<PAGE>
USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
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TABLE OF CONTENTS
This report is for the information of USAA Life Variable Annuity contractowners
and others who have received a copy of the currently effective Variable Annuity
prospectus. It may be used as sales literature only when preceded or accompanied
by a current prospectus which includes complete information. The USAA Life
Variable Annuity is distributed by USAA Investment Management Company, a
registered broker dealer.
<TABLE>
<CAPTION>
<S> <C>
PRESIDENT'S MESSAGE........................................................... 3
USAA LIFE VARIABLE ANNUITY SEPARATE ACCOUNT................................... A-7--A-17
Overview of the Variable Annuity Fund Accounts................................ A-9
Independent Auditors' Report.................................................. A-10
Statements of Assets and Liabilities.......................................... A-11
Statements of Operations...................................................... A-12
Statements of Changes in Net Assets........................................... A-13
Notes to Financial Statements................................................. A-14
USAA LIFE INVESTMENT TRUST.................................................... B-19--B-64
USAA Life VA Money Market Fund - An Overview.................................. B-21
USAA Life VA Income Fund - An Overview........................................ B-23
USAA Life VA Growth and Income Fund - An Overview............................. B-25
USAA Life VA World Growth Fund - An Overview.................................. B-27
USAA Life VA Diversified Assets Fund - An Overview............................ B-31
Independent Auditors' Report.................................................. B-34
USAA Life VA Money Market Fund Portfolio of Investments in Securities......... B-35
USAA Life VA Income Fund Portfolio of Investments in Securities............... B-38
USAA Life VA Growth and Income Fund Portfolio of Investments in Securities.... B-40
USAA Life VA World Growth Fund Portfolio of Investments in Securities......... B-44
USAA Life VA Diversified Assets Fund Portfolio of Investments in Securities... B-53
Notes to Portfolios of Investments in Securities.............................. B-55
Statements of Assets and Liabilities.......................................... B-56
Statements of Operations...................................................... B-57
Statements of Changes in Net Assets........................................... B-58
Notes to Financial Statements................................................. B-60
SCUDDER VARIABLE LIFE INVESTMENT FUND (VLIF)
CAPITAL GROWTH PORTFOLIO................................................... C-65--C-83
Letter from the Fund's President.............................................. C-67
Capital Growth Portfolio Management Discussion................................ C-68
Capital Growth Portfolio Summary.............................................. C-69
Investment Portfolio.......................................................... C-70
Financial Statements.......................................................... C-74
Financial Highlights.......................................................... C-77
Notes to Financial Statements................................................. C-78
THE ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO............................................. D-85--D-99
Portfolio Highlights.......................................................... D-89
Schedule of Investments....................................................... D-90
Financial Highlights.......................................................... D-92
Statement of Assets and Liabilities........................................... D-93
Statement of Operations....................................................... D-94
Statement of Changes in Net Assets............................................ D-95
Notes to Financial Statements................................................. D-97
</TABLE>
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USAA LIFE VARIABLE ANNUITY ANNUAL REPORT
PRESIDENT'S MESSAGE
FROM THE DESK OF ED ROSANE
[PHOTO OF ED ROSANE APPEARS HERE]
It seems like only yesterday that we were celebrating the close of 1995 and
the state of generally positive economic conditions which prevailed throughout
1996. Early on in the year, bearish analysts kept us on the edge of our seats
waiting for the inevitable market correction. And for awhile in July, we all
thought it had finally hit but the downturn didn't endure. In fact, the Dow
Jones Industrial Average broke 44 records throughout the year in its climb to a
year-end close of 6448.27. This 26 percent increase over 1995 represented the
Dow's sixth consecutive year to post a record high closing - a first for the
index in its 100-year history. The year's only dark cloud was the lagging bond
market.
1996 was also a record setting year for USAA Life's Variable Annuity. We
issued 2,684 contracts bringing the total number of contractowners to 3,673. In
addition, you paid in $70,018,413 in premium bringing the product's net assets
to $98,518,442.
1996 ANNUAL REPORT 3
<PAGE>
USAA LIFE VARIABLE ANNUITY ANNUAL REPORT
PRESIDENT'S MESSAGE
HOW THE MARKET FARED
- --------------------
Keeping up with market activity on a daily basis was a bit challenging in
1996. As you review the performance of the Variable Annuity's fund accounts,
an overview of key market indicators will help you keep things in perspective.
The data to the right reflects the status of such indicators as of the close of
the last business day of each month as reported in the Wall Street Journal.
HOW THE MARKET AFFECTED USAA LIFE'S VARIABLE ANNUITY
- ----------------------------------------------------
Once again, the performance of USAA Life's Variable Annuity fund accounts
emulated the market's activity. In fact, six out of seven closed the year at an
accumulation unit value (AUV) higher than that posted at the end of 1995
providing contractowners solid returns. (The AUV for each fund account as of
December 31, 1996 can be found on page A-9.)
The table to the right provides the AUV average annual total returns for
each fund account which includes the deduction of all contract charges. As you
review this information, keep in mind that performance may not give you a sense
of a fund account's volatility, which you need to assess. It is equally
important to know the relationship between risk and reward so you can better
determine if the investment options you choose are in line with your long-term
goals.
MARKET INDICATORS
<TABLE>
<CAPTION>
Lehman Brothers
Dow Jones Fed Funds Long-Term Treasury
Industrial Average Interest Rate Bond Index Yield
------------------ ------------- ------------------
<S> <C> <C> <C>
December 29, 1995 5117.12 5.40% 6.00%
January 31, 1996 5395.30 5.86% 6.04%
February 29, 1996 5485.62 5.98% 6.57%
March 29, 1996 5587.14 5.28% 6.80%
April 30, 1996 5569.08 5.43% 7.04%
May 31, 1996 5643.18 5.49% 7.14%
June 28, 1996 5654.63 5.51% 7.00%
July 31, 1996 5528.91 5.95% 7.05%
August 30, 1996 5616.21 5.31% 7.24%
September 30, 1996 5882.17 6.00% 7.02%
October 31, 1996 6029.38 5.77% 6.69%
November 29, 1996 6521.70 5.85% 6.42%
December 31, 1996 6448.27 6.80% 6.71%
</TABLE>
AUV AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
One Year Since Inception
(12/31/95-12/31/96) (2/6/95-12/31/96)
<S> <C> <C>
USAA Life VA Money Market Fund Account 3.85% 4.17%
USAA Life VA Income Fund Account -0.70% 8.91%
USAA Life VA Growth and Income Fund Account 22.50% 25.40%
USAA Life VA World Growth Fund Account/1/ 19.64% 20.57%
USAA Life VA Diversified Assets
Fund Account 12.90% 18.49%
Scudder VLIF Capital Growth Portfolio 18.58% 23.10%
Alger American Fund Growth Portfolio 11.89% 22.14%
</TABLE>
/1/ Foreign investing is subject to additional risks which are discussed in
the Variable Annuity prospectus.
The performance data quoted represent past performance and do not represent
the actual experience of amounts invested by a particular owner. Past
performance is not a guarantee of future returns. An investment in the USAA
Life VA Money Market Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1. The principal value contributed to the other six
fund accounts will fluctuate. When variable annuity accumulation units are
redeemed, they may be worth more or less than their original cost.
4 ANNUAL REPORT 1996
<PAGE>
USAA LIFE VARIABLE ANNUITY ANNUAL REPORT
PRESIDENT'S MESSAGE
KEEPING UP WITH YOUR CONTRACT
- -----------------------------
To ensure that your Variable Annuity is working to its fullest potential,
you may want to take time to conduct a review at least once a year.
MAKING THE TIME
- ---------------
Some people find it easiest to schedule this annual review at the start of a new
year when a "fiscally fit" attitude is adopted and new habits are established.
One habit to consider is to make saving for retirement a line-item expense on
your budget. In addition, you may want to consider an automatic investment
program which enables your money to flow straight from your bank or credit union
account to your Variable Annuity. By simply adding a little each month, let the
money work for you to supplement your savings for retirement.
Others find that tax season works best since they have just determined how their
money was spent the previous year. If after preparing your income tax return you
find yourself giving more to Uncle Sam, you might want to explore your options.
Increasing contributions to your retirement plan might enable you to decrease
your current tax liability and at the same time set aside more money to meet
your longer-term objectives.
Another opportune time to consider a review is your anniversary date of
employment or following a performance review. Often times these events can
result in pay increases or bonus allocations -- excellent incentives for adding
more to your long-term financial plan.
WHAT TO LOOK FOR
- ----------------
Once you make the commitment to conduct a review, start with your goals.
Goals should be updated to reflect changes in your personal circumstances such
as marriage, divorce, the birth of a child, a change in jobs, children
graduating from college, or retirement. Also ask yourself if your time frame
for achieving your goals has changed.
In addition, you should review your investment allocation. If either your
goals or time frame have changed, you may want to alter your investment
strategy. But as you explore different investment options, consider a fund
account's volatility and the amount of risk you are willing to accept.
Unfortunately, many individuals decide to change their investment allocation
in reaction to market swings. It's a natural impulse to change to different
investment options in a down market. Such changes may be appropriate but you
should stay focused on your long-term goals. If you have a long retirement
horizon, your shrewdest move could be to continue with the same allocation
strategy. And, it may also be a good time to consider contributing more to
your Variable Annuity.
If you do decide to make a change in your investment strategy and want to
explore the options of transferring money among the Variable Annuity's fund
accounts, a USAA Life Account Representative can assist you. You can transfer
money among any of the seven variable fund accounts without charge. However,
there are limitations on withdrawals from the Fixed Fund Account which could
cause some transfers to be subject to a surrender charge. These limitations
are outlined in your contract and prospectus.
LOOKING FORWARD
- ---------------
Saving for retirement is a lifelong process which requires planning, time and
effort. At USAA Life, we try to make it as easy as possible for you to get the
job done. A salaried Account Representative is only a toll-free telephone call
away to assist you with an annual review or to discuss changes to your
investment allocation. You can ask us questions and, in some instances, we'll
have a few of our own. In this way, we can provide you with accurate and
complete information which you need in order to keep your plan on track.
More than ever before you are dependent on yourself for a retirement income that
will meet your needs. As always, USAA Life is here to work with you to make sure
you meet your long-term objectives.
1-800-531-4440 (456-9050 in San Antonio)
Sincerely,
/s/ EDWIN L. ROSANE
- -------------------------------
Edwin L. Rosane, CLU, FLMI
President
USAA Life Insurance Company
1996 ANNUAL REPORT 5
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USAA LIFE
VARIABLE ANNUITY
SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
ANNUAL REPORT
December 31, 1996
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<TABLE>
<CAPTION>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
AN OVERVIEW
Variable Annuity Fund Accounts December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation AUV Average Annual AUV Average Annual
Objective Unit Value Total Return Total Return
(AUV) One Year Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Seeks the highest level
USAA LIFE VA of current income con-
MONEY MARKET sistent with preserva- $ 1.08 3.85% 4.17%
FUND ACCOUNT tion of capital and
maintenance of liquidity
- ------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE VA Seeks maximum
INCOME FUND current income without $11.79 -0.70% 8.91%
ACCOUNT undue risk to principal
- ------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE VA
GROWTH AND Seeks capital growth
INCOME FUND and current income $15.43 22.50% 25.40%
ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE VA
WORLD GROWTH Seeks long-term
FUND ACCOUNT/1/ capital appreciation $14.31 19.64% 20.57%
- ------------------------------------------------------------------------------------------------------------------------------------
Seeks long-term capital
USAA LIFE VA growth, consistent with
DIVERSIFIED ASSETS preservation of capital $13.84 12.90% 18.49%
FUND ACCOUNT and balanced by
current income
- ------------------------------------------------------------------------------------------------------------------------------------
SCUDDER VLIF Seeks to maximize
CAPITAL GROWTH long-term $14.89 18.58% 23.10%
PORTFOLIO capital growth
- ------------------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN Seeks long-term
GROWTH PORTFOLIO capital appreciation $14.67 11.89% 22.14%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Foreign investing is subject to additional risks which are discussed in
the Variable Annuity prospectus.
The inception date for the variable annuity fund accounts is February 6, 1995,
the date USAA Life's Variable Annuity was first available for purchase in some
states. The AUV total return figures are computed in accordance with a formula
prescribed by the Securities and Exchange Commission which includes the
deduction of all contract charges.
The performance data quoted represent past performance and do not represent the
actual experience of amounts invested by a particular owner. Past performance
is not a guarantee for future returns. An investment in the USAA Life VA Money
Market Fund is neither insured nor guaranteed by the U.S. Government. There can
be no assurance that the Fund will be able to maintain a stable net asset value
of $1. The principal value contributed to the other six fund accounts will
fluctuate. When variable annuity accumulation units are redeemed, they may be
worth more or less than their original cost.
1996 ANNUAL REPORT A-9
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF USAA LIFE INSURANCE COMPANY
AND CONTRACTOWNERS OF THE SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY:
We have audited the accompanying statements of assets and liabilities 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, Capital
Growth Portfolio-Class A shares of the Scudder Variable Life Investment Fund,
and American Growth Portfolio of the Alger American Fund available within the
Separate Account of USAA Life Insurance Company as of December 31, 1996, the
related statements of operations for the year ended December 31, 1996, the
statements of changes in net assets for the year ended December 31, 1996 and
the period February 6, 1995 (commencement of operations) through December 31,
1995. These financial statements are the responsibility of the Separate
Account's management. Our responsibility is to express an opinion on these
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 our audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures at December 31, 1996 included confirmation of securities owned
for the Scudder and Alger Funds' portfolios and other appropriate procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the aforementioned fund
accounts of the Separate Account of USAA Life Insurance Company as of December
31, 1996, the results of their operations for the year ended December 31, 1996,
and the changes in their net assets for the year ended December 31, 1996 and
the period February 6, 1995 through December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
San Antonio, Texas
February 5, 1997
A-10 ANNUAL REPORT 1996
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
<S> <C>
VARIABLE ANNUITY FUND ACCOUNTS (In Thousands) December 31, 1996
USAA Life USAA Life USAA Life USAA Life Scudder VLIF Alger
VA Money USAA Life VA Growth VA World VA Diversified Capital American
Market VA Income and Income Growth Assets Growth Growth
Fund Account Fund Account Fund Account Fund Account Fund Account Portfolio Portfolio
------------ ------------ ------------ ------------ -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at value:
USAA Life Investment Trust -
USAA Life VA Money Market Fund -
11,245 shares at net asset
value of $1.00 per share
(identified cost $11,245) $ 11,245
USAA Life Investment Trust -
USAA Life VA Income Fund -
483 shares at net asset
value of $10.51 per share
(identified cost $5,220) $ 5,074
USAA Life Investment Trust -
USAA Life VA Growth and Income Fund-
1,555 shares at net asset
value of $15.06 per share
(identified cost $21,737) $ 23,420
USAA Life Investment Trust -
USAA Life VA World Growth Fund -
779 shares at net asset
value of $12.77 per share
(identified cost $9,552) $ 9,949
USAA Life Investment Trust -
USAA Life VA Diversified Assets Fund -
747 shares at net asset
value of $12.95 per share
(identified cost $9,483) $ 9,676
Scudder Variable Life Investment Fund -
Capital Growth Portfolio -
622 shares at net asset
value of $16.50 per share
(identified cost $9,492) $ 10,267
Alger American Fund -
Alger American Growth Portfolio -
704 shares at net asset
value of $34.33 per share
(identified cost $22,816) $ 24,171
------------ ------------ ------------ ------------ -------------- ----------- ----------
Total assets 11,245 5,074 23,420 9,949 9,676 10,267 24,171
------------ ------------ ------------ ------------ -------------- ----------- ----------
LIABILITIES
Payable to USAA Life
Insurance Company 2 1 3 1 1 1 3
------------ ------------ ------------ ------------ -------------- ----------- ----------
Net assets (annuity
reserves) $ 11,243 $ 5,073 $ 23,417 $ 9,948 $ 9,675 $ 10,266 $ 24,168
============ ============ ============ ============ ============== =========== ==========
DEFERRED ANNUITY CONTRACTS IN
THE ACCUMULATION PERIOD:
Units owned by
participants 10,383 430 1,515 692 696 689 1,639
Unit price $1.082816 $11.785992 $15.432048 $14.314911 $13.844197 $14.894774 $14.672583
ANNUITY CONTRACTS IN
THE ANNUITY PERIOD:
Units owned by participants - - 3 3 3 - 9
Unit price - - $14.588560 $13.532488 $13.087484 - $13.870587
</TABLE>
See accompanying "Notes to Financial Statements" on page A-14.
1996 ANNUAL REPORT A-11
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
VARIABLE ANNUITY FUND ACCOUNTS (In Thousands) Year Ended December 31, 1996
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life Scudder VLIF Alger
VA Money USAA Life VA Growth VA World VA Diversified Capital American
Market VA Income and Income Growth Assets Growth Growth
Fund Account Fund Account Fund Account Fund Account Fund Account Portfolio Portfolio
------------ ------------ ------------ ------------ -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income dividends and capital
gains distributions $ 484 $ 398 $ 866 $ 496 $ 501 $ 236 $ 490
EXPENSES
Mortality and expense risk
charge 100 48 124 62 52 56 192
Administrative charge 9 4 12 6 5 6 18
------------ ------------ ------------ ------------ -------------- ----------- ----------
Total expenses 109 52 136 68 57 62 210
------------ ------------ ------------ ------------ -------------- ----------- ----------
NET INVESTMENT INCOME 375 346 730 428 444 174 280
------------ ------------ ------------ ------------ -------------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain (loss) on
investment transactions - (77) 241 106 65 41 382
Change in net unrealized
appreciation (depreciation)
on investments - (111) 1,670 437 192 743 1,269
------------ ------------ ------------ ------------ -------------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS - (188) 1,911 543 257 784 1,651
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 375 $ 158 $ 2,641 $ 971 $ 701 $ 958 $ 1,931
============ ============ ============ ============ ============== =========== ==========
See accompanying "Notes to Financial Statements" on page A-14.
</TABLE>
A-12 ANNUAL REPORT 1996
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
VARIABLE ANNUITY FUND ACCOUNTS (In Thousands) Year Ended December 31, 1996
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life Scudder VLIF Alger
VA Money USAA Life VA Growth VA World VA Diversified Capital American
Market VA Income and Income Growth Assets Growth Growth
Fund Account Fund Account Fund Account Fund Account Fund Account Portfolio Portfolio
------------ ------------ ------------ ------------ -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 375 $ 346 $ 730 $ 428 $ 444 $ 174 $ 280
Net realized gain (loss)
on investment transactions - (77) 241 106 65 41 382
Change in net unrealized
appreciation (depreciation) - (111) 1,670 437 192 743 1,269
------------ ------------ ------------ ------------ -------------- ----------- ----------
Increase in net assets
resulting from operations 375 158 2,641 971 701 958 1,931
------------ ------------ ------------ ------------ -------------- ----------- ----------
NET UNIT TRANSACTIONS 5,166 3,864 18,202 7,053 7,927 8,143 13,992
------------ ------------ ------------ ------------ -------------- ----------- ----------
TOTAL CHANGE IN NET ASSETS 5,541 4,022 20,843 8,024 8,628 9,101 15,923
NET ASSETS AT BEGINNING OF
PERIOD 5,702 1,051 2,574 1,924 1,047 1,165 8,245
------------ ------------ ------------ ------------ -------------- ----------- ----------
NET ASSETS AT END OF PERIOD $ 11,243 $ 5,073 $ 23,417 $ 9,948 $ 9,675 $ 10,266 $ 24,168
============ ============ ============ ============ ============== =========== ==========
</TABLE>
See accompanying "Notes to Financial Statements" on page A-14.
STATEMENTS OF CHANGES IN NET ASSETS
VARIABLE ANNUITY FUND ACCOUNTS (In Thousands) Period Ended December 31, 1995*
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life Scudder VLIF Alger
VA Money USAA Life VA Growth VA World VA Diversified Capital American
Market VA Income and Income Growth Assets Growth Growth
Fund Account Fund Account Fund Account Fund Account Fund Account Portfolio Portfolio
------------ ------------ ------------ ------------ -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 102 $ 87 $ 103 $ 130 $ 52 $ (2) $ (17)
Net realized gain on
investment transactions - 16 57 20 28 20 107
Change in net unrealized
appreciation (depreciation) - (35) 13 (40) 1 32 86
------------ ------------ ------------ ------------ -------------- ----------- ----------
Increase in net assets
resulting from operations 102 68 173 110 81 50 176
------------ ------------ ------------ ------------ -------------- ----------- ----------
NET ACCUMULATION
UNIT TRANSACTIONS 5,600 983 2,401 1,814 966 1,115 8,069
------------ ------------ ------------ ------------ -------------- ----------- ----------
TOTAL CHANGE IN NET ASSETS 5,702 1,051 2,574 1,924 1,047 1,165 8,245
NET ASSETS AT BEGINNING OF
PERIOD - - - - - - -
------------ ------------ ------------ ------------ -------------- ----------- ----------
NET ASSETS AT END OF PERIOD $ 5,702 $ 1,051 $ 2,574 $ 1,924 $ 1,047 $ 1,165 $ 8,245
============ ============ ============ ============ ============== =========== ==========
</TABLE>
* Separate Account commenced operations on February 6, 1995.
See accompanying "Notes To Financial Statements" on page A-14.
1996 ANNUAL REPORT A-13
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1) ORGANIZATION
The Separate Account of USAA Life Insurance Company (the Separate Account)
is registered under the Investment Company Act of 1940, as amended, as a
segregated unit investment account of USAA Life Insurance Company (USAA Life),
a wholly owned subsidiary of the United Services Automobile Association (USAA).
The Separate Account is divided into seven variable annuity fund accounts,
each of which invests in a corresponding fund. The funds' objectives can be
found on page A-9 in this report.
The fund accounts that are available within the Separate Account include:
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, and USAA Life VA Diversified Assets Fund Account;
the Capital Growth Portfolio-Class A shares of the Scudder Variable Life
Investment Fund (Scudder VLIF Capital Growth Portfolio); and the American
Growth Portfolio of the Alger American Fund (Alger American Growth Portfolio).
The assets of the Separate Account are the property of USAA Life and are not
chargeable with liabilities arising out of any other business of USAA Life.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Investments in mutual fund securities are carried in the Statements of
Assets and Liabilities at net asset value as reported by the fund. Gains or
losses on securities transactions are determined on the basis of the first-in
first-out (FIFO) cost method. Security transactions are recorded on the trade
date. Dividend income, if any, is recorded on ex-dividend date.
ANNUITY RESERVES
Annuity reserves for contracts in the payout phase are comprised of net
contract purchase payments, less benefits. These reserves are adjusted daily
for the net investment income and net realized gain (loss) and unrealized
appreciation (depreciation) on investments. The mortality risk is fully borne
by USAA Life. The mortality calculations are based on the 1983a Individual
Annuitant Mortality Table at 3.0% interest. This may result in additional
amounts being transferred into the Separate Account by USAA Life to cover
greater longevity of annuitants than expected. Conversely, if reserves exceed
amounts required, transfers may be made to USAA Life.
DISTRIBUTIONS
The net investment income (loss) and realized capital gains of the Separate
Account are not distributed, but instead are retained and reinvested for the
benefit of unit owners.
FEDERAL INCOME TAX
Operations of the Separate Account are included in the federal income tax
return of USAA Life, which is taxed as a "life insurance company" under the
Internal Revenue Code. Under current federal income tax law, no income taxes
are payable with respect to operations of the Separate Account.
UNIT VALUE
For financial reporting purposes, amounts have been rounded to the nearest
thousand dollars, except for per unit amounts, which may result in minor
rounding differences. Per unit amounts are calculated based on precise amounts.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that may affect the reported amounts in the financial statements.
3) RELATED PARTY TRANSACTIONS
During the year ended December 31, 1996, advisory fees of $284,285 were paid
to USAA Investment Management Company (USAA IMCO) by the funds of the USAA
Life Investment Trust (the Trust). USAA IMCO is indirectly wholly owned by
USAA. The funds' advisory fees are computed on an annualized rate of 0.20% of
the monthly average net assets of each fund of the Trust for each calendar
month. USAA Life, out of its general account, has agreed to reimburse USAA IMCO
for the expenses it incurs in rendering services to the Trust, but only to the
extent these expenses exceed the amount of the preceding advisory fees.
4) EXPENSES
A mortality and expense risk charge is deducted by USAA Life from the Separate
Account on a daily basis which is equal, on an annual basis, to 1.05% of the
daily net asset value of each variable annuity fund account. The mortality risks
assumed by USAA Life 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
contractowner prior to the Distribution Phase. The expense risk assumed by USAA
Life is that the costs of administering the contracts and the Separate Account
may exceed the amount recovered from the contract maintenance and administration
expense charge. The mortality and expense risk charge is guaranteed by USAA Life
and cannot be increased.
The following expenses are charged to reimburse USAA Life for the expenses
it incurs in the establishment and maintenance of the Contracts and each
variable annuity fund account. USAA Life 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. Beginning on the first
anniversary of the effective date, and on each anniversary thereafter, a
maintenance charge of $30 is deducted by USAA Life from the accumulated value
of each contract. This charge will apply only while the contract is in the
accumulation phase. For the year ended December 31, 1996, contract maintenance
charges totaled $27,820.
Any premium tax levied by a state or government entity with respect to the
Separate Account will be charged against the contract.
A-14 ANNUAL REPORT 1996
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued) December 31, 1996
5) CONTRACT TRANSACTIONS (In Thousands)
FOR YEAR ENDED DECEMBER 31, 1996
VARIABLE ANNUITY FUND ACCOUNTS
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life Scudder VLIF Alger
VA Money USAA Life VA Growth VA World VA Diversified Capital American
Market VA Income and Income Growth Assets Growth Growth
Fund Account Fund Account Fund Account Fund Account Fund Account Portfolio Portfolio
------------ ------------ ------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
UNITS
Sales 60,478 729 1,457 605 668 647 1,462
Redemptions (55,573) (388) (144) (71) (55) (51) (444)
--------- ------- ------- ------ ------ ------ -------
Net change 4,905 341 1,313 534 613 596 1,018
========= ======= ======= ====== ====== ====== =======
AMOUNTS
Sales $ 62,988 $ 7,926 $20,119 $7,927 $8,616 $8,781 $19,923
Redemptions (57,822) (4,062) (1,917) (874) (689) (638) (5,931)
--------- ------- ------- ------ ------ ------ -------
Net change $ 5,166 $ 3,864 $18,202 $7,053 $7,927 $8,143 $13,992
========= ======= ======= ====== ====== ====== =======
</TABLE>
FOR PERIOD ENDED DECEMBER 31, 1995*
VARIABLE ANNUITY FUND ACCOUNTS
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life Scudder VLIF Alger
VA Money USAA Life VA Growth VA World VA Diversified Capital American
Market VA Income and Income Growth Assets Growth Growth
Fund Account Fund Account Fund Account Fund Account Fund Account Portfolio Portfolio
------------ ------------ ------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
UNITS
Sales 20,265 98 228 173 100 115 675
Redemptions (14,787) (9) (23) (12) (14) (22) (45)
--------- ------- ------- ------ ------ ------ -------
Net change 5,478 89 205 161 86 93 630
========= ======= ======= ====== ====== ====== =======
AMOUNTS
Sales $ 20,651 $ 1,077 $ 2,675 $1,952 $1,130 $1,360 $ 8,641
Redemptions (15,051) (94) (274) (138) (164) (245) (572)
--------- ------- ------- ------ ------ ------ -------
Net change $ 5,600 $ 983 $ 2,401 $1,814 $ 966 $1,115 $ 8,069
========= ======= ======= ====== ====== ====== =======
</TABLE>
6) RECONCILIATION TO SHARES OF THE
USAA LIFE INVESTMENT TRUST AT DECEMBER 31, 1996 (In Thousands)
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life
VA Money USAA Life VA Growth VA World VA Diversified
Market VA Income and Income Growth Assets
Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SHARES ATTRIBUTABLE TO:
USAA VA Contractowners 11,245 483 1,555 779 747
USAA Life Insurance Company - 1,805 2,158 2,161 1,600
--------- ------- ------- ------ ------
TOTAL SHARES IN FUNDS 11,245 2.288 3,713 2,940 2,347
========= ======= ======= ====== ======
</TABLE>
* Separate Account commenced operations on February 6, 1995.
1996 ANNUAL REPORT A-15
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued) December 31, 1996
7) UNIT VALUES
A summary of unit values and units outstanding for variable annuity
contracts and the expense ratios, including expenses of the underlying
funds, for each period is as follows:
<TABLE>
<CAPTION>
USAA Life VA USAA Life VA
Money Market Fund Account Income Fund Account
------------------------------------------ --------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, February 6, December 31, December 31, February 6,
1996 1995(a) 1995(b) 1996 1995(a) 1995(b)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 10,383 5,478 - 430 89 -
Accumulation unit value $ 1.082816 $ 1.040729 $ 1.000000 $11.785992 $11.848795 $ 10.000000
Annuity units (000) - - - - - -
Annuity unit value - - - - - -
Net assets (000) $ 11,243 $ 5,702 - $ 5,073 $ 1,051 -
Ratio of expenses to average
net assets 1.50%(c) 1.50%(c)(d) - 1.50%(c) 1.50%(c)(d) -
</TABLE>
<TABLE>
<CAPTION>
USAA Life VA USAA Life VA
Growth and Income Fund Account World Growth Fund Account
------------------------------------------ --------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, February 6, December 31, December 31, February 6,
1996 1995(a) 1995(b) 1996 1995(a) 1995(b)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 1,515 205 - 692 161 -
Accumulation unit value $15.432048 $12.579981 $10.000000 $14.314911 $11.947438 $ 10.000000
Annuity units (000) 3 - - 3 - -
Annuity unit value $14.588560 - - $13.532488 - -
Net assets (000) $ 23,417 $ 2,574 - $ 9,948 $ 1,924 -
Ratio of expenses to average
net assets 1.50%(c) 1.50%(c)(d) - 1.80%(c) 1.80%(c)(d) -
</TABLE>
(a) Information is for the period from February 6, 1995 (commencement of
operations) to December 31, 1995.
(b) Separate Account commenced operations on February 6, 1995.
(c) The information contained in this table is based on actual expenses to
the contractowner for the period, including the expenses of the underlying
fund, after giving effect to reimbursement of fund expenses by USAA Life.
Absent such reimbursements, the variable annuity fund accounts' ratios
would have been:
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1996 December 31, 1995(a) February 6, 1995(b)
----------------- -------------------- -------------------
<S> <C> <C> <C>
USAA LIFE VA MONEY MARKET FUND ACCOUNT 2.39% 3.44%(d) -
USAA LIFE VA INCOME FUND ACCOUNT 1.80% 1.80%(d) -
USAA LIFE VA GROWTH AND INCOME FUND ACCOUNT 1.68% 1.81%(d) -
USAA LIFE VA WORLD GROWTH FUND ACCOUNT 1.97% 2.02%(d) -
</TABLE>
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
A-16 ANNUAL REPORT 1996
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued) December 31, 1996
<TABLE>
<CAPTION>
7) UNIT VALUES (Continued)
USAA Life VA Diversified Assets Fund Account Scudder VLIF Capital Growth Portfolio
---------------------------------------------- --------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, February 6, December 31, December 31, February 6,
1996 1995(a) 1995(b) 1996 1995(a) 1995(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 696 86 - 689 93 -
Accumulation unit value $ 13.844197 $ 12.243941 $ 10.000000 $ 14.894774 $ 12.543192 $ 10.000000
Annuity units (000) 3 - - - - -
Annuity unit value $ 13.087484 - - - - -
Net assets (000) $ $9,675 $ 1,047 - $ 10,266 $ 1,165 -
Ratio of expenses to average
net assets 1.50% (c) 1.50% (c)(d) - 1.68% 1.72% -
Alger American Growth Portfolio
----------------------------------------------
Year Ended Period Ended
December 31, December 31, February 6,
1996 1995 (a) 1995 (b)
At end of period:
Accumulation units (000) 1,639 630 -
Accumulation unit value $ 14.672583 $ 13.095503 $ 10.000000
Annuity units (000) 9 - -
Annuity unit value $ 13.870587 - -
Net assets (000) $ 24,168 $ 8,245 -
Ratio of expenses to average
net assets 1.94% 2.00% -
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Information is for the period from February 6, 1995 (commencement of operations) to December 31, 1995.
(b) Separate Account commenced operations on February 6, 1995.
(c) The information contained in this table is based on actual expenses to the contractowner for the period, including the expenses
of the underlying fund, after giving effect to reimbursement of fund expenses by USAA Life. Absent such reimbursements, the
variable annuity fund account's ratios would have been:
Year Ended Period Ended
December 31, 1996 December 31, 1995(a) February 6, 1995(b)
----------------- -------------------- -------------------
USAA LIFE VA DIVERSIFIED ASSETS FUND ACCOUNT 1.76% 1.79%(d) -
(d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
</TABLE>
1996 ANNUAL REPORT A-17
<PAGE>
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
USAA LIFE
INVESTMENT TRUST
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
[LOGO OF USAA APPEARS HERE]
<PAGE>
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND
AN OVERVIEW DECEMBER 31, 1996
COMPARISON OF FUND TO BENCHMARK
[GRAPH APPEARS HERE]
DATA REPRESENT THE LAST TUESDAY OF EACH MONTH.
The graph above tracks the USAA Life VA Money Market Fund's 7-day yield compared
to a benchmark -- IBC/Donoghue's Money Fund Averages /TM/First Tier, an average
of all major money market fund 7-day yields. Information for the benchmark is
based on a full calendar year in 1995 whereas the VA Money Market Fund yields
are based on a starting date of January 5, 1995 -- the inception date of this
Fund. This comparison is for illustrative purposes only.
GENERAL DISCUSSION
by Portfolio Manager Pam Bledsoe
CURRENT MARKET CONDITIONS
Since the beginning of 1996, the yield on the one-year Treasury bill has
fluctuated from 5.13% in January to 5.77% in June and was 5.48% at year end.
This fluctuation was motivated by economic statistics that showed an ever
strengthening economy. This in turn drove market expectations of increases in
the Federal Funds rate (the rate banks charge each other for overnight loans).
As each Federal Open Market Committee meeting came and went without any change
in the Fed Funds rate, Wall Street players shifted their focus to the next
scheduled meeting. Anticipation that signs of inflation were lurking around
every corner sustained the market's volatility. This behavior continued
throughout the summer and into fall until economic statistics released in
October began to show signs that the economy was slowing down. Currently, it
appears that the economy is still growing and does not show signs of
overheating.
STRATEGY
The free-look period which is a part of USAA Life's Variable Annuity contract
necessitates that we manage the VA Money Market Fund with relatively short
maturities. The portfolio contains three major types of holdings: Variable Rate
Demand Notes; U.S. Government Agency Discount Notes; and Commercial Paper.
Variable Rate Demand Notes have rates that adjust every seven
An investment in this Fund is neither insured nor guaranteed by the U.S.
Government and there is no assurance that the Fund will maintain a stable net
asset value of $1.
INVESTMENT PROGRAM:
This Fund invests in a diversified portfolio of high-quality U.S. dollar-
denominated debt instruments that present minimal credit risk with remaining
maturities of 397 days or less.
As of December 31, 1996
SIMPLE 7-DAY YIELD: 5.23%
NET ASSET VALUE (NAV)
AVERAGE ANNUAL
TOTAL RETURN
One Year: 5.25%
Since Inception
January 5, 1995: 5.47%
The total return calculations found in this section are calculated at the Fund's
investment level and reflect the change in the net asset value (NAV), the
reinvestment of income dividends and the deductions of Fund expenses. More
specific information regarding the Fund expenses can be found in the Variable
Annuity prospectus. These NAV total return calculations represent past
performance which is no guarantee of future returns.
1996 ANNUAL REPORT B-21
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND
AN OVERVIEW (Continued) DECEMBER 31, 1996
days and can be sold at par by giving seven days notice. U.S. Government
Agency Discount Notes are highly liquid and offer little credit risk. The
fixed-rate Commercial Paper that we purchase provides somewhat higher yields
and it is rated in the highest rating categories (A-1, P-1). The average
maturity of the VA Money Market Fund is managed within a range of 7 to 16 days.
PERFORMANCE
According to Lipper Analytical Services/1/, USAA Life's VA Money Market Fund
ranked 13 out of 104 variable annuity money market funds for average annual NAV
total return for the 12 months ended December 31, 1996. The average yield for
the Fund was 5.11% compared to an average of 4.69% for all variable annuity
money market funds.
/1/ Lipper Analytical Services, Inc. is an independent organization that
monitors the performance of variable annuity funds.
PORTFOLIO MIX
AS A PERCENTAGE OF NET ASSETS
as of December 31, 1996
-----------------------------
U.S. Agency Variable Rate
Discount Notes Demand Notes Commercial Paper
28.9% 32.2% 41.1%
[CHART APPEARS HERE]
B-22 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY INCOME FUND
AN OVERVIEW DECEMBER 31, 1996
COMPARISON OF FUND TO BENCHMARK
[GRAPH APPEARS HERE]
DATA REPRESENT THE LAST BUSINESS DAY OF EACH MONTH.
The graph above compares the performance of a $10,000 hypothetical investment in
the USAA Life VA Income Fund to two industry indexes which most closely resemble
the holdings of this Fund.
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of
the government/corporate index, the mortgage-backed securities index, and the
asset-backed securities index. The Lipper A Rated Bond Fund Index is an
unmanaged index made up of funds investing in corporate debt issues rated A or
better or government issues.
The calculations for the Lehman Brothers and Lipper Indexes are based on a
full calendar year in 1995 whereas the VA Income Fund calculations are based
on a starting date of January 5, 1995 -- the inception date of this Fund. This
comparison is for illustrative purposes only.
GENERAL DISCUSSION
by Portfolio Manager J.W. Saunders, Jr.
In direct contrast to the positive stock market environment in 1996, the
rather dismal performance of the bond market has been disappointing to holders
of fixed-income securities. Plagued by periodic reports that the economy was
strengthening and that inflation would rise, the bond market remained in a down
trend for the first half of 1996 as interest rates moved higher. The extent of
the damage is reflected in the performance of the 30-year Treasury bond, the
standard of measure for the bond market. From the end of 1995 to the low point
in price on June 12, 1996, total return (change in price + interest) for the
30-year Treasury bond was -14.3%.
Following a trading range from June to early September (within a one-half
percent interest rate band), interest rates reversed course and moved steadily
downward to the end of November. And then through the end of December,
interest rates once again fluctuated within a narrow range and the long
Treasury bond closed the year at a yield of 6.72%, up over three-quarters of a
percent from the 1995 year-end yield of 5.95%. Total return on the long
Treasury bond was -4.0% for the year 1996.
To decrease volatility in the portfolio, we reduced the percentage in U.S.
Treasury bonds and increased the percentage of mortgage pass-through
securities. Currently, the VA Income Fund's investment mix as percentages of
net assets is 21.9% in U.S. Treasury bonds, 57.2% in agency mortgage
pass-through securities, 11.3% in high yield common stocks, 3.2% in preferred
stocks, and 5.5% in cash equivalents.
INVESTMENT PROGRAM:
This Fund invests in a diversified portfolio of U.S. dollar-denominated debt and
income-producing equity securities selected for their high yields relative to
the risk involved.
As of December 31, 1996
NET ASSET VALUE (NAV)
AVERAGE ANNUAL
TOTAL RETURN
One Year: 0.67%
Since Inception
January 5, 1995: 11.68%
The total return calculations found in this section are calculated at the Fund's
investment level and reflect the change in the net asset value (NAV), the
reinvestment of income dividends and the deductions of Fund expenses. More
specific information regarding the Fund expenses can be found in the Variable
Annuity prospectus. These NAV total return calculations represent past
performance which is no guarantee of future returns.
1996 ANNUAL REPORT B-23
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY INCOME FUND
AN OVERVIEW (Continued) DECEMBER 31, 1996
OUTLOOK
As we discussed in the June Semiannual Report, economic news releases have
impacted interest rates and bond prices in a highly volatile manner. Recent
economic reports have been more positive for bonds. Inflation has remained tame
and there is indication that the economy may be slowing. These factors, plus the
Federal Reserves steady course on interest rates, have prompted the firming of
bond prices. Our objective is to continue to concentrate on producing a high
level of interest income for the Fund.
TOP 10 SECURITIES
as of December 31, 1996
- ----------------------------------------------------------
Coupon % of
Rate Net Assets
1) U.S. Treasury
Bond 7.875% 19.9%
2) GNMA 7.5 13.1
3) FNMA 7.0 9.6
4) FNMA 7.5 8.5
5) GNMA 7.0 6.9
6) GNMA 8.5 5.3
7) GNMA 8.0 5.2
8) FNMA 8.5 4.6
9) FNMA 8.0 4.0
10) U.S. Treasury
Bond 6.5 2.0
B-24 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND
AN OVERVIEW DECEMBER 31, 1996
COMPARISON OF FUND TO BENCHMARK
[GRAPH APPEARS HERE]
DATA REPRESENT THE LAST BUSINESS DAY OF EACH MONTH.
The graph above compares the performance of a $10,000 hypothetical investment in
the USAA Life VA Growth and Income Fund to the S&P 500 Index. The S&P 500 Index
is an unmanaged index representing the average performance of a group of 500
widely held, publicly traded stocks. It is not possible to invest directly in
the S&P 500 Index.
The calculations for the S&P 500 Index are based on a full calendar year in
1995 whereas the calculations for the VA Growth and Income Fund are based on a
starting date of January 5, 1995 -- the inception date of this Fund. This
comparison is for illustrative purposes only.
GENERAL DISCUSSION
by Portfolio Manager R. David Ullom
1996 provided attractive returns for stocks in general as well as the USAA
Life VA Growth and Income Fund. The Fund's performance was attributed primarily
to the value-oriented strategy of selecting stocks based on relative dividend
yields, price-to-earnings ratios, price-to-cash flow ratios and price-to-book
value ratios. Also important to this strategy is focusing on the stocks of
companies with low expectations by Wall Street and those that have the
potential for earnings and cash flow growth.
Examples of stocks that performed well while meeting our value standards
include several in the financial area such as BankAmerica Corp., Bankers Trust,
Dean Witter, Discover & Co., and Allstate Corp. At the beginning of the year,
each of these companies had generated growth in earnings, initiated or
continued share repurchase programs, and were trading at low valuations
compared to the S&P 500.
The following energy-related industries also provided above-average returns:
oil well equipment & services, oil--both domestic and international, and
natural gas distribution-pipelines. All of the companies in these areas were
able to generate growth due to higher prices for both crude oil and natural gas
and a greater demand for energy services. Note that we added to our energy
position as the overall energy weighting in the Fund rose above the 10% level.
We expect energy prices to remain near their current levels and we continue to
believe that energy-related industries should provide superior returns in the
coming year.
INVESTMENT PROGRAM:
Not less than 65% of its assets are invested in a diversified portfolio of
dividend-paying common stocks and convertible securities of companies that offer
the prospect for growth of earnings.
As of December 31, 1996
NET ASSET VALUE (NAV)
AVERAGE ANNUAL
TOTAL RETURN
One Year: 24.13%
Since Inception
January 5, 1995: 27.87%
The total return calculations found in this section are calculated at the Fund's
investment level and reflect the change in the net asset value (NAV), the
reinvestment of income dividends and the deductions of Fund expenses. More
specific information regarding the Fund expenses can be found in the Variable
Annuity prospectus. These NAV total return calculations represent past
performance which is no guarantee of future returns.
1996 ANNUAL REPORT B-25
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND
AN OVERVIEW (Continued) DECEMBER 31, 1996
A third group which performed well was household products. The shares of both
Procter & Gamble and Sunbeam rose substantially more than the S&P 500. The
appreciation in Sunbeam's share price was the result of a major management
change, and we have now disposed of the Fund's holdings in Sunbeam.
However, not all of the holdings of the VA Growth and Income Fund performed well
in 1996. Most disappointing was the poor performance of the Fund's holdings in
the telecommunications area. GTE, NYNEX, AT&T, and Sprint did poorly despite the
fact that these companies have generated earnings growth, offer above-average
yields, and sell at low valuations relative to the S&P 500. The uncertainty
surrounding the deregulation of the industry was responsible for the
underperformance of these stocks. However, this industry continues to offer
attractive valuations and investment appeal.
Two other groups that performed poorly in 1996 were healthcare and chemicals.
Fortunately we had reduced our holdings in healthcare from more than 5% at the
beginning of the year to currently under 3%. Like our investments in telephones,
the Fund's exposure to chemicals proved to be disappointing. However, given
current dividend yields and valuation levels we remain positive on these
industries.
During the year, a significant shift in the Fund's holdings was made through an
increase in exposure to the technology sector. The stocks of two semiconductor
equipment manufacturers were added (Applied Materials and Silicon Valley Group).
Shares of Lucent Technologies, a communications equipment manufacturer which was
spun off from AT&T, were also purchased. As a result, the Fund's exposure in the
technology sector rose from under 3% to more than 5%. At the time of purchase,
all of these companies fit our value parameters.
Our outlook for the coming year is one of moderate economic growth with
continued subdued inflation. Despite this positive economic scenario, investors
should not expect the level of returns the VA Growth and Income Fund has
generated for the past two years.
TOP 10 HOLDINGS
as of December 31, 1996
- ------------------------------------------------
% of Net Assets
Boeing Co. 2.8%
B.F. Goodrich Co. 2.5
Universal Corp. 1.8
Gulf Canada Resources, Ltd. 1.7
Occidental Petroleum Corp. 1.7
Lucent Technologies, Inc. 1.6
BankAmerica Corp. 1.6
Kimberly-Clark Corp. 1.6
Avery Dennison Corp. 1.5
Dean Witter, Discover & Co. 1.5
TOP 10 INDUSTRIES
as of December 31, 1996
- ------------------------------------------------
% of Net Assets
Oil 8.6%
Telecommunications 6.6
Aerospace/Defense 5.3
Insurance -- Property/Casualty 4.9
Retail 4.8
Tobacco 4.3
Paper & Forest Products 4.2
Banks 4.1
Publishing 4.0
Electronics 3.7
B-26 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
AN OVERVIEW DECEMBER 31, 1996
COMPARISON OF FUND TO BENCHMARK
[GRAPH APPEARS HERE]
DATA REPRESENT THE LAST BUSINESS DAY OF EACH MONTH.
The graph above compares the performance of a $10,000 hypothetical investment in
the USAA Life VA World Growth Fund to its benchmark, the Morgan Stanley Capital
Index World, an unmanaged index which reflects the movement of world stock
markets by representing a broad selection of domestically listed companies
within each market.
Calculations for the Morgan Stanley Index are based on a full calendar year
in 1995 whereas the VA World Growth Fund calculations are based on a starting
date of January 5, 1995 -- the inception date of this Fund. This comparison is
for illustrative purposes only.
GENERAL DISCUSSION
by Portfolio Managers David Peebles, Albert C. Sebastian,
and W. Travis Selmier, II (Foreign Stocks)
and R. David Ullom (Domestic Stocks)
MARKET CONDITIONS
While past performance is no guarantee of future results, the VA World
Growth Fund has outperformed the Lipper Global Fund Index/1/ return of 16.25%
for the 12-month-period ended December 31, 1996. European market performance was
favorable while the performance of emerging markets was mixed. Our underweighted
position in Japan proved to be on target as returns were negative.
INTERNATIONAL
Europe -- European markets continued to provide favorable returns over the
period primarily because of declining interest rates and further corporate
restructuring. Both short- and long-term rates declined across Europe
(particularly in Sweden, Italy, Spain, and Portugal), as central banks continued
to ease credit and the inflation outlook improved. Our holdings in the
Netherlands and Scandinavian countries made significant contributions to our
favorable European performance.
/1/ Lipper Analytical Services, Inc. is an independent organization that
monitors the performance of mutual funds.
Foreign investing is subject to additional risks which are discussed in the USAA
Life Variable Annuity prospectus. Since return on any investment is generally
commensurate with risk, investors should be aware of the potential volatility
associated with foreign markets.
INVESTMENT PROGRAM:
Not less than 65% of the Fund's assets are invested in a diversified portfolio
of common stocks and other equity securities of both foreign and domestic
issuers representing at least three countries, one of which may include the
United States. The remainder of the Fund's assets may be invested in marketable
debt securities having remaining maturities of less than one year which are
issued or guaranteed as to both principal and interest by the U.S. government or
by its agencies.
As of December 31, 1996
NET ASSET VALUE (NAV)
AVERAGE ANNUAL
TOTAL RETURN
One Year: 21.12%
Since Inception
January 5, 1995: 20.34%
The total return calculations found in this section are calculated at the Fund's
investment level and reflect the change in the net asset value (NAV), the
reinvestment of income dividends and the deductions of Fund expenses. More
specific information regarding the Fund expenses can be found in the Variable
Annuity prospectus. These NAV total return calculations represent past
performance which is no guarantee of future returns.
1996 ANNUAL REPORT B-27
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
AN OVERVIEW (Continued) DECEMBER 31, 1996
Japan -- Concerns stated six months ago -- an anemic economy, problems within
the banking system, lack of local investor participation, and political
uncertainty -- still exist. Reducing our exposure to Japan and concentrating
on export-related stocks proved to be a favorable strategy. With the current
conditions, we hesitate to change our underweighted position in Japan.
Emerging Markets -- Spring rallies that most emerging markets experienced ran
out of steam during the summer with the exception of Hong Kong, China, Taiwan,
Brazil, and Hungary. Economic growth continued in most Latin American, Eastern
European, and Mediterranean countries but many Asian economies slowed.
Moderate global economic growth, continued foreign direct investment and
expanding international trade should lead to some recovery in Asian markets and
help provide a solid foundation for Latin American and Eastern European markets
next year.
UNITED STATES
During the six months ended December 31, 1996, we increased our weighting
for U.S. stocks slightly to 23.7%. Although concerned with the valuation of
the U.S. stock market in general, we believe that there are still selected
areas that fit our strategy.
As holdings were reduced in the automobile, tobacco, and aerospace sectors,
money raised was allocated to increase the Fund's exposure in computer software
& service and electronics-semiconductors, and to add a new sector -- oil & gas
drilling. We continue to have a positive growth outlook for these sectors and
believe that they could experience an extended period of earnings growth.
COUNTRY WEIGHTINGS AS A PERCENTAGE OF NET ASSETS
as of December 31, 1996
- ------------------------------------------------
Other *23.5% USA 29.6%
Spain 2.0%
Mexico 2.0%
Italy 2.1%
Denmark 2.5%
Sweden 2.8%
Germany 2.9% Japan 10.8%
Switzerland 3.3%
Netherlands 3.3% United Kingdom 6.9%
Canada 3.7% France 4.5%
[CHART APPEARS HERE]
* Investment in all other individual countries was less than 2% of the
Fund's net assets.
B-28 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
AN OVERVIEW (Continued) DECEMBER 31, 1996
OUTLOOK
We expect continued economic improvement in Europe to provide a favorable
international investment climate in 1997. A rebound in many of the emerging
markets is anticipated with only selective opportunities in Japan. The portfolio
continues to be overweighted in emerging markets, Europe, and other developed
markets at the expense of Japan.
TOP 10 EQUITY HOLDINGS
as of December 31, 1996
- -----------------------------------------------
% of Net Assets
Elf Aquitanine ADS (France) 1.3%
Sulzer AG P.C. (Switzerland) 1.2
Novartis AG (Switzerland) 1.1
Nokia Corp. ADS (Finland) 1.1
Telefonica de Espana,
S.A. ADR (Spain) 1.1
Autoliv AB (Sweden) 1.0
ING Group N.V. (Netherlands) 1.0
Canon, Inc. (Japan) 0.9
VA Technologies AG (Austria) 0.9
Veba AG (Germany) 0.9
Top 10 Industries of Equity Holdings
as of December 31, 1996
- -----------------------------------------------
% of Net Assets
Healthcare 8.9%
Oil 8.0
Telecommunications 7.9
Banks 6.6
Retail 5.2
Electronics 3.4
Manufacturing 2.6
Automobiles 2.5
Computer Software & Service 2.5
Electrical Equipment 2.5
1996 ANNUAL REPORT B-29
<PAGE>
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND
AN OVERVIEW DECEMBER 31, 1996
COMPARISON OF FUND TO BENCHMARK
[GRAPH APPEARS HERE]
DATA REPRESENT THE LAST BUSINESS DAY OF EACH MONTH.
The graph above compares the performance of a $10,000 hypothetical investment in
the USAA Life VA Diversified Assets Fund to two industry indexes and an
independent rating agency's average which most closely resemble the holdings of
this Fund.
The S&P 500 Index is an unmanaged index representing the average performance of
a group of 500 widely held, publicly traded stocks. It is not possible to invest
directly in the S&P 500 Index. The Lehman Brothers Aggregate Bond Index is an
unmanaged index made up of the government/corporate index, the mortgage-backed
securities index, and the asset-backed securities index. The Lipper Balanced
Fund Average is the average performance level of all variable annuity balanced
funds as reported by Lipper Analytical Services, an independent organization
that monitors the performance of variable annuity funds and mutual funds.
The calculations for all indexes and averages are based on a full calendar
year in 1995 whereas the VA Diversified Assets Fund calculations are based on a
starting date of January 5, 1995 -- the inception date of this Fund. This
comparison is for illustrative purposes only.
GENERAL DISCUSSION
by Portfolio Managers Harry Miller (Common Stocks) and
Paul Lundmark (Debt Securities)
THE MARKET
Common Stock -- The U. S. stock market registered outstanding performance of
22.96% as measured by the S&P 500 Index for 1996, putting two remarkable years
back-to-back. Although interest rates did fluctuate, they remained relatively
low as did inflation. Generally, corporate earnings were good. These factors all
contributed to the performance of the stock market.
Debt Securities -- After the painful first half of 1996 when interest rates
rose dramatically, the second half of the year provided some welcome relief.
Interest rates fell as investors became more comfortable with the economic
environment of low inflation and slow growth. This scenario lessened the
perceived need for the Federal Reserve to raise overnight rates.
In looking at the year as a whole, 1996 will go down as a year of mediocre
performance for bonds. To further put this in perspective, the Lehman Brothers
Aggregate Bond index (a benchmark used by many investment managers) was up only
3.63% in 1996 compared to the index's 9.75% average annualized return since its
inception in 1976.
INVESTMENT PROGRAM:
Approximately 60% of the Fund's assets are invested in equity securities
selected for total return potential and approximately 40% are invested in debt
securities of varying maturities. On December 31, 1996 the portfolio mix was
60% common stocks and 38.2% fixed-income securities.
As of December 31, 1996
NET ASSET VALUE (NAV)
AVERAGE ANNUAL
TOTAL RETURN
One Year: 14.30%
Since Inception
January 5, 1995: 20.17%
The total return calculations found in this section are calculated at the Fund's
investment level and reflect the change in the net asset value (NAV), the
reinvestment of income dividends and the deductions of Fund expenses. More
specific information regarding the Fund expenses can be found in the Variable
Annuity prospectus. These NAV total return calculations represent past
performance which is no guarantee of future returns.
1996 ANNUAL REPORT B-31
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND
AN OVERVIEW (Continued) DECEMBER 31, 1996
PORTFOLIO STRATEGIES
Common Stock -- We buy and hold high quality common stocks which are considered
to be undervalued with regard to assets and/or earnings. The portfolio is well
diversified in 21 industries and 35 companies. The industries with the highest
percentage of net assets are oil, healthcare, telecommunications and
aerospace/defense. The best performing industries for the year were healthcare-
diversified, bank holding companies-money center, and insurance-
property/casualty. The worst performing was telephones.
The best performing common stocks were: Monsanto, Allstate, James River, Bankers
Trust, NICOR, Minnesota Mining, Boeing, and Bristol-Myers Squibb. NYNEX and
Pharmacia & Upjohn were disappointments. In the last six months, we sold Houston
Industries, Texas Utilities, Union Camp, Occidental Petroleum, Universal Corp.,
Amerada Hess, and Hartford Steam Boiler. Additions included PNC Bank, Unocal,
Weyerhaeuser, Norfolk Southern, May Department Stores, and Nordstrom.
Debt Securities -- We have shortened the weighted average maturity of the Fund's
debt segment from 10.41 years to 7.29 years by selling off our 30-year U.S.
Treasury bonds. The proceeds were invested in mortgage pass-throughs and
shorter-term corporate bonds. We feel that this change will better stabilize
the Fund's return while providing greater income.
The total return of the bond portfolio was 7.22% for the last six months and
4.27% for the entire year. Lower interest rates over the past six months
resulted in higher prices for the fixed-income securities. In addition, positive
developments at Caremark, Kmart, Great Atlantic & Pacific Tea, and Corporacion
Andina De Fomento resulted in additional price appreciation for the overall
portfolio.
TOP 10 EQUITY HOLDINGS
as of December 31, 1996
- ------------------------------------------------------------
% of Net Assets
Boeing Co. 3.0%
Allstate Corp. 2.9
Monsanto Co. 2.6
Philip Morris Companies, Inc. 2.2
Chrysler Corp. 2.2
Bristol-Myers Squibb Co. 2.2
Rockwell International Corp. 2.0
PNC Bank Corp. 2.0
Sears, Roebuck & Co. 2.0
Texaco, Inc. 1.9
TOP 5 DEBT HOLDINGS
as of December 31, 1996
- ---------------------------------------------------------
Coupon % of
Rate Net Assets
Nationwide Health
Properties, Inc., MTN 8.61% 3.5%
HUBCO, Inc. 8.20 3.4
Corporacion Andina
De Fomento,
Global Bonds 7.38 3.4
Tektronix Inc. 7.50 3.4
Capital One
Bank, MTN 7.35 3.3
B-32 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND
AN OVERVIEW (CONTINUED) DECEMBER 31, 1996
OUTLOOK
Common Stock -- We do not see inflation getting out of control or interest
rates having a dramatic move in either direction in the next six months.
Therefore, we believe the stock market will continue to produce positive
results in 1997 until these factors change. We will remain overweighted in
aerospace/defense, oils, and chemicals.
Debt Securities -- We hate to sound like a broken record, but we want to
reiterate from previous reports that it is impossible to predict the future
course of interest rates. No one, over time, has been successful in predicting
the direction of interest rates. Our focus instead, will be to find
investments that will provide attractive yields for the long-term investor.
TOP 10 PORTFOLIO INDUSTRIES
as of December 31, 1996
- -------------------------------------------------
% of Net Assets
Banks 13.5%
Retail 12.6
Real Estate Investment Trusts 10.0
Oil 7.9
Healthcare 5.6
Telecommunications 5.4
Aerospace/Defense 4.6
Chemicals 4.1
Tobacco 3.7
Electronics 3.4
1996 ANNUAL REPORT B-33
<PAGE>
USAA LIFE INVESTMENT TRUST
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
We have audited the accompanying statements of assets and liabilities and
portfolios of investments in securities of the USAA Life Variable Annuity (VA)
Money Market Fund, USAA Life VA Income Fund, USAA Life VA Growth and Income
Fund, USAA Life VA World Growth Fund, and USAA Life VA Diversified Assets Fund
of USAA Life Investment Trust as of December 31, 1996, the related statements of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for the year ended December 31, 1996 and the period
January 5, 1995 (commencement of operations) through December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned funds of the USAA Life Investment Trust as of December 31, 1996,
the results of their operations for the year then ended and the changes in their
net assets and the financial highlights for the year then ended and the period
January 5, 1995 through December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
San Antonio, Texas
February 3, 1997
B-34 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES DECEMBER 31, 1996
FIXED RATE INSTRUMENTS (70.0%)
<TABLE>
<CAPTION>
Principal
Amount Coupon Value
(000) Security Rate Maturity (000)
- --------- -------- ------ -------- -----
<S> <C> <C> <C> <C>
BANK HOLDING COMPANIES - MONEY CENTER
$ 408 JP Morgan & Co., Inc., CP 5.50% 1/06/97 $ 408
------
BEVERAGES - SOFT DRINKS
552 PepsiCo, Inc., CP 5.35 1/09/97 551
------
ELECTRIC POWER
500 Georgia Power Co., CP 5.57 2/03/97 498
500 Tampa Electric Co., CP 5.39 1/10/97 499
------
997
------
ELECTRICAL EQUIPMENT
420 Emerson Electric Co., CP 5.32 1/13/97 419
------
ELECTRONICS - INSTRUMENTATION
555 Raytheon Co., CP 5.38 1/14/97 554
------
FINANCE - BUSINESS/COMMERCIAL
403 General Electric Capital Corp., CP 6.75 1/02/97 403
------
FINANCE - CONSUMER
365 Ford Motor Credit Co., CP 5.55 1/30/97 363
------
FOODS
438 H.J. Heinz Co., CP 5.40 1/29/97 436
------
LEASING
497 PHH Corp., CP 5.63 1/15/97 496
------
U.S. GOVERNMENT
500 Federal Farm Credit Bank, Discount Notes 5.27 1/06/97 500
255 Federal Farm Credit Bank, Discount Notes 5.42 1/16/97 254
275 Federal Home Loan Bank, Discount Notes 5.40 1/02/97 275
670 Federal Home Loan Bank, Discount Notes 5.29 1/09/97 669
550 Federal Home Loan Mortgage, Discount Notes 5.28 1/03/97 550
500 Federal Home Loan Mortgage, Discount Notes 5.29 1/31/97 498
500 Federal National Mortgage Assn., Discount Notes 5.40 1/07/97 500
------
3,246
------
Total fixed rate instruments (cost: $7,873) 7,873
------
VARIABLE RATE DEMAND NOTES (32.2%)
AUTO PARTS
200 Alabama IDA RB (Rehau Project) (CRE) 6.05 10/01/19 200
140 Bardstown, KY, RB, Series 1994 (CRE) 5.82 6/01/24 140
------
340
------
BUILDING MATERIALS
100 Sarasota County, FL, IDA RB, Series 1994 (CRE) 5.85 9/01/14 100
------
1996 ANNUAL REPORT B-35
</TABLE>
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Coupon Value
(000) Security Rate Maturity (000)
- --------- -------- ------ -------- -----
<S> <C> <C> <C> <C>
BUILDINGS
$ 410 Downtown Marietta Development Auth., GA, RB (CRE) 5.90% 7/01/21 $ 410
100 MMR Funding I, Floating Rate Option Notes, Series A (CRE) 5.84 9/01/10 100
-------
510
-------
EDUCATION
200 Dome Corp., Demand Bonds, Series 1991 (CRE) 6.00 8/31/16 200
-------
FINANCE - RECEIVABLES
150 Capital One Funding Corp., Notes, Series 1993A (CRE) 5.84 6/02/08 150
93 Capital One Funding Corp., Notes, Series 1994D (CRE) 5.84 10/01/24 93
200 Capital One Funding Corp., Notes, Series 1995C (CRE) 5.84 10/01/15 200
76 Midwest Funding Corp., Notes, Series 1992A (CRE) 5.84 5/01/07 76
-------
519
-------
HEALTHCARE - DIVERSIFIED
400 GMS Associates II Project Health Care RB, Series 1995 (CRE) 5.70 8/15/25 400
100 GMS Associates Project Health Care RB, Series 1994 (CRE) 5.70 5/15/24 100
-------
500
-------
HEALTHCARE - MISCELLANEOUS
100 Mason City Clinic, P.C., IA, Demand Bonds, Series 1992 (CRE) 6.10 9/01/22 100
-------
HOSPITALS
350 Armstrong County Hospital Auth., PA, RB, Series 1993B (CRE) 5.70 9/01/17 350
-------
HOTEL/MOTEL
100 Howard County, MD, Taxable RB, Series 1994 (CRE) 5.85 10/01/09 100
-------
MACHINERY - DIVERSIFIED
200 DSL Funding Corp., Notes (CRE) 5.99 12/01/09 200
-------
NURSING CARE
200 Lincolnwood Funding Corp. RB, Series 1995A (CRE) 6.00 8/01/15 200
-------
PAPER & FOREST PRODUCTS
400 Mac Papers Inc., Demand Bond (CRE) 5.85 8/03/15 400
-------
REAL ESTATE
100 H/M Partners, LLC, Bonds (CRE) 6.20 10/01/20 100
-------
Total variable rate demand notes (cost: $3,619) 3,619
-------
Total investments (cost: $11,492) $11,492
=======
</TABLE>
B-36 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1996
PORTFOLIO SUMMARY BY INDUSTRY
<TABLE>
<CAPTION>
<S> <C>
U.S. Government 28.9%
Electric Power 8.9
Beverages - Soft Drinks 4.9
Electronics - Instrumentation 4.9
Finance - Receivables 4.6
Buildings 4.5
Healthcare - Diversified 4.4
Leasing 4.4
Foods 3.9
Electrical Equipment 3.7
Bank Holding Companies - Money Center 3.6
Finance - Business/Commercial 3.6
Paper & Forest Products 3.6
Finance - Consumer 3.2
Hospitals 3.1
Auto Parts 3.0
Education 1.8
Machinery - Diversified 1.8
Nursing Care 1.8
Other 3.6
-----
Total 102.2%
=====
</TABLE>
See accompanying "Notes to Portfolios of INVESTMENTS in Securities" on page
B-55.
1996 Annual Report B-37
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY INCOME FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES DECEMBER 31, 1996
COMMON STOCKS (11.3%)
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- -------
<S> <C> <C>
14,000 Allegheny Power System, Inc. $ 425
9,000 American Electric Power Co., Inc. 370
13,000 CINergy Corp. 434
4,500 Entergy Corp. 125
11,000 General Public Utilities Inc. 370
3,300 Health Care Property Investors, Inc. 115
17,000 Houston Industries, Inc. 385
13,500 Northeast Utilities 179
11,500 Public Service Enterprise Group, Inc. 313
-------
Total common stocks (cost: $2,337) 2,716
=======
PREFERRED STOCKS (3.2%)
12,000 Duke Realty Investments, Inc. depositary
shares "A", 9.10% cumulative redeemable 312
12,000 Equity Residential Properties Trust depositary
shares "C", 9.125% cumulative redeemable 309
6,000 United Dominion Realty Trust, Inc. depositary
shares "A", 9.25% cumulative redeemable 158
-------
Total preferred stocks (cost: $750) 779
-------
U.S. GOVERNMENT & AGENCY ISSUES (79.1%)
Principal
Amount
(000)
- ---------
FEDERAL NATIONAL MORTGAGE ASSN. (26.7%)
$ 2,358 7.00%, 6/01/24 - 10/01/26 2,315
2,029 7.50%, 1/01/25 - 10/01/26 2,036
947 8.00%, 1/01/25 971
1,049 8.50%, 12/01/24 1,098
-------
6,420
-------
GOVERNMENT NATIONAL MORTGAGE ASSN. (30.5%)
1,679 7.00%, 8/15/23 - 2/15/26 1,650
3,139 7.50%, 8/15/23 - 8/15/26 3,150
1,228 8.00%, 5/15/24 1,261
1,223 8.50%, 12/15/24 1,278
-------
7,339
-------
U.S. TREASURY BONDS (21.9%)
500 6.50%, 11/15/26 491
4,225 7.875%, 2/15/21 4,774
-------
5,265
-------
Total U.S. government & agency issues (cost: $17,879) 19,024
-------
</TABLE>
B-38 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY INCOME FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1996
SHORT-TERM (5.5%)
<TABLE>
<CAPTION>
Principal Market
Amount Coupon Value
(000) Security Rate Maturity (000)
- --------- -------- ------ -------- -------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
$ 660 Ford Motor Credit Co. 6.00% 1/02/97 660
660 Prudential Funding Corp. 6.25 1/02/97 660
-------
Total short-term (cost $1,320) 1,320
-------
Total investments (cost: $22,286) $23,839
-------
PORTFOLIO SUMMARY BY INDUSTRY
U.S. Government 79.1%
Electric Power 10.8
Real Estate Investment Trusts 3.7
Finance - Consumer 2.8
Insurance - Multi-Line 2.7
------
Total 99.1%
======
</TABLE>
See accompanying "Notes to Portfolios of Investments in Securities" on page
B-55.
1996 ANNUAL REPORT B-39
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES DECEMBER 31, 1996
COMMON STOCKS (96.4%)
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- -------
<S> <C> <C>
AEROSPACE/DEFENSE (5.3%)
35,000 B.F. Goodrich Co. $ 1,417
14,504 Boeing Co. 1,543
-------
2,960
-------
AIRLINES (1.0%)
6,000 AMR Corp.* 529
-------
ALUMINUM (1.2%)
10,100 Aluminum Co. of America 644
-------
AUTO PARTS (1.4%)
23,000 Lear Corp.* 785
-------
AUTOMOBILES (1.2%)
21,500 Ford Motor Co. 685
-------
BANK HOLDING COMPANIES - MAJOR REGIONAL (1.4%)
20,000 PNC Bank Corp. 752
-------
BANK HOLDING COMPANIES - MONEY CENTER (1.1%)
7,200 Bankers Trust New York Corp. 621
-------
BANK HOLDING COMPANIES - OTHER MAJOR (1.6%)
9,000 BankAmerica Corp. 898
-------
BROKERAGE FIRMS (1.5%)
12,500 Dean Witter, Discover & Co. 828
-------
CHEMICALS (2.3%)
8,500 Dow Chemical Co. 666
3,071 Millennium Chemicals, Inc.* 55
14,000 Union Carbide Corp. 572
-------
1,293
-------
CHEMICALS - SPECIALTY (0.7%)
9,000 Morton International, Inc. 367
-------
COMMUNICATION - EQUIPMENT MANUFACTURERS (1.6%)
19,668 Lucent Technologies, Inc. 910
-------
CONTAINERS - METALS & GLASS (1.3%)
28,500 Ball Corp. 741
-------
ELECTRIC POWER (2.2%)
22,000 Houston Industries, Inc. 498
35,000 Pacific Gas & Electric Co. 735
-------
1,233
-------
ELECTRICAL EQUIPMENT (1.3%)
12,000 Rockwell International Corp.* 731
-------
ELECTRONICS - SEMICONDUCTORS (3.7%)
18,500 Applied Materials, Inc.* 665
33,000 National Semiconductor Corp.* 804
30,500 Silicon Valley Group, Inc.* 614
-------
2,083
-------
FINANCE - CONSUMER (1.2%)
15,300 Associates First Capital Corp. 675
-------
FOODS (2.2%)
8,000 CPC International, Inc. 620
19,500 Dean Foods Co. 629
-------
1,249
-------
</TABLE>
B-40 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- -------
<S> <C> <C>
HEALTHCARE - DIVERSIFIED (0.1%)
2,400 Allegiance Corp. $ 66
------
HEALTHCARE - HMOs (1.2%)
36,300 Humana, Inc.* 694
------
HEAVY DUTY TRUCKS & PARTS (1.3%)
20,200 Trinova Corp. 735
------
HOMEBUILDING (0.6%)
9,000 Centex Corp. 339
------
HOUSEHOLD PRODUCTS (1.4%)
7,000 Procter & Gamble Co. 752
------
INSURANCE - MULTI-LINE COMPANIES (1.4%)
10,000 Aetna, Inc. 800
------
INSURANCE - PROPERTY/CASUALTY (4.9%)
13,000 Allstate Corp. 753
5,600 American International Group, Inc. 606
28,000 Everest Reinsurance Holdings, Inc. 805
29,000 Highlands Insurance Group, Inc.* 587
------
2,751
------
LEISURE TIME (1.2%)
28,300 Brunswick Corp. 679
------
MACHINERY - DIVERSIFIED (2.6%)
41,000 BW/IP, Inc. 676
18,500 Deere & Co. 752
------
1,428
------
MANUFACTURING - DIVERSIFIED INDUSTRIES (1.2%)
19,100 Hillenbrand Industries, Inc. 692
------
MANUFACTURING - SPECIALIZED (1.5%)
24,000 Avery Dennison Corp. 849
------
MEDICAL PRODUCTS & SUPPLIES (1.6%)
12,000 Baxter International, Inc. 492
14,600 C.R. Bard, Inc. 409
------
901
------
METALS - MISCELLANEOUS (2.3%)
20,000 Inco Ltd. 637
19,000 Titanium Metals Corp.* 625
------
1,262
------
NATURAL GAS DISTRIBUTION - PIPELINES (2.3%)
16,000 NICOR, Inc. 572
14,000 Sonat, Inc. 721
------
1,293
------
OFFICE EQUIPMENT & SUPPLIES (1.3%)
13,900 Xerox Corp. 731
------
OIL - DOMESTIC (2.9%)
40,000 Occidental Petroleum Corp. 935
16,500 Unocal Corp. 670
------
1,605
------
</TABLE>
1996 ANNUAL REPORT B-41
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- -------
<S> <C> <C>
OIL - EXPLORATION & PRODUCTION (2.9%)
19,000 Apache Corp. $ 672
127,000 Gulf Canada Resources, Ltd.* 937
------
1,609
------
OIL - INTERNATIONAL (1.4%)
7,700 Texaco, Inc. 756
------
OIL WELL EQUIPMENT & SERVICE (1.4%)
8,000 Schlumberger Ltd. 799
------
PAPER & FOREST PRODUCTS (4.2%)
45,900 Jefferson Smurfit Corp.* 737
9,200 Kimberly-Clark Corp. 876
15,500 Weyerhaeuser Co. 735
------
2,348
------
POLLUTION CONTROL (1.4%)
23,000 WMX Technologies, Inc. 750
------
PUBLISHING (4.0%)
25,500 American Greetings Corp. 724
10,300 Cognizant Corp. 340
16,100 Dun & Bradstreet Corp. 382
14,000 Houghton Mifflin Co. 793
------
2,239
------
RAILROADS (1.3%)
8,200 Norfolk Southern Corp. 717
------
REAL ESTATE INVESTMENT TRUSTS (3.2%)
15,000 Developers Diversified Realty Corp. 557
16,000 Kimco Realty Corp. 558
22,000 Public Storage, Inc. 682
------
1,797
------
RETAIL - DEPARTMENT STORES (1.1%)
13,000 May Department Stores Co. 608
------
RETAIL - GENERAL MERCHANDISING (2.6%)
15,500 J.C. Penney Company, Inc. 755
15,500 Sears, Roebuck & Co. 715
------
1,470
------
RETAIL - SPECIALTY (1.1%)
42,000 Phillips-Van Heusen Corp. 604
------
SAVINGS & LOAN HOLDING COMPANIES (1.1%)
22,000 Great Western Financial Corp. 638
------
SPECIALTY PRINTING (1.4%)
24,500 Deluxe Corp. 802
------
TELEPHONES (5.0%)
15,000 AT&T 652
16,500 GTE Corp. 751
14,000 NYNEX Corp. 674
18,500 Sprint Corp. 738
------
2,815
------
</TABLE>
B-42 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- -------
<S> <C> <C>
TOBACCO (4.3%)
6,400 Philip Morris Companies, Inc. $ 721
20,000 RJR Nabisco Holdings Corp. 680
31,000 Universal Corp. 996
------
2,397
------
Total common stocks (cost: $42,128) 53,910
------
SHORT-TERM (4.1%)
Principal
Amount
(000)
- ---------
U.S. GOVERNMENT & AGENCY ISSUES
$ 2,290 Federal Home Loan Mortgage Discount Notes,
5.40%, 1/02/97 (cost: $2,290) 2,290
------
Total investments (cost: $44,418) $56,200
======
</TABLE>
* Non-income producing
See accompanying "Notes to Portfolios of Investments in Securities" on page
B-55.
1996 ANNUAL REPORT B-43
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES DECEMBER 31, 1996
FOREIGN SECURITIES (70.3%)
FOREIGN COMMON STOCKS (67.7%)
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- -------
<S> <C> <C>
ARGENTINA (1.1%)
5,300 Disco S.A. ADS * $ 150
2,000 IRSA Inversiones y Representaciones S.A. GDS 64
11,000 Quilmes Industrial (Quinsa) S.A. ADS 100
3,800 Telefonica de Argentina S.A. ADR 98
------
412
------
AUSTRALIA (1.4%)
12,000 Broken Hill Proprietary Co. Ltd. 171
54,137 CSL Ltd. 256
16,100 National Mutual Holdings Ltd. * 24
10,000 Woodside Petroleum Ltd. 73
------
524
------
AUSTRIA (1.2%)
1,200 Bohler Uddeholm AG 86
2,250 VA Technologies AG 353
------
439
------
BELGIUM (1.2%)
625 Colruyt S.A. 286
2,400 Union Miniere * 163
------
449
------
CANADA (3.7%)
5,000 Alliance Forest Products, Inc. * 89
8,600 Anderson Exploration Ltd. * 111
60,000 Beau Canada Exploration Ltd. * 105
5,900 Canadian National Railway Co. 224
15,000 Canadian Occidental Petroleum Ltd. 242
22,000 National Bank of Canada 222
12,000 OSF, Inc. * 116
6,700 Suncor, Inc. 277
------
1,386
------
CHILE (0.9%)
3,700 Madeco S.A. ADS 90
7,100 Maderas y Sinteticos S.A. ADS 99
2,500 Sociedad Quimica y Minera de Chile S.A. ADS 135
------
324
------
CHINA (0.3%)
36,000 New World Infrastructure Ltd. * 105
------
COLUMBIA (0.2%)
12,500 Banco de Colombia GDS 95
------
CZECH REPUBLIC (0.4%)
3,000 Komercni Banka A.S. GDR 81
700 SPT Telecom A.S. * 87
------
168
------
DENMARK (2.5%)
4,800 Carli Gry International A/S * 230
6,000 ISS International Service System A/S "B" 158
800 Novo Nordisk A/S "B" 151
1,300 Tele Danmark A/S "B" 72
6,900 Tele Danmark A/S ADS 188
2,500 Unidanmark A/S 129
------
928
------
</TABLE>
B-44 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- ------
<S> <C> <C>
EGYPT (0.1%)
3,500 Suez Cement Co. S.A.E. GDS* $ 55
------
FINLAND (1.4%)
7,300 Nokia Corp. ADS 421
1,516 Raision Tehtaat 95
------
516
------
FRANCE (4.5%)
8,700 Coflexip ADS* 228
10,500 Elf Aquitaine ADS 475
3,000 Eramet Group 157
975 Essilor International 296
2,400 Louis Dreyfus Citrus* 79
760 Pathe S.A.* 183
900 Peugeot Citroen S.A.* 101
600 Roussel-Uclaf 177
------
1,696
------
GERMANY (2.5%)
1,600 Adidas AG 138
4,200 Deutsche Telekom AG ADR* 86
3,800 Leica Camera AG* 119
6,500 Pfeiffer Vacuum Technology AG ADS* 117
9,400 Rofin-Sinar Technologies, Inc.* 110
6,100 Veba AG 353
------
923
------
HONG KONG (1.3%)
145,000 Amoy Properties Ltd. 209
6,200 Asia Satellite Telecommunications Holdings Ltd. ADR* 145
74,800 Hong Kong Telecommunications Ltd. 121
9,000 Varitronix International Ltd. 16
------
491
------
HUNGARY (0.3%)
10,000 Mol Magyar Olay Es Gazipari GDS 126
------
INDIA (0.7%)
6,000 Hindalco Industries Ltd. GDR 148
8,000 Larsen & Toubro Ltd. GDR 116
------
264
------
INDONESIA (0.9%)
95,000 PT Asahimas Flat Glass Co. Ltd. 58
101,500 PT Bank Dagang Nasional Indonesia 103
14,000 PT HM Sampoerna 75
46,500 PT Jaya Real Property 65
15,000 PT Modern Photo Film 48
------
349
------
ISRAEL (1.2%)
5,100 Blue Square - Israel Ltd. ADS * 73
5,500 Koor Industries Ltd. ADS 94
5,800 Teva Pharmaceutical Industries Ltd. ADS 291
------
458
------
</TABLE>
1996 ANNUAL REPORT B-45
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- ------
<S> <C> <C>
ITALY (2.1%)
14,000 Arnoldo Mondadori Editore S.p.A. $ 114
4,900 Eni S.p.A. ADS 253
7,400 Instrumentation Laboratory S.p.A. ADS* 75
92,500 Olivetti and C., S.p.A.* 33
4,300 SAES Getters S.p.A. ADR* 52
81,800 STET S.p.A. 276
------
803
------
JAPAN (10.4%)
9,000 Bridgestone Corp. 171
16,000 Canon, Inc. 354
10,000 Daibiru Corp. 92
8,000 Higo Bank 53
21,000 Hitachi Ltd. 196
10,000 Honda Motor Co. Ltd. 286
5,000 Hoya Corp. 196
5,000 Ito-Yokado Co. Ltd. 218
3,000 Kyocera Corp. 187
9,900 Laox Co. Ltd. 151
26,000 Minebea Co. Ltd. 217
26,000 Mitsubishi Heavy Industries Ltd. 207
1,800 Namco 55
700 Nippon Television Network 212
75,000 NKK Corp.* 169
15,000 Nomura Securities Co. Ltd. 225
6 NTT Data Communications Systems Corp. 176
20,000 Shiseido Co. Ltd. 231
24,000 Terumo Corp. 325
6,000 Tostem Corp. 166
------
3,887
------
KOREA (0.4%)
2,500 Korea Electric Power Corp. 73
1,300 Samsung Electronics Co. Ltd. 76
77 Samsung Electronics Co. Ltd. (New)* 4
------
153
------
MALAYSIA (0.9%)
17,000 Edaran Otomobil Nasional Bhd 170
20,000 Telekom Malaysia Bhd 178
------
348
------
MEXICO (2.0%)
97,000 Controladora Comercial Mexicana, S.A. de C.V.* 90
2,500 Controladora Comercial Mexicana, S.A. de C.V. GDR* 45
7,318 Desc, Sociedad de Fomento Industrial, S.A. de C.V. ADS* 161
6,000 Panamerican Beverages, Inc. "A" 281
10,000 Tubos de Acero de Mexico, S.A. ADS* 159
------
736
------
NETHERLANDS (3.3%)
3,000 EVC International N.V. 95
7,000 Forasol-Foramer N.V.* 138
10,000 ING Group N.V. 360
1,750 Oce-van der Grinten N.V. 190
3,500 Philips Electronics N.V. 140
16,000 Verenigd Besit VNU 335
------
1,258
------
</TABLE>
B-46 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- ------
<S> <C> <C>
NORWAY (1.3%)
100,000 Christiania Bank og Kreditkasse $ 314
11,000 Nycomed ASA* 166
------
480
------
PERU (0.3%)
5,400 Telefonica del Peru S.A. "B" ADS 102
------
PHILIPPINES (0.5%)
250,000 Megaworld Properties* 100
3,600 Metropolitan Bank and Trust Co. 89
------
189
------
POLAND (0.4%)
11,539 Elektrim S.A. 105
7,000 Polifarb-Cieszyn S.A. 39
------
144
------
PORTUGAL (1.4%)
9,100 Banco Totta E Acores S.A.* 172
4,700 Cimentos de Portugal* 101
7,800 Portugal Telecom, S.A. ADS 220
500 Telecel-Comunicacoes Pessoais S.A. 32
------
525
------
RUSSIA (0.2%)
4,600 RAO Gazprom ADR* 82
------
SINGAPORE (1.1%)
12,000 Keppel Corp. Ltd. 93
26,000 Overseas Union Bank Ltd. 201
20,000 Singapore Land Ltd. 111
------
405
------
SOUTH AFRICA (1.2%)
17,800 Gencor Ltd. 65
35,800 Malbak Ltd. 157
7,215 Nedcor Ltd. GDR 101
4,600 South African Breweries Ltd. 116
------
439
------
SPAIN (2.0%)
10,387 Autopistas del Mare Nostrum S.A. 163
1,500 Corporacion Mapfre 91
5,800 Telefonica de Espana S.A. ADR 402
3,881 Vallehermoso S.A. 84
------
740
------
SWEDEN (2.8%)
2,550 ABB AB "A" 288
8,600 Autoliv AB 377
4,500 Nordbanken AB 136
1,300 Scandic Hotels AB 22
11,000 Volvo AB "B" 243
------
1,066
------
SWITZERLAND (3.3%)
373 Novartis AG 427
1,600 Oerlikon Buhrle AG* 158
50 SGS Group AG 123
759 Sulzer AG P.C. 438
5,800 Tag Heuer International S.A. ADS* 94
------
1,240
------
</TABLE>
1996 ANNUAL REPORT B-47
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- ------
<S> <C> <C>
TAIWAN (0.4%)
4,500 Acer, Inc. GDR* $ 42
5,125 China Steel Corp. GDS 103
------
145
------
THAILAND (0.3%)
11,100 Finance One Public Co. 23
40,000 Krung Thai Bank plc 77
------
100
------
TURKEY (0.3%)
680,000 Erciyas Biracilik ve Malt Sanayi A.S. 74
685,000 Olmuksa Mukavva Sanayi ve Ticaret A.S. 21
1,448,700 Yapi Ve Kredi Bankasi A.S. 36
------
131
------
UNITED KINGDOM (6.9%)
66,000 Bank of Scotland 348
12,000 Comcast UK Cable Partners Ltd.* 163
66,900 Corporate Services Group plc 198
11,300 DFS Furniture Co. plc 116
4,400 Dr. Solomon's Group plc ADS* 75
30,000 Harvey Nichols plc* 179
46,000 Medeva plc 200
30,500 Northern Ireland Electricity plc 198
90,000 Thistle Hotels plc* 279
59,000 Tomkins plc 273
4,800 Vodafone Group plc ADR 199
80,000 WPP Group plc 347
------
2,575
------
VENEZUELA (0.1%)
2,000 Compania Anonima Nacional Telefonos De Venezuela ADS* 56
------
OTHER HOLDINGS (0.3%)
90,000 Central European Growth Fund plc 95
30,000 Central European Growth Fund plc Warrants* 6
------
101
------
Total foreign common stocks (cost: $21,778) 25,413
------
FOREIGN PREFERRED STOCKS (2.2%)
AUSTRALIA (0.4%)
47,000 Village Roadshow Ltd. "A" 128
------
BRAZIL (1.4%)
5,500,000 Companhia Energetica de Minas Gerais (Cemig) 187
1,350,000 Petroleo Brasileiro S.A. 215
1,700,000 Telebras PN 131
------
533
------
GERMANY (0.4%)
1,100 SAP ADS 154
------
Total foreign preferred stocks (cost: $622) 815
------
</TABLE>
B-48 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
FOREIGN BONDS (0.4%)
<TABLE>
<CAPTION>
Principal Market
Amount Value
(000) Security (000)
- --------- -------- ------
<S> <C> <C>
JAPAN (0.4%)
$ 160 MBL International Finance (Bermuda) Trust,
Convertible Notes, 3.00%, 11/30/02 (cost: $166) $ 170
-----
Total foreign securities (cost: $22,566) 26,398
-----
DOMESTIC STOCKS (23.7%)
Number
of Shares
- ---------
AEROSPACE/DEFENSE (1.5%)
4,400 B.F. Goodrich Co. 178
2,668 Boeing Co. 284
2,000 Precision Castparts Corp. 99
-----
561
-----
ALUMINUM (0.4%)
2,400 Aluminum Co. of America 153
-----
AUTO PARTS (0.4%)
4,600 Lear Corp. * 157
-----
AUTOMOBILES (0.3%)
4,000 Ford Motor Co. 128
-----
BANK HOLDING COMPANIES - MONEY CENTER (0.4%)
1,900 Bankers Trust New York Corp. 164
-----
BEVERAGES - SOFT DRINKS (0.4%)
5,700 PepsiCo, Inc. 167
-----
BIOTECHNOLOGY (0.3%)
2,000 Amgen, Inc. * 109
-----
BROKERAGE FIRMS (0.4%)
2,500 Dean Witter, Discover & Co. 166
-----
CHEMICALS (0.6%)
1,000 Dow Chemical Co. 78
3,800 Monsanto Co. 148
-----
226
-----
CHEMICALS - SPECIALTY (0.2%)
2,200 Morton International, Inc. 90
-----
COMMUNICATION - EQUIPMENT MANUFACTURERS (0.6%)
4,648 Lucent Technologies, Inc. 215
-----
COMPUTER SOFTWARE & SERVICE (1.3%)
7,400 Informix Corp. * 151
2,200 Microsoft Corp. * 182
4,400 Sterling Commerce, Inc. * 155
-----
488
-----
CONTAINERS - METALS & GLASS (0.3%)
4,000 Ball Corp. 104
-----
ELECTRICAL EQUIPMENT (0.6%)
4,000 Rockwell International Corp.* 244
-----
ELECTRONICS - SEMICONDUCTORS (1.9%)
4,000 Applied Materials, Inc. * 144
1,300 Intel Corp. 170
3,000 Motorola, Inc. 184
8,000 National Semiconductor Corp. * 195
-----
693
-----
</TABLE>
1996 ANNUAL REPORT B-49
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Market
Number Value
of Shares Security (000)
- --------- -------- ------
FINANCE - CONSUMER (0.4%)
3,200 Associates First Capital Corp. $ 141
------
FOODS (0.4%)
4,300 Dean Foods Co. 139
------
GAMING COMPANIES (0.2%)
2,000 Anchor Gaming * 81
------
HEALTHCARE - DIVERSIFIED (0.4%)
1,200 Bristol-Myers Squibb Co. 130
------
HEALTHCARE - HMOs (0.4%)
3,200 United HealthCare Corp. 144
------
HEALTHCARE - Miscellaneous (0.8%)
6,700 COHR, Inc. * 181
3,200 Total Renal Care Holdings, Inc. * 116
------
297
------
HOUSEHOLD PRODUCTS (0.6%)
2,200 Procter & Gamble Co. 236
------
INSURANCE - PROPERTY/CASUALTY (0.6%)
2,000 American International Group, Inc. 216
------
MACHINERY - DIVERSIFIED (0.7%)
6,000 BW/IP, Inc. 99
4,000 Deere & Co. 162
------
261
------
MANUFACTURING - SPECIALIZED (0.6%)
6,400 Avery Dennison Corp. 226
------
MEDICAL PRODUCTS & SUPPLIES (0.8%)
4,100 C.R. Bard, Inc. 115
4,000 St. Jude Medical, Inc. * 170
------
285
------
OFFICE EQUIPMENT & SUPPLIES (0.7%)
3,200 Alco Standard Corp. 165
1,800 Xerox Corp. 95
------
260
------
OIL - DOMESTIC (0.4%)
4,000 Unocal Corp. 162
------
OIL - EXPLORATION & PRODUCTION (0.6%)
6,000 Apache Corp. 212
------
OIL & GAS DRILLING (0.3%)
1,500 Transocean Offshore, Inc. 94
------
OIL WELL EQUIPMENT & SERVICE (0.5%)
3,400 Halliburton Co. 205
------
PAPER & FOREST PRODUCTS (0.8%)
6,000 Fort Howard Corp. * 166
2,500 Weyerhaeuser Co. 119
------
285
------
POLLUTION CONTROL (0.8%)
4,000 Browning-Ferris Industries, Inc. 105
6,000 WMX Technologies, Inc. 196
------
301
------
</TABLE>
B-50 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
Market
Number Value
of Shares Security (000)
- --------- -------- ------
PUBLISHING (0.7%)
5,800 American Greetings Corp. $ 164
1,900 Cognizant Corp. 63
1,900 Dun & Bradstreet Corp. 45
-------
272
-------
RESTAURANTS (0.2%)
5,000 Brinker International, Inc. * 80
-------
RETAIL - GENERAL MERCHANDISING (0.4%)
4,950 Dollar General Corp. 158
-------
RETAIL - SPECIALTY (0.7%)
3,800 Abercrombie & Fitch Co. * 63
2,400 Borders Group, Inc. * 86
7,000 Phillips-Van Heusen Corp. 100
-------
249
-------
SPECIALIZED SERVICES (0.2%)
10,000 Leap Group, Inc. * 69
-------
TELEPHONES (0.9%)
4,500 360 Communications Co. 104
2,000 AT&T 87
4,000 Sprint Corp. 160
-------
351
-------
TOBACCO (0.7%)
1,000 Philip Morris Companies, Inc. 112
4,200 RJR Nabisco Holdings Corp. 143
-------
255
-------
TRANSPORTATION - MISCELLANEOUS (0.3%)
5,000 APL Ltd. 118
-------
Total domestic stocks (cost: $6,869) 8,892
-------
U.S. GOVERNMENT & AGENCY ISSUES (5.9%)
Principal
Amount
(000)
- ----------
DISCOUNT NOTE
$2,200 Federal Home Loan Mortgage Discount Notes,
5.40%, 1/02/97 (cost: $2,200) 2,200
-------
Total investments (cost: $31,635) $37,490
=======
* Non-income producing
1996 ANNUAL REPORT B-51
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY WORLD GROWTH FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
PORTFOLIO SUMMARY BY INDUSTRY
Healthcare 8.9%
Oil 8.0
Telecommunications 7.9
Banks 6.6
U.S. Government & Agency Issues 5.9
Retail 5.2
Electronics 3.4
Manufacturing 2.6
Automobiles 2.5
Computer Software & Service 2.5
Electrical Equipment 2.5
Publishing 2.4
Auto Parts 2.3
Electric Power 2.2
Conglomerates 2.1
Engineering & Construction 1.8
Office Equipment & Supplies 1.6
Machinery - Diversified 1.6
Aerospace / Defense 1.5
Broadcasters 1.5
Specialized Services 1.5
Beverages - Soft Drink 1.4
Building Materials 1.4
Metals 1.4
Real Estate 1.4
Steel 1.4
Insurance - Multi-Line Companies 1.2
Brokerage Firms 1.1
Chemicals 1.1
Paper & Forest Products 1.0
Transportation 1.0
Other 13.0
----
Total 99.9%
====
See accompanying "Notes to Portfolios of Investments in Securities" on page
B-55.
B-52 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES DECEMBER 31, 1996
BASIC VALUE STOCKS (60.0%)
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- ------
<S> <C> <C>
AEROSPACE/DEFENSE (4.6%)
12,000 B.F. Goodrich Co. $ 486
8,420 Boeing Co. 895
------
1,381
------
AUTOMOBILES (2.2%)
20,000 Chrysler Corp. 660
------
BANK HOLDING COMPANIES - MAJOR REGIONAL (2.0%)
16,000 PNC Bank Corp. 602
------
BANK HOLDING COMPANIES - MONEY CENTER (1.4%)
5,000 Bankers Trust New York Corp. 431
------
CHEMICALS (4.1%)
6,000 Dow Chemical Co. 470
20,000 Monsanto Co. 778
------
1,248
------
DISTRIBUTION & PIPELINES (1.6%)
14,000 NICOR, Inc. 501
------
DRUGS (1.9%)
14,500 Pharmacia & Upjohn, Inc. 575
------
ELECTRICAL EQUIPMENT (2.0%)
10,000 Rockwell International Corp. * 609
------
HEALTHCARE - DIVERSIFIED (3.7%)
8,000 American Home Products Corp. 469
6,000 Bristol-Myers Squibb Co. 652
------
1,121
------
INSURANCE - PROPERTY/CASUALTY (2.9%)
15,000 Allstate Corp. 868
------
MACHINERY - DIVERSIFIED (3.2%)
7,000 Caterpillar, Inc. 527
11,000 Deere & Co. 447
------
974
------
MANUFACTURING - DIVERSIFIED INDUSTRIES (1.6%)
6,000 Minnesota Mining & Manufacturing Co. 497
------
OFFICE EQUIPMENT & SUPPLIES (1.6%)
9,000 Xerox Corp. 474
------
OIL - DOMESTIC (2.9%)
4,000 Atlantic Richfield Co. 530
9,000 Unocal Corp. 366
------
896
------
OIL - INTERNATIONAL (5.0%)
7,000 Chevron Corp. 455
4,000 Mobil Corp. 489
6,000 Texaco, Inc. 589
------
1,533
------
PAPER & FOREST PRODUCTS (2.6%)
10,000 James River Corp. 331
10,000 Weyerhaeuser Co. 474
------
805
------
RAILROADS (1.4%)
5,000 Norfolk Southern Corp. 438
------
RETAIL - DEPARTMENT STORES (2.6%)
9,000 May Department Stores Co. 421
10,000 Nordstrom, Inc. 354
------
775
------
RETAIL - GENERAL MERCHANDISING (3.6%)
10,000 J.C. Penney Company, Inc. 487
13,000 Sears, Roebuck & Co. 600
------
1,087
------
</TABLE>
1996 ANNUAL REPORT B-53
<PAGE>
USAA LIFE INVESTMENT TRUST
USAA LIFE VARIABLE ANNUITY DIVERSIFIED ASSETS FUND
PORTFOLIO OF INVESTMENTS IN SECURITIES (Continued) DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number Value
of Shares Security (000)
- --------- -------- ------
<S> <C> <C>
TELEPHONES (5.4%)
10,000 GTE Corp. $ 455
10,000 NYNEX Corp. 481
8,000 SBC Communications Corp. 414
7,000 Sprint Corp. 279
-------
1,629
-------
TOBACCO (3.7%)
9,000 American Brands, Inc. 446
6,000 Philip Morris Companies, Inc. 676
-------
1,122
-------
Total basic value stocks (cost: $12,623) 18,226
-------
U.S. GOVERNMENT & AGENCY ISSUES (3.2%)
Principal
Amount Coupon
(000) Rate Maturity
- --------- ------- --------
$ 993 Government National Mortgage Assn.(cost: $947) 7.00% 6/20/26 969
-------
CORPORATE OBLIGATIONS (33.2%)
BANK HOLDING COMPANIES (3.4%)
1,000 HUBCO, Inc., Subordinated Debentures 8.20 9/15/06 1,041
-------
BANKS (6.7%)
1,000 Capital One Bank, MTN 7.35 6/20/00 1,017
1,000 Corporacion Andina De Fomento,
Global Bonds 7.38 7/21/00 1,026
-------
2,043
-------
ELECTRONICS - INSTRUMENTATION (3.4%)
1,000 Tektronix Inc., Notes 7.50 8/01/03 1,020
-------
MACHINE TOOLS (3.3%)
1,000 Giddings and Lewis, Inc., Notes 7.50 10/01/05 992
-------
REAL ESTATE INVESTMENT TRUSTS (10.0%)
1,000 Merry Land and Investment Co., Notes 7.25 6/15/05 991
1,000 Nationwide Health Properties, Inc., MTN 8.61 3/01/02 1,065
1,000 Washington Real Estate Investment Trust,
Senior Notes 7.25 8/13/06 987
-------
3,043
-------
RETAIL - FOOD CHAINS (3.3%)
1,000 Great Atlantic & Pacific Tea, Inc.,
Senior Notes 7.70 1/15/04 1,007
-------
RETAIL - GENERAL MERCHANDISING (3.1%)
1,000 Kmart Corp., Notes 8.13 12/01/06 942
-------
Total corporate obligations (cost: $10,021) 10,088
-------
SHORT - TERM (1.8%)
COMMERCIAL PAPER
566 Lockheed Martin Corp. (cost: $566) 7.15 1/02/97 566(a)
-------
Total investments (cost: $24,157) $29,849
=======
</TABLE>
* Non-income producing.
See accompanying "Notes to Portfolios of Investments in Securities" on page
B-55.
B-54 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
NOTES TO PORTFOLIOS OF INVESTMENTS IN SECURITIES
December 31, 1996
GENERAL NOTES
Market values of securities are determined by procedures and practices discussed
in Note 1 to the Trust's financial statements.
The cost of securities for federal income tax purposes is approximately the same
as that reported in the financial statements.
The percentages shown represent the percentage of the investments to net assets.
ADS/ADR--American Depositary Shares/ Receipts are foreign shares held by a U.S.
bank which issues a receipt evidencing ownership. Dividends are paid in U.S.
dollars.
GDS/GDR--Global Depositary Shares/ Receipts are foreign shares held by a non-
U.S. bank which issues a receipt evidencing ownership. Dividends are paid in
U.S. dollars.
SPECIFIC NOTES
(a) Security is exempt from registration under the Securities Act of 1933 and
has been determined to be liquid by the Manager. Any resale of this security
may occur in an exempt transaction in the United States to a qualified
institutional buyer as defined by Rule 144A.
PORTFOLIO DESCRIPTION ABBREVIATIONS
CP Commercial Paper
CRE Credit Enhanced
IDA Industrial Development
Authority/Agency
MTN Medium-Term Note
RB Revenue Bond
CATEGORIES AND DEFINITIONS
The securities in USAA Life VA Money Market Fund are divided into two
categories--fixed rate instruments and variable rate demand notes.
FIXED RATE INSTRUMENTS--consist of corporate and government notes and commercial
paper. The coupon rate is constant to maturity. Prior to maturity, the price of
a fixed rate instrument generally varies inversely to the movement of interest
rates. At maturity, the security pays face value.
VARIABLE RATE DEMAND NOTES (VRDN)--provide the right, on any business day, to
demand, or put, the security for redemption at face value on either that day or
in seven days. The interest rate is adjusted at the stipulated daily, weekly, or
monthly interval to a rate that reflects current market conditions. The VRDN's
effective maturity is equal to either the date on which the underlying principal
amount may be recovered through demand or the next rate adjustment date
consistent with applicable regulatory requirements. Most VRDNs possess a credit
enhancement.
CREDIT ENHANCEMENT--adds the financial strength of the provider to support the
underlying obligor's debt service obligations and/or the put option. The
enhancement may be provided by either a high quality bank, insurance company or
other corporation, or a collateral trust. Typically, the rating agencies
evaluate the security based upon the credit standing of the credit enhancement.
See accompanying "Notes to Financial Statements" on page B-60.
1996 ANNUAL REPORT B-55
<PAGE>
USAA LIFE INVESTMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
(In Thousands) December 31, 1996
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life
VA Money USAA Life VA Growth VA World VA Diversified
Market VA Income and Income Growth Assets
Fund Fund Fund Fund Fund
--------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at market value
(identified cost of $11,492, $22,286, $44,418,
$31,635, and $24,157, respectively) $ 11,492 $ 23,839 $ 56,200 $ 37,490 $ 29,849
Cash - 1 6 1 1
Cash denominated in foreign currencies
(identified cost of $10) - - - 10 -
Receivables:
Capital shares sold 59 - 139 20 319
Dividends and interest 18 227 122 39 261
Securities sold - - - 53 -
-------- -------- -------- -------- --------
Total assets 11,569 24,067 56,467 37,613 30,430
-------- -------- -------- -------- --------
LIABILITIES
Securities purchased - - 490 55 -
Unrealized depreciation on foreign currency
contracts held, at value - - - 1 -
Capital shares redeemed 320 11 29 2 31
USAA Life Insurance Company 4 7 16 20 9
-------- -------- -------- -------- --------
Total liabilities 324 18 535 78 40
-------- -------- -------- -------- --------
Net assets applicable to capital shares outstanding $ 11,245 $ 24,049 $ 55,932 $ 37,535 $ 30,390
======== ======== ======== ======== ========
REPRESENTED BY:
Paid-in capital $ 11,245 $ 22,903 $ 43,790 $ 31,337 $ 23,740
Accumulated undistributed net investment income - 73 2 48 3
Accumulated net realized gain (loss) on investments - (480) 358 295 955
Net unrealized appreciation of investments - 1,553 11,782 5,855 5,692
-------- -------- -------- -------- --------
Net assets applicable to capital shares outstanding $ 11,245 $ 24,049 $ 55,932 $ 37,535 $ 30,390
======== ======== ======== ======== ========
Capital shares outstanding, unlimited number of shares
authorized, no par value 11,245 2,288 3,713 2,940 2,347
======== ======== ======== ======== ========
Net asset value, redemption price,
and offering price per share $ 1.00 $ 10.51 $ 15.06 $ 12.77 $ 12.95
======== ======== ======== ======== ========
</TABLE>
See accompanying "Notes to Financial Statements" on page B-60.
B-56 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
(In Thousands) Year Ended December 31, 1996
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life
VA Money USAA Life VA Growth VA World VA Diversified
Market VA Income and Income Growth Assets
Fund Fund Fund Fund Fund
--------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Income (net of foreign taxes withheld of $0,
$0, $6, $57, and $0, respectively):
Dividends $ - $ 213 $ 974 $ 543 $ 605
Interest 624 1,841 85 111 878
-------- -------- -------- -------- --------
Total income 624 2,054 1,059 654 1,483
-------- -------- -------- -------- --------
Expenses:
Advisory fees 23 56 81 62 62
Administrative fees 30 30 30 30 30
Custodian's fees 40 46 54 112 47
Trustees' fees 4 4 4 4 4
Audit fees 30 30 30 30 30
Legal fees 15 15 15 15 15
Other - 1 1 1 1
-------- -------- -------- -------- --------
Total expenses before reimbursement 142 182 215 254 189
Expenses reimbursed (102) (84) (72) (51) (81)
-------- -------- -------- -------- --------
Total expenses after reimbursement 40 98 143 203 108
-------- -------- -------- -------- --------
Net investment income 584 1,956 916 451 1,375
-------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments - (480) 1,524 1,771 1,197
Foreign currency transactions - - - (2) -
Change in net unrealized appreciation/depreciation
of investments - (1,063) 6,662 3,623 1,737
-------- -------- -------- -------- --------
Net realized and unrealized gain (loss) - (1,543) 8,186 5,392 2,934
-------- -------- -------- -------- --------
Increase in net assets resulting from operations $ 584 $ 413 $ 9,102 $ 5,843 $ 4,309
======== ======== ======== ======== ========
</TABLE>
See accompanying "Notes to Financial Statements" on page B-60.
1996 ANNUAL REPORT B-57
<PAGE>
USAA LIFE INVESTEMNT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(In Thousands) Years Ended December 31,
<TABLE>
<CAPTION>
USAA Life VA
USAA Life VA USAA Life VA Growth and
Money Market Fund Income Fund Income Fund
--------------------------- ----------------------------- ---------------------------
1996 1995* 1996 1995* 1996 1995*
--------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income $ 584 $ 247 $ 1,956 $ 1,585 $ 916 $ 650
Net realized gain (loss) on:
Investments - - (480) 642 1,524 598
Foreign currency transactions - - - - - -
Change in net unrealized appreciation/
depreciation of investments - - (1,063) 2,616 6,662 5,120
--------- --------- ---------- ---------- ---------- ----------
Increase in net assets
resulting from operations 584 247 413 4,843 9,102 6,368
--------- --------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income (584) (247) (1,883) (1,585) (914) (650)
--------- --------- ---------- ---------- ---------- ----------
Net realized gains - - - (642) (1,166) (598)
--------- --------- ---------- ---------- ---------- ----------
From capital share transactions:
Proceeds from shares sold 62,988 22,742 7,926 21,078 20,120 22,675
Shares issued for dividends reinvested 584 247 1,883 2,227 2,080 1,248
Cost of shares redeemed (60,129) (15,187) (10,113) (98) (2,051) (282)
--------- --------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets
from capital share transactions 3,443 7,802 (304) 23,207 20,149 23,641
--------- --------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets 3,443 7,802 (1,774) 25,823 27,171 28,761
Net assets:
Beginning of period 7,802 - 25,823 - 28,761 -
--------- --------- ---------- ---------- ---------- ----------
End of period $ 11,245 $ 7,802 $ 24,049 $ 25,823 $ 55,932 $ 28,761
========= ========= ========== ========== ========== ==========
Undistributed net investment income
included in net assets:
Beginning of period $ - $ - $ - $ - $ - $ -
========= ========= ========== ========== ========== ==========
End of period $ - $ - $ 73 $ - $ 2 $ -
========= ========= ========== ========== ========== ==========
Change in shares outstanding:
Shares sold 62,988 22,742 725 2,093 1,440 2,205
Shares issued for dividends reinvested 584 247 178 197 137 99
Shares redeemed (60,129) (15,187) (897) (8) (146) (22)
--------- --------- ---------- ---------- ---------- ----------
Increase in shares outstanding 3,443 7,802 6 2,282 1,431 2,282
========= ========= ========== ========== ========== ==========
</TABLE>
* Funds commenced operations January 5, 1995.
See accompanying "Notes to Financial Statements" on page B-60.
B-58 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTEMNT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(In Thousands) Years Ended December 31,
<TABLE>
<CAPTION>
USAA Life VA USAA Life VA
World Growth Fund Diversified Assets Fund
--------------------------- -----------------------------
1996 1995* 1996 1995*
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 451 $ 324 $ 1,375 $ 1,117
Net realized gain (loss) on:
Investments 1,771 1,447 1,197 277
Foreign currency transactions (2) (4) - -
Change in net unrealized appreciation/
depreciation of investments 3,623 2,232 1,737 3,955
--------- --------- ---------- ----------
Increase in net assets
resulting from operations 5,843 3,999 4,309 5,349
--------- --------- ---------- ----------
Distributions to shareholders from:
Net investment income (449) (320) (1,372) (1,117)
--------- --------- ---------- ----------
Net realized gains (1,428) (1,447) (234) (285)
--------- --------- ---------- ----------
From capital share transactions:
Proceeds from shares sold 7,927 20,852 8,615 21,130
Shares issued for dividends reinvested 1,876 1,768 1,606 1,402
Cost of shares redeemed (940) (146) (8,845) (168)
--------- --------- ---------- ----------
Increase (decrease) in net assets
from capital share transactions 8,863 22,474 1,376 22,364
--------- --------- ---------- ----------
Net increase (decrease) in net assets 12,829 24,706 4,079 26,311
Net assets:
Beginning of period 24,706 - 26,311 -
--------- --------- ---------- ----------
End of period $ 37,535 $ 24,706 $ 30,390 $ 26,311
========= ========= ========== ==========
Undistributed net investment income
included in net assets:
Beginning of period $ - $ - $ - $ -
========= ========= ========== ==========
End of period $ 48 $ - $ 3 $ -
========= ========= ========== ==========
Change in shares outstanding:
Shares sold 642 2,079 679 2,097
Shares issued for dividends reinvested 147 159 123 117
Shares redeemed (75) (12) (655) (14)
--------- --------- ---------- ----------
Increase in shares outstanding 714 2,226 147 2,200
========= ========= ========== ==========
</TABLE>
* Funds commenced operations January 5, 1995.
See accompanying "Notes to Financial Statements" on page B-60.
ANNUAL REPORT 1996 B-59
<PAGE>
USAA LIFE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA LIFE INVESTMENT TRUST (the Trust), registered under the Investment
Company Act of 1940, as amended, is a diversified, open-end management
investment company organized as a Delaware business trust consisting of five
separate funds. The Funds commenced operations January 5, 1995, with an initial
investment from USAA Life Insurance Company (USAA Life). USAA Life is a wholly
owned subsidiary of United Services Automobile Association (USAA), a large,
diversified financial services institution.
The investment objective of USAA Life Variable Annuity Money Market Fund
(USAA Life VA Money Market Fund) is to seek the highest level of current income
consistent with preservation of capital and maintenance of liquidity. The
investment objective of USAA Life Variable Annuity Income Fund (USAA Life VA
Income Fund) is to seek maximum current income without undue risk to principal.
The investment objective of USAA Life Variable Annuity Growth and Income Fund
(USAA Life VA Growth and Income Fund) is to seek capital growth and current
income. The investment objective of USAA Life Variable Annuity World Growth
Fund (USAA Life VA World Growth Fund) is to seek long-term capital
appreciation. The investment objective of USAA Life Variable Annuity
Diversified Assets Fund (USAA Life VA Diversified Assets Fund) is to seek
long-term capital growth, consistent with preservation of capital and balanced
by current income.
Shares of the Trust currently are offered only to the Separate Account of USAA
Life Insurance Company (the Separate Account) to serve as the funding medium for
certain variable annuity contracts offered by USAA Life to USAA members as well
as the general public.
A. SECURITY VALUATION
The value of each security is determined (as of the close of trading on the
New York Stock Exchange on each business day the Exchange is open) as set forth
below:
1. Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities exchanges
are generally valued at the closing values of such securities on the exchange
where primarily traded. If no sale is reported, the latest bid price is
generally used depending upon local custom or regulation.
2. Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices.
3. Securities purchased with maturities of 60 days or less and, pursuant to
Rule 2a-7 of the Investment Company Act of 1940, as amended, all securities in
the USAA Life VA Money Market Fund are stated at amortized cost which
approximates market value.
4. Other debt and government securities are valued each business day by a
pricing service (the Service) approved by the Funds' Board of Trustees. The
Service uses the mean between quoted bid and asked prices or the last sale
price to price securities when, in the Service's judgement, these prices are
readily available and are representative of the securities' market values. For
many securities, such prices are not readily available. The Service generally
prices these securities based on methods which include consideration of yields
or prices of securities of comparable quality, coupon, maturity and type,
indications as to values from dealers in securities, and general market
conditions.
5. Securities which cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value, using methods determined
by the investment advisor under the general supervision of the Board of
Trustees.
B. FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of their income to their shareholders, the Separate Account
and USAA Life. Therefore, no federal income or excise tax provision is
required. As a result of certain permanent differences between book and tax
basis accounting for investments in passive foreign investment companies,
reclassifications have been made on the statement of assets and liabilities of
the USAA Life VA World Growth Fund to increase accumulated undistributed net
investment income by $47,807 and to decrease accumulated net realized gain on
investments by $47,807.
C. INVESTMENTS IN SECURITIES
As is common in the industry, security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gain or loss from
sales of investment securities is computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded on the
accrual basis. Discounts and premiums on short-term and long-term securities
are amortized over the life of the respective securities.
B-60 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
(Continued) December 31, 1996
D. FOREIGN CURRENCY TRANSLATIONS
The assets of the USAA Life VA World Growth Fund may be invested in the
securities of foreign issuers. Since the accounting records of the Fund are
maintained in U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
1. Market value of securities, other assets, and liabilities at the mean
between the bid and asked translation rates of such currencies against U.S.
dollars.
2. Purchases and sales of securities, income, and expenses at the rate of
exchange obtained from an independent pricing service on the respective dates
of such transactions.
Net realized and unrealized foreign currency gains/losses occurring during
the holding period of investments are a component of realized gain/loss on
investments and unrealized appreciation/depreciation on investments,
respectively.
Net realized foreign currency gains/losses arise from sales of foreign
currency, currency gains/losses realized between the trade and settlement dates
on security transactions, and the difference between amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts received.
Net realized foreign currency gains/losses have been reclassified from
accumulated net realized gain/loss to accumulated undistributed net investment
income on the statement of assets and liabilities as such amounts are treated
as ordinary income/loss for tax purposes. Net unrealized foreign currency
exchange gains/losses arise from changes in the value of assets and liabilities
other than investments in securities resulting from changes in the exchange
rate.
E. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that may affect the reported amounts in the financial statements.
2) DISTRIBUTIONS
USAA LIFE VA MONEY MARKET FUND
Net investment income is accrued daily as dividends and distributed monthly
to its shareholders, the Separate Account and USAA Life. All net investment
income available for distribution was distributed at December 31, 1996.
Distributions of realized gains from security transactions not offset by
capital losses are made annually or as otherwise required to avoid the payment
of federal taxes.
USAA LIFE VA INCOME FUND, USAA LIFE VA GROWTH AND INCOME FUND,
USAA LIFE VA WORLD GROWTH FUND, AND USAA LIFE VA DIVERSIFIED ASSETS FUND
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made to the shareholders, the
Separate Account and USAA Life, annually or as otherwise required to avoid the
payment of federal taxes. At December 31, 1996, the USAA Life VA Income Fund
had a capital loss carryover for federal income tax purposes of approximately
$373,000 which, if not offset by subsequent capital gains will expire in 2004.
It is unlikely that the Board of Trustees of the Fund will authorize a
distribution of capital gains realized in the future until the capital loss
carryover has been utilized or expires.
3) Investment Transactions
Purchases and sales/maturities of securities, excluding short-term
securities, for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
USAA Life VA USAA Life VA
USAA Life VA Growth and USAA Life VA Diversified
Income Fund Income Fund World Growth Fund Assets Fund
-------------- -------------- ----------------- ------------
<S> <C> <C> <C> <C>
Purchases $26,358,616 $23,268,391 $22,779,498 $13,726,482
Sales/Maturities $25,806,726 $ 5,699,160 $16,883,836 $13,083,230
</TABLE>
Purchases and sales/maturities of securities for the year ended December 31,
1996 for the USAA Life VA Money Market Fund were $143,824,016 and $140,509,869,
respectively.
Gross unrealized appreciation and depreciation of investments as of December 31,
1996 was as follows:
<TABLE>
<CAPTION>
USAA Life VA USAA Life VA
USAA Life VA Growth and USAA Life VA Diversified
Income Fund Income Fund World Growth Fund Assets Fund
-------------- -------------- ----------------- ------------
<S> <C> <C> <C> <C>
Appreciation $1,684,223 $12,052,580 $ 7,041,529 $5,906,530
Depreciation (131,035) (270,773) (1,186,566) (214,967)
---------- ----------- ----------- ----------
Net $1,553,188 $11,781,807 $ 5,854,963 $5,691,563
========== =========== =========== ==========
</TABLE>
1996 ANNUAL REPORT B-61
<PAGE>
USAA LIFE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
(Continued) December 31, 1996
4) FOREIGN CURRENCY CONTRACTS
A forward currency contract (currency contract) is a commitment to purchase
or sell a foreign currency at a specified date, at a negotiated price. The USAA
Life VA World Growth Fund currently enters into currency contracts only in
connection with the purchase or sale of a security denominated in a foreign
currency. These contracts allow the Fund to "lock in" the U.S. dollar price of
the security. Currency contracts are valued on a daily basis using foreign
currency exchange rates obtained from an independent pricing service. Risks of
entering into currency contracts include the potential inability of the
counterparty to meet the terms of the contract and the Fund foregoing the
opportunity for potential profit.
At December 31, 1996, the terms of open foreign currency contracts in the
USAA Life VA World Growth Fund were as follows (in thousands):
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar
Value Value Unrealized
Exchange Currency to be as of Currency to be as of Appreciation
Date Delivered 12/31/96 Received 12/31/96 (Depreciation)
- -------- ------------------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1/02/97 681 Spanish Peseta $ 5 5 U.S. Dollar $ 5 $ -
1/03/97 896 Spanish Peseta 7 7 U.S. Dollar 7 -
1/06/97 7 Australian Dollar 6 6 U.S. Dollar 6 -
1/06/97 6,465 Indonesian Rupiah 3 3 U.S. Dollar 3 -
1/06/97 37 U.S. Dollar 37 4,222 Japanese Yen 36 (1)
1/07/97 11 Australian Dollar 8 8 U.S. Dollar 8 -
1/07/97 532 Spanish Peseta 4 4 U.S. Dollar 4 -
1/07/97 620 Spanish Peseta 5 5 U.S. Dollar 5 -
1/07/97 18 U.S. Dollar 18 2,112 Japanese Yen 18 -
1/08/97 826 Spanish Peseta 6 6 U.S. Dollar 6 -
1/09/97 1,113 Spanish Peseta 9 9 U.S. Dollar 9 -
----- ----- -----
$ 108 $ 107 $ (1)
===== ===== =====
</TABLE>
5) TRANSACTIONS WITH AFFILIATES
A. ADVISORY FEES
The investment policies of the Funds and management of the Funds' portfolios are
carried out by USAA Investment Management Company (USAA IMCO). USAA IMCO is
indirectly wholly owned by USAA. The Funds' advisory fees are computed on an
annualized rate of .20% of the monthly average net assets of each Fund of the
Trust for each calendar month. USAA Life, out of its general account, has agreed
to reimburse USAA IMCO for the expenses it incurs in rendering services to the
Trust, but only to the extent these expenses exceed the amount of the above
advisory fees.
B. ADMINISTRATIVE FEES
As outlined in the Underwriting and Administrative Services Agreement by and
between USAA Life, the Trust and USAA IMCO, USAA Life provides certain
management, administrative, legal, clerical, accounting, and record-keeping
services necessary or appropriate to conduct the Trust's business and
operations. Fees are based on estimated time spent to provide services.
C. EXPENSES REIMBURSED
USAA Life, out of its general account, has agreed to pay directly or reimburse
the Trust for Trust expenses to the extent that such expenses exceed .65% of the
monthly average net assets of the USAA Life VA World Growth Fund and .35% of the
monthly average net assets of each other Fund. Expenses include the advisory
fees previously discussed.
D. UNDERWRITING AND DISTRIBUTION AGREEMENT
The Trust has an agreement with USAA IMCO for exclusive underwriting and
distribution of the Funds' shares on a continuing best efforts basis. This
agreement provides that USAA IMCO will receive no commission or other fee for
such services.
E. BROKERAGE SERVICES
USAA Brokerage Services, a discount brokerage service of USAA IMCO, may
execute portfolio transactions for the Funds. The amount of brokerage
commissions paid to USAA Brokerage Services during the year ended December 31,
1996 for the USAA Life VA Growth and Income, USAA Life VA World Growth, and
USAA Life VA Diversified Assets Funds were $2,044, $340, and $3,592,
respectively.
F. SHARE OWNERSHIP
At December 31, 1996, USAA Life owned 1,805,197 shares (78.9%) of the USAA
Life VA Income Fund, 2,157,962 shares (58.1%) of the USAA Life VA Growth and
Income Fund, 2,161,013 shares (73.5%) of the USAA Life VA World Growth Fund,
and 1,599,499 shares (68.2%) of the USAA Life VA Diversified Assets Fund. All
other shares are owned by the Separate Account.
B-62 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
(Continued) December 31, 1996
6) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each
period is as follows:
<TABLE>
<CAPTION>
USAA Life VA
USAA Life VA USAA Life VA Growth and Income
Money Market Fund Income Fund Fund
----------------------- ----------------------- ----------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
1996 1995* 1996 1995* 1996 1995*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period $ 1.00 $ 1.00 $ 11.32 $ 10.00 $ 12.60 $ 10.00
Net investment income .05 .06(b) .92 .78(b) .26 .34(b)
Net realized and unrealized gain
(loss) - - (.84) 1.61 2.79 2.83
Distributions from net investment
income (.05) (.06) (.89) (.76) (.26) (.30)
Distributions of realized capital
gains - - - (.31) (.33) (.27)
------- ------- -------- -------- -------- --------
Net asset value at end of
period (000) $ 1.00 $ 1.00 $ 10.51 $ 11.32 $ 15.06 $ 12.60
======= ======= ======== ======== ======== ========
Total return (%)** 5.25 5.69 0.67 23.88 24.13 31.72
Net assets at end of period (000) $11,245 $ 7,802 $ 24,049 $ 25,823 $ 55,932 $ 28,761
Ratio of expenses to average net
assets (%) .35(c) .35(a)(c) .35(c) .35(a)(c) .35(c) .35(a)(c)
Ratio of net investment income
to average net assets(%) 5.10(c) 5.55(a)(c) 6.99(c) 7.07(a)(c) 2.25(c) 2.82(a)(c)
Portfolio turnover (%) - - 97.74 55.08 14.55 17.73
Average commission rate paid
per share + - - .0500 .0400 .0490 .0489
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Funds commenced operations January 5, 1995.
** Assumes reinvestment of all dividend income and capital gains distributions
during the period. Total returns for each period do not reflect insurance
expenses that apply at the Separate Account level, such as risk and expense
charges. These expenses would reduce the total return for the period shown.
+ Calculated by aggregating all commissions paid on the purchase and sale of
securities and dividing by the actual number of shares purchased or sold
for which commissions were charged.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
(c) The information contained in the above table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by USAA Life.
Absent such reimbursements the Funds' ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio of expenses to average
net assets (%) 1.24 2.29(a) .65 .65(a) .53 .66(a)
Ratio of net investment income
to average net assets (%) 4.21 3.61(a) 6.69 6.77(a) 2.07 2.51(a)
</TABLE>
1996 ANNUAL REPORT B-63
<PAGE>
USAA LIFE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
(Continued) December 31, 1996
6) FINANCIAL HIGHLIGHTS, CONTINUED
Per share operating performance for a share outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
USAA Life VA USAA Life VA
World Growth Fund Diversified Assets Fund
-------------------------------- --------------------------------
Year Ended December 31, Year Ended December 31,
1996 1995* 1996 1995*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 11.10 $ 10.00 $ 11.96 $ 10.00
Net investment income .18 .17(b) .62 0.55(b)
Net realized and unrealized gain (loss) 2.16 1.79 1.10 2.08
Distributions from net investment income (.16) (.16) (.62) (.53)
Distributions of realized capital gains (.51) (.70) (.11) (.14)
-------- -------- -------- --------
Net asset value at end of period (000) $ 12.77 $ 11.10 $ 12.95 $ 11.96
======== ======== ======== ========
Total return (%)** 21.12 19.55 14.30 26.33
Net assets at end of period (000) $ 37,535 $ 24,706 $ 30,390 $ 26,311
Ratio of expenses to average net
assets (%) .65(c) .65(a)(c) .35(c) .35(a)(c)
Ratio of net investment income to
average net assets(%) 1.45(c) 1.55(a)(c) 4.46(c) 4.93(a)(c)
Portfolio turnover (%) 57.66 78.86 43.75 58.87
Average commission rate paid per share + .0006 .0076 .0471 .0482
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Funds commenced operations January 5, 1995.
** Assumes reinvestment of all dividend income and capital gains distributions
during the period. Total returns for each period do not reflect insurance
expenses that apply at the Separate Account level, such as risk and expense
charges. These expenses would reduce the total return for the period shown.
+ Calculated by aggregating all commissions paid on the purchase and sale of
securities and dividing by the actual number of shares purchased or sold for
which commissions were charged.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using weighted average shares.
(c) The information contained in the above table is based on actual expenses for
the period, after giving effect to reimbursements of expenses by USAA Life.
Absent such reimbursements the Funds' ratios would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Ratio of expenses to average
net assets (%) .82 .87(a) .61 .64(a)
Ratio of net investment income
to average net assets (%) 1.28 1.33(a) 4.20 4.64(a)
</TABLE>
B-64 ANNUAL REPORT 1996
<PAGE>
USAA LIFE INSURANCE COMPANY
To discuss your investment strategy,
the Variable Annuity's features or performance,
call an Account Representative toll free
Monday-Friday 7:15 a.m. to 8:00 p.m.
1-800-531-4440
(459-9050 in San Antonio)
-------------
If you wish to discuss your particular contract,
transfer money from one fund account to another or select a payout option
call a Service Representative toll free
Monday-Friday 8 a.m. to 5 p.m.
1-800-531-4265
-------------
For variable annuity unit values
call our recorded QUOTELINE,
24-hours a day, 7 days a week
1-800-531-8233
(498-6860 in San Antonio)
[LOGO OF USAA APPEARS HERE]
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Copyright (C) 1997, USAA. All rights reserved.
