A Message to Variable Life Policyowners
There were significant increases in the Stock Markets in both 1995 and 1996.
In 1996, the Dow Jones Industrial Average increased 26.0% in value and the
Standard & Poor's 500 Index increased by 20.3%. Both the Dow Jones Industrial
Average and the S&P 500 are unmanaged indices.
The yield on the 30 year Treasury Bond has increased recently, so that at the
end of January, 1997 it was approximately 7%. Short term rates, as measured
by the 3 month Treasury Bill, are yielding 5.4% now, which is slightly ahead
of a year ago.
The U.S. Gross Domestic Product for 1996 increased approximately 3% while
inflation remains low with the Consumer Price Index increasing by 3.3% in
1996.
The Variable Life Insurance Policies which are the subject of this report are
distributed by Washington Square Securities, Inc. ("WSSI"), 20 Washington
Avenue South, Minneapolis, Minnesota 55401, (612) 372-5507. WSSI, a
registered broker-dealer, is an affiliated company of United Services Life
Insurance Company, the issuer of your insurance policy.
The Stock Account. At December 31, 1996, the invested assets were allocated
99% to 57 different stock positions with the remainder in a high quality money
market fund. Our emphasis within the stock portfolio continues to be in
issues which we believe will perform well in the current environment and tend
to hold their values during market weakness.
The Money Market Account. On December 31, 1996, this portfolio held 22
different issues of the highest quality commercial paper with maturities
ranging from 1 week to 2 months.
The Investment Grade Bond Account. Bonds represented 93% of investable funds
on December 31, 1996, with the remainder in a high quality money market fund.
The portfolio was comprised of 22 bond issues, with scheduled maturities
ranging from 21 months to 29 years.
The Asset Allocation Account. At December 31, 1996, invested assets were
allocated 52% to common stocks, 43% to bonds, with the remainder in a high
quality money market fund. There were 57 different common stock issues in the
portfolio and 46 different bond positions.
The Outlook. For 1997, we expect economic growth to continue near the trend
rate and continuing moderate inflation with interest rates remaining near
current levels. At the time of this report, macroeconomic indicators are
showing mixed signs. While the business expansion has been underway for
almost six years, it is likely to be sustained throughout 1997. Nevertheless,
profits are expected to grow albeit at a slower rate than in the past few
years.
Beginning on page 8, there appears a report of the USLICO Series Fund whose
portfolios support the separate account assets. Total return charts for the
Fund's Portfolios are presented at pages 8, 9 and 10.
Respectfully,
James G. Cochran
Executive Vice President & Chief Operating Officer
United Services Life Insurance Company
<PAGE>
<TABLE>
United Services Variable Life Separate Account I
Statement of Assets and Liabilities
December 31, 1996
Sub-accounts
Common Money Asset Total
Stock Market Bond Allocation Sub-accounts
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in USLICO Series
Fund Portfolios (see below) $ 12,131,671 $ 896,750 $ 1,583,910 $ 9,167,328 $ 23,779,659
Policy loans 1,125,760 31,894 61,412 971,029 2,190,095
------------ ------------ ------------ ------------ ------------
Total assets 13,257,431 928,644 1,645,322 10,138,357 25,969,754
------------ ------------ ------------ ------------ ------------
Liabilities:
Net accrued for policy related
transactions due to United Services 122,684 29,984 29,935 263,258 445,861
Amounts payable to United Services 500,000 500,000 1,000,000 1,000,000 3,000,000
------------ ------------ ------------ ------------ ------------
Total liabilities 622,684 529,984 1,029,935 1,263,258 3,445,861
------------ ------------ ------------ ------------ ------------
Net assets - for variable life
insurance policies $ 12,634,747 $ 398,660 $ 615,387 $ 8,875,099 $ 22,523,893
============ ============ ============ ============ ============
Investments basis data:
Shares Owned 915,298 896,750 157,999 773,517
Cost $ 10,654,626 $ 896,750 $ 1,591,574 $ 8,467,956
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
United Services Variable Life Separate Account I
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1996
Sub-accounts
Common Money Asset Total
Stock Market Bond Allocation Sub-accounts
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Income:
Reinvested dividends $ 1,836,120 $ 41,740 $ 103,953 $ 1,035,126 $ 3,016,939
Expenses:
Mortality and expense risk charges 55,043 4,418 8,163 43,547 111,171
------------ ------------ ------------ ------------ ------------
Net investment income 1,781,077 37,322 95,790 991,579 2,905,768
Net unrealized gains (losses) on investments 294,373 - (58,811) (63,063) 172,499
Net realized gains (losses) on investments 24,719 - (2,780) 31,574 53,513
------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations 2,100,169 37,322 34,199 960,090 3,131,780
From policy related transactions:
Transfers in for net premiums 2,161,365 65,422 122,208 1,505,397 3,854,392
Transfers between sub-accounts 82,991 18,175 (8,109) (93,057) -
Transfers for withdrawal/surrender (970,016) (32,441) (51,900) (631,537) (1,685,894)
Transfer of investment and operating
results to United Services (629,492) (40,011) (48,912) (503,559) (1,221,974)
------------ ------------ ------------ ------------ ------------
Net increase in net assets 2,745,017 48,467 47,486 1,237,334 4,078,304
Net assets, beginning of year 9,889,730 350,193 567,901 7,637,765 18,445,589
------------ ------------ ------------ ------------ ------------
Net assets, end of year $ 12,634,747 $ 398,660 $ 615,387 $ 8,875,099 $ 22,523,893
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
United Services Variable Life Separate Account I
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1995
Sub-accounts
Common Money Asset Total
Stock Market Bond Allocation Sub-accounts
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Income:
Reinvested dividends $ 773,916 $ 44,333 $ 113,147 $ 601,962 $ 1,533,358
Expenses:
Mortality and expense risk charges 42,408 4,107 7,774 37,042 91,331
------------ ----------- ----------- ------------ ------------
Net investment income 731,508 40,226 105,373 564,920 1,442,027
Net unrealized gains on investments 1,525,750 - 143,843 1,041,894 2,711,487
------------ ----------- ----------- ------------ ------------
Net increase in net assets
resulting from operations 2,257,258 40,226 249,216 1,606,814 4,153,514
From policy related transactions:
Transfers in for net premiums 2,416,679 80,799 134,182 1,611,417 4,243,077
Transfers between sub-accounts 45,432 765 (4,381) (41,816) -
Transfers for withdrawal/surrender (673,087) (18,794) (50,148) (456,120) (1,198,149)
Transfer of investment and operating
results to United Services (707,369) (42,571) (204,522) (664,682) (1,619,144)
------------ ----------- ----------- ------------ ------------
Net increase in net assets 3,338,913 60,425 124,347 2,055,613 5,579,298
Net assets, beginning of year 6,550,817 289,768 443,554 5,582,152 12,866,291
------------ ----------- ----------- ------------ ------------
Net assets, end of year $ 9,889,730 $ 350,193 $ 567,901 $ 7,637,765 $ 18,445,589
============ =========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
United Services Variable Life Separate Account I
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1994
Sub-accounts
Common Money Asset Total
Stock Market Bond Allocation Sub-accounts
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Income:
Reinvested dividends $ 647,551 $ 27,856 $ 96,078 $ 508,504 $ 1,279,989
Expenses:
Mortality and expense risk charges 27,595 3,905 6,811 29,072 67,383
------------ ----------- ----------- ------------ ------------
Net investment income 619,956 23,951 89,267 479,432 1,212,606
Net unrealized losses on investments (567,185) - (148,552) (613,343) (1,329,080)
Net realized losses on investments - - (1,102) - (1,102)
------------ ----------- ----------- ------------ ------------
Net increase(decrease) in net assets
resulting from operations 52,771 23,951 (60,387) (133,911) (117,576)
From policy related transactions:
Transfers in for net premiums 2,726,193 81,620 179,120 1,807,099 4,794,032
Transfers between sub-accounts 35,026 (2,071) (7,924) (25,031) -
Transfers for withdrawal/surrender (500,524) (25,040) (33,843) (383,399) (942,806)
Transfer of investment and operating
results from(to) United Services (516,446) (34,383) 12,786 (399,941) (937,984)
------------ ----------- ----------- ------------ ------------
Net increase in net assets 1,797,020 44,077 89,752 864,817 2,795,666
Net assets, beginning of year 4,753,797 245,691 353,802 4,717,335 10,070,625
------------ ----------- ----------- ------------ ------------
Net assets, end of year $ 6,550,817 $ 289,768 $ 443,554 $ 5,582,152 $ 12,866,291
============ =========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
United Services Variable Life Separate Account I -
Notes to Financial Statements - December 31, 1996
(1) Organization - United Services Variable Life Separate Account I
("Separate Account I") was established by United Services Life Insurance
Company ("United Services") in 1986 under the insurance laws of the
Commonwealth of Virginia. Separate Account I operates as a unit investment
trust under the Investment Company Act of 1940 and is used to fund certain
benefits for variable life insurance policies issued by United Services. The
assets of Separate Account I and its sub-accounts are the property of United
Services. The portion of Separate Account I assets applicable to the variable
life policies will not be charged with liabilities arising out of any other
business United Services may conduct. The net assets maintained in the sub-
accounts provide the basis for the periodic determination of the amount of
increased or decreased benefits under the policies. The net assets may not be
less than the amount required under the state insurance law to provide for
death benefits (without regard to the minimum death benefit guarantee) and
other policy benefits. Additional assets are held in United Services' general
account to cover the contingency that the guaranteed minimum death benefit
might exceed the death benefit which would have been payable in the absence of
such guarantee.
In January 1995, United Services became an indirect wholly-owned subsidiary of
ReliaStar Financial Corp. ("ReliaStar"), a financial services company based in
Minneapolis, Minnesota. Prior to that time United Services was a wholly-owned
subsidiary of USLICO Corporation. USLICO Series Fund ("Series Fund") is an
open-end diversified management investment company whose shares are sold only
to United Services and other affiliates separate accounts.
(2) Summary of Significant Accounting Policies
(a) Valuation of Investments - Investments in shares of the Series Fund are
valued at the reported net asset value of the respective portfolios. The
aggregate cost of the investments acquired and the aggregate proceeds of
investments sold, for the year ended December 31, 1996, were:
Cost of Shares Proceeds from
Sub-account Acquired Shares Sold
Common Stock $ 1,836,120 $ 130,712
Money Market 41,740 945
Bond 103,953 187,920
Asset Allocation 1,035,126 279,918
Total $ 3,016,939 $ 599,495
(b) Security Transactions - Purchases and sales are recorded on the trade
date.
(c) Federal Income Taxes - United Services is taxed as a life insurance
company under the Internal Revenue Code of 1986, as amended (the "Code").
Since the sub-accounts are not separate entities from United Services, and
their operations form a part of United Services, they will not be taxed
separately as a "regulated investment company" under Sub-chapter M of the
Code. Under existing Federal income tax law, investment income of the sub-
accounts, to the extent that it is applied to increase reserves under a
contract, is not taxed and may be compounded for reinvestment without
additional tax to United Services.
(d) Charges Deducted from Premiums - Transfers to the sub-accounts of
Separate Account I for net premiums represent gross premiums payable for a
policy year, less deductions for sales loads, administrative expenses, premium
taxes, risk charges and additional premiums, if any, for optional insurance
benefits.
(e) Amounts Payable to United Services - The amounts payable to United
Services in each sub-account arises from the amount allocated from United
Services to facilitate commencement of operations.
(f) Dividends - Dividends received on the shares held by the sub-accounts
of Separate Account I are reinvested to purchase additional shares of the
applicable portfolio of the Series Fund.
(g) Transfer of Investment and Operating Results from(to) United Services -
The sub-accounts transfer their investment and operating results in excess of
amounts required to meet policyholder reserve and liability amounts to United
Services. When investment and operating results are insufficient to meet
reserve requirements, United Services transfers to the sub-accounts amounts
sufficient to fund the deficiency. Also included in this transfer are cost of
insurance charges totaling $1,056,300, $963,600 and $948,400 for all sub-
accounts for the years ended December 31, 1996, 1995 and 1994, respectively.
(3) Administration and Related Party Transactions - A daily charge is made by
United Services against each sub-account's investments for mortality and
expense risks at an effective annual rate of .50%. The mortality risk assumed
is that the insured may live for a shorter period of time than estimated and,
therefore, a greater amount of death benefits than expected will be payable in
relation to the amount of premiums received. The expense risk assumed is that
expenses incurred in issuing and administering the policies will be greater
than estimated. Other costs of administering Separate Account I are absorbed
by United Services.
ReliaStar Financial Marketing Corporation, a direct wholly-owned ReliaStar
subsidiary, acts as principal underwriter (as defined in the Investment
Company Act of 1940) of Separate Account I's policies. Washington Square
Advisers, Inc., previously known as Washington Square Capital, Inc., also a
direct wholly-owned ReliaStar subsidiary, serves as investment adviser to the
Series Fund with respect to short-term and fixed maturity securities.
Newbold's Asset Management, Inc. serves as investment sub-adviser to the
Series Fund with respect to equity securities.
Certain officers and directors of ReliaStar and United Services are also
officers and directors of ReliaStar Financial Marketing Corporation, the
Series Fund and Washington Square Advisers, Inc.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To United Services Life Insurance Company
and United Services Variable Life Separate Account I Policyowners:
We have audited the accompanying statement of assets and liabilities of United
Services Variable Life Separate Account I as of December 31, 1996, and the
related statements of operations and changes in net assets for the years ended
December 31, 1996 and 1995. These financial statements are the responsibility
of the management of United Services Life Insurance Company. Our
responsibility is to express an opinion on these financial statements based on
our audits. The statement of operations and changes in net assets for the
year ended December 31, 1994 was audited by other auditors whose report dated
February 2, 1995 expressed an unqualified opinion on the statement.
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 financial statements referred to above present fairly, in
all material respects, the financial position of the United Services Variable
Life Separate Account I as of December 31, 1996, and the results of its
operations and changes in net assets for the years ended December 31, 1996 and
1995, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, MN
January 31, 1997
