -
Monthly deduction charges (5) - (6) - (10) - - -
Other redemptions (39) (2) (82) - (187) - (10) -
--------------- --------------- ----------------- ------------------
Increase in net assets
from policy transactions 335 2 490 - 654 3 74 -
--------------- --------------- ----------------- ------------------
Net increase in net assets 381 3 546 - 712 3 78 -
Net assets:
Beginning of period 3 - - - 3 - - -
--------------- --------------- ----------------- ------------------
End of period $ 384 $ 3 $ 546 $ - $ 715 $ 3 $ 78 $ -
=============== =============== ================= ==================
Units issued and redeemed:
Beginning balance 1 - - - 1 - - -
Units issued 13 1 18 - 73 1 8 -
Units redeemed (2) - (3) - (20) - (1) -
--------------- --------------- ----------------- ------------------
Ending balance 12 1 15 - 54 1 7 -
=============== =============== ================= ==================
</TABLE>
- ----------------------------
A-8 ANNUAL REPORT 1999
<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 Diversified USAA Life Aggressive USAA Life International
Assets Fund Account Growth Fund Account Fund Account
--------------- --------------- -----------------
1999 1998* 1999 1998* 1999 1998*
------ ------- ------ ------- ------ --------
<S> <C> <C> <C>
From operations:
Net investment income (loss) $ 5 $ 1 $ (1) $ - $ - $ -
Net realized gain 25 1 36 - - -
Change in net unrealized
appreciation/depreciation (27) (1) 107 - 1 -
--------------- --------------- -----------------
Increase (decrease in net assets
resulting from operations 3 1 142 - 1 -
--------------- --------------- -----------------
From policy transactions:
Purchases and transfers in 125 37 365 - 6 -
Monthly deduction charges (3) - (5) - - -
Other redemptions (21) - (47) - - -
--------------- --------------- -----------------
Increase in net assets
from policy transactions 101 37 313 - 6 -
--------------- --------------- -----------------
Net increase in net assets 104 38 455 - 7 -
Net assets:
Beginning of period 38 - - - - -
--------------- --------------- -----------------
End of period $ 142 $ 38 $ 455 $ - $ 7 $ -
=============== =============== =================
Units issued and redeemed:
Beginning balance 2 - - - - -
Units issued 7 2 20 - 1 -
Units redeemed (2) - (3) - - -
--------------- --------------- -----------------
Ending balance 7 2 17 - 1 -
=============== =============== =================
BT EAFE(R) Equity Index
Fund Account
---------------
1999 1998*
------ -------
From operations:
Net investment income (loss) $ - $ -
Net realized gain 1 -
Change in net unrealized
appreciation/depreciation 1 -
---------------
Increase (decrease in net assets
resulting from operations 2 -
---------------
From policy transactions:
Purchases and transfers in 14 2
Monthly deduction charges (1) -
Other redemptions (5) -
---------------
Increase in net assets
from policy transactions 8 2
---------------
Net increase in net assets 10 2
Net assets:
Beginning of period 2 -
---------------
End of period $ 12 $ 2
===============
Units issued and redeemed:
Beginning balance 1 -
Units issued 1 1
Units redeemed (1) -
---------------
Ending balance 1 1 * Variable fund accounts commenced operations August 31, 1998.
=============== See accompanying Notes to Financial Statements on page A-10.
</TABLE>
----------------------------
1999 ANNUAL REPORT A-9
<PAGE>
Variable Universal 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. The funds' objectives
can be found on page A-2 in this report. 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 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.
- ----------------------------
A-10 ANNUAL REPORT 1999
<PAGE>
Variable Universal Life Insurance Separate Account of
USAA Life Insurance Company
- --------------------------------------------------------------------------------
Notes To Financial Statements
(Continued) December 31, 1999
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 enforce 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.
----------------------------
1999 ANNUAL REPORT A-11
<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 USAA Life USAA Life Growth and
Market Fund Account Income Fund Account Income Fund Account
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------------------- ----------------------- ----------------------
<S> <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%(c)
Ratio of expenses to average
net assets, excluding
reimbursements 1.31% 1.55%(c) 1.43% 1.30%(c) 1.12% 1.12%(c)
Scudder VLIF Capital Growth Alger American Growth BT Equity 500 Index
Portfolio Fund Account Portfolio Fund Account Fund Account
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------------------- ----------------------- ----------------------
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%(c)
Ratio of expenses to average
net assets, excluding
reimbursements N/A N/A N/A N/A 1.16% 1.94%(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 $ 9.285958
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 Life.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
- -----------------------------
A-12 ANNUAL REPORT 1999
<PAGE>
Variable Universal Life Insurance Separate Account of
USAA Life Insurance Company
- --------------------------------------------------------------------------------
Notes To Financial Statements
(Continued) December 31, 1999
<TABLE>
<CAPTION>
USAA Life World USAA Life Diversified USAA Life Aggressive
Growth Fund Account Assets Fund Account Growth Fund Account
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------------------- ----------------------- ----------------------
<S> <C> <C> <C>
At end of period:
Accumulation units (000) 2 - 7 2 17 -
Accumulation unit value $23.209674 $17.860722 $ 19.192009 $17.974654 $26.991318 $13.993064
Net assets (000) $ 51 $ - $ 142 $ 38 $ 455 $ -
Ratio of expenses to average
net assets (b) 1.40% 1.40%(c) 1.10% 1.10%(c) 1.45% 1.45%(c)
Ratio of expenses to average
net assets, excluding
reimbursements 1.50% 1.41%(c) 1.25% 1.20%(c) 1.69% 1.59%(c)
USAA Life BT Small Cap Index BT EAFE(R) Equity Index
International Fund Account Fund Account Fund Account
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------------------- ----------------------- ----------------------
At end of period:
Accumulation units (000) 1 - 7 - 1 1
Accumulation unit value $13.269162 $10.417977 $10.526480 $ 8.825971 $13.154856 $10.386978
Net assets (000) $ 7 $ - $ 78 $ - $ 12 $ 2
Ratio of expenses to average
net assets (b) 1.85% 1.85%(c) 1.20% 1.20%(c) 1.40% 1.40%(c)
Ratio of expenses to average
net assets, excluding
reimbursements 2.04% 2.10%(c) 1.86% 2.33%(c) 1.83% 2.41%(c)
</TABLE>
----------------------------
1999 ANNUAL REPORT A-13
<PAGE>
USAA LIFE INSURANCE COMPANY
To discuss your Variable Universal Life Policy,
call an Account Representative toll free
1-800-531-8303
(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
--------------------------------------
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