<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1996.
Registration Nos.: 33-82268 and 811-8670
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 2 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 X
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
(Exact Name of Registrant)
USAA LIFE INSURANCE COMPANY
(Name of Depositor)
9800 Fredericksburg Road
San Antonio, Texas 78288
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: 210-498-8000
RICHARD T. HALINSKI, JR., ESQ.
DWAIN A. AKINS, ESQ.
Life & Health Insurance Counsel
USAA LIFE INSURANCE COMPANY
9800 Fredericksburg Road, C-3-W
San Antonio, Texas 78288
(Name and Address of Agents for Service)
Copies to:
GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
<PAGE>
Approximate Date of Proposed Public Offering: Continuous
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, 1996, 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.
The Registrant has registered an indefinite number or amount of its securities
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The securities being registered are units of interest under
variable annuity contracts. The Registrant filed a Rule 24f-2 Notice on February
29, 1996.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495 under the Securities Act of 1933 indicating the location in
the Prospectus of the information called for by the Items of Parts A and B of
Form N-4.
<TABLE>
<CAPTION>
Item No. Caption Location
- -------- --------- ----------
<C> <S> <C>
Part A
1. Cover Page Cover Page
2. Definitions Definitions of Special Terms
3. Synopsis Summary; Expense Table
4. Condensed Financial Selected Accumulation Unit Data;
Information Financial Data Performance Information
5. General Description of USAA Life; The Separate Account; The
Registrant, Depositor, and Funds; Fixed Fund Account
Portfolio Companies
6. Deductions Charges and Deductions
7. General Description of Contract Issuance and Premium Payments;
Variable Annuity Contracts Accumulation Phase; Transfer and
Withdrawals; Other Aspects of the
Contract; Owner Inquiries
8. Annuity Period Distribution Phase; Other Aspects of the
Contract
9. Death Benefit Death Benefits
10. Purchases and Contract Contract Issuance and Premium Payments;
Value Accumulation Phase
11. Redemptions Transfers and Withdrawals
12. Taxes Tax Matters
13. Legal Proceedings Not applicable
14. Table of Contents of the Contents of Statement of Additional
Statement of Additional Information
Information
Part B
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and General Information; Regulation and
History Reserves
18. Services Services
19. Purchase of Securities Not applicable
Being Offered
20. Underwriters Distributor
21. Calculation of Performance Calculation of Performance Information
Data
22. Annuity Payments Annuity Payments
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
<PAGE>
VARIABLE ANNUITY
Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract
Offered By
USAA Life Insurance Company
9800 Fredericksburg Road, San Antonio, Texas 78288
Telephone: (1-800-531-8000) Prospectus Dated: May 1, 1996
This Prospectus describes a Flexible Premium Deferred Combination Fixed and
Variable Annuity Contract ("Contract") that USAA Life Insurance Company ("USAA
Life" or the "Company") is offering to individual members and families of
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 Contract is designed to assist individuals in planning for retirement and
other long-term purposes. The Contract is available in connection with
retirement plans that may or may not qualify for special federal tax treatment
under the Internal Revenue Code (the "Code"), i.e. Qualified and Nonqualified
Plans. (See "Tax Matters - Qualified Plans.")
The Contract enables Contract owners ("Contract Owners" or "Owners") to earn a
fixed rate of interest declared by USAA Life from time to time by allocating
their premium payments under the Contract to the Fixed Fund Account of USAA
Life. Contract Owners also may seek a variable investment return by allocating
their premium payments to the Separate Account of USAA Life (the "Separate
Account"). The Separate Account is a segregated investment account of USAA
Life, and currently is divided into seven Variable Fund Accounts (referred to
herein as "Variable Annuity Fund Accounts"), each of which invests in a
corresponding Fund. The Accumulated Value of the Contract 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 Funds that are available under this Contract include: five Funds of USAA
Life Investment Trust (the "Trust"), namely the USAA Life Variable Annuity Money
Market Fund ("VA Money Market Fund"), USAA Life Variable Annuity Income Fund
("VA Income Fund"), USAA Life Variable Annuity Growth and Income Fund ("VA
Growth and Income Fund"), USAA Life Variable Annuity World Growth Fund ("VA
World Growth Fund"), and USAA Life Variable Annuity Diversified Assets Fund ("VA
Diversified Assets Fund"); the Capital Growth Portfolio-Class A shares of the
Scudder Variable Life Investment Fund (the "Scudder VLIF Capital Growth
Portfolio"); and the Growth Portfolio of The Alger American Fund (the "Alger
American Growth Portfolio").
1
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ACCUMULATION UNITS AND ANNUITY UNITS OF THE VARIABLE ANNUITY 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, AND ARE SUBJECT TO MARKET RISKS.
This Prospectus sets forth information about the Separate Account that a
potential investor ought to know before investing. Please read it carefully and
retain it for future reference. Additional information about the Separate
Account is filed with the Securities and Exchange Commission ("SEC" or the
"Commission"). That Statement of Additional Information (the "SAI"), dated May
1, 1996, is incorporated by reference into this Prospectus and will be provided
on request and without charge. For a copy of the SAI or an Annual Report, call
-------------------------------
1-800-531-8000 or write the Company at the address above. A Table of Contents
for the SAI appears on page of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED
STATEMENT OF ADDITIONAL INFORMATION (OR ANY SALES LITERATURE APPROVED BY USAA
LIFE) IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES AND THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN. THIS PROSPECTUS IS VALID ONLY WHEN
ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUS OF USAA LIFE INVESTMENT TRUST,
THE SCUDDER VLIF CAPITAL GROWTH PORTFOLIO AND THE ALGER AMERICAN GROWTH
PORTFOLIO. EACH PROPECTUS SHOULD BE READ CAREFULLY BEFORE INVESTING
AND THEN RETAINED FOR FUTURE REFERENCE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS OF SPECIAL TERMS................... 5A
SUMMARY........................................ 7A
EXPENSE TABLE.................................. 8A
FINANCIAL STATEMENTS........................... 10A
USAA LIFE...................................... 10A
THE SEPARATE ACCOUNT........................... 10A
THE FUNDS...................................... 10A
Management of the Funds....................... 11A
Substitution of Funds......................... 11A
Dividends and Capital Gain Distributions...... 11A
Voting Privileges............................. 11A
FIXED FUND ACCOUNT............................. 11A
Fixed Fund Account Withdrawal Charge.......... 12A
CONTRACT ISSUANCE AND PREMIUM PAYMENTS......... 12A
Who May Purchase a Contract................... 12A
How to Purchase a Contract.................... 13A
Minimum Premium Payments...................... 13A
Allocation of Initial and Subsequent
Premium Payments............................. 13A
Return Privilege.............................. 13A
Minimum Contract Value........................ 14A
ACCUMULATION PHASE............................. 14A
Fixed Fund Account Value...................... 14A
Variable Fund Account Value................... 14A
Net Investment Factor......................... 14A
TRANSFERS AND WITHDRAWALS...................... 15A
Transfers..................................... 15A
Full and Partial Withdrawals.................. 15A
CHARGES AND DEDUCTIONS......................... 15A
Premium Taxes................................. 15A
Contract Maintenance Charge................... 15A
Administrative Expense Charge................. 16A
Mortality and Expense Risk Charge............. 16A
Income Taxes.................................. 16A
Expenses of the Funds......................... 16A
Transfer Fee.................................. 16A
Fixed Fund Account Withdrawal Charge.......... 16A
SPECIAL SERVICES............................... 16A
Dollar Cost Averaging Program................. 16A
Systematic Withdrawal Program................. 17A
Automatic Payment Plan........................ 17A
DISTRIBUTION PHASE............................. 17A
Annuity Date.................................. 17A
Application of Contract Value................. 17A
Fixed and Variable Annuity Payments........... 17A
Distribution Options.......................... 18A
Transfers of Annuity Units.................... 19A
Minimum Contract Value........................ 19A
POSTPONEMENT OF PAYMENTS....................... 19A
DEATH BENEFITS................................. 20A
Death Benefits Prior to the Annuity Date...... 20A
Death Benefits On or After the Annuity Date... 20A
OTHER ASPECTS OF THE CONTRACT.................. 20A
Contract Agreement............................ 20A
Contract Owner................................ 21A
Change of Ownership and Assignment............ 21A
Annuitant..................................... 21A
Beneficiary................................... 21A
Change of Beneficiary......................... 21A
TAX MATTERS.................................... 21A
Tax Considerations Relating to Your Annuity... 21A
Natural Persons............................... 21A
Non-Natural Persons........................... 21A
Distributions During the Accumulation Phase
from Nonqualified Plans...................... 22A
Distributions During the Distribution Phase
from Nonqualified Plans...................... 22A
Distributions from Qualified Plans............ 22A
Penalty on Distributions...................... 22A
Multiple Contracts............................ 22A
Federal Income Tax Withholding................ 22A
Assignments................................... 22A
Tax-Free Exchanges............................ 22A
Transfers Between Investment Options.......... 22A
Generation-Skipping Transfers................. 23A
Diversification............................... 23A
Contract Owner Control........................ 23A
Qualified Plans............................... 23A
TYPES OF QUALIFIED RETIREMENT PLANS............ 24A
Individual Retirement Annuity ("IRA")......... 24A
Simplified Employee Pension-Individual
Retirement Annuity ("SEP-IRA")............... 24A
Salary Reduction Simplified Employee Pension-
Individual Retirement Annuity ("SARSEP-IRA"). 24A
Tax Sheltered Annuity ("TSA")................. 24A
Texas Optional Retirement Program ("ORP")..... 24A
LEGAL PROCEEDINGS.............................. 25A
ANNUAL STATEMENTS AND REPORTS.................. 25A
ADMINISTRATION OF THE CONTRACTS................ 25A
Telephone Transactions........................ 25A
OWNER INQUIRIES................................ 25A
PERFORMANCE INFORMATION........................ 25A
Yield and Total Return........................ 25A
Performance Comparisons........................ 26A
Variable Fund Account Performance............. 26A
Effect of Tax-Deferred Accumulations.......... 28A
CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION................................... 29A
</TABLE>
3
<PAGE>
DEFINITIONS OF SPECIAL TERMS:
ACCOUNT - The Fixed Fund Account or a Variable Annuity Fund Account.
ACCUMULATION PHASE - The period during the lifetime of the Contract Owner
between the Effective Date of the Contract and the Annuity Date.
ACCUMULATION UNIT - An accounting unit of measure used to calculate values in
each Variable Annuity Fund Account under the Contract before the Company starts
making income payments from the Variable Annuity Fund Accounts.
ANNUITANT - The person named on the Contract Information Page of the Contract
who is to receive income payments, and on whose life annuity payments may be
based.
ANNUITY - A contract designed to provide an Annuitant with income payments.
ANNUITY DATE - The date when the Company is to begin making income payments to
the Annuitant. The Annuity Date may not be later than the Annuitant's 95th
birthday.
ANNUITY UNIT - An accounting unit of measure used to calculate the amount of
Variable Annuity Payments.
AUTHORIZED SALES REPRESENTATIVE - A salaried employee of the Company who is
licensed by state insurance department officials to sell the Contracts and who
is also a registered representative or principal of USAA Investment Management
Company.
BENEFICIARY - The person(s) designated by the Contract Owner to receive a death
benefit or any remaining income payments upon the Owner's or the Annuitant's
death.
CODE - Internal Revenue Code of 1986, as amended.
COMPANY, WE, OUR, OR US - USAA Life Insurance Company.
CONTRACT INFORMATION PAGE - The Contract Information Page of the Contract, which
identifies certain information and specifies certain terms of the Contract.
CONTRACT VALUE - The monetary value of a Contract. It equals the sum of the
Fixed Fund Account Value and the Variable Annuity Fund Account Values under the
Contract.
CONTRACT YEAR - A period of 12 calendar months starting with the Effective Date
of the Contract, and each 12-month period thereafter. For example, if your
Contract was issued on July 1, your first Contract Year would end on the
following June 30. Each subsequent Contract Year would start on July 1 and end
on June 30.
DATE OF RECEIPT - The date a premium payment, a Written Request, or other
document is actually received at our Service Office subject to two exceptions:
(1) if received on a date other than a Valuation Date, the Date of Receipt will
be the following Valuation Date; and (2) if received on a Valuation Date after
close of trading of the New York Stock Exchange, the Date of Receipt will be the
following Valuation Date.
DISTRIBUTION OPTION - One of several ways in which the Contract Value can be
paid to the Annuitant.
4
<PAGE>
DISTRIBUTION PHASE - The period starting on the Annuity Date during which the
Company makes annuity payments to the Annuitant.
EFFECTIVE DATE - The date that we approve the application and issue the
Contract. The Effective Date is shown on the Contract Information Page.
FIXED ANNUITY - A Distribution Option under which payments do not vary as to
dollar amount.
FIXED ANNUITY PAYMENTS - Annuity payments that are guaranteed by the Company and
are fixed in amount.
FIXED FUND ACCOUNT - The name of the investment alternative under this Contract
in which premium payments may be invested through the General Account at
interest rates declared from time to time by USAA Life. The minimum effective
annual interest rate is 3% (or a higher rate, if required by state law).
FIXED FUND ACCOUNT VALUE - The amount of your Contract Value which is in the
Fixed Fund Account.
FREE LOOK PERIOD - The 10 day period following the date you first receive the
Contract, or such longer period as may be required by state law.
FUND - An individual class, series or portfolio of a Mutual Fund that is
available for investment under the Contract.
GENERAL ACCOUNT - The assets of the Company other than those in the Separate
Account or any other legally-segregated separate account established by USAA
Life.
MUTUAL FUND - A diversified open-end management investment company under federal
securities law. Currently, the Mutual Funds available under the Contract include
USAA Life Investment Trust, Scudder Variable Life Investment Fund ("Scudder
Fund") and The Alger American Fund ("Alger Fund"). In some cases, only certain
Funds of the latter two Mutual Funds are available.
NET ASSET VALUE - The current value of each Fund's total assets, less all
liabilities, divided by the total number of the Fund's shares outstanding.
NONQUALIFIED PLAN - A retirement plan that is not eligible for favorable tax
treatment under the Code.
OWNER - The person to whom we owe the rights and privileges of the Contract.
PROOF OF DEATH - A certificate of death, a certified copy of a statement of
death from the attending physician, a certified copy of a decree of a court of
competent jurisdiction as to the finding of death, or any other proof
satisfactory to us.
QUALIFIED PLAN - A retirement plan that is eligible for favorable tax treatment
under the Code. Contract Owners may contribute pre-tax dollars to a Qualified
Plan, thereby deferring the federal income tax on the money paid into the Plan
as well as on the interest or other income earned.
SEPARATE ACCOUNT - A segregated asset account established under Texas law
through which USAA Life invests the premium payments received from Contract
Owners. The Separate Account currently is divided into seven Variable Annuity
Fund Accounts, through which the Company invests in the seven available Funds.
5
<PAGE>
SERVICE OFFICE - The department of USAA Life responsible for administration and
servicing of the Contracts. The address and toll-free telephone number of the
Service Office are shown on the Contract Information Page in the Contract. The
same information is located in this Prospectus under the heading "Owner
Inquiries."
TELEPHONE REQUEST - A telephone request received by our Service Office that is
in proper form. Requests submitted to our Service Office by facsimile, telegraph
or other electronic transmission device will be treated as Telephone Requests.
VALUATION DATE - Any business day, Monday through Friday, on which the New York
Stock Exchange is open for regular trading, except: (1) any day on which the
value of the shares of a Fund is not computed; and (2) any day during which no
order for the purchase, redemption, surrender or transfer of Accumulation Units
or Annuity Units is received.
VALUATION PERIOD - The period of time from the end of one Valuation Date to the
end of the next Valuation Date.
VARIABLE ANNUITY - A Distribution Option under which payments vary in amount
depending on the investment experience of the Funds that correspond to the
Variable Annuity Fund Accounts under this Contract.
VARIABLE ANNUITY PAYMENTS - Annuity payments that vary in amount depending on
the investment experience of one or more of the Variable Annuity Fund Accounts
of the Separate Account.
VARIABLE ANNUITY FUND ACCOUNT - Any of the several investment alternatives under
this Contract that correspond to a particular Fund. Premium payments allocated
to a Variable Annuity Fund Account are invested by the Company through its
Separate Account in the corresponding Fund. Please note that the Contract refers
to "Variable Annuity Fund Account" as "Variable Fund Account."
VARIABLE ANNUITY FUND ACCOUNT VALUE - The amount of your Contract Value that is
in a Variable Annuity Fund Account.
WRITTEN REQUEST - A written request in proper form signed by the person making
the request and received by our Service Office in good order.
YOU, YOUR, YOURS - The Contract Owner.
SUMMARY
Set out below, in question and answer format, is a summary of the Contract.
Please read the remainder of this Prospectus for a more detailed description.
Variations due to requirements of particular states, if any, are described in
supplements which are attached to this Prospectus, or in endorsements to the
Contract, as appropriate.
6
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WHAT TYPE OF CONTRACT AM I BUYING?
You are buying a Contract that provides you with the ability to make flexible
premium payments that accumulate on a fixed or variable basis, and that you can
use to purchase either a Fixed and/or Variable Annuity. This Prospectus is
intended to provide disclosure primarily about the variable portion of the
Contract. (See "The Contracts," below.)
HOW MUCH MUST I PAY, AND HOW OFTEN?
Subject to the minimum initial and subsequent premium requirements of $1,000
and $100, respectively, the amount and frequency of premium payments is
completely flexible. Lower minimums apply in the case of Qualified Plans and for
USAA Life employees. (See "Contract Issuance and Premium Payments," below.)
Except in the case of Qualified Plans, if your Contract Value falls below
$1,000 and we have received no premium payments for two years, we may cancel
your Contract and return to you its remaining value (less any applicable
charges).
WHAT IS THE SEPARATE ACCOUNT?
The Separate Account is a segregated asset account of USAA Life established
under Texas insurance law and registered with the SEC as a unit investment
trust. The Separate Account is divided into seven Variable Annuity Fund
Accounts, each of which invests in a corresponding Fund of one of the available
Mutual Funds. (See "The Separate Account," below.)
WHAT ARE MY INVESTMENT CHOICES?
You may invest your premiums in the Fixed Fund Account and/or up to seven
Variable Annuity Fund Accounts, each of which invests in a corresponding Fund of
a Mutual Fund. The seven Funds that are available through the Variable Annuity
Fund Accounts include the following:
USAA LIFE INVESTMENT TRUST
--------------------------
USAA Life Variable Annuity Money Market Fund
USAA Life Variable Annuity Income Fund
USAA Life Variable Annuity Growth and Income Fund
USAA Life Variable Annuity World Growth Fund
USAA Life Variable Annuity Diversified Assets Fund
SCUDDER VARIABLE LIFE INVESTMENT FUND
-------------------------------------
Scudder Capital Growth Portfolio - Class A shares
7
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THE ALGER AMERICAN FUND
------------------------
Alger American Growth Portfolio
For more information, see "The Funds" below.
WHO MANAGES MY INVESTMENT?
The investment advisers for the Trust, the Scudder VLIF Capital Growth
Portfolio, and the Alger American Growth Portfolio, are USAA Investment
Management Company ("USAA IMCO"), Scudder, Stevens & Clark, Inc. ("Scudder"),
and Fred Alger Management, Inc. ("Alger Management"), respectively
(collectively, the "Advisers"). Each Adviser is registered as an investment
adviser with the SEC. (See "The Funds - Management of the Funds," below.)
HOW DOES THE CONTRACT WORK?
Once your payment is received and your application is approved by the Company,
we will issue you a Contract. During the Accumulation Phase, you may earn either
a fixed rate of interest that we declare periodically (but not less than 3%) by
allocating your premium payments to the Fixed Fund Account, or you may seek a
variable investment return by allocating your premium payments to one or more of
the Variable Annuity Fund Accounts. (See "Contract Issuance and Premium
Payments," "Accumulation Phase," and "Distribution Phase," below.) During the
Distribution Phase, you may elect to receive Fixed and/or Variable Annuity
Payments, commencing on the Annuity Date. Fixed Annuity Payments are periodic
payments from USAA Life, the amount of which is fixed and guaranteed by USAA
Life. The amount of these payments will depend on the Distribution Option you
select, the age, and, generally, the sex of the Annuitant, and the amount of
Contract Value you elect to apply to the Fixed Annuity Distribution Option.
Variable Annuity Payments are periodic payments from USAA Life, which vary
depending on the net investment return of the Variable Annuity Fund Accounts you
select in connection with the Variable Annuity Distribution Option. The net
investment return of the Variable Annuity Fund Accounts will, in turn, depend
primarily on the investment experience of the corresponding Funds. (See
"Distribution Phase - Distribution Options," below.)
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACT?
Beginning one year from the Effective Date of your Contract, we will deduct a
Contract Maintenance Charge of $30 per year from your Contract Value for general
administrative expenses. Should you decide to fully or partially withdraw or
transfer amounts from the Fixed Fund Account that have not been on deposit there
for at least seven years, you may incur a charge of anywhere from 1% to 7%,
depending upon how many years those payments have been invested in the Fixed
Fund Account. In addition, USAA Life assesses a charge at an annual rate of
1.05% against the assets of the Separate Account for the mortality and expense
risks we assume under the Contract. We
8
<PAGE>
also assess an Administrative Charge at an annual rate of 0.10% against the
assets of the Separate Account. (See "Charges and Deductions," below.)
Each Fund pays a fee to its Adviser, based upon its monthly average Net Asset
Value. (See "The Funds - Management of the Funds," below.) In addition, there
are other expenses associated with the daily operation of the Funds. These are
more fully described in the Prospectus for each Fund.
If your state assesses a premium tax with respect to your Contract, USAA Life
will deduct those amounts from the Contract Value in accordance with applicable
law. (See "Charges and Deductions," below.)
WHAT HAPPENS IF I DIE BEFORE THE ANNUITY DATE?
If you are the Annuitant, then the Beneficiary whom you designate will receive
either the sum of all premium payments (minus any prior partial withdrawal) or
the present Contract Value, whichever is greater, less any applicable premium
tax charge. Your Beneficiary will have certain options for how the money is to
be paid out. If you are an Owner who is not also an Annuitant, certain special
rules apply. (See "Death Benefits - Death Benefit Prior to Annuity Date,"
below.)
MAY I TRANSFER CONTRACT VALUE AMONG VARIABLE ANNUITY FUND ACCOUNTS?
Yes. However, there are limits on how often you may do so. (See "Transfers
and Withdrawals" and "Distribution Phase - Transfers of Annuity Units," below.)
MAY I TRANSFER CONTRACT VALUE FROM THE FIXED FUND ACCOUNT TO THE VARIABLE
ANNUITY FUND ACCOUNTS, AND VICE-VERSA?
Yes, subject once again to specific restrictions in the Contract and the
Prospectus. You may incur a charge for transfers from the Fixed Fund Account.
(See "Transfers and Withdrawals," and "Charges and Deductions - Fixed Fund
Account Withdrawal Charge," below.)
MAY I FULLY WITHDRAW FROM THE CONTRACT OR MAKE A PARTIAL WITHDRAWAL?
Yes, subject to any Contract requirements and to any restrictions imposed
under certain retirement plans. (For example, Owners under a public school
system or tax-exempt institution plan qualifying under Section 403(b) of the
Code are subject to special restrictions upon withdrawal.) If you make a full
or partial withdrawal from the Contract, certain charges may be assessed. (See
"Charges and Deductions," below.) In addition, the Internal Revenue Service
("IRS") may assess a 10% premature withdrawal penalty tax if you are under
59-1/2 years of age. (See "Transfers and Withdrawals" and "Tax Matters," below.)
9
<PAGE>
ARE LOANS AVAILABLE UNDER THE CONTRACT?
No, except in connection with tax-sheltered annuity Contracts. For more
information on the terms, conditions, and limitations on loans, see "TSA Loans"
in the SAI.
DO I GET A "FREE LOOK" AT THIS CONTRACT?
Yes. If you return your Contract to the Company within the Free Look Period,
it will be cancelled. (See "Return Privilege," below.)
EXPENSE TABLE
The purpose of the Expense Table and the Example is to assist the Owner in
understanding the various costs and expenses that an Owner will bear directly or
indirectly when investing in the Contract. The expenses of the Separate Account
as well as those of the Funds are reflected in the table and the Example, but
premium taxes that are applicable in some states are not reflected. For a more
complete description of the expenses of the Separate Account, see "Charges and
Deductions," below. For more complete information regarding expenses paid out
of the assets of the Fund, see the Prospectuses for the Funds.
<TABLE>
CONTRACT OWNER TRANSACTION EXPENSES SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSET VALUE)
<S> <C> <C> <C>
Sales Lead Imposed on Premium Payments............ None Mortality and Expense Risk Charge(3)................ 1.05%
Deferred Sales Load............................... None Administration Charge(3)............................ .10%
Surrender Fee for Variable Annuity Fund Account... None(1) Total Separate Account Annual Expenses(3)........... 1.15%
Transfer Fee...................................... None(1)
Contract Maintenance Charge(2).................... $30.00
</TABLE>
ANNUAL EXPENSES OF THE FUNDS (AS A PERCENTAGE OF AVERAGE NET ASSETS)/(4)/
<TABLE>
<CAPTION>
MANAGEMENT OTHER EXPENSES AFTER TOTAL FUND ANNUAL
NAME OF FUND FEES EXPENSE REIMBURSEMENT/(5)/ EXPENSES/(5)/
<S> <C> <C> <C>
USAA Life Variable Annuity Money Market Fund .20% .15% .35%
USAA Life Variable Annuity Income Fund .20 .15 .35
USAA Life Variable Annuity Growth and Income Fund .20 .15 .35
USAA Life Variable Annuity World Growth Fund .20 .45 .65
USAA Life Variable Annuity Diversified Assets Fund .20 .15 .35
Scudder VLIF capital Growth Portfolio .475 .095 .57
Alger American Growth Portfolio .75 .11 .86
</TABLE>
/(1)/ A charge of up to 7% of amounts allocated to the Fixed Fund Account will
be deducted upon certain transfers or withdrawals from that Account. (See
"Charges and Deductions-Fixed Fund Account Withdrawal Charge," below.)
/(2)/ Annual Deduction of $30 applies only during the Accumulation Phase and
will be waived to the extent it would cause the amount of interest earned
on the Fixed Fund Account from the last Contract anniversary to be less
than a 3% annual effective rate, or a higher rate if required by state
law. (See "Charges and Deductions-Contract Maintenance Charge," below.)
/(3)/ Applies to all seven Variable Annuity Fund Accounts but not to the Fixed
Fund Account.
/(4)/ The Fund expenses shown above are assessed at the underlying Fund level
and are not direct charges against the Separate Account assets or
reductions from Contract Values and are not relevant to the Fixed Fund
Account. These Fund expenses are taken into consideration in computing
each Fund's Net Asset Value, which is the share price used to calculate
the Variable Annuity Fund Account Values.
/(5)/ USAA Life, out of its General Account, has agreed to assume Trust Fund
expenses to the extent that such expenses exceed, on an annual basis, .65%
of the monthly average net assets of the VA World Growth Fund, and .35% of
the monthly average net assets of each other fund. In the absence of
expense reimbursement arrangements, the expenses of the Trust's Funds for
the 1995 fiscal period were 2.29%, .65%, .66%, .87%, and .64% for the VA
Money Market, VA Income, VA Growth and Income, VA World Growth, and VA
Diversified Assets Funds, respectively.
EXAMPLE:
The following chart depicts the dollar amount of expenses that would be
incurred under this Contract assuming a $1,000 investment and 5% annual return,
assuming you invest solely in one of the Variable Annuity Fund Account options.
These dollar figures are illustrative only and should not be considered a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below and would differ for amounts allocated to the
Fixed Fund Account. The expense amounts presented are derived from a formula
which expresses the $30 Contract Maintenance Charge as a percentage of an
estimated $29,883 average Contract account size.
If you surrender your Contract or annuitize at the end of the application time
period, you would pay the folowing expenses on a $1,000 investment, assuming a
5% annual return on assets:
<TABLE>
<CAPTION>
NAME OF FUND 1 YR. 3 YRS. 5 YRS. 10 YRS.
- ------------ ----- ------ ------ -------
<S> <C> <C> <C> <C>
USAA Life Variable Annuity
Money Market Fund $ 16 $ 52 $ 91 $ 206
USAA Life Variable Annuity
Income Fund 16 52 91 206
USAA Life Variable Annuity
Growth and Income Fund 16 52 91 206
USAA Life Variable Annuity
World Growth Fund 19 61 108 245
USAA Life Variable Annuity
Diversified Assets Fund 16 52 91 206
Scudder VLIF Capital Growth
Portfolio 19 59 103 235
Alger American Growth Portfolio 22 68 119 272
</TABLE>
SELECTED ACCUMULATION UNIT DATA
The table below reflects the historical performance of an accumulation unit
outstanding throughout the period shown under a representative Contract invested
in each Variable Annuity Fund Account. When reading the table, please bear in
mind that the unit value of each Variable Annuity Fund Account will not be the
same on any given day as the net asset value per share of the corresponding Fund
in which that Subaccount invests. One reason for this divergence is that each
unit value consists of the corresponding Fund's net asset value minus charges to
the Variable Annuity Fund Account. In addition, dividends declared by the each
corresponding Fund are reinvested by the Variable Annuity Fund Account in
additional shares of that Fund. These distributions have the effect of reducing
the value of each share of the Fund and increasing the number of Fund shares
outstanding. However, the total cash value in the Variable Annuity Fund Account
does not change as a result of such distribution. The information in the table
below has been derived from the financial statements which have been audited by
KPMG Peat Marwick LLP, the Separate Account's certified independent public
accountants, and should be read in conjunction with the Separate Account's
financial statements.
<TABLE>
<CAPTION>
USAA Life
USAA Life USAA Life USAA Life VA Scudder
VA Money USAA Life VA Growth VA World Diversified VLIF Alger
Market VA Income and Income Growth Assets Capital American
Fund Fund Fund Fund Fund Growth Growth
Account Account Account Account Account Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995
Accumulation Unit Value $1.040729 $11.848795 $12.579981 $11.947438 $12.243941 $12.543192 $13.095503
Number of Accumulation Units (000) 5,478 89 205 161 86 93 630
February 6, 1995
Accumulation Unit Value* $1.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
</TABLE>
- --------------
*Accumulation Unit Value at date of inception.
FINANCIAL STATEMENTS
The financial statements for the Separate Account are located in its Annual
Report, and the financial statements for the Company are located in the SAI. See
the cover page of this Prospectus for information on how to obtain a copy of the
Annual Report or SAI. These financial statements have been so included in
reliance on the reports thereon of KPMG Peat Marwick, LLP, and the firm's
authority as experts in accounting and auditing. The financial statements of the
Company should be considered only as bearing on the ability of the Company to
meet its contractual obligations under the Contracts; they do not bear on the
investment performance of the Separate Account.
10
<PAGE>
USAA LIFE
USAA Life is a stock insurance company incorporated in the State of Texas in
1963. The Company is principally engaged in writing life insurance policies,
annuity contracts and health insurance policies. The Company is authorized to
transact insurance business in all 50 states of the United States and the
District of Columbia. The Company on a consolidated statutory basis had total
assets of $5,788,085,089 on December 31, 1995. The Company is a wholly-owned
stock subsidiary of USAA, the parent company of the USAA Group of Companies.
USAA is a diversified financial services concern providing members and their
families with a wide array of products and services to maintain and enhance
their financial lifestyle. The Home Office of USAA Life is 9800 Fredericksburg
Road, San Antonio, Texas 78288.
As of the date of this Prospectus, USAA and USAA Life both held the highest
ratings from A.M. Best Company (A++ Superior) and Standard & Poor's Corporation
(AAA Superior). USAA and USAA Life also held the highest and second highest
ratings (Aaa Exceptional and AA1 Excellent), respectively, from Moody's
Investors Service, as of that date. The ratings published by these independent
financial rating agencies serve as measurements of an insurer's financial
condition. The ratings are based on a qualitative as well as quantitative
evaluation of many factors, including an insurer's profitability, asset quality,
adequacy of reserves, capitalization and management practices. These ratings are
not a rating of investment performance that purchasers of insurance products
have experienced or are likely to experience in the future.
THE SEPARATE ACCOUNT
The Separate Account was established under Texas law pursuant to a resolution
of the Board of Directors on February 8, 1994. The Separate Account is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940, as amended (the "1940 Act"). The assets of the Separate Account
are the property of the Company. However, the assets of the Separate Account not
in excess of the reserves, and other Contract liabilities with respect to the
Separate Account, are not 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, credited to or charged against
the Separate Account without regard to other income, gains or losses of the
Company. The Company's obligations arising under the Contracts are general
corporate obligations. The Separate Account is divided into seven Variable
Annuity Fund Accounts, each of which invests in a corresponding Fund or
Portfolio, described below.
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<PAGE>
THE FUNDS
THE VARIABLE ANNUITY FUND ACCOUNTS
Each of the seven Variable Annuity Fund Accounts of the Separate Account invests
solely in a corresponding Fund. Five of the Variable Annuity Fund Accounts
invest in Funds of the Trust, while the other two Variable Annuity Fund Accounts
invest in Funds of the Scudder Fund and the Alger Fund, respectively. The Trust,
the Scudder Fund and the Alger Fund are all Mutual Funds registered under the
1940 Act. A brief description of the Funds is set out below. More comprehensive
information, including a discussion of potential risks, is found in each Fund
Prospectus. Please read each Fund Prospectus carefully.
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<PAGE>
INVESTMENT OBJECTIVES OF THE FUNDS
USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND - The Fund's investment objective
is to seek the highest level of income consistent with preservation of capital
and maintenance of liquidity.
USAA LIFE VARIABLE ANNUITY INCOME FUND - The Fund's investment objective is to
seek maximum current income without undue risk to principal.
USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND - The Fund's investment
objective is to seek capital growth and current income.
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND - The Fund's investment objective
is to seek long-term capital appreciation.
USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND - The Fund's investment
objective is to seek long-term capital growth, consistent with preservation of
capital and balanced by current income.
SCUDDER VLIF CAPITAL GROWTH PORTFOLIO - The Fund's investment objective is to
seek to maximize long-term capital growth.
ALGER AMERICAN GROWTH PORTFOLIO - The Fund's investment objective is to seek
long-term capital appreciation.
MANAGEMENT OF THE FUNDS
USAA Investment Management Company serves as the Trust's Adviser. The
Adviser's mailing address is 9800 Fredericksburg Road, San Antonio, Texas 78288.
The Adviser is a wholly-owned indirect subsidiary of USAA. Scudder, Stevens &
Clark, Inc., Two International Place, Boston, Massachusetts 02110, serves as the
Adviser to the Scudder VLIF Capital Growth Portfolio. Fred Alger Management,
Inc., 75 Maiden Lane, New York, New York 10038, serves as the investment manager
of the Alger American Growth Portfolio. Neither Scudder, Stevens & Clark, Inc.,
nor Fred Alger Management, Inc., is affiliated with USAA.
SUBSTITUTION OF FUNDS
If the shares of any Fund should no longer be available for investment by the
Separate Account, or if in the judgment of the Company further investment in
such shares would be undesirable in view of the purposes of the Contracts, the
Company may eliminate such Fund and substitute shares of another eligible
investment Fund. In most cases, a substitution of shares of any Fund would
require prior approval of the SEC and be subject to such requirements as it may
impose. In addition, the Company may add new Variable Annuity Fund Accounts to
permit investment in additional mutual funds.
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<PAGE>
Shares of the Trust, the Scudder Fund and the Alger Fund are or may be issued
in connection with variable annuity contracts issued through the Separate
Account of the Company, as well as variable annuity contracts and variable life
insurance policies issued through separate accounts of unaffiliated life
insurance companies. We do not see any conflict between Contract Owners and
owners of variable annuity contracts or variable life insurance policies issued
by insurance companies not affiliated with USAA Life. Nevertheless, the Boards
of Trustees of the Trust, the Scudder Fund and the Alger Fund will monitor to
identify any material irreconcilable conflicts that may develop and determine
what, if any, action should be taken in response. If it becomes necessary for
any separate account to replace shares of any Fund with another investment, the
Fund may have to liquidate securities on a disadvantageous basis.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Any dividends or capital gain distributions paid on Fund shares are
automatically reinvested in shares of the Fund from which they are received at
the Fund's net asset value on the date payable. Such dividends and distributions
will have the effect of reducing the net asset value of each share of the
corresponding Fund, other than the Variable Annuity Money Market Fund, and
increasing, by an equivalent value, the number of shares outstanding of the
Fund. However, the value of your interest in the corresponding Variable Annuity
Fund Account will not change as a result of any such dividends and
distributions.
VOTING PRIVILEGES
Based upon its present view of applicable law, the Company will vote the
shares of the Trust, the Scudder VLIF Capital Growth Portfolio, and the Alger
American Growth Portfolio held directly by it or through the Separate Account in
the Variable Annuity Fund Accounts at annual or special meetings, if any, of the
shareholders of such Funds in accordance with instructions received from persons
having the voting interest in the corresponding Variable Annuity Fund Accounts.
The person having the voting interest in a Variable Annuity Fund Account will be
the Contract Owner. The persons entitled to give voting instructions and the
number of shares which a person has a right to vote will be determined based on
Variable Annuity Fund Account Values as of the record date of the meeting.
The Company will vote shares attributable to Contracts for which it has not
received instructions, as well as shares attributable to it, in the same
proportion as it votes shares for which it has received instructions. The Trust,
the Scudder Fund and the Alger Fund do not hold regular shareholder meetings.
FIXED FUND ACCOUNT
AMOUNTS ALLOCATED TO THE FIXED FUND ACCOUNT OF THIS CONTRACT, AND AMOUNTS
SUPPORTING FIXED ANNUITY PAYMENTS, BECOME PART OF THE COMPANY'S GENERAL ACCOUNT.
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY
14
<PAGE>
PROVISIONS, INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, NOR IS THE GENERAL ACCOUNT REGISTERED AS AN INVESTMENT
COMPANY UNDER THE 1940 ACT. WE HAVE BEEN ADVISED THAT THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS
PROSPECTUS THAT RELATE TO THE FIXED FUND ACCOUNT OR FIXED ANNUITY PAYMENTS.
DISCLOSURES REGARDING THESE MATTERS, HOWEVER, MAY BE SUBJECT TO CERTAIN
GENERALLY-APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE
ACCURACY AND COMPLETENESS OF STATEMENTS IN PROSPECTUSES.
Our obligations with respect to the Fixed Fund Account are legal obligations
of USAA Life and are supported by the assets of the General Account, which also
support obligations incurred by us under other insurance contracts. Investments
purchased with amounts allocated to the Fixed Fund Account are the property of
USAA Life, and Contract Owners have no legal rights in such investments.
Premium payments that you allocate, as well as amounts that you transfer, to
the Fixed Fund Account during any month ("New Money") will earn interest at the
New Money Interest Rate, which is the rate of interest that USAA Life declares
at the beginning of each month for all New Money received that month. The New
Money Interest Rate is credited through the end of the current calendar year in
which the New Money is allocated to the Fixed Fund Account.
The Contract Value in your Fixed Fund Account that is not attributable to New
Money will earn interest at the Portfolio Interest Rate, which is the rate of
interest that USAA Life declares at the beginning of each calendar year for that
year. USAA Life also may declare, before the beginning of each month, additional
interest on all amounts in the Fixed Fund Account other than New Money.
Both the New Money Interest Rate and the Portfolio Interest Rate are
guaranteed ("Guaranteed Interest Rates".) The Guaranteed Interest Rates under
the Contract will never fall below a minimum effective annual rate of 3% (or
higher rate, if required by state law).
The New Money Interest Rate may be higher or lower than the Portfolio Interest
Rate. As a result, there may be occasions when an Owner could earn a higher rate
of interest by transferring amounts that are no longer subject to a withdrawal
charge out of the Fixed Fund Account to a Variable Annuity Fund Account, and
then transferring the amount back into the Fixed Fund Account. By so doing, the
amount transferred would be considered New Money and would earn interest at the
New Money Interest Rate, which could be higher than the Portfolio Interest Rate
previously applicable, for the remainder of the year in which the transfer
occurred. You should be aware, however, that because any amounts transferred in
the foregoing manner would be considered New Money, they would again become
subject to the Fixed Fund Account Withdrawal Charge. (See "The Fixed Fund
Account - Fixed Fund Account Withdrawal Charge," below.)
15
<PAGE>
FIXED FUND ACCOUNT WITHDRAWAL CHARGE
We will deduct a charge from certain premium payments or other payments
withdrawn or transferred from the Fixed Fund Account. In declaring interest
rates for the Fixed Fund Account, USAA Life takes numerous factors into account,
including the length of time that it expects Owners to leave funds in the Fixed
Fund Account. Generally speaking, a high degree of such Owner "persistence" in
the Fixed Fund Account tends to enable us to declare higher rates of interest
than we otherwise could. The Fixed Fund Account Withdrawal Charge is intended to
promote such persistence and to compensate us for costs we may incur if
persistence is less than we estimate. The Fixed Fund Account Withdrawal Charge
is calculated as a percentage of the net amount of any premium payment or
transfer into the Fixed Fund Account (collectively, "Payments") that is
subsequently withdrawn or transferred. The applicable percentage will depend on
how many years have elapsed since the Payment being withdrawn or transferred was
originally credited to the Fixed Fund Account, according to the following
schedule:
FIXED FUND ACCOUNT WITHDRAWAL CHARGE
NUMBER OF YEARS BETWEEN WITHDRAWAL CHARGE AS A PERCENT OF PAYMENTS
OR TRANSFER AND DATE OF PAYMENT WITHDRAWN OR TRANSFERRED IN EXCESS
INTO THE FIXED FUND ACCOUNT OF A 15% FREE WITHDRAWAL ACCOUNT
LESS THAN 1 7%
1 6
2 5
3 4
4 3
5 2
6 1
7 OR MORE 0
The Fixed Fund Account Withdrawal Charge does not apply to the Variable Annuity
Fund Accounts.
For purposes of determining the applicable charge, a year is considered to be a
period of 365 days unless a leap year is involved. In addition, Payments will be
considered to be withdrawn or transferred on a first in-first out ("FIFO")
basis, that is, the earliest Payments will be considered withdrawn first and
before any earnings are deemed to be withdrawn. The Fixed Fund Account
Withdrawal Charge is calculated separately for Payments that have been made into
the Fixed Fund Account. The calculation of the Fixed Fund Account Withdrawal
Charge will be made in accordance with applicable state law and may vary in
Maryland and Washington. If you are a resident of Maryland or Washington, please
refer to your annuity contract for more information.
The following transactions are not considered to be withdrawals for
purposes of assessing the Fixed Fund Account Withdrawal Charge: death of the
Annuitant or Owner prior to the Annuity Date, payment of a lump sum in lieu of a
Distribution Option and termination due to insufficient Contract Value. In
addition, the commencement of a Distribution Option currently is not subject to
the Fixed Fund Account Withdrawal Charge.
THE FIXED FUND ACCOUNT WITHDRAWAL CHARGE WILL NOT APPLY:
16
<PAGE>
. To any Payment received by the Company at least seven years prior to the
requested date of withdrawal or transfer and that has not been previously
withdrawn or transferred;
. To the amount of any interest earned on the amount of your Payments into
the Fixed Fund Account;
. To withdrawals or transfers during any Contract Year of up to 15 % of the
value of the Payments that have been made to the Fixed Fund Account during the
seven years preceding the requested date of a withdrawal or transfer ("15%
Free Withdrawal Amount"). Unused portions of this 15% Free Withdrawal Amount
are not carried forward to further Contract Years.
17
<PAGE>
CONTRACT ISSUANCE AND PREMIUM PAYMENTS
WHO MAY PURCHASE A CONTRACT
Any individual of legal age in the states where the Contracts may be lawfully
sold, who is eligible to participate in any of the Qualified or Nonqualified
Plans for which the Contracts are designed, may apply to purchase a Contract.
The Contract is not available to persons who have attained the age of 85.
HOW TO PURCHASE A CONTRACT
To purchase a Contract, you must complete an application ("Application") and
submit it, along with your initial premium payment, to our Service Office. If we
accept the Application, we will prepare and issue a Contract to you. The
Effective Date of the Contract will appear on the Contract Information Page.
If a premium payment accompanies your Application and the Application is
complete, we will either accept the Application and credit your premium payment,
or reject the Application and return the premium payment, within two Valuation
Dates after the Date of Receipt of the Application at our Service Office.
If your Application is not complete, or is incorrectly completed, we will
request that you provide additional documents or information within five
Valuation Dates after the Date of Receipt of the Application at our Service
Office. If we do not receive a correctly-completed Application within this five
day period, we will immediately return your premium payment to you, unless you
specifically consent to our retaining the premium payment until the Application
is made complete, in which case we will credit your initial premium payment
within two Valuation Dates after we receive the last information required to
process the Application.
MINIMUM PREMIUM PAYMENTS
The current minimum initial and subsequent premium payments under the
Contracts are set out below.
MINIMUM MINIMUM
TYPE OF PLAN INITIAL PREMIUM SUBSEQUENT PREMIUM
Nonqualified Annuity $1,000* $100*
IRA and SEP-IRA $ 100 $ 50*
SAR-SEP IRA $ 25 $ 25
TSA or ORP $ 50 $ 50
*Employees of any of the USAA Group of Companies who purchase the Contract may
make a minimum initial premium payment of $500 for Nonqualified Annuities, and
minimum subsequent premium payments by payroll deduction in an amount not less
than $25 for Nonqualified Annuities, IRAs and SEP-IRAs.
ALLOCATION OF INITIAL AND SUBSEQUENT PREMIUM PAYMENTS
You may allocate your premium payments among the Fixed and Variable Annuity
Fund Accounts under this Contract in amounts no smaller than one tenth of a
percent, provided that the total amount equals an aggregate of 100 percent.
INITIAL PREMIUM PAYMENTS
If you allocate any part of the initial premium payment to the Fixed Fund
Account, we will allocate it to that Account on the Effective Date. If you
allocate any part of the initial premium payment to any of the Variable Annuity
Fund Accounts, we will allocate it to the USAA Life Money Market Variable
Annuity Fund Account on the Effective Date. That premium will remain in the USAA
Life Money Market Variable Annuity Fund Account
18
<PAGE>
for the Free Look Period plus five calendar days. On the Valuation Date
immediately following the end of that period, the initial premium payment,
together with any subsequent premium payments that have been made, plus the
earnings thereon will be allocated among the Variable Annuity Fund Accounts as
directed on the Application.
SUBSEQUENT PREMIUM PAYMENTS
So long as your Contract Value does not fall below $1,000 (other than for
Contracts issued in connection with Qualified Plans), you need make no further
premium payments. You may, however, make subsequent premium payments at any time
before the Annuity Date. We will allocate subsequent premium payments among the
various Fixed and Variable Annuity Fund Accounts in the same manner as the
allocation of the initial premium payment. We will credit all subsequent premium
payments on the Date of Receipt, using, in the case of Variable Annuity Fund
Accounts, the Accumulation Unit Value next computed on the Date of Receipt. You
may change the allocation of subsequent premium payments at any time by sending
a Written or Telephone Request to our Service Office. A request to change
subsequent premium payment allocations will be effective with the first premium
payment received on or after the Date of Receipt of the request.
DISTRIBUTOR
USAA IMCO, an affiliate of USAA Life, serves as the principal underwriter
("Distributor") of the Contracts pursuant to a Distribution and Administration
Agreement, dated December 16, 1994 ("Agreement"). Under the Agreement, USAA IMCO
will offer the Contracts for sale and distribution through its registered
representatives, who are also qualified life insurance agents employed by USAA
Life. USAA IMCO also will provide certain administrative services to USAA Life.
RETURN PRIVILEGE
You may return your Contract to the Company within the Free Look Period. If
you return your Contract within the Free Look Period, we will refund any
premium payment allocated to the Fixed Fund Account, plus the greater of (1)
premium payments allocated to the Variable Annuity Fund Accounts or (2) the
Variable Annuity Fund Account Value as of the Date of Receipt of the
cancellation request plus any mortality and expense risk charge, administrative
expense charge and any premium taxes that have been deducted. The Contract will
be deemed void as if no Contract had been issued.
MINIMUM CONTRACT VALUE
If during the Accumulation Phase your Contract Value is less than $1,000 and
we have received no premium payments for a period of two years, we may at our
option cancel your Contract. This minimum does not apply in the case of
Contracts issued in connection with Qualified Plans. We will give the Contract
Owner 30 days written notice of, and an opportunity to satisfy, this requirement
before we cancel the Contract. In the event of a
19
<PAGE>
cancellation, we will pay the Owner the Contract Value in a lump sum and be
released of any further obligations under the Contract.
ACCUMULATION PHASE
The Accumulation Phase of a Contract is the period prior to the Annuity Date
during which you may invest your premium payments in the Fixed and/or Variable
Annuity Fund Accounts under the Contract. All premium payments credited to the
Fixed Fund Account or Variable Annuity Fund Accounts are net of any applicable
premium tax. Your premium payments will help build Contract Value.
Your Contract Value during the Accumulation Phase will equal the sum of your
Variable Annuity Fund Account Value and your Fixed Fund Account Value, as
discussed below.
FIXED FUND ACCOUNT VALUE
The value of your Contract in the Fixed Fund Account ("Fixed Fund Account
Value") on any given Valuation Date will be equal to the sum of premium payments
allocated to the Fixed Fund Account: (1) less any applicable premium tax; (2)
plus accumulated interest; (3) plus any amounts transferred from the Variable
Annuity Fund Accounts to the Fixed Fund Account; (4) less the Fixed Fund Account
portion of any Contract Maintenance Charges; and (5) less any withdrawals or
transfers of value.
VARIABLE ANNUITY FUND ACCOUNT VALUE
The value of your Contract in each Variable Annuity Fund Account ("Variable
Annuity Fund Account Value") on any given Valuation Date will equal the product
of the number of Accumulation Units credited to that Account as of that
Valuation Date multiplied by the value of the Account's Accumulation Unit
("Accumulation Unit Value") as of that date. A Variable Annuity Fund Account's
Accumulation Unit Value will fluctuate and vary with the investment experience
of the corresponding Fund.
Accumulation Units are credited to a Variable Annuity Fund Account when you
allocate premium payments or transfer amounts from other Variable Annuity Fund
Accounts or the Fixed Fund Account to that particular Variable Annuity Fund
Account. The number of Accumulation Units credited to a Variable Annuity Fund
Account is determined by dividing the premium or other amount being credited to
the Account by the Accumulation Unit Value for the Valuation Date as of which
the premium or other amount is to be credited. In similar fashion, Accumulation
Units are cancelled and your value in a Variable Annuity Fund Account is reduced
by any amounts you have withdrawn or transferred from that Account, and by the
portion of the Contract Maintenance Charge that is allocable to the Account.
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<PAGE>
You may call our Service Office to receive a quotation of the daily
Accumulation Unit Values credited to your Contract. The Accumulation Unit Value
of each Variable Annuity Fund Account will be determined once each Valuation
Date at the close of trading of the New York Stock Exchange, currently 4:00 p.m.
New York time.
Each Variable Annuity Fund Account's Accumulation Units are valued separately.
Initially, the Accumulation Unit Value of each Variable Annuity Fund Account was
set at $10, except for the Money Market Variable Annuity Fund Account, which was
set at $1. Thereafter, the Accumulation Unit Value of a Variable Annuity Fund
Account as of the end of any Valuation Period is calculated as one (1)
multiplied by two (2) where:
(1) is the Accumulation Unit Value for the Account as of the end of the
immediately preceding Valuation Period and
(2) the net investment factor for the Valuation Period then ended.
NET INVESTMENT FACTOR
The net investment factor ("NIF") is used to determine how the investment
experience of a Fund affects the Accumulation Unit Value of the corresponding
Variable Annuity Fund Account from one Valuation Period to the next Valuation
Period. The NIF for each Variable Annuity Fund Account as of the end of any
Valuation Period is determined by dividing (1) by (2) and subtracting (3) from
the result where:
(1) Is the net result of:
(a) the net asset value per share of the corresponding Fund as of the end of
the current Valuation Period;
(b) plus the per share amount of any dividend or capital gain distributions
made on the Fund shares held in the corresponding Variable Annuity Fund
Accounts during the current Valuation Period;
(c) plus or minus a per share credit or charge for that current Valuation
Period for any decrease or increase, respectively, in any income taxes
reserved that we determine has resulted from the investment operations of
the particular Variable Annuity Fund Account or any other taxes that are
applicable to this Contract;
(2) Is the net asset value per share of the corresponding Fund at the beginning
of the current Valuation Period; and
(3) Is a factor representing the mortality and expense risk and administrative
expense charge. The annual charge is 1.15% (1.05% for the mortality and
expense risk charge and 0.10% for the administrative expense charge).
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<PAGE>
TRANSFERS AND WITHDRAWALS
TRANSFERS
Subject to the restrictions below, you may transfer your Contract Value among
the Fixed and Variable Annuity Fund Accounts. There is no charge for a transfer
from a Variable Annuity Fund Account; however, transfers from the Fixed Fund
Account may be subject to a substantial withdrawal charge. (See "The Fixed Fund
Account Withdrawal Charge," above.) The following restrictions apply to all
transfers.
(1) Only six transfers may be made each Contract Year.
(2) The minimum amount of value that may be transferred from one Account to
another Account is $100, or, if less, the total remaining Account balance.
(3) A Written or Telephone Request for a transfer must clearly state the amount
to be transferred, the Fixed or Variable Annuity Fund Account from which it
is to be withdrawn, and the Account to which it is to be credited.
(4) A transfer will result in either the redemption or purchase of Accumulation
Units, or both; the transfer will be processed effective at the Accumulation
Unit Value next computed on the Date of Receipt of the transfer request.
(5) We reserve the right at any time and without prior notice to terminate,
suspend, or modify these transfer privileges.
FULL AND PARTIAL WITHDRAWALS
You may, at any time during the Accumulation Phase while the Annuitant is
still living, make a full or partial withdrawal from your Contract. After the
Annuity Date, withdrawals are not available other than through the Systematic
Withdrawal Distribution Option. A full or partial withdrawal from a Variable
Annuity Fund Account is not subject to any charge, except that the full $30
Contract Maintenance Charge will be deducted upon a full withdrawal of the
Contract during a Contract Year. A full or partial withdrawal from the Fixed
Fund Account, however, may be subject to a substantial withdrawal charge. (See
"The Fixed Fund Account - Fixed Fund Account Withdrawal Charge," above.) To
make full or partial withdrawal from your Contract, you must submit a Written or
Telephone Request to our Service Office. In the case of a partial withdrawal,
you should specify the Fixed and/or Variable Annuity Fund Accounts from which
you wish the partial withdrawal to be made. If you do not specify the Variable
Annuity Fund Accounts, the withdrawal will be taken pro-rata from your Contract
Value in each Variable Annuity Fund Account. In connection with a partial
withdrawal, the minimum amount that you may request for withdrawal from the
Fixed Fund Account or a Variable Annuity Fund Account is $500, or, if less, the
remaining balance in the Account.
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Except as provided under "Postponement of Payments," below, within seven
calendar days of the Date of Receipt of your Written or Telephone Request for
full or partial withdrawal, we will pay you all or part of your Contract Value,
as appropriate, as of the Date of Receipt, less any applicable charges. We
reserve the right to defer the payment of a withdrawal from the Fixed Fund
Account for up to six months from the Date of Receipt of the Written or
Telephone Request at our Service Office.
Certain premature withdrawals may be subject to federal income tax and
penalties. For a discussion of this and other tax implications, see "Tax
Matters," below. The Owner should seek the advice of a tax adviser prior to
making a withdrawal.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from the Contract Values, the Separate
Account, and the Funds, as described below.
PREMIUM TAXES
Premium taxes or other similar assessments imposed by states, municipalities
or other governmental entities will be charged against the Contracts. Premium
taxes currently imposed by certain states range from 0% to 3.5%. The Company
will deduct such charges from the Owner's Contract Value either when the premium
payment is received or from the amount applied to effect an annuity at the time
annuity payments commence, in accordance with applicable state law. The amount
of any premium tax charge will depend on your state of residence. No amount
charged for premium taxes is deductible by you for federal income tax purposes.
CONTRACT MAINTENANCE CHARGE
Beginning on the first anniversary of the Effective Date, and each Contract
anniversary thereafter, we will deduct a charge of $30 from the Contract Value
for Contract maintenance. This charge will apply only while the Contract is in
the Accumulation Phase. We will pro-rate the charge among the Fixed and Variable
Annuity Fund Accounts under the Contract. If the Contract is surrendered for the
total Contract Value on a date other than a Contract anniversary date, the
entire Contract Maintenance Charge for that year will be deducted. This charge
will not be deducted from death benefit proceeds on the death of an Owner or
Annuitant, from a lump sum payment in lieu of annuitization, or upon termination
due to insufficient Contract Value.
ADMINISTRATIVE EXPENSE CHARGE
The Company assesses each Variable Annuity Fund Account a daily charge at an
annualized rate of 0.10% of the average daily net assets of each Variable
Annuity Fund Account. This charge, together with the Contract Maintenance
Charge, is to reimburse the Company for the expenses it incurs in the
establishment and maintenance of the Contracts and each Variable Annuity Fund
Account. These expenses include, but are not limited to:
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preparation of the Contracts, confirmations, annual reports and statements,
maintenance of the Owner's records, maintenance of the Separate Account records,
administrative personnel costs, mailing costs, data processing costs, legal
fees, accounting fees, filing fees, the costs of other services necessary for
Owner servicing, and all accounting, valuation, regulatory and reporting
requirements. The Company does not intend to profit from this charge, on
average, over the period that the contracts are in force. This charge will be
reduced to the extent that the amount of this charge is in excess of that
necessary to reimburse the Company for its administrative expenses. Should this
charge prove to be insufficient, the Company will not increase this charge (or
the Contract Maintenance Charge) and will bear the loss.
MORTALITY AND EXPENSE RISK CHARGE
To compensate it for assuming mortality and expense risks under the Contracts,
the Company assesses each Variable Annuity Fund Account a daily charge at the
annualized rate of 1.05% of the average daily net assets of each Variable
Annuity Fund Account attributable to the Contracts. This charge consists of
approximately 0.70% for mortality risks and 0.35% for expense risks. The
mortality risks assumed by the Company arise from its contractual obligation to
make annuity payments after the Annuity Date for the life of the Annuitant in
accordance with annuity rates guaranteed in the Contracts under distribution
options that involve life contingencies. USAA Life will also assume a mortality
risk by its contractual obligation to pay a death benefit upon the death of an
Annuitant or Contract Owner prior to the Distribution Phase. The expense risk
assumed by the Company is that all actual expenses involved in administering the
Contracts, including Contract maintenance costs, administrative costs, mailing
costs, data processing costs, legal fees, accounting fees, filing fees and the
costs of other services may exceed the amount recovered from the Contract
Maintenance Charge and the Administrative Expense Charge. The Mortality and
Expense Risk Charge is guaranteed by the Company and cannot be increased.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs associated with the Contracts, the loss will be borne by the Company.
Conversely, if the amount deducted proves more than sufficient, the excess will
be a profit to the Company. The Company expects to profit from this charge.
INCOME TAXES
The Company reserves the right to charge for federal income taxes that may be
incurred by the Separate Account. This charge applies only to the Variable
Annuity Fund Accounts under this Contract.
EXPENSES OF THE FUNDS
The fees and expenses paid out of the assets of the Funds are described in
detail in the accompanying prospectuses for the Funds.
TRANSFER FEE
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The Company does not charge a transfer fee for transfers among the Variable
Annuity Fund Accounts, or for transfers from a Variable Annuity Fund Account to
the Fixed Fund Account. Transfers from the Fixed Account to a Variable Annuity
Fund Account, however, may be subject to a withdrawal charge. (See "Fixed Fund
Account Withdrawal Charge," above.)
FIXED FUND ACCOUNT WITHDRAWAL CHARGE
This charge is described under "Fixed Fund Account - Fixed Fund Account
Withdrawal Charge." This charge does not apply to the Variable Annuity Fund
-------------------------------------------------------
Accounts.
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SPECIAL SERVICES
DOLLAR COST AVERAGING PROGRAM
During the Accumulation Phase, you may take advantage of our dollar cost
averaging program ("Dollar Cost Averaging Program"). The Dollar Cost Averaging
Program enables you to make regular, approximately equal investments over time
in the Fixed Fund Account and/or one or more of the Variable Annuity Fund
Accounts, by transferring a fixed dollar amount or a specified percentage at
regular intervals from one or more Variable Annuity Fund Accounts under the
Contract. Transfers from the Fixed Fund Account are not permitted in connection
with the Dollar Cost Averaging Program.
To begin the Dollar Cost Averaging Program, you must have at least $5,000 in
the Variable Annuity Fund Account from which you intend to transfer Contract
Value. The minimum amount that may be transferred is $100, or, if less, the
remaining value of the Account. The transfers must be scheduled to occur over a
period of at least 12 months at monthly, quarterly, or semi-annual intervals, as
you elect.
You may select this Program by submitting a Written Request to our Service
Office or by Telephone Request. You may cancel your participation in this
Program in the same manner.
Transfers under the Dollar Cost Averaging Program will be processed effective
at the Accumulation Unit Value at the end of the Valuation Period that includes
the date of transfer. The transfers made under the Dollar Cost Averaging
Program do not count toward your limit of six transfers per Contract Year.
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 Contract as to which the Dollar Cost Averaging
Program is already in effect.
SYSTEMATIC WITHDRAWAL PROGRAM
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You may participate in a systematic withdrawal program ("Systematic Withdrawal
Program"), under which you may elect to withdraw pre-set amounts on an annual,
semi-annual, quarterly, or monthly basis from the Fixed and/or Variable Annuity
Fund Accounts under your Contract.
The minimum amount of Contract Value you must have to begin a Systematic
Withdrawal Program is $20,000. The minimum amount that can be withdrawn from the
Fixed or a Variable Annuity Fund Account under this Program is $250, or, if
less, the remainder of the Account. You may change the amount or frequency of
the systematic withdrawal once in each Contract Year by submitting a Written or
Telephone Request to our Service Office.
Withdrawals will be processed effective at the Accumulation Unit Value at the
end of the Valuation Period that includes the date of withdrawal. Withdrawals
may be made pro rata from all Accounts under the Contract or the Owner may
specify the Accounts from which the withdrawal will be made.
You may select this Program by submitting a Written or Telephone Request to
our Service Office. You may cancel your participation in this Program in the
same manner.
Systematic withdrawals from the Fixed Fund Account are subject to any Fixed
Fund Account Withdrawal Charge that would apply to any other Fixed Fund Account
withdrawal. (See "The Fixed Fund Account - Fixed Fund Account Withdrawal
Charge.") We reserve the right to suspend, terminate or modify the offering of
this Program during the Accumulation Phase of the Contract upon providing you
written notice 30 days in advance. Should we suspend or terminate this Program,
the suspension or cancellation will not affect any Contract as to which the
Systematic Withdrawal Program is already in effect.
Systematic withdrawals may be subject to federal income tax and penalties.
(See "Tax Matters.") The Owner should seek the advice of a tax adviser prior to
selecting a Systematic Withdrawal Program.
Currently, there is no charge for systematic withdrawals, but the Company
reserve the right to charge for this Program during the Accumulation Phase of
the Contract. The Company does not intend to profit from any such charge.
AUTOMATIC PAYMENT PLAN
You may establish an automatic payment plan ("Automatic Payment Plan") by
completing the appropriate form. Call our Service Office to obtain the form and
instructions. The Automatic Payment Plan is a program under which you may elect
to to pay a pre-set premium amount periodically from a checking or savings
account. Under this Plan you authorize us to withdraw the pre-set premium amount
automatically on a pre-determined periodic basis to invest in the Fixed Fund
Account and/or one or more of the Variable Annuity Fund Accounts.
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DISTRIBUTION PHASE
The Distribution Phase describes the period under the Contract during which
the Annuitant or other payee will receive annuity payments, based on amounts
accumulated under the Contract during the Accumulation Phase. The Company will
make annuity payments pursuant to the distribution option ("Distribution
Option") selected by the Contract Owner, beginning on the Annuity Date,
described below, and will continue to make such payments for the period
specified in the Distribution Option selected.
ANNUITY DATE
The Annuity Date is the date that the Contract Owner selected on the
Application. If this Contract is used as a Qualified Plan, the Annuity Date must
not be later than the date required by federal income tax law. (See "Tax
Matters.") If this Contract is used as a Nonqualified Plan, the Annuity Date may
not be later than the Annuitant's 95th birthday. The Annuity Date also must be
at least six months after the Effective Date, unless we choose to waive this
requirement. The Contract Owner may change the Annuity Date selected by
submitting a Written Request to our Service Office, which must be received at
least 30 days prior to the Annuity Date.
APPLICATION OF CONTRACT VALUE
We will apply your Contract Value as of the end of the Valuation Period
immediately preceding the tenth day before the Annuity Date to the Distribution
Option that you have selected. You may apply your Contract Value to provide: (a)
Fixed Annuity Payments, (b) Variable Annuity Payments, (c) a combination of
Fixed and Variable Annuity Payments, or (d) systematic withdrawals.
FIXED AND VARIABLE ANNUITY PAYMENTS
A Fixed Annuity provides monthly payments in an amount guaranteed by the
Company for a specified period of time. A Variable Annuity is similar to a Fixed
Annuity, except that the amount of each payment is not guaranteed and will vary
in accordance with the net investment experience of the Variable Annuity Fund
Account to which all or part of the Contract Value has been applied.
The minimum amount of the first monthly Fixed or Variable Annuity Payment for
each $1,000 of Contract Value applied to a Fixed or Variable Distribution Option
is shown in the appropriate Annuity Payment Table in the Contract.
The amount of each subsequent monthly Fixed Annuity Payment is fixed and
specified by the terms of the Distribution Option selected. The amount of each
subsequent Variable Annuity Payment will be equal to the product of (1) the
number of Annuity Units of the Variable Annuity Fund Accounts funding the
Variable Annuity Payment multiplied by (2) the values of those Annuity Units
("Annuity Unit Values"). The payments from each Variable Annuity Fund Account
are then added to determine the total Variable Annuity Payment to be made to the
Annuitant.
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NUMBER OF ANNUITY UNITS - The number of Annuity Units of each Variable Annuity
Fund Account under your Contract will depend on the amount of Contract Value
that you have allocated to each Variable Annuity Fund Account. The Contract
Value allocated to each Variable Annuity Fund Account that is applied to provide
Variable Annuity Payments is converted to a number of Annuity Units for each
Variable Annuity Fund Account by dividing the amount of the first Variable
Annuity Payment by the Annuity Unit Value of the relevant Variable Fund Account
as of the Valuation Period ending immediately prior to the tenth day before the
Annuity Date. This results in a number of Annuity Units for each Variable
Annuity Fund Account which thereafter remains constant.
ANNUITY UNIT VALUE - The Annuity Unit Value for each Variable Annuity Fund
Account was established initially at $10 ($1 in the case of Money Market
Variable Annuity Fund Account). Thereafter, the Annuity Unit Value of a
Variable Annuity Fund Account as of the end of any Valuation Period is
calculated by multiplying (1) by (2) and multiplying the result by (3) where:
(1) is the Annuity Unit Value for the Variable Annuity Fund Account as of the
end of the immediately preceding Valuation Period;
(2) is the Net Investment Factor for the Valuation Period then ended (see
"Accumulation Phase - Net Investment Factor); and
(3) is a factor used to adjust for the assumed interest rate of 3% per year used
in the annuity payment tables used in the Contracts (but which is not
applicable because the actual amount earned on the Variable Annuity Fund
Account is credited instead).
As a result of the foregoing computations, if the net investment return for a
Variable Annuity Fund Account for any month is at an annual rate of more than
3%, any Variable Annuity Payment based on that Variable Annuity Fund Account
will be greater than the Variable Annuity Payment based on that Account for the
previous month. Conversely, if the net investment return for a Variable Annuity
Fund Account for any month is at an annual rate of less than 3%, any Variable
Annuity Payment based on that Variable Annuity Fund Account will be less than
the Variable Annuity Payment based on that Account for the previous month.
DISTRIBUTION OPTIONS
You may elect to receive annuity payments under any one or more of the
Distribution Options listed below or any other option including a lump sum which
you and the Company mutually agree upon in writing. The Company may, at its
discretion, offer more favorable distribution option values based upon future
interest rate and mortality assumptions.
At least 30 days prior to the Annuity Date, you must inform us in writing
which one of the Distribution Options you want to use to begin annuity payments,
and whether you want your Contract Value to fund a Fixed Annuity, a Variable
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Annuity, a combination Fixed and Variable Annuity, or systematic withdrawals.
Your Contract Value will then be applied to determine the amount of the annuity
payment. Variable Annuity Payments can be provided from a maximum of four
Variable Annuity Fund Accounts.
Payments on a Fixed Annuity basis are available under Options 1 through 5.
Payments on a Variable Annuity basis are available only under Options 1, 2 and
3. Option 6 provides for systematic withdrawals. You should be aware that,
although Options 1, 2 and 3 are designed to provide annuity payments for life,
electing these Options on a Variable Annuity basis involves investment risks. If
the investment performance of the Funds you select is poor, the amount of future
Annuity Payments could be reduced substantially or possibly altogether.
No full or partial withdrawals are permitted under Options 1 through 5
subsequent to the Annuity Date.
If you have not elected a Distribution Option at least 30 days prior to the
Annuity Date, we will apply the Contract Value, less any applicable premium tax
charge, under Distribution Option 2, with monthly payments guaranteed for 10
years. Fixed Fund Account Value will be applied to effect a Fixed Annuity.
Variable Annuity Fund Account Value will be applied to effect a Variable Annuity
with payments funded from each Variable Annuity Fund Account in the same
proportion as each Account's value has to the total value of all Variable
Annuity Fund Accounts under your Contract. We will apply your Contract Value as
of the end of the Valuation Period immediately preceding the tenth day before
the Annuity Date.
If the Contract has been assigned, the amount due the assignee must be paid in
a lump sum before any annuity payments can be determined and commence.
OPTION 1. INCOME PAYMENTS FOR LIFE - Under this option, the Company guarantees
periodic payments as long as the Annuitant is alive. It is possible under this
option for the Annuitant or other payee to receive only one annuity payment if
the Annuitant died prior to the second annuity payment, since no minimum number
of payments is guaranteed.
OPTION 2. INCOME PAYMENTS FOR LIFE WITH A CERTAIN PERIOD GUARANTEED - Under this
option, the Company guarantees that payments will be made for a certain period
of time even if the Annuitant dies before that period of time has expired.
OPTION 3. JOINT AND SURVIVOR LIFE INCOME - Under this option, the Company
guarantees periodic payments as long as the Annuitant or the Joint Annuitant is
alive. It is possible under this option for an Annuitant or other payee to
receive only one annuity payment if both Annuitants die prior to the second
annuity payment, since no minimum number of payments is guaranteed. If one of
these persons dies before the Annuity Date, the election of this option is
revoked, and the survivor becomes the sole Annuitant. The surviving Annuitant
may elect to receive any one or more of the other Distribution Options available
under the Contracts.
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OPTION 4. INCOME FOR SPECIFIED PERIOD - If this option is selected, the Company
will make periodic payments which are guaranteed for a specified period of time.
This period of time is agreed upon before payments begin. This period of time
cannot be longer than 30 years. The amount of each payment is the same and is
established pursuant to an annuity payment table contained in the Contract.
OPTION 5. INCOME OF FIXED AMOUNT - If this option is selected, a sum of monetary
value is transferred to the Company. In exchange, the Company agrees, pursuant
to an annuity payment table contained in the Contract, to pay the specified
amount of interest on the principal and to make periodic payments of a fixed
dollar amount that is chosen as long as the principal and interest earnings
last.
OPTION 6. SYSTEMATIC WITHDRAWALS - You may elect a series of substantially equal
periodic payments made either monthly, quarterly, semi-annually or annually.
These payments may be made over the life expectancy of the Annuitant or over a
shorter period of time. You may change the amount or frequency of the systematic
withdrawal once in each Contract Year. The minimum amount of Contract Value you
must have to elect systematic withdrawal is $20,000. The minimum amount that can
be withdrawn from an Account under this contract is $250, or, if less, the
remaining balance of the Account. To the extent that this Option 6 is selected,
the systematic withdrawals are subject to the terms and conditions set forth
under "Special Services - Systematic Withdrawal Program," above.
If this Contract is used to fund a Qualified Plan and if distributions are
required under federal income tax law, we offer a service to determine the
minimum amount of distribution that must be taken each year. You may arrange
with us to have this amount distributed by systematic withdrawal.
Once annuity payments have begun, a distribution option may be commuted only
if agreed to by the Company.
TRANSFERS OF ANNUITY UNITS
After the Annuity Date, the Annuitant or other payee may transfer Annuity
Units among the Variable Annuity Fund Accounts (up to a maximum of four Variable
Annuity Fund Accounts), or from a Variable Annuity Fund Account to a Fixed
Annuity under the same Distribution Option previously in effect. There is no
charge for such transfers. Transfers may not be made from a Fixed Annuity to a
Variable Annuity or to a new Distribution Option. The minimum amount that may be
transferred from a Variable Annuity Fund Account is $100.
Transfers from a Variable Annuity Fund Account to another Variable Annuity
Fund Account or to a Fixed Annuity are subject to a limit of three per Contract
Year during the Distribution Phase. There is no charge for such transfers. Once
you have transferred Annuity Unit Value to the Fixed Fund Account, it is locked
in and cannot be transferred out.
We will process transfer requests using the Annuity Unit Value next computed
on the Date of Receipt of the transfer request, which may be by Written or
Telephone Request.
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MINIMUM CONTRACT VALUE
If at the time your Contract becomes payable, the Contract Value is less than
$2,000 or would provide a monthly distribution payment of less than $20 per
month, we may at our option cancel this Contract. In this event, we will pay the
Annuitant the Contract Value in a lump sum and be released of any further
obligations under the Contract.
POSTPONEMENT OF PAYMENTS
We will normally pay amounts withdrawn from a Contract within seven calendar
days after our Date of Receipt of the Written or Telephone Request for
withdrawal using the Fixed or Variable Annuity Fund Account Value as of that
Date of Receipt. In addition, we will normally effect transfers of Contract
Value among the Fixed and Variable Annuity Fund Accounts using the Fixed or
Variable Annuity Fund Account Values as of the Date of Receipt of the Written or
Telephone Request for transfer.
However, we may not be able to determine the value of assets of the Variable
Annuity Fund Accounts if: (1) the New York Stock Exchange is closed for other
than customary weekends and holidays; (2) trading on the New York Stock Exchange
is restricted; or (3) an emergency exists as a result of which it is not
reasonably practicable to dispose of securities held in the Separate Account or
determine their value. In such cases, we may postpone the payment of withdrawal
proceeds or defer acting upon a transfer request or any other transaction
pertaining to the Separate Account. We may also postpone payments or defer such
other transactions where the SEC, by order, permits us to do so for the
protection of Contract Owners. In addition, requests for full or partial
withdrawals that would be derived from a premium payment made to us by a check
that has not cleared the banking system will be deferred, to the extent
permitted by applicable law at the time, until payment of the check has been
honored.
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DEATH BENEFITS
DEATH BENEFITS PRIOR TO THE ANNUITY DATE
If the Annuitant is the Owner and dies before the Annuity Date, we will pay
the death benefit to the Beneficiary. If the Owner is not the Annuitant and the
Owner dies before the Annuity Date, we will pay a death benefit to the
Annuitant, or the Beneficiary if the Annuitant does not survive the Owner. We
must receive Proof of Death and a Written Request specifying the manner of
payment before the death benefit will be paid.
The death benefit is the greater of: (1) the Contract Value on the Date of
Receipt of Proof of Death and any necessary instructions as to any Distribution
Option chosen; or (2) the sum of the premium payments credited to the Contract,
less the amount of any withdrawals and less any applicable premium tax.
In lieu of receiving the death benefit in a lump sum, the Beneficiary or the
Annuitant, if entitled, may choose a Distribution Option.
In accordance with current federal income tax law, if the Owner dies before
the Annuity Date, distribution of the Contract Value is required to be as
follows.
(1) If the Owner and Annuitant are the same person and no Beneficiary was
designated or survived the Owner, full distribution to the Owner's estate
must occur within five years after the Owner's death.
(2) If the Owner and the Annuitant are the same person and the Beneficiary is
the Owner's spouse, or if the Annuitant is the Owner's spouse, the spouse
may: (a) assume ownership as the Annuitant and defer distribution until the
Annuity date, or (b) receive distributions over a period of time not
exceeding the surviving spouse's life or life expectancy, in which case
payments must begin within one year after the Owner's death.
(3) If the Owner and the Annuitant are the same person and the Beneficiary is
not the Owner's spouse, then distribution must begin within one year after
the Owner's death and must be made over a period of time not exceeding the
life or life expectancy of the Beneficiary, or, in the alternative, full
distribution must occur within five years after the Owner's death.
(4) If the Owner and the Annuitant are not the same person and the Annuitant is
not the Owner's spouse, then distribution must begin within one year after
the Owner's death and must be made over a period of time not exceeding the
life or life expectancy of the Annuitant, or Beneficiary if the Annuitant
does not survive the Owner, or, in the alternative, full distribution must
occur within five years after the Owner's death.
Federal income tax law imposes similar requirements for distributions following
the death of an Owner of a Contract used as part of a Qualified Plan.
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DEATH BENEFITS ON OR AFTER THE ANNUITY DATE
In accordance with current federal income tax law, if the Owner is the
Annuitant and dies on or after the Annuity Date, any payment that remains under
the terms of the Contract must continue at least as rapidly as before the
Annuitant's death. To the extent that the Distribution Option then in effect
provides for any benefits following the Annuitant's death, the Beneficiary may:
(1) Continue to receive the same payments as the Annuitant; or
(2) If permitted under the Distribution Option in effect, receive higher
payments, but over a shorter period of time, than the Annuitant was
receiving; or
(3) If permitted under the Distribution Option in effect, take full distribution
of the remaining value at the Annuitant's death.
OTHER ASPECTS OF THE CONTRACT
CONTRACT AGREEMENT
The Contract and the Application form the entire agreement between you and the
Company. We will consider statements in the Application to be representations
and not warranties. Only an officer of the Company has authority to: (1) waive a
provision of the Contract or (2) agree with the Owner to changes in the
Contract; and then only in writing.
We reserve the right to change the Contract in order to comply with all
federal and state laws that apply to variable annuity contracts. This right
shall include, but not be limited to, the right to conform the terms of the
Contract to reflect any changes in the federal tax laws so that the Contract
will continue to qualify as an annuity contract thereunder.
CONTRACT OWNER
The rights and privileges of the Contract belong to the Owner during the
Annuitant's lifetime. The Owner is the Annuitant unless the Application
designates a different Owner and we have approved. If the Owner and the
Annuitant are different persons and the Owner dies either before or after the
Annuity Date, then the rights and privileges of ownership will vest in the
Annuitant, or the Beneficiary if the Annuitant does not survive the Owner. If
the Annuitant is the Owner and dies, then the rights and privileges of ownership
will vest in the Beneficiary.
CHANGE OF OWNERSHIP AND ASSIGNMENT
You may transfer or assign ownership of the Contract, subject to legal
restrictions. A request to transfer or assign ownership must be made in writing
and be sent to our Service Office. An assignment is not effective until it is
received by our Service Office. We are not responsible for determining the
validity of an assignment.
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ANNUITANT
The Annuitant must be a natural person. The maximum age of the Annuitant on
the Annuity Date is age 95. The Owner, by Written Request, may change the
Annuitant at any time so long as such request is received by our Service Office
at least 15 days prior to the Annuity Date. The change will be effective as of
the Date of Receipt of the Written Request. If an Annuitant who is not the Owner
predeceases the Owner prior to the Annuity Date, then the Beneficiary becomes
the Annuitant, unless the Owner by Written Request designates another Annuitant.
A Non-Owner Annuitant has no rights or privileges prior to the Annuity Date.
When a Distribution Option involving life contingencies is elected, the amount
payable as of the Annuity Date is based on the age and sex (where permissible)
of the Annuitant, as well as the Distribution Option selected and the Contract
Value.
BENEFICIARY
The Beneficiary is the person or persons named in the Application who may be
entitled to receive any Contract benefits that are provided upon the Owner's or
the Annuitant's death. A contingent beneficiary may be named to receive the
Contract benefits in the event the Beneficiary does not survive the Annuitant.
If the Beneficiary dies while receiving annuity payments, any remaining payments
due will be paid to the Beneficiary's estate.
Unless otherwise provided, benefits will be paid as follows:
(1) If two or more Beneficiaries have been named, all benefits will be paid in
equal shares to those living at the time of the Annuitant's death; and
(2) If no Beneficiary survives the Annuitant, payment will be made to the
Annuitant's estate.
CHANGE OF BENEFICIARY
The Owner, during the Annuitant's life, may change the Beneficiary. To make a
change, written notice must be received by our Service Office. The change will
take effect as of the date the Owner signs the request. If we make any payments
before receiving the request to change the Beneficiary, we will receive credit
against our obligations under the Contract.
TAX MATTERS
The following is a brief summary of the federal income tax consequences of the
Contract. State and local income tax considerations, as well as estate tax, gift
tax, and inheritance tax considerations may also be material. No one can be
certain that the law or regulations will remain unchanged or that the IRS or
courts will always agree as to how the tax laws or regulations are to be
interpreted. This discussion is not intended as tax advice. We recommend that
you consult with a professional adviser for your particular tax situation.
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TAX CONSIDERATIONS RELATING TO YOUR ANNUITY
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
the federal income taxation of annuities in general. Taxation of an annuity
is largely dependent upon: (a) whether it is used in a retirement program
eligible for special tax treatment under the Code, referred to as Qualified
Plans; and (b) the status of the beneficial owner as either a natural or non-
natural person when the annuity is used in connection with a Nonqualified Plan.
NATURAL PERSONS
Natural persons are individuals. Increases in the Contract Value of an annuity
when the Owner is a natural person generally are not taxed until a distribution
occurs. Full or partial withdrawals and death benefit payments are examples of
distributions during the Accumulation Phase, and annuity payments and lump sum
distributions are examples of distributions during the Distribution Phase.
Certain other transactions may also be deemed to be a distribution, e.g., loans
and assignments. The provisions of Section 72 of the Code concerning these
distributions are summarized briefly below.
NON-NATURAL PERSONS
Non-natural persons include corporations, trusts and partnerships. Any
increase during a tax year in the Contract Value of an annuity which is not used
in a Qualified Plan eligible for special treatment under the Code is currently
includible in the gross income of a non-natural person that is the Owner. There
are exceptions to this rule if an annuity is held by: (a) a structured
settlement company; (b) an employer with respect to a terminated pension plan;
(c) the estate of a decedent by reason of the death of the decedent; or (d)
certain entities other than employers, such as a trust holding an annuity as an
agent for a natural person.
DISTRIBUTIONS DURING THE ACCUMULATION PHASE FROM NONQUALIFIED PLANS
Distributions received during the Accumulation Phase are treated as being
derived first from "income on the Contract" and includible in gross income. The
amounts of the distribution exceeding income on the Contract are referred to as
"investment in the Contract" and are not included in gross income. Income on the
Contract for an annuity would be income earned on previous premium payments.
Investment in the Contract is an amount equal to total premium payments paid for
any annuity contract, less any previous distributions from such annuity Contract
that were not included in gross income.
DISTRIBUTIONS DURING THE DISTRIBUTION PHASE FROM NONQUALIFIED PLANS
The non-taxable portion of each annuity payment is determined by multiplying
each annuity payment by the ratio that the investment in the Contract bears to
(1) in the case of Fixed Annuity Payments, the total value of expected payments
under the Contract, and (2) in the case of Variable Annuity Payments, the total
number of
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<PAGE>
annuity payments expected to be made for the term of the Distribution Phase. The
balance of each payment is the taxable portion. The taxable portion, which is
the income on the Contract, is taxed at ordinary income rates. Owners,
Annuitants, and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distribution.
DISTRIBUTIONS FROM QUALIFIED PLANS
Generally, if the employee does not have any cost basis for his or her
interest in the Qualified Plan, each payment, regardless of the amount, is fully
taxable as ordinary income, from both a fixed and variable annuity. An
employee's cost basis in a Qualified Plan consists of any non-deductible
contributions he or she has made to the Qualified Plan and any employer's
contributions that have been taxed to him or her. When the employee has a cost
basis for his or her interest in the Qualified Plan and the variable annuity
starting date is after June 30, 1986, the payments are taxed under the annuity
rules as they are expressly applied to variable payments. Thus, the amount
excludable from the employee's gross income each year is determined by dividing
his or her cost basis (adjusted for any refund or period-certain guaranteed) by
the number of years in the payment period. If the annuity is payable for a life
or lives, the payment period is determined by the use of IRS annuity tables. The
computation for determining the amount excludable from the employee's gross
income is very complex and the advice of competent tax counsel is highly
recommended.
PENALTY ON DISTRIBUTIONS
Subject to certain exceptions, any distributions either during the
Accumulation or Distribution Phase from Nonqualified Plans are subject to a
penalty equal to 10% of the amount includible in gross income. This penalty is
not applied to certain distributions, including: (a) distributions made on or
after the taxpayer's age 59 1/2; (b) distributions made on or after the death
of the owner of the contract, or where the owner of the contract is not a
natural person, the death of the annuitant; (c) distributions attributable to
the taxpayer's becoming disabled; (d) distributions which are part of a
scheduled series of substantially equal periodic payments made at least annually
for the life (or life expectancy) of the taxpayer or the joint lives (or life
expectancies) of the taxpayer and the taxpayer's beneficiary; (e) distributions
of amounts that are allocable to investments in the contract made prior to
August 14, 1982, and (f) payments under an immediate annuity as defined under
Section 72(u)(4) of the Code. Distributions from Qualified Plans are subject to
a similar 10% penalty with exceptions.
Any modification, other than by reason of death or disability, of
distributions that is part of a scheduled series of substantially equal periodic
payments as noted in (d) above, that occurred before the taxpayer's age 59-1/2
or within 5 years of the first of such scheduled payments, will result in
requirements to pay the penalties that would have been due had (d) above not
applied, plus interest for the deferral period. It is our understanding that the
IRS does not consider a scheduled series of distributions to qualify under (d)
above, if (as in the case of our Systematic
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<PAGE>
Withdrawal Program) the owner of the annuity retains the right to modify such
distributions at will, even if such right is not exercised.
MULTIPLE CONTRACTS
Multiple contracts ("MCs") mean Nonqualified Plan annuity contracts that are
issued within the same calendar year to the same owner by one company or its
affiliates. MCs are treated as a single annuity contract for purposes of
determining the tax consequences of any distribution during the Accumulation
Phase. Such treatment may result in adverse tax consequences, including more
rapid taxation of the distributable amounts from the MCs.
FEDERAL INCOME TAX WITHHOLDING
Section 3405 of the Code provides for federal income tax withholding on the
portion of a distribution which is includible in the gross income of the
recipient. Amounts to be withheld depend upon the nature of the distribution.
However, a recipient may elect not to have income taxes withheld or have income
taxes withheld at a different rate by filing a completed election form with the
Company.
Effective January 1, 1993, certain distributions from Qualified Plans under
Section 401 or Section 403(b) of the Code, which are not directly rolled over or
transferred to another eligible Qualified Plan, are subject to a mandatory 20%
withholding for federal income tax. The 20% withholding requirement does not
apply to: (a) distributions for the life or life expectancy of the participant,
or joint and last survivor expectancy of the participant and a designated
beneficiary; (b) distributions for a specified period of ten years or more; or
(c) distributions which are required as minimum distributions.
ASSIGNMENTS
Any Assignment of all or any portion of the Contract Value before the Annuity
Date is treated as a distribution subject to taxation under the distribution
rules set forth above. Any gain in the Contract Value subsequent to the
assignment while such assignment remains in effect is treated as income on the
Contract in the year in which it is earned.
TAX-FREE EXCHANGES
Section 1035 of the Code provides that no gain or loss will be recognized on
the exchange of an annuity contract for an annuity contract. This Section
applies only if the annuity contracts exchanged relate to the same owner. A
variable annuity contract is included within the meaning of an annuity contract
under this section of the Code. An owner who makes a fully tax-free exchange of
annuity contracts has the same basis in the new annuity contract as in the old
annuity contract.
TRANSFERS BETWEEN INVESTMENT OPTIONS
Currently, transfers between investment options are not subject to federal
income taxation.
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GENERATION-SKIPPING TRANSFERS
Under Section 2601 of the Code, certain taxes may be due when all or part of
an annuity is transferred to, or a death benefit is paid to, an individual two
or more generations younger than the owner. These taxes tend to apply to
transfers of significantly large dollar amounts. We may be required to determine
whether a transaction must be treated as a "direct skip" as defined in the Code
and the amount of the resulting tax. If required, we will deduct from your
Contract, or from any applicable payment to be treated as a direct skip, any
amount we are required to pay as a result of the transaction.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of the Contracts. The Code provides that a Nonqualified Plan
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Owner with respect to the income on the Contract prior to the receipt of
payments under the Contract. The Code contains a safe harbor provision which
provides that annuity contracts meet the diversification requirements if, as of
the end of each quarter, the underlying assets meet diversification standards
for a regulated investment company and no more than 55% of the total assets
consist of cash, cash items, U.S. government securities and securities of other
regulated investment companies.
Treasury Regulation 1.817-5, which established diversification requirements
for the investment funds underlying variable contracts, amplifies the
diversification requirements for variable contracts set forth in the Code and
provides an alternative to the safe harbor provision described above. Under the
regulation, an investment fund will be deemed adequately diversified if: (a)
no more than 55% of the value of the total assets of the fund is represented by
any one investment; (b) no more than 70% of the value of the total assets of
the Fund is represented by any two investments; (c) no more than 80% of the
value of the total assets of the Fund is represented by any three investments;
and (d) no more than 90% of the value of the total assets of the Fund is
represented by any four investments.
The Code provides that, for purposes of determining whether or not
diversification standards imposed on the underlying funds of variable contracts
by Section 817(h) of the Code have been met, each United States government
agency or instrumentality shall be treated as a separate issuer.
The Company intends that all Funds of the Trust underlying the Contracts will
be managed by their Adviser in such a manner as to comply with these
diversification requirements. The Advisers to the Scudder Fund and the Alger
Fund have advised us that they intend that those Funds also be so managed.
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<PAGE>
CONTRACT OWNER CONTROL
The Treasury Department has indicated that it may issue guidelines under which
a variable annuity contract will not be treated as an annuity contract for tax
purposes if the owner of the Contract has excessive control over the investment
funds underlying the contract. An example of excessive control would be the
ability to transfer values among Variable Annuity Fund Accounts with only
limited restrictions. The issuance of such guidelines may require the Company to
impose limitations on the Owner's right to control the investment. It is not
known whether any such guidelines would have a retroactive effect.
QUALIFIED PLANS
There are various types of Qualified Plans for which the Contract may be
suitable. Owners, Annuitants and Beneficiaries are cautioned that benefits under
a Qualified Plan may be subject to the terms and conditions of the Qualified
Plan, or of provisions of law applicable to Qualified Plans, regardless of the
terms and conditions of the Contracts issued pursuant to the Qualified Plan. Set
out below is a general description of the types of Qualified Plans with which
the Contracts may be used. Such descriptions are not exhaustive and are for
general informational purposes only. The tax rules regarding Qualified Plans are
very complex and will have different applications, depending on individual facts
and circumstances. Before purchasing a Contract for use in funding a Qualified
Plan, you should obtain competent tax advice, both as to the tax treatment and
suitability of such an investment. Optional annuity benefits provided under an
employer's Qualified Plan may not, under Title VII of the Civil Rights Act of
1964, vary between men and women. The Contracts sold by the Company in
connection with employer sponsored Qualified Plans will utilize annuity tables
which do not differentiate on the basis of sex.
TYPES OF QUALIFIED RETIREMENT PLANS
INDIVIDUAL RETIREMENT ANNUITY ("IRA")
Individuals who are eligible may maintain an IRA. Subject to limitations,
contribution of certain amounts up to $2,000 for an employed individual may be
deductible from gross income. Purchasers of IRAs are to receive a special
disclosure document, which describes in detail the limitations on eligibility,
contributions, transferability and distributions. It also describes the
conditions under which distributions from IRAs and other Qualified Plans may be
rolled over or transferred into an IRA on a tax-deferred basis.
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<PAGE>
SIMPLIFIED EMPLOYEE PENSION-INDIVIDUAL RETIREMENT ANNUITY ("SEP-IRA")
A SEP-IRA is a type of tax-deductible retirement plan, available to both
incorporated and unincorporated businesses. Ease of administration, a
characteristic not normally associated with qualified retirement plans, sets the
SEP-IRA apart. The SEP-IRA also offers most of the same tax incentives available
through a traditional pension or profit-sharing plan. With a SEP-IRA, each plan
participant establishes an IRA. The employer puts the plan into effect by
completing IRS Form 5305-SEP and makes tax-deductible payments to each
participant's IRA. Currently, the maximum SEP-IRA payment on behalf of any one
employee in a calendar year is 15% of the employee's compensation, or $22,500,
whichever is less. The SEP-IRA is suited for a small business because it is a
simple, economical plan for both the employer and employees.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION-INDIVIDUAL RETIREMENT ANNUITY
("SARSEP-IRA")
A SARSEP-IRA is a tax-deductible retirement plan designed to encourage small
companies and their employees to begin planning for their retirement. It offers
the same tax incentives available through a regular SEP-IRA plan, pension and
profit sharing plans. While SEP-IRA plans allow only employer contributions,
SARSEP-IRA plans also allow voluntary contributions by employees through a
salary reduction plan.
TAX-SHELTERED ANNUITY ("TSA")
Section 403(b) of the Code permits the purchase of TSAs by employees of public
schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the TSA is limited to certain maximums imposed by the Code. Furthermore, the
Code sets forth additional restrictions governing such items as transferability,
distributions, non-discrimination and withdrawals. (Information about taking a
loan against a TSA Contract is described in detail in the SAI.)
Distributions of amounts contributed to a TSA contract are restricted. The
restrictions apply to amounts accumulated after December 31, 1988 (including
voluntary contributions after that date and earnings on prior and current
voluntary contributions). These restrictions require that no distributions will
be permitted prior to one of the following events: (1) attainment of age
59 1/2, (2) separation from service, (3) death, (4) disability, or (5) hardship
(hardship distributions will be limited to the amount of salary reduction
contributions exclusive of earnings thereon).
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<PAGE>
TEXAS OPTIONAL RETIREMENT PROGRAM ("ORP")
The ORP is a deferred contribution plan available to certain employees of
Texas institutions of higher education. An ORP is an individualized plan in
which each participant selects investments through various companies offering a
variety of investment products such as annuity contracts and mutual fund
investments. Since participants manage their own personal investment accounts,
ORP entails more individual risks and responsibility than other Qualified Plans.
Benefits are a direct result of the amounts contributed and the return on
investments made by each participant. Upon termination from Texas public higher
education employment, ORP participants who have more than one year of
participation in the ORP retain control over all investments, both employee and
employer contributions. In the case of participants with one year or less of
participation in the ORP, employer contributions must be returned to the
institution. THEREFORE, DURING YOUR FIRST YEAR OF PARTICIPATION IN THE ORP, YOUR
EMPLOYER'S CONTRIBUTIONS WILL BE INVESTED IN THE FIXED FUND ACCOUNT. AFTER THE
FIRST YEAR, EMPLOYER CONTRIBUTIONS CAN BE MAINTAINED IN THE FIXED FUND ACCOUNT
OR TRANSFERRED TO ANY OF THE VARIABLE ANNUITY FUND ACCOUNTS, SUBJECT TO OUR
GENERALLY APPLICABLE RULES FOR TRANSFERS.
Certain redemption restrictions apply to Contracts issued under the ORP. With
respect to Contracts issued under the ORP, state law provides that withdrawal
benefits are available only if the participant obtains the age of 70 1/2 years
or terminates participation in the ORP because of death, retirement, including
disability retirement, or terminating employment in all public institutions of
higher learning in Texas. Under Texas law a participant may not transfer
ownership of an ORP plan unless under a qualified domestic relations order
issued by a court having appropriate jurisdiction. The value of such Contracts
may, however, be transferred to other Contracts or other carriers during
participation in these retirement programs, subject to any charges that would
apply in the case of any other surrender of the Contract. Appropriate disclosure
regarding the restrictions on redemption imposed by the ORP will also be found
in sales materials accompanying this Prospectus. On the Application, there will
be a statement you will be required to sign acknowledging that you have read the
restrictions on redemption imposed by the ORP.
ALL QUALIFIED PLANS REFERENCED IN THIS PROSPECTUS INCLUDE SPECIAL PROVISIONS
CHANGING OR RESTRICTING CERTAIN RIGHTS AND BENEFITS OTHERWISE AVAILABLE TO
NONQUALIFIED PLANS FUNDED BY THE CONTRACT. YOU SHOULD CAREFULLY READ YOUR
CONTRACT, RIDERS AND ENDORSEMENTS TO REVIEW ANY SUCH CHANGES OR LIMITATIONS.
ADDITIONAL CHANGES AND LIMITATIONS MAY APPEAR IN ANY OTHER QUALIFIED PLAN
DOCUMENTS OR IN LAWS OR REGULATIONS APPLICABLE TO QUALIFIED PLANS. THE CHANGES
AND LIMITATIONS MAY INCLUDE: RESTRICTIONS ON OWNERSHIP, TRANSFERABILITY,
ASSIGNABILITY, CONTRIBUTIONS, DISTRIBUTIONS, AS WELL AS REDUCTIONS TO THE
MINIMUM ALLOWABLE PREMIUM PAYMENT FOR AN ANNUITY CONTRACT AND ANY SUBSEQUENT
ANNUITY YOU MAY PURCHASE FOR USE AS A QUALIFIED PLAN. ADDITIONALLY, VARIOUS
PENALTY AND EXCISE TAXES MAY APPLY TO CONTRIBUTIONS OR DISTRIBUTIONS MADE IN
VIOLATION OF APPLICABLE LIMITATIONS.
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LEGAL PROCEEDINGS
As of the date of this Prospectus, there are no legal proceedings to which the
Company, the Separate Account or the Distributor is a party except for routine
litigation which the Company does not believe is relevant to the Contracts
offered by this Prospectus.
ANNUAL STATEMENTS AND REPORTS
At least once each Contract Year, we will send you a statement for the
Contract, which will provide you with information concerning your Contract
Value. It will include information concerning the number of Accumulation Units
credited to your Contract for each Variable Annuity Fund Account and the dollar
value of the Accumulation Units, as of a date not more than two months prior to
the date of mailing of the statement. We may, at our discretion, send you a
statement more frequently. As required by federal and state law, we will also
send you semi-annual reports for the Funds that correspond to the Variable
Annuity Fund Accounts, semi-annual reports for the Separate Account, and any
other information.
ADMINISTRATION OF THE CONTRACTS
While the Company has overall responsibility for administration of the
Contracts, it has retained the services of Continuum Administrative Services
Corporation (referred to throughout this Prospectus as our "Service Office")
pursuant to a Third Party Administration Agreement (the "TPA Agreement"). Such
administrative services include issuance of the Contracts and maintenance of the
required Owner's records. The Company pays all fees or charges incurred by the
Service Office. The Service Office serves as a Third Party Administrator to
various insurance companies offering both variable and fixed annuities and
insurance contracts. The Company's ability to administer the Contracts could be
affected temporarily should the Service Office elect to terminate the TPA
Agreement.
TELEPHONE TRANSACTIONS
Requests to change premium payment allocation, requests for withdrawals, and
requests for transfers between Accounts may be made by Telephone Request. 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. Information will be obtained
prior to any discussion regarding the Contract including: (1) USAA number or
Contract number, (2) the name of the Owner, and (3) social security number of
the Owner. If you are sending a Telephone Request by facsimile, telegraph, or
other electronic transmission device, please include such identification
information on such request. In addition, all telephone communications with an
Owner which concern purchases, redemptions or transfers are recorded, and
confirmations of all transactions are sent to the Owner's address. We may
modify, suspend or discontinue this
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<PAGE>
telephone transaction privilege at any time without prior notice. The number for
telephone transactions is 1-800-531-4265. In times of heavy usage you may have
difficulty making a Telephone Request. You may assure your transaction by
submitting a Written Request. All Written Requests will be processed on the Date
of Receipt.
OWNER INQUIRIES
Inquiries concerning your Contract should be addressed to USAA Life at our
Service Office, 301 W. 11th Street, Kansas City, Missouri 64105, or made by
calling 1-800-531-4265.
PERFORMANCE INFORMATION
YIELD AND TOTAL RETURN
From time to time, the Separate Account may advertise the yields and total
returns of its Variable Annuity Fund Accounts. These figures will be based on
historical results and are not intended to indicate future performance. The
"yield" of a Variable Annuity Fund Account refers to the income generated by an
investment in the Variable Annuity Fund Account over the period specified in the
advertisement, excluding realized and unrealized capital gains and losses in the
corresponding Fund's investments. This income is then "annualized" and shown as
a percentage of the investment. The Separate Account also may advertise the
"effective yield" of the Money Market Variable Annuity Fund Account, which is
calculated similarly but, when annualized, the income earned by an investment in
the Variable Annuity Fund Account is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The "total return" of a Variable Annuity Fund Account is the total change in
value of an investment in the Variable Annuity Fund Account over a period of
time specified in the advertisement. "Average annual total return" is the rate
of return that would produce that change in value over the specified period, if
compounded annually. "Cumulative total return" is the total return over the
entire specified period, expressed as a percentage.
Neither yield nor total return figures reflect deductions for premium taxes,
since most states do not impose such taxes.
PERFORMANCE COMPARISONS
The Separate Account's performance reported from time to time in advertisements
and sales literature may be compared to generally accepted indices or analysis
such as those provided by Lipper Analytical Services, Inc., Standard & Poor's
Corporation and Dow Jones. Performance ratings reported periodically in
financial publications such as Money Magazine, Forbes, Business Week, Fortune,
Financial Planning and The Wall Street Journal may also be used. For more
information, see the Statement of Additional Information.
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VARIABLE ANNUITY FUND ACCOUNT PERFORMANCE
The investment performance information for each Variable Annuity Fund Account
will generally reflect the investment performance of the corresponding Fund.
Table I below shows the average annual total return of each Variable Annuity
Fund Account from February 6, 1995 (commencement of operations) through December
31, 1995. The average annual total return figures are computed in accordance
with a formula prescribed by the SEC. The figures also reflect the cumulative
total returns of each Variable Annuity Fund Account for the period indicated.
Table II below shows hypothetical performance information for the Scudder VLIF
Capital Growth Variable Annuity Fund Account and the Alger American Growth
Variable Annuity Fund Account that is based on the actual historical performance
of the corresponding Fund in which each Variable Annuity Fund Account invests.
This information reflects all actual charges and deductions of these Funds and
all Separate Account charges and deductions that hypothetically would have been
made had the Separate Account been invested in these Funds for all of the
periods indicated. Comparable hypothetical information for the USAA Life
Variable Annuity Fund Accounts, is limited because the corresponding Funds in
which they invest did not commence operations until 1995.
TABLE I
AVERAGE ANNUAL TOTAL RETURN (THROUGH DECEMBER 31, 1995)*
SINCE INCEPTION
NAME OF VARIABLE ANNUITY FUND ACCOUNT (2-6-95)**
USAA Life Money Market Variable Annuity Fund Account 3.97%
USAA Life Income Variable Annuity Fund Account 18.39
USAA Life Growth and Income Variable Annuity Fund Account 25.70
USAA Life World Growth Variable Annuity Fund Account 19.37
USAA Life Diversified Assets Variable Annuity Fund Account 22.34
Scudder VLIF Capital Growth Variable Annuity Fund Account 25.33
Alger American Growth Variable Annuity Fund Account 30.86
- -----------------
* Not Annualized.
** Date on which sales of the Variable Annuity commenced.
TABLE II
HYPOTHETICAL HISTORICAL AVERAGE ANNUAL TOTAL RETURN (THROUGH DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE 10 YEARS ENDED 5 YEARS ENDED 1 YEAR ENDED
NAME OF VARIABLE ANNUITY FUND ACCOUNT INCEPTION* 11/30/95 11/30/95 11/30/95
<S> <C> <C> <C> <C>
Scudder VLIF Capital Growth Variable Annuity Fund Account 12.94% 12.00% 14.59% 27.40%
Alger American Growth Variable Annuity Fund Account 18.15% - 20.45% 35.15%
</TABLE>
HYPOTHETICAL HISTORICAL CUMULATIVE TOTAL RETURN (THROUGH DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE 10 YEARS ENDED 5 YEARS ENDED 1 YEAR ENDED
NAME OF VARIABLE ANNUITY FUND ACCOUNT INCEPTION* 11/30/95 11/30/95 11/30/95
<S> <C> <C> <C> <C>
Scudder VLIF Capital Growth Variable Annuity Fund Account 257.11% 210.58% 97.58% 27.40%
Alger American Growth Variable Annuity Fund Account 220.07% - 153.53% 35.15%
</TABLE>
- -----------------
*The inception dates of the corresponding Funds used for purposes of this
illustration were as follows:
Scudder VLIF Capital Growth Portfolio July 16, 1985
Alger American Growth Portfolio January 9, 1989
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The charts below compare accumulations attributable to premium payments to (1)
Contracts purchased with pre-tax dollars under a tax-favored Qualified Plan and
(2) Nonqualified Contracts purchased with after-tax dollars to taxable
investments.
NON-QUALIFIED VARIBLE ANNUITY
-----------------------------
<TABLE>
<CAPTION>
Taxable After Tax Variable Annuity
Investment Variable Annuity Surrender Value
<S> <C> <C> <C>
10 Years $ 78,741 $ 86,120 $ 76,735
20 Years $227,337 $276,470 $227,226
30 Years $525,158 $720,932 $560,679
</TABLE>
[THIS TEXT GOES UNDER THE QUALIFIED PLAN CHART:
This hypothetical chart compares the results of investing an initial pre-tax
premium of $2,000 and additional pre-tax contributions of $2,000 per year during
the Accumulation Period. It also assumes a 28% tax rate and a 10% rate of return
and reflects the deduction of fees and charges under Qualified Plan Contracts.
An additional 10% tax penalty may apply to withdrawals before age 59-1/2.]
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<PAGE>
QUALIFIED VARIBLE ANNUITY
-------------------------
<TABLE>
<CAPTION>
Taxable Before Tax Variable Annuity
Investment Variable Annuity Surrender Value
<S> <C> <C> <C>
10 Years $ 16,661 $ 32,387 $ 23,318
20 Years $ 49,299 $108,009 $ 77,766
30 Years $114,714 $284,586 $204,902
</TABLE>
This hypothetical chart compares the results of investing an initial after tax
premium of $5,000 and additional after tax contributions of $400 per month
during the Accumulation Period. It also assumes a 28% tax rate and a 10% rate of
return and reflects the deduction of fees and charges under Non-Qualified Plan
Contracts. An additional 10% tax penalty may apply to withdrawals before age
59-1/2.]
Unlike taxable investments, contributions to tax-favored Qualified Plans and
Nonqualified Plan Contracts provide tax-deferred treatment on earnings. In
addition, contributions to tax-favored Qualified Plans ordinarily are not
subject to income tax until withdrawn. As shown above, investing in a tax-
favored program increases the accumulation power of savings over time. The more
taxes saved and reinvested in the program, the more the accumulation power
effectively grows over the years. The light green lines in the charts above
represent the lump-sum withdrawal remaining after payment of applicable federal
income taxes.
To further illustrate the advantages of tax-deferred savings using a 28%
federal tax bracket, an annual fixed yield (before the deduction of any fees or
charges) of 10% under a tax-favored Qualified Plan in which tax savings were
reinvested has an equivalent annual fixed yield of 13.9% under a conventional
savings program. The 10% yield on the tax-favored Qualified Plans would be
reduced by the assumed impact of income taxes upon withdrawal. The amount of
this reduction in yield will vary depending upon the timing of withdrawals. The
previous chart shows the actual after-tax amounts that would be received upon
full withdrawal at the end of the periods shown.
As indicated above, contributions to tax-favored Qualified Plans are not
subject to federal income tax unless and until withdrawn. Accumulation under
tax-favored Qualified Plans are generally not required to be withdrawn until age
70-1/2. There may be restrictions on withdrawals of certain types of
contributions until age 59-1/2, separation from service, death, disability or
hardship. Withdrawals before age 59-1/2 generally are subject to a 10% penalty
tax in addition to regular income tax, but withdrawals may be eligible for total
or partial rollover to an IRA or another retirement program.
By taking into account the current deferral of taxes, these contributions to
tax-favored Qualified Plans increase the amount available for savings by
decreasing the relative current out-of-pocket cost of the investment.
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<PAGE>
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information (the "SAI"), dated May 1, 1996, is
incorporated by reference into this Prospectus and will be provided on request
and without charge.
FOR A COPY CALL 1-800-531-8000 OR WRITE THE COMPANY AT:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
THE FOLLOWING ARE THE CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION:
General Information
Distributor
Safekeeping of the Assets of the Separate Account
Regulation and Reserves
Services
Tax-Sheltered Annuity Loans
Terms of Exemptive Relief in Connection with
Mortality and Expense Risk Charge
Independent Auditors
Legal Matters
Calculation of Performance Information
Money Market Variable Fund Account
Other Variable Fund Accounts
Annuity Payments
Gender of Annuitant
Misstatement of Age or Sex and Other Errors
Annuity Unit Value
Financial Statements
46
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
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 subsidiary as of December 31, 1995, 1994, and 1993,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years then ended. 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 subsidiary as of December 31, 1995, 1994, and 1993, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
March 28, 1996
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Balance Sheet
December 31, 1995, 1994, and 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets 1995 1994 1993
- ------ ----------- ---------- ---------
<S> <C> <C> <C>
Investments:
Debt securities, at amortized cost
or fair value $5,319,084 4,690,325 4,350,147
Equity securities, at fair value 211,073 151,676 229,828
Mortgage loans 5,775 5,866 5,857
Policy loans 106,609 89,298 81,687
Short-term securities 1,008 10,013 21,364
---------- --------- ---------
Total investments 5,643,549 4,947,178 4,688,883
Cash and cash equivalents 31,476 98,101 7,391
Premium balances receivable 1,611 1,265 1,074
Note receivable - affiliate - 30,000 -
Accounts receivable - affiliates - - 81
Furniture and equipment 1,162 1,036 132
Accrued investment income 59,423 52,252 47,883
Deferred policy acquisition costs 164,831 161,861 140,148
Deferred tax 19,878 53,431 9,688
Other assets 12,257 18,518 10,975
Separate account 122,819 - -
---------- --------- ---------
Total assets $6,057,006 5,363,642 4,906,255
========== ========= =========
Liabilities
- -----------
Insurance reserves 791,247 569,938 521,004
Funds on deposit 4,542,292 4,214,311 3,836,325
Accounts payable and accrued expenses 54,421 45,568 31,459
Accounts payable - affiliates 10,062 6,668 3,923
Other liabilities 48,833 53,546 49,339
Separate account 21,709 - -
---------- --------- ---------
Total liabilities 5,468,564 4,890,031 4,442,050
---------- --------- ---------
Stockholders' Equity
- ---------------------
Capital stock 42,500 42,500 22,500
Additional paid-in capital 51,408 51,408 50,583
Net unrealized gains (losses) on investments 16,446 (38,607) 31,281
Retained earnings 465,016 418,310 359,841
Increase in net unrealized gains on
separate account 13,072 - -
---------- --------- ---------
Total stockholders' equity 588,442 473,611 464,205
---------- --------- ---------
Total liabilities
and stockholders' equity $6,057,006 5,363,642 4,906,255
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statement of Income
Years ended December 31, 1995, 1994, and 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Revenues
- --------
Premiums $305,898 279,766 247,521
Investment income, net 406,922 372,354 351,364
Fees, sales and loan income 8,345 7,637 7,357
Realized investment gains(losses) 1,748 (321) 11,739
Other revenues 14,587 8,559 12,314
-------- ------- -------
Total revenues 737,500 667,995 630,295
-------- ------- -------
Benefits and expenses
- ----------------------
Losses, benefits and settlement expenses 462,032 400,136 391,952
Deferred policy acquisition costs 3,915 6,315 5,518
Dividends to policyholders 45,588 44,188 40,930
Other operating expenses 124,318 111,442 94,055
-------- ------- -------
Total benefits and expenses 635,853 562,081 532,455
-------- ------- -------
Income before income taxes and
cumulative effect of change
in accounting principle 101,647 105,914 97,840
-------- ------- -------
Federal income tax expense (benefit):
Current 38,447 44,530 40,500
Deferred (3,107) (7,684) (11,720)
-------- ------- -------
Total Federal income tax expense 35,340 36,846 28,780
-------- ------- -------
Income before cumulative
effect of change in
accounting principle 66,307 69,068 69,060
Cumulative effect of change in
accounting principle - - (406)
-------- ------- -------
Net income $ 66,307 69,068 68,654
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statement of Stockholders' Equity
Years ended December 31, 1995, 1994, and 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Capital
- -------
Balance at beginning of year $ 93,908 73,083 73,083
Issuance of preferred stock - 20,000 -
Contribution of equipment - 825 -
-------- ------- -------
End of year 93,908 93,908 73,083
-------- ------- -------
Retained Earnings
- -----------------
Beginning of year 418,310 359,841 291,759
Net income 66,307 69,068 68,654
Dividends to parent and affiliate (19,601) (10,599) (572)
-------- ------- -------
End of year 465,016 418,310 359,841
-------- ------- -------
Net unrealized gains(losses) on investments
- -------------------------------------------
Beginning of year (38,607) 31,281 20,904
Increase (decrease) in net unrealized
gains (losses) on investments 55,053 (69,888) 10,377
-------- ------- -------
End of year 16,446 (38,607) 31,281
-------- ------- -------
Net unrealized gains on separate account
- ----------------------------------------
Beginning of year - - -
Increase in net unrealized
gains on separate account 13,072 - -
-------- ------- -------
End of year 13,072 - -
-------- ------- -------
Total stockholders' equity $588,442 473,611 464,205
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statement of Cash Flow
Years ended December 31, 1995, 1994, and 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- -----------
<S> <C> <C> <C>
Cash from operating activities:
Net income $ 66,307 69,068 68,654
Adjustments to reconcile net income to net
cash provided by (used in) oper. activities:
Realized investment (gains) losses (1,748) 321 (11,739)
Inc. in deferred policy acquisition costs (18,993) (13,162) (13,112)
Depreciation and amortization (5,298) (2,451) 490
Deferred income tax benefit (3,107) (7,684) (11,720)
(Inc.)Dec. in premium balances receivable (346) (191) 1,443
(Inc.)Dec. in accounts receivable 5,174 (8,258) 2,790
(Inc.)Dec. in accounts receivable-affiliates - 81 (81)
(Inc.)Dec. in accrued investment income (7,171) (4,369) 26
Dec. in other assets 1,023 3,109 4,534
Inc.(Dec.) in insurance reserves 65,721 48,934 (87,162)
Inc. in accounts payable and accrued exp. 8,852 14,109 7,123
Inc.(Dec.) in accounts payable-affiliates 3,394 2,745 (624)
Inc.(Dec.) in other liabilities (4,712) 4,207 (16,326)
Other 40 2,706 (2,524)
----------- -------- ----------
Net cash provided by (used in) operating
activities 109,136 109,165 (58,228)
----------- -------- ----------
Cash flows from investing activities:
Proceeds from sales and maturities of
available-for-sale securities 420,818 294,734 122,010
Proceeds from maturities of held-to-maturity
securities 184,729 61,397 269,125
Proceeds from principal collections on
investments 292,673 565,649 965,788
Other investments sold 934 1,404 1,513
Retirement of notes receivable 30,000 - -
Securities purchased - available-for-sale (1,313,784) (610,097) (472,997)
Securities purchased - held-to-maturity - (719,097) (1,439,839)
Other investments purchased (1,382) (1,826) (1,528)
Issuance of notes receivable - (30,000) -
Investment in variable annuity separate account (81,000) - -
----------- -------- ----------
Net cash used in investing activities (467,012) (437,836) (555,928)
----------- -------- ----------
Cash flows from financing activities:
Deposits and interest credited to funds
on deposit 655,626 671,938 804,708
Withdrawals from funds on deposit (344,774) (261,958) (193,291)
Proceeds from issuance of preferred stock - 20,000 -
Dividends to parent and affiliate (19,601) (10,599) (572)
----------- -------- ----------
Net cash provided by financing activities 291,251 419,381 610,845
----------- -------- ----------
Net increase (decrease) in cash and cash
equivalents (66,625) 90,710 (3,311)
Cash and cash equivalents at beginning of year 98,101 7,391 10,702
----------- -------- ----------
Cash and cash equivalents at end of year $ 31,476 98,101 7,391
=========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(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 50 states and the District
of Columbia. The Company's subsidiary (USAA Life General Agency) offers
additional products of other insurance companies requested by USAA membership,
which are not sold by USAA Life. The consolidated financial statements include
the accounts of the Company and its subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Investments
-----------
On December 31, 1993, the company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under Statement 115, debt securities, including bonds,
mortgage-backed securities (MBS's), 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 acquisition cost, and
future policyholder benefits) reflected in stockholders' equity.
Bonds, at amortized cost of approximately $1,582, $1,708, and $1,709,
were on deposit with various state governmental agencies at December 31, 1995,
1994, and 1993, respectively.
Mortgage-backed securities held at December 31, 1995, 1994, and 1993
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 nonredeemable preferred
stocks, have been classified as available-for-sale and are carried at fair
value.
Real estate mortgages and policy loans are carried at their unpaid
principal balances with interest rates ranging from 4.8% to 10.0% at December
31, 1995.
Short-term securities are carried at cost.
Interest is not accrued on debt securities or mortgage loans for which
principal or interest payments are determined to be uncollectible.
(Continued)
5
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
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.
(c) Cash and cash equivalents
-------------------------
For purposes of the consolidated statement of cash flow, 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. Cash
and cash equivalents includes $259 of separate account purchases held in
clearing awaiting reinvestment. These funds are restricted from the Company's
use.
(d) Federal income taxes
--------------------
The Company and its subsidiary 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.
(e) 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 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.
(f) Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles 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
(Continued)
6
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
and expenses during the reporting period. Actual results could differ from
those estimates.
(g) Deferred policy acquisition costs
---------------------------------
Policy acquisition costs, consisting primarily of premium taxes and
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 (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 (20 years).
Deferred policy acquisition costs are reviewed to determine that the
unamortized portion does not exceed expected future income or gross profits.
(h) Insurance reserves
------------------
Included in reserves are traditional life and health products and payout
annuities with life contingencies. Payout annuities without life contingencies,
deferred annuities, and universal life products are classified as funds on
deposit. Traditional life and 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.
(i) 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 and investment, mortality, and expense margins.
(j) Funds on deposit
----------------
Funds on deposit are liabilities for universal life and investment-
related products. These liabilities are determined following the "retrospective
deposit" method and consist principally of policy account balances before
applicable surrender charges.
(Continued)
7
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(k) 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 10% of
the total life insurance in force at December 31, 1995 and 1994, respectively,
and 11% of life insurance in force at December 31, 1993. Participating policies
accounted for 14% of the premium income in 1995 and 1994, respectively, and 13%
of the premium income in 1993. The provision for policyholders' dividends is
based on current dividend scales.
The Company guarantees to pay dividends in aggregate, on all policies
issued after December 31, 1983, in the total amount of $10,997 in 1996.
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 shareholders.
(2) Basis of accounting
-------------------
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles (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>
1995 1994 1993
----------- -------- --------
<S> <C> <C> <C>
Statutory net income $ 55,213 48,775 36,934
Gain(loss) on sale of investments (1,719) (8,199) 16,857
Deferred policy acquisition costs 18,993 13,162 13,112
Tax adjustment 397 5,652 2,738
Participating policyholder earnings (40) (147) (356)
Other (6,537) 9,825 (631)
--------- ------- -------
GAAP net income 66,307 69,068 68,654
========= ======= =======
Statutory capital and surplus, 396,676 341,166 302,204
Increases (decreases):
Deferred policy acquisition costs 164,831 161,861 140,148
Federal income taxes 19,974 53,420 7,807
Asset valuation reserve 96,742 56,490 62,635
Interest maintenance reserve 4,894 6,625 14,569
Participating policyholder liability (5,398) (5,337) (5,098)
Policyholder reserve and funds (160,447) 6,777 (54,713)
Unearned income (3,622) (3,698) (3,915)
Investment valuation difference 145,352 (76,083) 58,861
Premiums deferred and uncollected (70,193) (68,915) (62,561)
Non-admitted assets and other adjustments (367) 1,305 4,268
--------- ------- -------
GAAP capital and surplus $ 588,442 473,611 464,205
========= ======= =======
</TABLE>
(Continued)
8
<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, 1995 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 $ 21,125 2,603 - 23,728 21,125
Obligations of states and
political subdivisions 43,492 2,482 47 45,927 43,492
Debt securities issued by
foreign governments and
corporations 53,328 1,063 4 54,387 53,328
Mortgage backed securities 1,004,373 37,119 2,202 1,039,290 1,004,373
Corporate securities 585,440 36,125 2,218 619,347 585,440
Redeemable preferred stock 3,091 118 - 3,209 3,091
---------- ------- ----- --------- ---------
Total debt securities $1,710,849 79,510 4,471 1,785,888 1,710,849
========== ======= ===== ========= =========
Available-for-Sale
----------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
------------ ------------ ----------- ----------- --------
Debt securities
- ---------------
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 127,491 1,862 1 129,352 129,352
Obligations of states and
political subdivisions 9,777 1,640 8 11,409 11,409
Debt securities issued by
foreign governments and
corporations 103,719 6,410 - 110,129 110,129
Mortgage backed securities 1,792,252 66,021 4,235 1,854,038 1,854,038
Corporate securities 1,427,379 67,519 1,041 1,493,857 1,493,857
Redeemable preferred stock 10,000 - 550 9,450 9,450
---------- ------- ----- --------- ---------
Total debt securities $3,470,618 143,452 5,835 3,608,235 3,608,235
========== ======= ===== ========= =========
Equity Securities
- -----------------
Common stock $ 130,991 45,851 1,369 175,473 175,473
Nonredeemable preferred stock 26,883 8,804 87 35,600 35,600
---------- ------- ----- --------- ---------
Total equity securities $ 157,874 54,655 1,456 211,073 211,073
========== ======= ===== ========= =========
</TABLE>
(Continued)
9
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
In December, 1995, the Company transferred held-to-maturity securities
with an amortized cost of $1,349,015 to the available for sale category. The
transfer of these securities resulted in an unrealized gain of $28,119. The
securities were transferred in accordance with the special one-time reassessment
of held-to-maturity securities allowed by the Financial Accounting Standards
Board, and was deemed by management to better position the Company's portfolio.
The amortized cost, estimated fair values and carrying values of
investments in debt and equity securities as of December 31, 1994 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 $ 23,700 403 341 23,762 23,700
Obligations of states and
political subdivisions 51,279 2,013 294 52,998 51,279
Debt securities issued by
foreign governments and
corporations 98,287 2 9,282 89,007 98,287
Mortgage backed securities 2,173,553 12,528 153,069 2,033,012 2,173,553
Corporate securities 974,683 10,854 52,719 932,818 974,683
Redeemable preferred stock 38,727 3,416 - 42,143 38,727
---------- ------ ------- --------- ---------
Total debt securities $3,360,229 29,216 215,705 3,173,740 3,360,229
========== ====== ======= ========= =========
</TABLE>
(Continued)
10
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<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 $ 3,032 - 72 2,960 2,960
Debt securities issued by
foreign governments and
corporations 9,020 - 218 8,802 8,802
Mortgage backed securities 1,206,098 4,831 80,952 1,129,977 1,129,977
Corporate securities 179,464 1,954 1,811 179,607 179,607
Redeemable preferred stock 10,000 - 1,250 8,750 8,750
---------- ------ ------ --------- ---------
Total debt securities $1,407,614 6,785 84,303 1,330,096 1,330,096
========== ====== ====== ========= =========
Equity Securities
- -----------------
Common stock $ 109,101 13,275 4,197 118,179 118,179
Nonredeemable preferred stock 30,450 4,149 1,102 33,497 33,497
---------- ------ ------ --------- ---------
Total equity securities $ 139,551 17,424 5,299 151,676 151,676
========== ====== ====== ========= =========
</TABLE>
The amortized cost, estimated fair values and carrying values of
investments in debt and equity securities as of December 31, 1993 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 $ 13,643 3,401 - 17,044 13,643
Obligations of states and
political subdivisions 56,920 6,754 18 63,656 56,920
Mortgage backed securities 1,990,939 69,135 6,447 2,053,627 1,990,939
Corporate securities 935,255 65,296 1,519 999,032 935,255
Redeemable preferred stock 40,383 4,115 - 44,498 40,383
---------- ------- ----- --------- ---------
Total debt securities $3,037,140 148,701 7,984 3,177,857 3,037,140
========== ======= ===== ========= =========
</TABLE>
(Continued)
11
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<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 $ 4,606 125 2 4,729 4,729
Mortgage backed securities 1,109,873 43,151 2,179 1,150,845 1,150,845
Corporate securities 147,459 10,024 50 157,433 157,433
---------- ------ ----- --------- ---------
Total debt securities $1,261,938 53,300 2,231 1,313,007 1,313,007
========== ====== ===== ========= =========
Equity Securities
- -----------------
Common stock $ 137,241 35,373 3,266 169,348 169,348
Nonredeemable preferred stock 50,070 10,519 109 60,480 60,480
---------- ------ ----- --------- ---------
Total equity securities $ 187,311 45,892 3,375 229,828 229,828
========== ====== ===== ========= =========
</TABLE>
The amortized cost and estimated fair values of debt securities
classified as held to maturity and available for sale at December 31, 1995, by
contractual maturity, are shown by category below. Expected maturities may
differ from contractual maturities because borrowers may have the right to
prepay obligations.
<TABLE>
<CAPTION>
Held-to-Maturity
---------------------
Estimated
Amortized fair
cost value
---------- ---------
<S> <C> <C>
Due in one year or less $ 57,909 59,403
Due after one year through five years 311,636 329,631
Due after five years through ten years 267,543 279,586
Due after ten years 66,297 74,769
---------- ---------
703,385 743,389
Mortgage-backed securities 1,004,373 1,039,290
Redeemable preferred stock 3,091 3,209
---------- ---------
$1,710,849 1,785,888
========== =========
</TABLE>
(Continued)
12
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<CAPTION>
Available-for-Sale
---------------------
Estimated
Amortized fair
cost value
---------- ---------
<S> <C> <C>
Due in one year or less $ 17,782 17,928
Due after one year through five years 298,524 309,345
Due after five years through ten years 1,257,847 1,313,455
Due after ten years 94,213 104,018
---------- ---------
1,668,366 1,744,746
Mortgage-backed securities 1,792,252 1,854,038
Redeemable preferred stock 10,000 9,450
---------- ---------
$3,470,618 3,608,234
========== =========
</TABLE>
Proceeds from sales of investments in debt securities during 1995, 1994,
and 1993 were $385,688, $143,454, and $48,684, respectively. Gross gains and
losses of $941 and $6,782 respectively for 1995, and $239 and $14,516
respectively for 1994, and $1,063 and $672 respectively for 1993, were realized
on those sales. Cost for these sales was determined using the specific
identification method.
Gross investment income during 1995, 1994, and 1993 was $410,912,
$375,636, and $353,876, respectively. Investment expenses were $3,990, $3,282,
and $2,512 for 1995, 1994, and 1993, respectively.
(Continued)
13
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(4) Federal income taxes
---------------------
The expected statutory Federal income tax amounts for the years ended
December 31, 1995, 1994, and 1993 differ from the effective tax amounts as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- -------
<S> <C> <C> <C>
Income before income taxes and
cumulative effect of change in
accounting principle $101,647 105,914 97,840
======== ======= ======
Federal income tax expense at 35% statutory rate 35,577 37,070 34,244
Increase (decrease) in tax resulting from:
Dividends received deduction (536) (807) (812)
Other, net 299 583 (4,652)
-------- ------- ------
Federal income tax expense $ 35,340 36,846 28,780
======== ======= ======
</TABLE>
Deferred income tax benefit for the years ended December 31, 1995, 1994,
and 1993 was primarily attributable to differences between the valuation of
assets and insurance liabilities for financial reporting and tax purposes.
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>
1995 1994 1993
---------- ------ --------
<S> <C> <C> <C>
Deferred tax assets:
Investments $ 628 518 2,016
Depreciable assets 22 100 348
Insurance reserves 58,624 55,290 48,103
Accounts payable and accrued expenses 2,001 4,892 2,917
Policyholder dividends 6,619 4,878 3,852
Other, net 4,315 3,042 5,155
-------- ------ -------
Total gross deferred tax assets 72,209 68,720 62,391
-------- ------ -------
Deferred tax liabilities:
Investments 1,117 193 377
Depreciable assets - - 95
Deferred policy acquisition costs 35,344 33,982 34,189
Insurance reserves - 801 992
Other, net - 1,124 1,960
-------- ------ -------
Total gross deferred tax liabilities 36,461 36,100 37,613
-------- ------ -------
Deferred tax (liability) benefit on
unrealized gains (losses) on investments (15,870) 20,811 (15,090)
======== ====== =======
Net deferred tax asset $ 19,878 53,431 9,688
======== ====== =======
</TABLE>
(Continued)
14
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
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, 1995, 1994, and 1993, other liabilities included the
following Federal income tax payable amounts:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current Federal income taxes $3,976 10,636 6,222
</TABLE>
Aggregate cash payments to USAA for income taxes were $44,965, $41,314,
and $41,924 for USAA Life Insurance Company and $126, $214, and $330 for its
subsidiary during the years ended December 31, 1995, 1994, and 1993,
respectively.
(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. Financial
Accounting Statement 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>
1995
---------------------
Carrying Fair
Amount Value
---------- ---------
<S> <C> <C>
Financial assets
Cash and cash equivalents $ 31,476 31,476
Debt securities 5,319,084 5,394,122
Equity securities 211,073 211,073
Mortgage loans 5,775 6,112
Policy loans 106,609 106,609
Short-term securities 1,008 1,008
Premium balances receivable 1,611 1,611
Accrued investment income 59,423 59,423
Financial liabilities
Deferred annuities and annuities without
life contingencies 3,643,138 3,643,138
Policyholder dividend accumulations 24,867 24,867
Policy dividends declared but unpaid 24,016 24,016
Accounts payable and accrued expenses 54,421 54,421
</TABLE>
(Continued)
15
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994
---------------------
Carrying Fair
Amount Value
---------- ---------
<S> <C> <C>
Financial assets
Cash and cash equivalents $ 98,101 98,101
Debt securities 4,690,325 4,503,836
Equity securities 151,676 151,676
Mortgage loans 5,866 5,539
Policy loans 89,298 89,298
Short-term securities 10,013 10,013
Premium balances receivable 1,265 1,265
Accrued investment income 52,252 52,252
Financial liabilities
Deferred annuities and annuities without
life contingencies 3,395,327 3,395,327
Policyholder dividend accumulations 23,112 23,112
Policy dividends declared but unpaid 24,165 24,165
Accounts payable and accrued expenses 45,568 45,568
1993
---------------------
Carrying Fair
Amount Value
----------- ---------
Financial assets
Cash and cash equivalents $ 7,391 7,391
Debt securities 4,350,147 4,490,864
Equity securities 229,828 229,828
Mortgage loans 5,857 6,206
Policy loans 81,687 81,687
Short-term securities 21,364 21,364
Premium balances receivable 1,074 1,074
Accrued investment income 47,883 47,883
Financial liabilities
Deferred annuities and annuities without
life contingencies 3,057,331 3,057,331
Policyholder dividend accumulations 21,516 21,516
Policy dividends declared but unpaid 22,935 22,935
Accounts payable and accrued expenses 31,459 31,459
</TABLE>
The carrying amounts of financial assets and liabilities shown in the
above table are included in the balance sheet under the indicated captions with
the following exceptions: deferred annuities and annuities without life
contingencies are included in funds on deposit, policyholder dividend
accumulations are included in funds on deposit, and policy dividends declared
and unpaid 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 the cash equivalents approximates
fair value because of the short maturity of these instruments.
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.
(Continued)
16
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Mortgage loans: The fair value of mortgage loans and the mortgage loan
component of other assets 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.
Short-term securities: Short-term securities approximates fair value
because of the short maturity of these instruments.
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 superior quality of the Company's
investment portfolio combined with the short term nature of the collectible
period.
Deferred annuities and annuities without life contingencies: The fair
value of the deferred annuities is estimated as the aggregate cash value of the
annuity, 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. Carrying value of policyholder dividends approximates fair value.
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.
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.
(6) Borrowings
----------
For 1995, the Company borrowed $0 from Bankers Trust Company through the
use of reverse repurchase agreements and there were no outstanding balances as
of December 31, 1995. The borrowings were $251,755, and $19,180 in 1994 and
1993, respectively, with no outstanding December 31 balances for the years then
ended. The interest associated with the reverse repurchase agreements was $0,
$102, and $10 for the years 1995, 1994, and 1993, respectively. Additional
borrowing agreements are described in note 7, "Transactions with affiliates".
(Continued)
17
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(7) Transactions with affiliates
----------------------------
Certain services have been contracted from USAA, 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 the USAA contracted
services was $66,787, $55,651, and $52,877 for 1995, 1994, and 1993,
respectively. The aggregate amount of the Company's allocations to affiliates
was $3,910, $3,246, and $2,799 for 1995, 1994, and 1993, 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 $2,941, $1,509, and $1,380 for 1995, 1994 and 1993, respectively.
The Company also received premium and annuity considerations from USAA
of $6,145, $7,526, and $9,721 in 1995, 1994, and 1993, respectively,
representing amounts received for structured settlements issued to claimants of
USAA and for group insurance on USAA employees. A contribution in the amount of
$1,684 was made to the USAA Foundation in 1994, and $2,000 in 1993. No
contributions were made to the USAA Foundation in 1995.
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, 1995, 1994, and 1993 the Company
had no liability for borrowed money. The Company borrowed $1,809,466 during 1995
and $2,160,999 during 1994, through the use of these funding agreements. The
interest associated with these intercompany funding agreements was $898, $893,
and $804 in 1995, 1994, and 1993, respectively.
In 1995, the Company retired a $30,000 note receivable from an
affiliate, USAA Funding Corporation. The note was outstanding for 1994.
(8) Reinsurance
-----------
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts." This statement specifies the accounting and reporting by
insurance enterprises for the reinsurance of insurance contracts. The adoption
of this statement did not have a material impact on the Company's operating
results or surplus.
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. Although the ceding of
reinsurance does not discharge the Company from its primary legal
(Continued)
18
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
liability to a policyholder, the reinsurance company assumes the related risk.
Life insurance in force in the amounts of $3,690,040, $3,658,829, and $3,478,079
is ceded on a yearly renewable term basis; $716,596, $472,032, and $156,908 is
ceded on a coinsurance basis; and $1,000,581, $989,819, and $959,872 is ceded on
an other basis at December 31, 1995, 1994, and 1993, respectively. In
accordance with the reinsurance contracts, reinsurance receivables including
amounts related to claims incurred but not reported and liabilities for future
policy benefits totaled $221, $642, and $254 at December 31, 1995, 1994, and
1993, respectively. Premium revenues were reduced by $14,206, $11,765, and
$12,085 for reinsurance premiums ceded during the years ended December 31, 1995,
1994, and 1993 respectively. Benefits were reduced by $8,257, $5,678, and $5,676
for reinsurance recoverables during the years ended December 31, 1995, 1994, and
1993, respectively.
In 1991, the Company entered into a $30,000 stop-loss agreement with
five reinsurers to minimize the risk of exposure to significant unexpected
losses. The cost of reinsurance was $1,491, $1,356 and $1,225 for 1995, 1994,
and 1993, respectively. The Company received an experience refund of $741, $35
and $6,970 in 1995, 1994 and 1993, respectively. Experience refunds of $3,325,
$2,469, and $22 have been accrued as of December 31, 1995, 1994, and 1993,
respectively.
(Continued)
19
<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 for the year ended
December 31, 1995 are summarized below:
<TABLE>
<CAPTION>
Accident
Life Annuity and health Total
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at
January 1, 1993 $ 99,766 20,019 10,423 130,208
-------- ------- ------ -------
Additions 15,049 2,312 1,665 19,026
Amortization (4,137) (502) (1,203) (5,842)
FAS 115 DAC (328) (2,916) - (3,244)
-------- ------- ------ -------
Net change 10,584 (1,106) 462 9,940
-------- ------- ------ -------
Balance at
December 31, 1993 $110,350 18,913 10,885 140,148
-------- ------- ------ -------
Additions 15,617 1,524 2,120 19,261
Amortization (4,256) (662) (1,397) (6,315)
FAS 115 DAC 427 8,340 - 8,767
-------- ------- ------ -------
Net change 11,788 9,202 723 21,713
-------- ------- ------ -------
Balance at
December 31, 1994 $122,138 28,115 11,608 161,861
-------- ------- ------ -------
Additions 15,676 4,498 2,658 22,832
Amortization (4,375) 1,926 (1,466) (3,915)
FAS 115 DAC (2,051) (13,896) - (15,947)
-------- ------- ------ -------
Net change 9,250 (7,472) 1,192 2,970
-------- ------- ------ -------
Balance at
December 31, 1995 $131,388 20,643 12,800 164,831
======== ======= ====== =======
1995 Premiums $240,234 4,630 61,034 305,898
======== ======= ====== =======
1994 Premiums $217,336 2,854 59,576 279,766
======== ======= ====== =======
1993 Premiums $187,859 5,613 54,049 247,521
======== ======= ====== =======
</TABLE>
Additions to deferred acquisition costs consist primarily of premium
taxes and certain underwriting and selling expenses.
The liabilities for future policy benefits and related insurance in
force at December 31, 1995, 1994, and 1993 are summarized below:
<TABLE>
<CAPTION>
Future Policy
Benefits
-------------------------
1995 1994 1993
-------- ------- ------
<S> <C> <C> <C>
Life and annuity:
Individual $750,881 535,574 493,474
Group 1,306 740 775
-------- ------- -------
Total life and annuity 752,187 536,314 494,249
======== ======= =======
Accident and health $ 39,060 33,624 26,755
======== ======= =======
</TABLE>
(Continued)
20
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<CAPTION>
Insurance in force
-----------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Life and annuity:
Individual $62,648,704 57,565,565 51,988,782
Group 1,500,896 1,384,393 1,263,248
----------- ---------- ----------
Total life and annuity $64,149,600 58,949,958 53,252,030
=========== ========== ==========
</TABLE>
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 7.25% to 8.91%
Future policy benefits for Universal Life and Deferred Annuities are
equal to the current account value without anticipation of any applicable
surrender charges.
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 are based on the 1985 CIDA
table. Morbidity for In Hospital Cash policies are based on 1966-67 Intercompany
Experience table.
Termination assumptions are based on the Company and industry
experience.
(10) Capital stock
-------------
The Company has outstanding 400,000 shares of Annually Adjustable
Cumulative Perpetual Preferred Stock; 100,000 shares each of Series A, Series B,
Series C, and Series D. All preferred stock is owned by USAA Funding Company, an
affiliate of USAA Life Insurance Company. Series C and Series D were issued in
1994 for $20,000. No other stock ranks Senior to the Series A-D preferred stock.
The dividend rate will be 65% of the cost of the funds for CAPCO, an affiliate
of USAA Life, on Commercial paper having a 180-day maturity on the first
business day of each Dividend Period. The preferred stock has a par value of
$100 and a liquidation value of $100 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 and Series D at par value plus accrued and unpaid dividends.
(Continued)
21
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Preferred stock dividends of $1,601, $599, and $572 were paid in 1995, 1994, and
1993 respectively, and $64 has accrued since the last payment on December 15,
1995.
The Company has authorized 30,000 shares of common capital stock, $100
par value, of which 25,000 shares were issued and outstanding at December 31,
1995, 1994, and 1993. A cash dividend of $18,000 was paid on the common stock
during 1995, and $10,000 was paid in 1994. No cash dividends were paid on common
stock in 1993.
(11) Unassigned surplus and dividend restrictions
--------------------------------------------
In accordance with the interpretation of the New York statutes by the
Superintendent of Insurance of the State, the Company has acquiesced with the
Superintendent's interpretation that so long as participating policies and
contracts are held by residents of New York, no profits on participating
policies and contracts in excess of the larger of (a) ten percent of such
profits or (b) fifty cents per year per thousand dollars of participating life
insurance in force at the year-end shall inure to the benefit of the Company's
shareholders. Such New York statutes further provide that such excess profits
shall be exhibited as "participating policyholders' surplus" in annual
statements filed with the Superintendent and shall be used only for the payment
or apportionment of dividends to participating policyholders at least to the
extent required by statute or for the purposes of making up any loss on
participating policies.
In the opinion of counsel for the Company, ultimate ownership of the
entire surplus, regardless of classification, is a matter to be determined under
Texas law. Under Texas law, in counsel's opinion, such surplus ownership resides
in the Company's shareholders, subject, of course, to the authority of the Texas
Insurance Commissioner (and the similar authority of the other state insurance
regulators) to require the maintenance of certain regulatory deposits, minimum
surplus, and reserves for the protection of policyholders until all policy
contracts are discharged.
The Company is relying on the legal opinion that the earnings
attributable to participating policies in excess of the amounts paid as
dividends to policyholders belong to the shareholders rather than the
policyholders, and such earnings are so treated by the Company.
Due to capital and surplus restrictions imposed by various state
regulations (including New York), unassigned surplus available for distribution
as dividends to the shareholder was $281,381, $185,560 and $212,185 at December
31, 1995, 1994 and 1993, respectively.
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 $41,072 in 1995
and are limited to $52,722 in 1996. Dividends are paid as determined by the
Board of Directors and at its discretion.
(Continued)
22
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The Texas Department of Insurance imposes minimum risk-based capital
requirements on insurance companies that were developed by the National
Association of Insurance Commissioners (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.
The Company does not use permitted practices in preparation of financial
statements.
(12) 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 $1,913, $2,095, and $1,220 in 1995, 1994 and 1993,
respectively. At December 31, 1995, 1994, and 1993, a liability of $1,250,
$2,092, and $2,340, 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 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 total postretirement benefit cost allocated to the
Company was approximately $843, $817, and $496 in 1995, 1994, and 1993,
respectively. At December 31, 1995, a prepaid asset totaling $1,318 has been
recorded which represents the excess of the Company's allocated funding
requirements over the net periodic postretirement benefit cost allocated to the
Company.
(c) Special retirement benefits
---------------------------
During 1993, management of USAA offered special retirement benefits to
eligible employees of USAA and its subsidiaries, including USAA Life Insurance
Company. Additional special termination benefit cost as a result of this special
retirement offer, which was not covered by the employee benefit plans, totaled
$521 in 1993, and are included in employee benefits on the 1993 statement of
income.
(Continued)
23
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(d) Postemployment benefits
-----------------------
All employees who suffer total disability as a result of illness or
injury are eligible for long-term disability benefits. In 1993, the provisions
of Statement of Financial Accounting Standards No. 112, "Employer's Accounting
for Postemployment Benefits," were adopted by the Company. Statement 112
requires the accrual of future benefits on reported claims payable to former or
inactive employees after employment but before retirement. In prior years, the
Company accrued and funded current claims payable.
The cumulative effect of this accounting change, allocated to the
Company based on salaries was to decrease net income in 1993 by approximately
$710. The postemployment benefit cost allocated to the Company for 1995, 1994
and 1993 based on salaries was approximately $43, $68 and $282, respectively.
(13) Separate account
----------------
The Separate Account is a segregated asset account established under
Texas law through which USAA Life Insurance Company invests the premium payments
received from Contract Owners. The assets of the Separate Account are the
property of the Company. However, the assets of the Separate Account not in
excess of the reserves, and other Contract liabilities with respect to the
Separate Account, are not 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, credited to or charged against
the Separate Account without regard to other income, gains or losses of the
Company. The Company's obligations arising under the Contracts are general
corporate obligations.
The Separate Account currently is divided into seven Variable Annuity
Fund Accounts, each of which invests in a corresponding Fund. The Funds that are
available under this Contract include five funds of USAA Life Investment Trust,
the Capital Growth Portfolio of the Scudder Variable Life Investment Fund, and
the Growth Portfolio of The Alger American Fund. The Accumulated Unit Value of
the Contract 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 Variable Annuity Money Market Fund, at amortized cost,
which approximates market value.
USAA Life incurs mortality and administrative expenses on behalf of
Separate Account contract holders. The Company collects fees for these expenses
from contract holders 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.
(Continued)
24
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The Separate Account has an excess of assets over liabilities which is
attributable to the initial Company investment of $81,000 plus the associated
unrealized gains, net of tax.
(14) Commitments and contingencies
-----------------------------
The Company has established a liability associated with the failure of
various life insurance companies in the amount of $12,038, $8,097, and $4,896
for 1995, 1994 and 1993, respectively.
(Continued)
25
<PAGE>
VARIABLE ANNUITY
FLEXIBLE PREMIUM DEFERRED COMBINATION
FIXED AND VARIABLE ANNUITY CONTRACT
OFFERED BY: STATEMENT OF ADDITIONAL
INFORMATION
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD Dated May 1, 1996
SAN ANTONIO, TEXAS 78288
This Statement of Additional Information ("SAI") is not a prospectus, but should
be read in conjunction with the Prospectus, dated May 1, 1996 for the Separate
Account of USAA Life Insurance Company ("USAA Life"). Capitalized terms used in
this SAI that are not otherwise defined herein have the same meanings given to
them in the Prospectus. A copy of the Prospectus may be obtained by writing
USAA Life at the address above, or by calling 1-800-531-8000.
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Caption Page
- ----------------------------------------------------------- ------
<S> <C>
GENERAL INFORMATION........................................ 2
DISTRIBUTOR................................................ 2
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT.......... 2
REGULATION AND RESERVES.................................... 2
SERVICES................................................... 3
TAX SHELTERED ANNUITY LOANS................................ 4
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH
MORTALITY AND EXPENSE RISK CHARGE..................... 5
INDEPENDENT AUDITORS....................................... 6
LEGAL MATTERS.............................................. 6
CALCULATION OF PERFORMANCE INFORMATION..................... 6
USAA Life Money Market Variable Annuity Fund Account 7
Other Variable Annuity Fund Accounts 7
ANNUITY PAYMENTS........................................... 9
Gender of Annuitant................................... 9
Misstatement of Age or Sex and Other Errors 9
Annuity Unit Value 9
FINANCIAL STATEMENTS....................................... 10
</TABLE>
2
<PAGE>
GENERAL INFORMATION
USAA Life is a stock insurance company incorporated in the State of Texas in
1963. USAA Life is principally engaged in writing life insurance policies,
fixed annuity contracts and health insurance policies. USAA Life is authorized
to transact insurance business in all 50 states of the United States and the
District of Columbia. USAA Life is a wholly-owned stock subsidiary of the
United Services Automobile Association ("USAA"), the parent company of the USAA
Group of Companies.
As of April 1, 1996, USAA Life beneficially owned certain assets (not
attributable to the Contracts or to accumulated deductions or reserves relating
to the Contracts) of certain Variable Annuity Fund Accounts, as follows:
NAME OF VARIABLE ANNUITY FUND ACCOUNT
- --------------------
USAA Life Variable Annuity Income Fund Account 15.85%
USAA Life Variable Annuity Growth and Income Fund Account 14.09%
USAA Life Variable Annuity World Growth Fund Account 16.07%
USAA Life Variable Annuity Diversified Assets Fund Account 16.32%
DISTRIBUTOR
The Contracts are primarily sold in a continuous offering by direct response
through salaried sales account representatives employed by USAA Life. These
individuals are appropriately licensed at the state level to sell variable
annuity contracts and are registered with the National Association of Securities
Dealers, Inc. (the "NASD") as registered representatives or principals with USAA
Investment Management Company ("USAA IMCO"). USAA IMCO, an affiliate of USAA
Life, is registered as a broker-dealer with the SEC and the NASD.
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT
All assets of the Separate Account are held in the custody and safekeeping of
USAA Life. The assets are kept physically segregated and held separate and
apart from the assets of USAA Life's General Account. USAA Life maintains
records of all purchases and redemptions of shares of the Funds by each of the
Variable Annuity Fund Accounts.
3
<PAGE>
REGULATION AND RESERVES
USAA Life is subject to regulation by the Texas Department of Insurance and by
insurance departments of other states and jurisdictions in which it is licensed
to do business. This regulation covers a variety of areas, including benefit
reserve requirements, adequacy of insurance company capital and surplus, various
operational standards, and accounting and financial reporting procedures. USAA
Life's operations and accounts are subject to periodic examination by insurance
regulatory authorities. The Contracts described in the Prospectus are filed
with and (where required) approved by insurance officials in each state and
jurisdiction in which Contracts are sold.
Although the federal government generally has not directly regulated the
business of insurance, federal initiatives often have an impact on the insurance
business in a variety of ways. Federal measures that may adversely affect the
insurance business include employee benefit regulation, tax law changes
affecting the taxation of insurance companies or of insurance products, changes
in the relative desirability of various personal investment vehicles, and
removal of impediments on the entry of banking institutions into the insurance
business. Also, both the executive and legislative branches of the federal
government periodically have under consideration various insurance regulatory
matters, which could ultimately result in direct federal regulation of some
aspects of the insurance business. It is not possible to predict whether this
will occur or, if so, what the effect on USAA Life would be.
Pursuant to state insurance laws and regulations, USAA Life is obligated to
carry on its books, as liabilities, reserves to meet its obligations under
outstanding insurance contracts. These reserves are based on assumptions about,
among other things, future claims experience and investment returns. Neither
the reserve requirements nor the other aspects of state insurance regulation
provide absolute protection to holders of insurance contracts, including the
Contracts, if USAA Life were to incur claims or expenses at rates significantly
higher than expected, or significant unexpected losses on its investments.
SERVICES
USAA Life has entered into a Third Party Administrator Agreement with Continuum
Administrative Services Corporation ("CASCO"), pursuant to which CASCO will
provide certain services in connection with the Separate Account including,
among other things, application and premium processing, issuance of the
Contracts, and recordkeeping. CASCO has developed a computerized recordkeeping
system for annuity accounting and has the necessary data processing equipment
and personnel to provide and support remote terminal access to its system for
the maintenance of annuity records, processing information, and the generation
of output with respect to the records and information. USAA Life paid CASCO
$1,200,021 for services rendered during the period from February 6, 1995
(commencement of Separate Account operations) through December 31, 1995 of
which, $1,008,625 was attributable to developmental costs.
4
<PAGE>
USAA Life has entered into a Service Agreement with USAA Transfer Agency Company
d/b/a USAA Shareholder Account Services ("USAA SAS"), pursuant to which, USAA
SAS will receive and forward to USAA Life applications and premium payments for
certain Tax Sheltered Annuity Contracts.
TAX SHELTERED ANNUITY LOANS
We do not provide loans secured by a Contract except in connection with
Contracts that fund section 403(b) Tax Sheltered Annuities ("TSAs"). USAA Life
may permit, at its discretion, loans to be made against the Contract Value in
the Fixed Fund Account and/or Variable Annuity Fund Account(s). Loans must
conform to the requirements mandated by Section 72(p) of the Internal Revenue
Code. If you borrow against the Fixed Fund Account and/or Variable Annuity Fund
Account(s), the portion equal to the loan amount will be transferred from the
particular Account(s) to a "Loan Collateral Account." The "Loan Collateral
Account" is part of the Company's general assets and liabilities.
Loans are not available on TSA Contracts where the TSA plan is subject to the
Title I of the Employee Retirement Income Security Act (ERISA). Also, loans are
not permitted when the Systematic Withdrawal Program has been elected or when
the Contract has been annuitized. If you have taken a loan in the past which is
still outstanding, limits for any subsequent loans will be reduced by the amount
of the outstanding loan plus accrued interest. Any renegotiation of an existing
loan becomes a new loan for tax purposes.
The amount of the loan you may obtain depends upon your Contract Value as shown
below. The maximum loan amount may not exceed an aggregate of $50,000 on all
TSA accounts. The minimum loan amount is $2,500.
<TABLE>
<CAPTION>
CONTRACT VALUE MAXIMUM LOAN AMOUNT
- -------------------- -------------------
<S> <C>
$3,572 - $ 11,999 70% of value/*/
$12,000 - $ 19,999 $10,000/**/
$20,000 - $ 99,999 50% of value/**/
$100,000 or more $50,000/**/
- -----------------------------------------
</TABLE>
/*/ 70% of maximum loan amount available for Contract Values of $3,572 -
$11,999 allows for coverage of Fixed Fund Account Withdrawal Charges, the
Contract Maintenance Charge, interest charges and applicable taxes.
/**/ Internal Revenue Code requirements may be subject to change.
5
<PAGE>
Only one TSA loan may be requested in any twelve month period. A TSA loan must
be repaid within a maximum of five years. Because the amount of the loan may be
removed from both the Fixed Fund Account and/or Variable Annuity Fund
Account(s), a loan will have a permanent effect on the Contract Value. The
longer the loan is outstanding the greater the effect is likely to be.
The loan must be repaid on a monthly schedule amortized over the term of the
loan. The loan may be prepaid in full or in part at any time. Loan payments
will be due as agreed upon at the time of the loan approval. An amount equal to
the amount of loan repayment will be transferred from the Loan Collateral
Account to the Fixed Fund Account and the Variable Annuity Fund Account(s) in
the same proportion as purchase payments are currently allocated, unless the
Owner requests otherwise.
The entire loan balance must be repaid before a withdrawal from the Contract or
before annuitization begins. If the loan is repaid in full before the end of
the loan term, loan interest due will be prorated and an appropriate credit will
be provided. Upon the death of the Owner, the death benefit will be reduced by
the outstanding loan balance and loan interest.
A TSA loan is not a taxable distribution if the loan does not exceed the maximum
limitations and repayment does not become overdue. If a default in loan
repayment occurs, USAA Life Insurance Company may declare the entire outstanding
loan balance, plus interest plus any Fixed Fund Account Withdrawal Charge stated
in the Contract also immediately due and payable. Please note that a default as
to any installment payment under your loan amortization schedule may have
adverse tax consequences possibly subjecting you to tax on the defaulted payment
or possibly the entire value of the amount of the loan, plus payment of the 10%
distribution penalty if prior to age 59 1/2. Such a distribution will include
any applicable federal income tax withholding and state taxes, if any. We
recommend that you consult with a professional advisor regarding your particular
tax situation.
Before a loan can be made under a TSA Contract, a properly completed Written
Request and Loan Agreement must be signed. A Loan Agreement can be obtained by
calling our toll free number 1-800-531-4265 and requesting a copy from a
representative at our Service Office.
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITHMORTALITY AND EXPENSE RISK CHARGE
USAA Life and USAA IMCO have obtained exemptive relief from the SEC in
connection with deducting the mortality and expense risk charge pursuant to the
Contracts. In the application for the exemption, USAA Life and USAA IMCO have
represented and undertaken, among other things, that:
6
<PAGE>
. The level of the mortality and expense risk charge is within the range
of industry practice for comparable annuity contracts;
. This conclusion is based upon a review that USAA Life and USAA IMCO
have conducted of publicly-available information regarding annuity
contracts of other companies and they will maintain at their Home
Office, and make available on request to the SEC or its staff, a
memorandum setting forth the variable annuity products analyzed and the
methodology and results of the comparative review;
. There is a reasonable likelihood that the proposed distribution
financing arrangements with respect to the Contracts will benefit the
Separate Account and Contract Owners, and the basis for this conclusion
is set forth in a memorandum that USAA Life will maintain at its Home
Office and will be available to the SEC or its staff on request.
INDEPENDENT AUDITORS
The financial statements of the Separate Account included in its Annual Report,
and the audited consolidated financial statements and schedules of USAA Life
Insurance Company and its subsidiary as of December 31, 1995, 1994, and 1993 and
for each of the years then ended have been included in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, through their offices located at 112 East Pecan,
Suite 2400, San Antonio, Texas 78205, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The legal validity of the Contracts has been passed upon by Richard T. Halinski,
Jr., Esq., of the legal department of USAA Life. Freedman, Levy, Kroll &
Simonds, Washington D.C., has advised USAA Life on certain federal securities
law matters.
7
<PAGE>
CALCULATION OF PERFORMANCE INFORMATION
From time to time, the Separate Account may include in advertisements, sales
literature, and reports to contract owners or prospective investors information
relating to the performance of its Variable Annuity Fund Accounts. The
performance information that may be presented is not an estimate or guarantee of
future investment performance and does not represent the actual experience of
amounts invested by a particular Owner. Set out below is a description of the
standardized and non-standardized methods used in calculating the performance
information for the Variable Annuity Fund Accounts. All standardized performance
quotations will reflect the deduction of the Mortality and Expense Risk Charge,
the Administrative Expense Charge and the Contract Maintenance Charge, based on
an estimated average Contract size of $29,883 and Fund operating expenses (net
of reimbursements), but will not reflect charges for any state premium taxes.
The Contracts are not subject to a charge for withdrawals from any Variable
Annuity Fund Account.
USAA LIFE MONEY MARKET VARIABLE ANNUITY FUND ACCOUNT
YIELD and EFFECTIVE YIELD quotations for the USAA Life Money Market Variable
Annuity Fund Account are computed in accordance with standard methods prescribed
by the SEC. Under these methods, the USAA Life Money Market Variable Annuity
Fund Account's yield is calculated based on a hypothetical Contract having a
beginning balance of one Accumulation Unit in the USAA Life Money Market
Variable Annuity Fund Account for a specified seven-day period. Yield is
determined by dividing the net change in the Accumulation Unit Value during the
seven-day period, reduced by the estimated daily equivalent of the Contract
Maintenance Charge, by its beginning value to obtain the base period return,
then multiplying the base period return by the fraction 365/7. The net change
in Accumulation Unit Value will reflect the value of additional shares purchased
with the dividends paid by the Trust, but will not reflect any realized capital
gains or losses or unrealized appreciation or depreciation in the assets of the
Variable Annuity Fund Account.
The effective yield of the USAA Life Money Market Variable Annuity Fund Account
reflects the effects of compounding, and is computed according to the following
formula prescribed by the SEC:
Effective Yield = [(Base Period Return + 1) /365/7/] - 1
For the seven day period ended December 31, 1995, the current yield of the USAA
Life Variable Annuity Money Market Fund Account was 4.29%.
8
<PAGE>
OTHER VARIABLE ANNUITY FUND ACCOUNTS
Each Variable Annuity Fund Account may state its TOTAL RETURN or YIELD in sales
literature and advertisements. Any statements of total return, yield, or other
performance data of a Variable Annuity Fund Account, other than yield quotations
of the USAA Life Money Market Variable Annuity Fund Account, will be accompanied
by information on that Variable Annuity Fund Account's standardized average
annual total return for the most recent 1, 5, or 10 year periods or, if less,
the period from the Variable Annuity Fund Account's inception of operation.
9
<PAGE>
AVERAGE ANNUAL TOTAL RETURN. Standardized average annual total return is
computed according to the following formula prescribed by the SEC, based on a
hypothetical $1,000 Contract Value:
P (1 + T)/n/ = ERV
Where:
P = A hypothetical initial premium payment of $1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical $1,000 Contract Value at the
end of the period.
Non-standardized average annual total return is computed in a similar manner,
except that different time periods and hypothetical initial payments may be
used, and certain charges may not be reflected.
The standardized average annual total returns for each Variable Annuity Fund
Account for the period from February 6, 1995 (commencement of operations)
through December 31, 1995 were as follows:
Standardized Average
Variable Annuity Fund Account Annual Total Return*
USAA Life VA Money Market Fund Account 3.97%
USAA Life VA Income Fund Account 18.39%
USAA Life VA Growth and Income Fund Account 25.70%
USAA Life VA World Growth Fund Account 19.37%
USAA Life VA Diversified Assets Fund Account 22.34%
Scudder VLIF Capital Growth Portfolio 25.33%
Alger American Fund Growth Portfolio 30.86%
*Periods less than a year are not annualized
10
<PAGE>
CUMULATIVE TOTAL RETURN. Cumulative total return is calculated in a manner
similar to standardized average annual total return, except that the results are
not annualized. The SEC has not prescribed a standard formula for calculating
cumulative total return. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical initial investment of $1,000 over
various periods, according to the following formula, and then expressing that as
a percentage:
C = (ERV/P) - 1
Where:
P= A hypothetical initial payment of $1,000.
C= Cumulative total return.
ERV= Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the applicable period.
Cumulative total returns for each Variable Annuity Fund Account for the period
from February 6, 1995 (commencement of operations) through December 31, 1995 are
the same as the average annual total returns (un-annualized) as shown
above.
30-DAY YIELD. Each Variable Annuity Fund Account, other than the USAA Life
Money Market Variable Annuity Fund Account, may also advertise its yield based
on a specified 30-day period. Yield is determined by dividing the net
investment income per Accumulation Unit earned during the 30-day period by the
Accumulation Unit Value on the last day of the period and annualizing the
resulting figure, according to the following formula prescribed by the SEC,
which assumes a semi-annual reinvestment of income:
[ a-b /6/ ]
YIELD = 2 [(----- + 1) - 1]
[ cd ]
11
<PAGE>
Where:
a = Net investment income earned during the period by the Fund whose shares
are owned by the Variable Annuity Fund Account.
b = Expenses accrued for the period.
c = The average daily number of Accumulation Units outstanding during the
period.
d = The maximum offering price per Accumulation Unit on the last day of the
period.
ANNUITY PAYMENTS
GENDER OF ANNUITANT
When annuity payments are based on life expectancy, the amount of each annuity
payment ordinarily will be higher if the Annuitant or other measuring life is a
male, as compared with a female under an otherwise identical Contract, because,
statistically, females tend to have longer life expectancies than males.
However, there will be no differences between males and females in any
jurisdiction, including Montana, where such differences are not permitted. We
may also make available Contracts with no such differences in connection with
certain employer-sponsored benefit plans. Employers should be aware that under
most such plans, Contracts that make distinctions based on gender are prohibited
by law.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the age or sex of an Annuitant has been misstated to us, any amount payable
will be that which the premium payments paid would have purchased at the correct
age and sex. If we made any overpayments because of incorrect information about
age or sex, or any error or miscalculation, we will deduct the overpayment from
the next payment or payments due. We will add any underpayments to the next
payment. The amount of any adjustment will be credited or charged with interest
at the effective annual rate of 3% per year.
ANNUITY UNIT VALUE
Annuity Unit Value is calculated at the same time that Accumulation Unit Value
is calculated and is based on the same values for shares of the Funds. The
following illustrations show, by use of hypothetical examples, the methods of
determining the Annuity Unit Value and the amount of Variable Annuity Payments.
12
<PAGE>
Illustration of Calculation of Annuity Unit Value
- -------------------------------------------------
Annuity at age 65: Life with 120 payments certain:
<TABLE>
<CAPTION>
<S> <C>
1. Annuity Unit Value, beginning of $ .980000
period
2. Assume Net Investment Factor for 1.001046
period equal to
3. Daily adjustment for 3.0% Assumed .999919
Investment Rate
4. (2) x (3) 1.000965
5. Annuity Unit Value, end of period $ .980946
(1) x (4)
Illustration of Annuity Payments
- ----------------------------------------
Annuity at age 65: Life with 120
payments certain:
1. Number of Accumulation Units at 10,000.00
Annuity Date
2. Assume Accumulation Unit Value (as
of the end of the Valuation Period
immediately prior to the tenth day 1.800000
before the first monthly payment)
equal to
3. Contract Value (1) x (2) $18,000.00
4. First monthly annuity payment per $ 5.48
$1,000 of Contract Value
5. First monthly annuity payment (3) x $ 98.64
(4) /$ 1,000
6. Annuity Unit Value (as of the end
of the Valuation Period immediately
prior to the tenth day before the $ .980000
first month payment)
7. Number of Annuity Units (5) / (6) 100.653
8. Assume Annuity Unit Value for
second month equal to $ .997000
9. Second monthly annuity payment (7) $ 100.35
x (8)
10. Assume annuity unit value for
third month equal to $ .953000
11. Third monthly annuity payment (7) $ 95.92
x (10)
</TABLE>
13
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the Company and the accompanying Report of
Independent Auditors are set out below. The financial statements for the Company
included herein should be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts, which include death
benefits and its assumption of mortality and expense risks. The financial
statements for the Separate Account for the period from February 6, 1995
(commencement of operations) through December 31, 1995, and the accompanying
Report of Independent Auditors are incorporated into this SAI by reference to
the Separate Account's Annual Report.
14
<PAGE>
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) List of Financial Statements
1. Part A. Condensed financial information reflecting the results of the
Separate Account's first fiscal period of operations is included in
Part A of this Registration Statement.
2. Part B. Financial statements reflecting the results of the Separate
Account's first fiscal period of operations are incorporated into Part
B of this Registration Statement by reference to the Separate Account's
Annual Report.
3. Part B. The following financial statements of USAA Life Insurance Company
("USAA Life") are included in Part B of the Registration Statement:
Consolidated Financial Statements as of December 31, 1995, 1994, and
1993, and each of the years in the period then ended.
Index to Consolidated Financial Statements & Financial Statement
Schedules
Independent Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Stockholder's Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedules
1
<PAGE>
(b) Exhibits
1. Copies of the Resolution of the Board of Directors of USAA Life Insurance
Company, effective February 8, 1994, establishing the Separate Account of
USAA Life Insurance Company, and Amendment thereto, dated July 29,
1994/1/.
2. Not Applicable.
3. Distribution and Administration Agreement by and between USAA Life
Insurance Company and USAA Investment Management Company, dated December
16, 1994/2/.
4. (a) Form of Flexible Premium Deferred Combination Fixed and Variable
Annuity Contract, including endorsements/1/.
(b) TSA Loan Endorsement/2/.
5. (a) Forms of Applications for Flexible Premium Deferred Combination Fixed
and Variable Annuity Contract/1/.
(b) Proposed Telephone Authorization Form/2/.
(c) Proposed Section 1035 Exchange Form/2/.
6. (a) Articles of Incorporation of USAA Life Insurance Company, as
amended/1/.
(b) Bylaws of USAA Life Insurance Company/1/.
7. Not Applicable.
8. (a) Third Party Administrator Agreement by and between USAA Life
Insurance Company and Continuum Administrative Services Corporation
(formerly known as Vantage Computer Systems, Inc.), dated July 5,
1994 (excluding exhibits)/1/.
2
<PAGE>
(b) Servicing Agreement by and between USAA Life Insurance Company and
USAA Transfer Agency Co. d/b/a USAA Shareholder Account Services,
dated February 3, 1995/3/.
(c) Underwriting and Administrative Services Agreement by and between
USAA Life Insurance Company, USAA Life Investment Trust and USAA
Investment Management Company, dated December 14, 1994/3/.
(d) (i) Participation Agreement by and between Scudder Variable Life
Investment Fund and USAA Life Insurance Company, dated February
3, 1995/3/.
(ii) Participating Contract and Policy Agreement by and between
Scudder Investor Services, Inc. and USAA Investment Management
Company, dated February 3, 1995/3/.
(iii) Reimbursement Agreement by and between Scudder, Stevens & Clark,
Inc. and USAA Life Insurance Company, dated February 3,
1995/3/.
(iv) Letter Agreement by and between Scudder, Stevens & Clark, Inc.,
Scudder Investor Services, Inc., Scudder Variable Life
Investment Fund, USAA Life Insurance Company and USAA Investment
Management Company, dated February 3, 1995/3/.
(e) (i) 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,
1994/2/.
(ii) Expense Allocation Agreement by and between Fred Alger
Management, Inc., Fred Alger & Company, Incorporated, and USAA
Life Insurance Company, dated December 16, 1994/2/.
9. Opinion and Consent of Counsel concerning the legality of the securities
being registered/1/.
10. Consent of KPMG Peat Marwick LLP, Independent Auditors.
11. Not Applicable.
12. (a) Subscription Agreement by and between USAA Life Insurance
Company and USAA Life Investment Trust, dated December 16, 1994.
(b) Ratification of Subscription Agreement Modification approved by the
Board of Trustees of USAA Life Investment Trust ("Trust") on
November 30, 1995, incorporated by reference to Exhibit 13(b) to
Post-Effective Amendment No. 2 to the USAA Life Investment Trust's
Registration Statement on Form N-1A (File No. 33-82270).
3
<PAGE>
13. (a) Schedules for computing hypothetical historical performance
quotations provided in the Registration Sttement in response to
Item 21 thereof./2/
(b) Schedules for computations of each performance quotation provided in
the Registration Statement in response to Item 21 thereof.
14. The Financial Data Schedule required to be filed pursuant to Form N-4,
Item 24(b)(14), is filed herewith as Exhibit 27, as dictated by the
Securities and Exchange Commission's Electronic Data Gathering,
Analysis, and Retrieval System.
16. (a) Powers of Attorney for: Robert T. Herres, Edwin L. Rosane,
M. Staser Holcomb, Michael J.C. Roth, and
James A. Robinson/1/.
(b) Power of Attorney for Josue Robles, Jr./2/.
(c) Powers of Attorney for Benjamin T. Hacker and Bradford W. Rich.
27. Financial Data Schedule
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The Directors and officers of USAA Life, the depositor of the Separate
Account, are set out below. The principal business address for all of the
following Directors and officers of USAA Life is 9800 Fredericksburg Road, San
Antonio, Texas 78288.
Directors: Positions on the Board:
---------- -----------------------
Robert T. Herres Chairman
Edwin L. Rosane Vice Chairman
Benjamin T. Hacker Director
M. Staser Holcomb Director
Bradford W. Rich Director
Michael J. C. Roth Director
Josue Robles, Jr. Director
/1/ Previously filed on August 1, 1994 in the initial filing of this
Registration Statement.
/2/ Previously filed on December 22, 1994 in Pre-Effective Amendment No. 1 to
this Registration Statement.
/3/ Previously filed on April 28, 1995 in Post-Effective Amendment No. 1 to this
Registration Statement.
4
<PAGE>
Officers: Positions with USAA Life:
--------- -------------------------
Edwin L. Rosane Chief Executive Officer and President
John W. Douglas Senior Vice President
Kenneth A. McClure Senior Vice President
James A. Robinson Senior Vice President and Treasurer
Edward R. Dinstel Vice President
Larkin W. Fields Vice President and Assistant Treasurer
Robert J. Flannery Vice President
King Mawhinney Vice President
Bradford W. Rich Vice President and Secretary
Pattie S. McWilliams Vice President
Stephen N. Patzman Vice President
Arthur E. Settles Vice President
Dwain A. Akins Assistant Vice President and
Assistant Secretary
Bruce W. Clements Assistant Vice President and
Assistant Secretary
Richard T. Halinski, Jr. Vice President and
Assistant Secretary
James Middleton Assistant Vice President
Allen Pierce Assistant Vice President
Jack Ward Vice President
Gary Younglove Assistant Vice President
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Information in response to this Item is incorporated by reference to
Exhibit 20 to Post-Effective Amendment No. 2 to the USAA Life Investment Trust's
Registration Statement on Form N-1A (File No. 33-82270).
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1996, there were 838 owners of Contracts covered by this
Registration Statement.
ITEM 28. INDEMNIFICATION
The information called for by this Item is incorporated herein by reference
to Article IX of the By-Laws of USAA Life, filed as Exhibit 6(b) of the initial
filing, on August 1, 1994, of Registrant's Form N-4 Registration Statement; to
Section 9 of the Underwriting and Administrative Services Agreement, filed as
Exhibit 8(c) hereto; to Section 14 of the Distribution and Administration
Agreement, filed as Exhibit 3 of Pre-Effective Amendment
5
<PAGE>
No.1, on December 22, 1994 of Registrant's Form N-4 Registration Statement; and
to Section 14 of the Transfer Agent Agreement, filed as Exhibit 8(c) of Pre-
Effective Amendment No. 1 to the Form N-1A Registration Statement of USAA Life
Investment Trust File No. 33-82270 and No. 811-8672, on December 22, 1994.
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "1933 Act") may be permitted for Directors, Officers and controlling
persons of USAA Life pursuant to the foregoing, or otherwise, USAA Life has been
advised that in the opinion of the Securities and Exchange Commission (the
"Commission"), such indemnification is against public policy as expressed in the
1933 Act and, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by USAA Life of
expenses incurred or paid by a Director, officer or controlling person of USAA
Life 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, USAA Life will, unless in the opinion of its counsel this
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 1933 Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) USAA Investment Management Company ("USAA IMCO") is the principal
underwriter for the Contracts.
(b) The following are the Directors and officers of USAA IMCO:
Directors: Positions with USAA IMCO:
---------- -------------------------
M. Staser Holcomb Chairman
Michael J. C. Roth Vice Chairman
Bradford W. Rich Director
Harry W. Miller Director
Josue Robles, Jr. Director
John W. Saunders, Jr. Director
Mark W. Wright Director
Officers: Positions with USAA IMCO:
--------- -------------------------
Michael J.C. Roth CEO and President
John J. Dallahan Senior Vice President
Harry W. Miller Senior Vice President
John W. Saunders, Jr. Senior Vice President
Carl W. Shirley Senior Vice President
Alex M. Ciccone Vice President & Assistant Secretary
Christopher W. Claus Vice President
6
<PAGE>
Sherron A. Kirk Vice President and Controller
William R. Pederson Vice President
David G. Peebles Vice President
Michael D. Wagner Vice President & Secretary
Kenneth E. Willmann Vice President
Patricia P. Cavazos Assistant Vice President
R. Matthew Freud Assistant Vice President
Clifford A. Gladson Assistant Vice President
Jane L. Hill Assistant Vice President
Mark W. Johnson Assistant Vice President
David G. Miller Assistant Vice President
Robert R. Pariseau Assistant Vice President
David G. Parsons Assistant Vice President
Thomas Ramos Assistant Vice President
R. David Ullom Assistant Vice President
Stuart H. Wester Assistant Vice President
The principal business address for all of the above Directors and officers
of USAA IMCO is 9800 Fredericksburg Rd., San Antonio, Texas 78288.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of Registrant are located at the offices of its
depositor, USAA Life, located at 9800 Fredericksburg Road, San Antonio, Texas,
78288; the offices of the principal underwriter of the Contracts, USAA IMCO,
located at 10750 Robert F. McDermott Freeway, San Antonio, Texas, 78288; and at
the office of its administrator, Continuum Administrative Services Corporation,
at 301 West 11th Street, Kansas City, Missouri, 64105.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file a Post-Effective Amendment to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more
than sixteen months old for so long as payments under the Variable Annuity
Contracts may be accepted;
7
<PAGE>
(b) Registrant hereby undertakes to include either (1) as part of any
Application to purchase a Contract offered by the Prospectus, a space that
an applicant can check to request a Statement of Additional Information
("SAI"), or (2) a toll-free number that an applicant can call or a postcard
or similar written communication affixed to or included in the Prospectus
that the applicant can remove to send for a SAI; and
(c) Registrant undertakes to deliver any SAI and any financial statements
required to be made available under this Form promptly upon written or oral
request.
Registrant hereby represents that it is relying upon the letter, dated
November 28, 1988, from the Commission staff to the American Council of Life
Insurance, regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment
Company Act of 1940 and the redeemability of variable annuity contracts offered
as funding vehicles for retirement plans meeting the requirements of Section
403(b) of the Internal Revenue Code. Registrant further represents that it
intends to comply with the provisions of paragraphs (1)-(4) of that letter.
8
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, Registrant certifies that it meets the requirements of
Securities Act Rule 485 for effectiveness of this Registration Statement and has
duly caused this amended Registration Statement to be signed on its behalf by
the undersigned thereunto duly authorized, in the City of San Antonio and State
of Texas on this 25th day of April, 1996.
THE SEPARATE ACCOUNT
OF USAA LIFE INSURANCE COMPANY
(Registrant)
By: USAA LIFE INSURANCE COMPANY
(On behalf of Registrant and itself)
By: /s/EDWIN L. ROSANE
--------------------------------------
Edwin L. Rosane
President and Chief Executive Officer
Attest: /s/RICHARD T. HALINSKI, JR.
--------------------------------------
Richard T. Halinski, Jr.
Assistant Secretary
9
<PAGE>
As Required by the Securities Act of 1933, this amended Registration
Statement has been signed by the following Directors and officers of the
Depositor on the dates indicated:
<TABLE>
<CAPTION>
NAME POSITION DATE
- ---- --------- ----
<S> <C> <C>
Robert T. Herres Chairman April 29, 1996
Edwin L. Rosane Vice Chairman, April 25, 1996
Chief Executive Officer,
and President
Benjamin T. Hacker Director April 25, 1996
M. Staser Holcomb Director April 25, 1996
Bradford W. Rich Director April 29, 1996
Josue Robles, Jr. Director April 29, 1996
Michael J.C. Roth Director April 29, 1996
James A. Robinson Senior Vice President April 29, 1996
and Treasurer
(Principal Financial and
Accounting Officer)
</TABLE>
10
<PAGE>
EXHIBIT INDEX
EXHIBIT
- ----------
10 Consent of KPMG Peat Marwick, L.L.P., Independent Auditors
13 Schedules for computations of each performance quotation provided in
the Registration Statement in response to Item 21 thereof
16(c) Powers of Attorney for Benjamin T. Hacker and Bradford W. Rich
27 Financial Data Schedule
<PAGE>
EXHIBIT 10
The Board of Directors and Contractowners
Separate Account of USAA Life Insurance Company
USAA Life Insurance Company
We consent to the use of our report dated February 9, 1996 on the financial
statements of the USAA Life Variable Annuity (VA) Money Market Fund Account,
USAA Life VA Income Fund Account, USAA Life VA Growth and Income Fund Account,
USAA Life VA World Growth Fund Account, USAA Life VA Diversified Assets Fund
Account, the Scudder Variable Life Investment Fund Capital Growth Portfolio and
the Alger America Fund Alger American Growth Portfolio of the Separate Account
of USAA Life Insurance Company (the Company) as of December 31, 1995 and for the
period February 6 (commencement of operations) through December 31, 1995,
included in the Company's Annual Report to Contractowners for the period
February 6, 1995 through December 31, 1995, incorporated herein by reference and
to the references to our firm under the headings "Financial Information" and
"Selected Accumulated Unit Data" as part of Post-Effective Amendment No. 2 under
the Securities Act of 1933, as amended, and Amendment No. 3 under the Investment
Company Act of 1940, as amended, to the Registration Statement on Form N-4.
We also consent to the use of our report dated March 28, 1996 on the
consolidated balance sheets of USSA Life Insurance Company and subsidiary as of
December 31, 1995, 1994, and 1993, and the related consolidated statements of
income, stockholders' equity, and cash flows for the years then ended included
herein and to the references to our firm under the heading "Independent
Auditors" as part of Post-Effective Amendment No. 2 under the Securities Act of
1933, as amended, and Amendment No. 3 under the Investment Company Act of 1940,
as amended, to the Registration Statement on Form N-4.
KPMG Peat Marwick LLP
San Antonio, Texas
April 26, 1996
<PAGE>
EXHIBIT 13
Schedules for computations of each performance quotation provided in the
Registration Statement in response to Item 21 thereof
<PAGE>
YIELD QUOTATION COMPUTATION
The USAA Life Variable Annuity Money Market Fund Account's yield quotation is
based on the seven days ended on the date of the most recent balance sheet,
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the sub-account at the beginning of the period, subtracting
a hypothetical charge reflecting deductions from contractowner accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period return
by (365/7) with the resulting yield figure carried to at least the nearest
hundredth of one percent.
Seven-day Simple Yield for Period Ended December 31, 1995
Beginning AUV* at 12/23/95= 1.039103
Ending AUV* at 12/29/95= 1.039957
Base Period Return
($1.039957 - $1.039103)/$1.039103= 0.000822
Yield Figure
0.000822* 365/7= 0.0429 or 4.29%
*AUV's are calculated using:
(1) dividend rates which exclude capital gains/losses and
(2) deductions from contractowner accounts as follows:
1.05% for M&E
0.10% for Admin
0.10% for Maintenance Fee ($30 maintenance fee/mean
account size of $29,883)
1.25% total/365 0.000034247 daily expense
factor
<PAGE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RETURN COMPUTATIONS
The Average Annual Returns for the following variable annuity fund accounts were
computed according to the following formula:
n
P(1 + T) =ERV
Where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1000 made at the
beginning of the 1, 5, or 10 year (or other) periods at end
of the 1, 5, 10 year (or other) periods (or fractional
portion thereof)
The Cumulative Total Returns for the following variable annuity fund accounts
were computed according to the following formula:
T = ERV/P - 1
Where:
P = a hypothetical initial payment of $1000
T = cumulative total return
ERV = Ending Redeemable Value of a hypothetical $1000 made at the
beginning of the 1.5, or 10 year (or other) periods at end
of the 1.5, 10 year (or other) periods (or fractional
portion thereof)
<TABLE>
<CAPTION>
Average Annual
Total Return Cumulative Total Return
for Period Ended 12/31/95 for Period Ended 12/31/95
------------------------- -------------------------
<S> <C> <C>
USAA Life Variable Annuity 1
Money Market Fund Account $1000(1 + T) = $1,039.73 T = $1.039.73 / $1000 - 1
T = 3.97% T = 3.97%
USAA Life Variable Annuity 1
Income Fund Account $1000(1 + T) = $1,183.88 T = $1,183.88 / $1000 - 1
T = 18.39% T = 18.39%
USAA Life Variable Annuity 1
Growth and Income Fund Account $1000(1 + T) = $1,257.00 T = $1,257.00 / $1000 - 1
T = 25.70% T = 25.70%
USAA Life Variable Annuity 1
World Growth Fund Account $1000(1 + T) = $1,193.74 T = $1,193.74 / $1000 - 1
T = 19.37% T = 19.37%
USAA Life Variable Annuity 1
Diversified Assets Fund Account $1000 (1 + T) = $1,223.38 T = $1,223.39 / $1000 - 1
T = 22.34% T = 22.34%
Scudder VLIF Capital Growth 1
Portfolio - Class A shares $1000 (1 + T) = $1,253.32 T = $1,253.32 / $1000 - 1
T = 25.33% T = 25.33%
1
Alger American Growth Portfolio $1000 (1 + T) = $1,308.56 T = $1,308.56 / $1000 - 1
T = 30.86% T = 30.86%
</TABLE>
<PAGE>
USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND ACCOUNT
Calculation of ERV
Initial investment: hypothetical $1000 payment made at beginning
of period
Initial AUV at 2/6/95: $1.000000
Initial units: Initial investment / initial AUV=
$1000 / $1.000000= 1000
Deduction for Maintenance Fee:
Amount deducted: Initial investment/mean account size x $30 maintenance fee
1,000 / 29883 x 30= $1.00
Amount deducted / ending AUV at 12/31/95= # of units redeemed
$1.00/$1.040729= 0.961
Ending Units: Initial units - # of units redeemed for maintenance fee
1000-0.961 = 999.039
Ending redeemable value: ending units * ending AUV
999.039*$1.040729=$1,039.73
<PAGE>
USAA LIFE VARIABLE ANNUITY INCOME FUND ACCOUNT
Calculation of ERV
Initial Investment: hypothetical $1000 payment made at beginning of period
Initial AUV at 2/6/95: $10.000000
Initial units: initial investment/initial AUV=
$1000/$10.000000= 100
Deduction for Maintenance Fee:
Amount deducted: initial investment/mean account size x $30 maintenance fee
1,000/29883 x $30= $1.00
Amount deducted / ending AUV at 12/31/95= # of units redeemed
$1.00/$11.848795= 0.084
Ending Units: initial units - # of units redeemed for maintenance fee
1000 - 0.084= 99.916
Ending redeemable value: ending units * ending AUV
99.916*$11.848795= $1,183.88
<PAGE>
USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND ACCOUNT
Calculation of ERV
Initial investment: hypothetical $1000 payment made at beginning of period
Initial AUV at 2/6/95: $10.000000
Initial units: initial investment / initial x AUV=
$1000/$10.000000= 100
Deduction for Maintenance Fee:
Amount deducted: initial investment / mean account size x $30 maintenance fee
1,000/29883 x $30 = $1.00
Amount deducted / ending AUV at 12/31/95= # of units redeemed
$1.00 / $12.579981 = 0.079
Ending Units: initial units - # of units redeemed for maintenance fee
1000 - 0.079= 99.921
Ending redeemable value: ending units * ending AUV
99.921*$12.579981= $1,257.00
<PAGE>
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND ACCOUNT
Calculation of ERV
Initial investment: hypothetical $1000 payment made at beginning of period
Initial AUV at 2/6/95: $10.000000
Initial units: initial investment / initial AUV=
$1000 / $10.000000= 100
Deduction for Maintenance Fee:
Amount deducted: initial investment / mean account size x $30 maintenance fee
1,000 / 29883 x $30= $1.00
Amount deducted / ending AUV at 12/31/95= # of units redeemed
$1.00 / $11.947438 0.084
Ending Units: Initial units - # of units redeemed for maintenance fee
1000 - 0.084= 99.916
Ending redeemable value: ending units * ending AUV
99.916*$11.947438= $1,193.74
<PAGE>
USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND ACCOUNT
Calculation of ERV
Initial investment: hypothetical $1000 payment made at beginning of period
Initial AUV at 2/6/95: $10.000000
Initial units: initial investment / initial AUV=
$1000/$10.000000= 100
Deduction for Maintenance Fee:
Amount deducted: initial investment/mean account size x $30 maintenance fee
1,000 / 29883 x $30= $1.00
Amount deducted / ending AUV at 12/31/95= # of units redeemed
$1.00 / $12.243941 = 0.082
Ending Units: initial units - # of units redeemed for maintenance fee
1000 - 0.082= 99.918
Ending redeemable value: ending units * ending AUV
99.918*$12.243941= $1,223.39
<PAGE>
SCUDDER VLIF CAPITAL GROWTH PORTFOLIO - CLASS A SHARES
Calculation of ERV
Initial investment: hypothetical $1000 payment made at beginning of period
Initial AUV at 2/6/95: $10.000000
Initial units: initial investment / initial AUV=
$1000/ $10.000000= 100
Deduction for Maintenance Fee:
Amount deducted: initial investment/mean account size x $30 maintenance fee
1,000/29883 x $30= $1.00
Amount deducted / ending AUV at 12/31/95= # of units redeemed
$1.00 / $12.543192= 0.080
Ending Units: Initial units - # of units redeemed for maintenance fee
1000 - 0.080= 99.920
Ending redeemable value: ending units * ending AUV
99.920 * $12.543192= $1,253.32
<PAGE>
ALGER AMERICAN GROWTH PORTFOLIO
Calculation of ERV
Initial investment: hypothetical $1000 payment made at beginning of period
Initial AUV at 2/6/95: $10.000000
Initial units: initial investment / initial AUV=
$1000/$10.000000= 100
Deduction for Maintenance Fee:
Amount deducted: initial investment / mean account size x $30 maintenance fee
1,000 / 29883 x $30= $1.00
Amount deducted / ending AUV at 12/31/95 # of units redeemed
$1.00 / $13.095503= 0.076
Ending Units: initial units - # of units redeemed for maintenance fee
1000 - 0.076= 99.924
Ending redeemable value: ending units * ending AUV
99.924 * $13.095503 $1,308.56
<PAGE>
EXHIBIT 16(c)
Powers of Attorney for Benjamin T. Hacker and Bradford W. Rich
<PAGE>
EXHIBIT 16(c)
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
Richard T. Halinski, Jr. 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 4/15/96
- --------------------------------- ---------------
Bradford W. Rich Date
Director
On this 15th day of April 1996, before me, Sharon K. Gonzales 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
/s/ Sharon Kay Gonzales
----------------------------------
Notary Public
My commission expires 12-31-96.
<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
Richard T. Halinski, Jr. 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 4/15/96
- --------------------------------- ---------------
Bradford W. Rich, Date
Director
On this 15th day of April 1996, before me, Sharon K. Gonzales the undersigned
Notary Public, personally appeared Benjamin T. Hacker, 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
/s/ Sharon Kay Gonzales
----------------------------------
Notary Public
My commission expires 12-31-96.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> USAA LIFE VA MONEY MARKET FUND ACCOUNT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-6-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 5,702
<INVESTMENTS-AT-VALUE> 5,702
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,702
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 5,478
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,702
<DIVIDEND-INCOME> 128
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (26)
<NET-INVESTMENT-INCOME> 102
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 102
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,702
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> USAA LIFE VA INCOME FUND ACCOUNT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-6-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,086
<INVESTMENTS-AT-VALUE> 1,051
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,051
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 89
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,051
<DIVIDEND-INCOME> 91
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (4)
<NET-INVESTMENT-INCOME> 87
<REALIZED-GAINS-CURRENT> 16
<APPREC-INCREASE-CURRENT> (35)
<NET-CHANGE-FROM-OPS> 68
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,051
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> USAA LIFE VA GROWTH AND INCOME FUND ACCOUNT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-6-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2,561
<INVESTMENTS-AT-VALUE> 2,574
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,574
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 205
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,574
<DIVIDEND-INCOME> 111
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (8)
<NET-INVESTMENT-INCOME> 103
<REALIZED-GAINS-CURRENT> 57
<APPREC-INCREASE-CURRENT> 13
<NET-CHANGE-FROM-OPS> 173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,574
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> USAA LIFE VA WORLD GROWTH FUND ACCOUNT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-6-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,964
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<PAGE>
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<NAME> USAA LIFE VA DIVERSIFIED ASSETS FUND ACCOUNT
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<PAGE>
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<NAME> SCUDDER VLIF CAPITAL GROWTH PORTFOLIO-CLASS A SHARES
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<S> <C>
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<PAGE>
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<NAME> ALGER AMERICAN GROWTH PORTFOLIO
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