<PAGE>
USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
==========================================================================
SEMIANNUAL REPORT
June 30, 1999
[LOGO OF USAA
APPEARS HERE]
<PAGE>
TABLE OF CONTENTS
================================================================================
PRESIDENT'S MESSAGE.................................................... iii
USAA LIFE INSURANCE COMPANY VARIABLE ANNUITY
SEPARATE ACCOUNT
Overview of the Variable Annuity Fund Accounts........................ A-3
Statements of Assets and Liabilities.................................. A-4
Statements of Operations.............................................. A-5
Statements of Changes in Net Assets................................... A-6
Notes to Financial Statements......................................... A-8
USAA LIFE INVESTMENT TRUST
USAA Life Fund Overviews.............................................. B-3
Portfolios of Investments............................................. B-22
Notes to Portfolios of Investments.................................... B-40
Statements of Assets and Liabilities.................................. B-42
Statements of Operations.............................................. B-43
Statements of Changes in Net Assets................................... B-44
Notes to Financial Statements......................................... B-46
SCUDDER VARIABLE LIFE INVESTMENT FUND (VLIF)
CAPITAL GROWTH PORTFOLIO
Letter from the Fund's President...................................... C-3
Capital Growth Portfolio Management Discussion........................ C-4
Capital Growth Performance Update..................................... C-5
Capital Growth Portfolio Summary...................................... C-6
Investment Portfolios, Financial Statements, and Financial Highlights
Capital Growth Portfolio.............................................. C-7
Notes to Financial Statements......................................... C-16
THE ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
Schedule of Investments............................................... D-4
Financial Highlights.................................................. D-6
Statement of Assets and Liabilities................................... D-7
Statement of Operations............................................... D-8
Statement of Changes in Net Assets.................................... D-9
Notes to Financial Statements......................................... D-10
<PAGE>
TABLE of CONTENTS, continued
================================================================================
BT INSURANCE FUNDS TRUST
Equity 500 Index Fund
Letter to Shareholders................................................ E-5
Schedule of Investments............................................... E-7
Statement of Assets and Liabilities................................... E-12
Statement of Operations............................................... E-13
Statements of Changes in Net Assets................................... E-14
Financial Highlights.................................................. E-15
Notes to Financial Statements......................................... E-16
Small Cap Index Fund
Letter to Shareholders................................................ E-21
Schedule of Investments............................................... E-23
Statement of Assets and Liabilities................................... E-40
Statement of Operations............................................... E-41
Statements of Changes in Net Assets................................... E-42
Financial Highlights.................................................. E-43
Notes to Financial Statements......................................... E-44
EAFE (R) Equity Index Fund
Letter to Shareholders................................................ E-49
Schedule of Investments............................................... E-52
Statement of Assets and Liabilities................................... E-59
Statement of Operations............................................... E-60
Statement of Changes in Net Assets.................................... E-61
Financial Highlights.................................................. E-62
Notes to Financial Statements......................................... E-63
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.
<PAGE>
USAA Life Variable Annuity Semiannual Report
- --------------------------------------------------------------------------------
President's Message
from the desk of Ed Rosane
==========================
[Photo of After 100 years, the Dow Jones Industrial Average finally
Ed Rosane] hit 5,000 that was in 1995. A scant four years later, the
Dow broke through to close above 10,000. This financial mile-
stone occurred on March 29, 1999. We've had some ups and downs since, but the
Dow hasn't closed below 10,000. The question is what does this mean for us as
investors?
There are many opinions about why the 10,000 mark is significant. Is the level
justified? Is the market ahead of itself? We at USAA Life Insurance Company
believe the real lesson to be learned from the surging Dow is that it's wise to
be a long-term investor with a diversified and balanced portfolio. As you know,
one of the best ways to diversify your portfolio is to include variable
retirement products, such as the USAA Life Variable Annuity.
--------------------------
1999 SEMIANNUAL REPORT iii
<PAGE>
USAA LIFE VARIABLE ANNUITY SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
Are You Getting The Most From Your Variable Annuity?
Sales for variable annuities were up 12% in 1998, according to the Variable
Annuity Research Data Service. It would seem people are utilizing the variable
annuity as a retirement planning tool, and for good reason. A variable annuity
may be a sound addition to your retirement portfolio.
Congratulations on your decision to include the USAA Life Variable Annuity in
your retirement plan. There are many features of this Variable Annuity, some of
which you may not be familiar with. Read on to learn what it provides for you.
Tax Deferred Growth Potential
Your earnings can accumulate tax deferred, which may accelerate your annuity
growth. Keep in mind that the longer your dollars can stay tax-free and
compound, the more your investment may increase. Of course, if you are in a
qualified plan, a Variable Annuity does not provide any additional tax deferral
benefit.
Flexible Insurance
Payout Options
Once you begin drawing a regular income from your Variable Annuity, you can
choose various insurance payout options including fixed, variable or a
combination of the two. The fixed payout option does something no other
retirement savings plan can do-it guarantees payouts you can not outlive.
Low Charges and Expenses
The USAA Life Variable Annuity has insurance contract charges that are 41% lower
than the industry average according to the June 1999 Morning Star Variable
Annuity/Life Performance Report.
Average
USAA Industry
Life Contract
---- --------
Mortality and Expense Charge .65% 1.13%
Administration Expense .10 .13
--- ----
Total Insurance Expense .75% 1.26%
=== ====
Guaranteed Death Benefit
You can have peace of mind that in the event you die before you annuitize, your
named beneficiary will receive at least the amount you contributed. In addition,
the proceeds pass directly to your beneficiary and bypass probate.
Investment Diversity
USAA Life's contract features a wide variety of investment options with varying
degrees of risk and return potential ranging from conservative to aggressive
growth. To provide even greater choice, we offer access to outside accounts from
Alger, Scudder and Bankers Trust. As you know, a diversified portfolio can
reduce risk while providing greater potential for return. A summary of fund
account objectives and performance returns can be found on page A-3.
Contract Flexibility
Since our investment options are part of one contract, you can move money up to
six times per year from one fund account to another by simply making a phone
call. In addition, these transfers don't create a taxable event because of the
special tax advantages afforded to your annuity retirement plan. This way you
can adjust your investment strategy to better meet your needs.
No Contribution Limits
The more you invest, the better off you may be when you retire. If you own a
nonqualified Variable Annuity, there are no contribution limits so you can add
as much as you want to your contract as often as you'd like. Contribution limits
for an IRA, TSA, SEP or other qualified retirement plans are limited and may
vary. However, you can purchase a nonqualified plan to supplement your
retirement income.
Looking Foward
I hope you will find the information contained in this Report useful and
educational. As always, our salaried account representatives can answer any
questions you may have. Just call us at 1-800-531-2923 (in San Antonio call
282-3460). We will continue to provide the high-quality service you expect.
Sincerely,
/s/ Edwin L. Rosane
- ----------------------------------
Edwin L. Rosane, CLU, FLMI
President
USAA Life Insurance Company
An additional 10% federal penalty tax may apply to withdrawals made before the
age of 59-1/2. Variable insurance products are subject to market risk,
including potential fluctuations in investment return and the potential loss of
principal. The expenses listed above are only the insurance contract charges.
There are additional expenses associated with each particular underlying fund
that you should consider.
- --------------------------
iv SEMIANNUAL REPORT 1999
<PAGE>
USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
================================================================================
Semiannual Report
June 30, 1999
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<TABLE>
<CAPTION>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
AN OVERVIEW
Fund Accounts June 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
AUV Average
AUV Average AUV Average Annual
Accumulation Annual Annual Total Return
Inception Unit Value Total Return Total Return Since
Fund Account Objective Date (AUV) One Year Three Year Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
USAA Life Money Market Seeks the highest level of current income
consistent with preservation of capital 2/6/95 $1.20 4.02% 4.10% 4.15%
and maintenance of liquidity (7-day yield
is 3.89%)
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life Income Seeks maximum current income without
undue risk to principal 2/6/95 $13.55 -0.16% 6.22% 7.06%
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life Growth
and Income Seeks capital growth and current income 2/6/95 $23.79 12.63% 19.92% 21.69%
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life World Growth* Seeks long-term capital appreciation 2/6/95 $19.66 7.50% 13.16% 16.52%
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life Seeks long-term capital growth, 2/6/95 $19.80 10.75% 15.36% 16.71%
Diversified Assets consistent with preservation of capital
and balanced by current income
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life Seeks appreciation of capital 5/1/97 $17.64 31.67% -- 29.85%
Aggressive Growth
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life Seeks capital appreciation with current 5/1/97 $11.01 -1.77% -- 4.43%
International* income as a secondary objective
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder VLIF Capital Seeks to maximize long-term 2/6/95 $27.05 17.12% 25.67% 25.30%
Growth Portfolio capital growth
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation 2/6/95 $30.98 34.12% 30.66 29.23%
Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index Seeks to match as closely as possible the
performance of the S&P 500 (Registered 5/1/98 $12.27 20.96% -- 19.03%
Trademark) Index, before the deduction
of Fund expenses
- ------------------------------------------------------------------------------------------------------------------------------------
BT Small Cap Index Seeks to match as closely as possible
the performance of the Russell 2000 5/1/98 $9.48 0.23% -- -4.59%
(Registered Trademark) Small Stock
Index before the deduction of Fund
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
BT EAFE (Registered Seeks to match as closely as possible
Trademark) the performance of the Morgan Stanley
Equity Index* Capital International Europe Australia 5/1/98 $10.77 7.31% -- 6.46%
Far East (EAFE) Index before the deduction
of Fund expenses
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The 7-day yield quotation more closely reflects the current earnings of the fund
than the total return quotation. An investment in the USAA Life Money Market
Fund is not insured or guaranteed by the F. D. I. C. or any other Government
agency. Although the fund seeks to preserve a stable value, it is possible to
lose money by investing in the fund. The 7-day yield reflects the 7-day period
ending June 30, 1999.
*Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability, 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 results.
Variable insurance products are subject to market risk, including potential
fluctuations in investment return and potential loss of principal.
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.
1999 SEMIANNUAL REPORT A-3
<PAGE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
Variable Fund Accounts (In Thousands, Except Per Unit Data) June 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment at
Fund Shares Cost Market Value
------------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Investments at market value:
USAA Life Money Market Fund 27,440 $ 27,440 $ 27,440
USAA Life Income Fund 2,020 22,753 21,194
USAA Life Growth and Income Fund 3,975 69,786 83,822
USAA Life World Growth Fund 1,216 16,892 19,289
USAA Life Diversified Assets Fund 2,660 38,628 41,414
USAA Life Aggressive Growth Fund 453 5,946 7,894
USAA Life International Fund 154 1,661 1,684
Scudder VLIF Capital Growth Portfolio-Class A Shares 1,956 40,336 46,798
Alger American Growth Portfolio 1,515 67,874 84,572
BT Equity 500 Index Fund 1,677 20,721 23,894
BT Small Cap Index Fund 369 3,720 4,000
BT EAFE (Registered Trademark) Equity Index Fund 82 904 955
-------------- --------------
Total investments $316,661 362,956
LIABILITIES
Payable to USAA Life Insurance Company 6
--------------
Net assets $362,950
==============
Fund Account Accumulation Annuity
Units Unit Value Reserves
------------- ----------- -------------
NET ASSETS
Deferred annuity contracts in the accumulation period:
USAA Life Money Market Fund Account 22,843 $ 1.201222 $ 27,440
USAA Life Income Fund Account 1,558 13.553955 21,114
USAA Life Growth and Income Fund Account 3,523 23.785966 83,789
USAA Life World Growth Fund Account 978 19.659120 19,235
USAA Life Diversified Assets Fund Account 2,089 19.797394 41,355
USAA Life Aggressive Growth Fund Account 447 17.644394 7,894
USAA Life International Fund Account 153 11.012953 1,684
Scudder VLIF Capital Growth Portfolio Fund Account 1,730 27.048748 46,797
Alger American Growth Portfolio Fund Account 2,724 30.980503 84,405
BT Equity 500 Index Fund Account 1,947 12.271729 23,893
BT Small Cap Index Fund Account 422 9.483757 4,000
BT EAFE(Registered Trademark) Equity Index Fund Account 89 10.774232 955
--------------
Net assets attributable to contractowners' deferred annuity reserves 362,561
Annuity contracts in the annuity period:
USAA Life Income Fund Account 6 13.553955 80
USAA Life Growth and Income Fund Account 1 23.785966 32
USAA Life World Growth Fund Account 3 19.659120 54
USAA Life Diversified Assets Fund Account 3 19.797394 58
Alger American Growth Portfolio Fund Account 5 30.980503 165
--------------
Net assets attributable to contractowners' annuity payment reserves 389
--------------
Net assets $ 362,950
==============
</TABLE>
See accompanying Notes to Financial Statements on page A-8.
A-4 SEMIANNUAL REPORT 1999
<PAGE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Variable Fund Accounts (In Thousands) Six-month period ended June 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life USAA Life USAA Life USAA Life USAA Life USAA Life USAA Life
Money Market Income Growth and World Growth Diversified Aggressive International
Fund Fund Income Fund Fund Assets Fund Growth Fund Fund
Account Account Account Account Account Account Account
--------- ---------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Income dividends $ 623 $ 46 $ 22 $ 19 $ 14 $ - $ -
------ ------- ------- ------- ------ ------ -----
Expenses
Mortality and expense risk
charge 88 66 250 60 119 19 5
Administrative charge 14 10 38 10 18 3 -
------ ------- ------- ------- ------ ------ -----
Total expenses 102 76 288 70 137 22 5
------ ------- ------- ------- ------ ------ -----
Net investment income 521 (30) (266) (51) (123) (22) (5)
------ ------- ------- ------- ------ ------ -----
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) - (32) 2,108 417 205 30 (17)
Capital gains distributions - 5 287 - 2,614 45 -
------ ------- ------- ------- ------ ------ -----
Net realized gain (loss) - (27) 2,395 417 2,819 75 (17)
Change in net unrealized
appreciation/depreciation - (754) 9,584 1,433 943 1,376 104
------ ------- ------- ------- ------ ------ -----
Net realized and unrealized
gain (loss) on investments - (781) 11,979 1,850 3,762 1,451 87
------ ------- ------- ------- ------ ------ -----
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 521 $ (811) $11,713 $ 1,799 $3,639 $1,429 $ 82
====== ======= ======= ======= ====== ====== =====
Scudder Alger BT EAFE(Registered
VLIF Capital American BT Equity BT Small Trademark)
Growth Portfolio Growth Portfolio 500 Index Cap Index Equity Index
Fund Account Fund Account Fund Account Fund Account Fund Account
--------------- ---------------- ------------ ------------ -----------------
NET INVESTMENT INCOME:
Income dividends $ 116 $ 103 $ - $ - $ -
------- -------- ------- ------ ------
Expenses
Mortality and expense risk charge 133 225 59 10 3
Administrative charge 21 35 9 1 -
------- -------- ------- ------ ------
Total expenses 154 260 68 11 3
------- -------- ------- ------ ------
Net investment income (38) (157) (68) (11) (3)
------- -------- ------- ------ ------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) 790 1,722 124 (48) 16
Capital gains distributions 4,240 6,999 - - -
------- -------- ------- ------ ------
Net realized gain (loss) 5,030 8,721 124 (48) 16
Change in net unrealized
appreciation/depreciation (659) 1,518 1,996 303 23
------- -------- ------- ------ ------
Net realized and unrealized
gain (loss) on investments 4,371 10,239 2,120 255 39
------- -------- ------- ------ ------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,333 $ 10,082 $ 2,052 $ 244 $ 36
======= ======== ======= ====== ======
See accompanying Notes to Financial Statements on page A-8.
1999 SEMIANNUAL REPORT A-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Variable Fund Accounts (In Thousands) Six-month period ended June 30, 1999 and Year ended December 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life USAA Life Growth USAA Life
Money Market USAA Life and Income World Growth
Fund Account Income Fund Account Fund Account Fund Account
------------------- ------------------- ------------------- -----------------
6/30/99 12/31/98 6/30/99 12/31/98 6/30/99 12/31/98 6/30/99 12/31/98
------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) $ 521 $ 806 $ (30) $ 902 $ (266) $ 586 $ (51) $ 60
Net realized gain (loss) - - (27) 848 2,395 5,156 417 877
Change in net unrealized
appreciation/depreciation - - (754) (809) 9,584 (2,428) 1,433 784
------------------- ------------------- ------------------- -----------------
Increase (decrease) in net assets
resulting from operations 521 806 (811) 941 11,713 3,314 1,799 1,721
------------------- ------------------- ------------------- -----------------
FROM CONTRACT TRANSACTIONS:
Purchases 25,540 31,473 5,809 13,695 3,923 17,854 833 2,249
Contract maintenance charges (5) (7) (7) (6) (39) (60) (9) (17)
Other redemptions (20,726) (25,292) (1,916) (3,591) (7,486) (8,004) (2,430) (3,749)
------------------- ------------------- ------------------- -----------------
Increase (decrease) in net assets
from contract transactions 4,809 6,174 3,886 10,098 (3,602) 9,790 (1,606) (1,517)
------------------- ------------------- ------------------- -----------------
Net increase in net assets 5,330 6,980 3,075 11,039 8,111 13,104 193 204
NET ASSETS:
Beginning of period 22,110 15,130 18,119 7,080 75,710 62,606 19,096 18,892
------------------- ------------------- ------------------- -----------------
End of period $ 27,440 $ 22,110 $ 21,194 $ 18,119 $ 83,821 $ 75,710 $ 19,289 $ 19,096
=================== =================== =================== =================
UNITS ISSUED AND REDEEMED
Beginning balance 18,760 13,416 1,286 544 3,698 3,246 1,069 1,171
Units issued 45,906 60,600 570 1,121 454 1,317 75 215
Units redeemed (41,823) (55,256) (292) (379) (628) (865) (163) (317)
------------------- ------------------- ------------------- -----------------
Ending balance 22,843 18,760 1,564 1,286 3,524 3,698 981 1,069
=================== =================== =================== =================
Scudder VLIF Capital
Growth Portfolio Alger American Growth BT Equity 500 Index BT Small Cap Index
Fund Account Portfolio Fund Account Fund Account Fund Account
------------------- ------------------- ------------------- -----------------
6/30/99 12/31/98 6/30/99 12/31/98 6/30/99 12/31/98* 6/30/99 12/31/98*
------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) $ (38) $ 1 $ (157) $ (207) $ (68) $ 11 $ (11) $ 3
Net realized gain (loss) 5,030 2,176 8,721 7,053 124 260 (48) (79)
Change in net unrealized
appreciation/depreciation (659) 3,581 1,518 9,335 1,996 1,177 303 (23)
------------------- ------------------- ------------------- -----------------
Increase (decrease) in net assets
resulting from operations 4,333 5,758 10,082 16,181 2,052 1,448 244 (99)
------------------- ------------------- ------------------- -----------------
FROM CONTRACT TRANSACTIONS:
Purchases 6,657 12,666 23,267 11,212 10,253 12,072 1,982 2,915
Contract maintenance charges (18) (24) (28) (37) (4) (1) - -
Other redemptions (1,895) (3,164) (3,923) (3,725) (908) (1,019) (493) (549)
------------------- ------------------- ------------------- -----------------
Increase (decrease) in net assets
from contract transactions 4,744 9,478 19,316 7,450 9,341 11,052 1,489 2,366
------------------- ------------------- ------------------- -----------------
Net increase in net assets 9,077 15,236 29,398 23,631 11,393 12,500 1,733 2,267
NET ASSETS:
Beginning of period 37,720 22,484 55,172 31,541 12,500 - 2,267 -
------------------- ------------------- ------------------- -----------------
End of period $ 46,797 $ 37,720 $ 84,570 $ 55,172 $ 23,893 $ 12,500 $ 4,000 $ 2,267
=================== =================== =================== =================
UNITS ISSUED AND REDEEMED
Beginning balance 1,543 1,125 2,058 1,730 1,136 - 257 -
Units issued 361 686 903 607 976 1,267 233 338
Units redeemed (174) (268) (232) (279) (165) (131) (68) (81)
------------------- ------------------- ------------------- -----------------
Ending balance 1,730 1,543 2,729 2,058 1,947 1,136 422 257
=================== =================== =================== =================
A-6 SEMIANNUAL REPORT 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Variable Fund Accounts (In Thousands) Six-month period ended June 30, 1999
and Year ended December 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Life Diversified USAA Life Aggressive USAA Life International
Assets Fund Account Growth Fund Account Fund Account
---------------------- -------------------- -----------------------
6/30/99 12/31/98 6/30/99 12/31/98 6/30/99 12/31/98
---------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C>
$ (123) $ 916 $ (22) $ (26) $ (5) $ 3
2,819 1,021 75 72 (17) (11)
943 323 1,376 765 104 33
---------------------- -------------------- -----------------------
3,639 2,260 1,429 811 82 25
---------------------- -------------------- -----------------------
5,666 10,280 2,247 3,295 398 767
(14) (21) (3) (3) (1) (2)
(1,019) (2,568) (221) (1,981) (391) (738)
---------------------- -------------------- -----------------------
4,633 7,691 2,023 1,311 6 27
---------------------- -------------------- -----------------------
8,272 9,951 3,452 2,122 88 52
33,141 23,190 4,442 2,320 1,596 1,544
---------------------- -------------------- -----------------------
$ 41,413 $ 33,141 $ 7,894 $ 4,442 $ 1,684 $ 1,596
====================== ==================== =======================
1,844 1,404 317 198 153 153
413 748 419 306 41 79
(165) (308) (289) (187) (41) (79)
---------------------- -------------------- -----------------------
2,092 1,844 447 317 153 153
====================== ==================== =======================
BT EAFE(Registered
Trademark) Equity Index
Fund Account
----------------------
6/30/99 12/31/98*
----------------------
$ (3) $ 6
16 (5)
23 28
----------------------
36 29
----------------------
642 610
- -
(289) (73)
----------------------
353 537
----------------------
389 566
566 -
----------------------
$ 955 $ 566
======================
55 -
62 63
(28) (8)
---------------------- * Variable fund accounts commenced operations May 1, 1998.
89 55 See accompanying Notes to Financial Statements on page A-8.
======================
1999 SEMIANNUAL REPORT A-7
</TABLE>
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 twelve variable fund accounts, each of
which invests in a corresponding fund. The funds' objectives can be found on
page A-3 in this report. Units of the Separate Account are sold only in
connection with the Variable Annuity Contract.
The fund accounts available within the Separate Account include: the USAA Life
Money Market Fund Account, USAA Life Income Fund Account, USAA Life Growth and
Income Fund Account, USAA Life World Growth Fund Account, USAA Life Diversified
Assets Fund Account, USAA Life Aggressive Growth Fund Account, and USAA Life
International Fund Account; the Fund Account of the Capital Growth Portfolio-
Class A shares of the Scudder Variable Life Investment Fund (Scudder VLIF
Capital Growth Portfolio Fund Account); the Fund Account of the American Growth
Portfolio of the Alger American Fund (Alger American Growth Portfolio Fund
Account); the Fund Accounts of the Equity 500 Index Fund, Small Cap Index Fund
and EAFE (Registered Trademark) Equity Index Fund, which are funds of the
Bankers Trust (BT) Insurance Funds Trust series (BT Equity 500 Index Fund
Account, BT Small Cap Index Fund Account and BT EAFE (Registered Trademark)
Equity Index Fund Account).
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 change in net 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 operation of the Separate Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
may affect the reported amounts in the financial statements.
3) RELATED PARTY TRANSACTIONS
During the six-month period ended June 30, 1999, advisory and administrative
fees of $479 thousand were paid or payable to USAA Investment Management Company
(USAA IMCO) by the funds of the USAA Life Investment Trust (the Trust). USAA
IMCO is indirectly wholly owned by USAA. The funds' advisory fees are computed
on an annualized rate of 0.20% of the monthly average net assets for each
calendar month of each fund of the Trust except for the USAA Life Aggressive
Growth Fund, which accrues at an annualized rate of 0.50%, and USAA Life
International Fund, which accrues at an annualized rate of 0.65%. The funds are
an investment option for both the Variable Universal Life Policy and the
Flexible Premium Deferred Combination Fixed and Variable Annuity Contract.
Administrative fees are based on estimated time incurred to provide such
services.
A-8 SEMIANNUAL REPORT 1999
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued) June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 0.65% of the
daily net assets of each variable 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 adminis-
tration expense charges. The mortality and expense risk charge is guaranteed by
USAA Life and cannot be increased.
The following expenses are charged to reimburse USAA Life for the expenses it
incurs in the establishment and maintenance of the Contracts and each variable
fund account. USAA Life assesses each variable fund account a daily charge at an
annualized rate of 0.10% of the daily net assets of each variable 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
through a redemption of units from the accumulated value of each contract. This
charge will apply only while the contract is in the accumulation phase.
Any premium tax levied by a state or government entity with respect to the
Separate Account will be charged against the contract.
5) YEAR 2000
Like other companies, the Separate Account could be adversely affected if the
computer systems used by its service providers are not able to perform their
intended functions effectively after 1999 because of the inability of computer
software to distinguish the year 2000 from the year 1900. USAA Life is taking
steps to address this potential year 2000 problem with respect to the computer
systems that they use and to obtain satisfactory assurances that comparable
steps are being taken by the Separate Account's service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Separate Account from this problem.
1999 SEMIANNUAL REPORT A-9
<PAGE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued) June 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
6) 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:
USAA LIFE MONEY MARKET FUND ACCOUNT
Year Ended
Six-month December 31,
Period Ended -------------------------------------------------------------------------
June 30, 1999 1998 1997 1996 1995(a)
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
At end of period:
Accumulation
units (000) 22,843 18,760 13,416 10,383 5,478
Annuity units (000) - - - - -
Accumulation
unit value $ 1.201222 $ 1.178565 $ 1.127755 $ 1.082816 $ 1.040729
Net assets (000) $ 27,440 $ 22,110 $ 15,130 $ 11,243 $ 5,702
Ratio of expenses to
average net assets 1.10%(d)(e) 1.10%(d) 1.50%(d) 1.50%(d) 1.50%(d)(e)
Ratio of expenses
to average net
assets, excluding
reimbursements 1.33%(e) 1.55% 1.85% 2.39% 3.44%(e)
USAA LIFE INCOME FUND ACCOUNT
Year Ended
Six-month December 31,
Period Ended -------------------------------------------------------------------------
June 30, 1999 1998 1997 1996 1995(a)
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
At end of period:
Accumulation
units (000) 1,558 1,280 545 430 89
Annuity units (000) 6 6 - - -
Accumulation
unit value $13.553955 $14.089499 $13.002940 $11.785992 $11.848795
Net assets (000) $ 21,194 $ 18,119 $ 7,080 $ 5,073 $ 1,051
Ratio of expenses to
average net assets 1.10%(d)(e) 1.10%(d) 1.50%(d) 1.50%(d) 1.50%(d)(e)
Ratio of expenses
to average net
assets, excluding
reimbursements 1.37%(e) 1.30% 1.67% 1.80% 1.80%(e)
USAA LIFE DIVERSIFIED ASSETS FUND ACCOUNT
Year Ended
Six-month December 31,
Period Ended -------------------------------------------------------------------------
June 30, 1999 1998 1997 1996 1995(a)
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
At end of period:
Accumulation
units (000) 2,089 1,841 1,401 696 86
Annuity units (000) 3 3 3 - -
Accumulation
unit value $19.797394 $17.974654 $16.518656 $13.844197 $12.243941
Net assets (000) $ 41,413 $ 33,141 $ 23,190 $ 9,675 $ 1,047
Ratio of expenses to
average net assets 1.10%(d)(e) 1.10%(d) 1.50%(d) 1.50%(d) 1.50%(d)(e)
Ratio of expenses
to average net
assets, excluding
reimbursements 1.25%(e) 1.20% 1.57% 1.76% 1.79%(e)
USAA LIFE AGGRESSIVE GROWTH FUND ACCOUNT
Year Ended
Six-month December 31,
Period Ended -------------------------------
June 30, 1999 1998 1997(b)
------------- ---------- ----------
<S> <C> <C> <C>
At end of period:
Accumulation
units (000) 447 317 197
Annuity units (000) -
Accumulation
unit value $17.644394 $13.993064 $11.735078
Net assets (000) $ 7,894 $ 4,442 $ 2,320
Ratio of expenses to
average net assets 1.45%(d)(e) 1.45%(d) 1.85%(d)(e)
Ratio of expenses
to average net
assets, excluding
reimbursements 1.75%(e) 1.59% 2.00%(e)
ALGER AMERICAN GROWTH PORTFOLIO FUND ACCOUNT
Year Ended
Six-month December 31,
Period Ended -------------------------------------------------------------------------
June 30, 1999 1998 1997 1996 1995(a)
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
At end of period:
Accumulation
units (000) 2,724 2,053 1,722 1,639 630
Annuity units (000) 5 5 8 9 -
Accumulation
unit value $30.980503 $26.806157 $18.239579 $14.672583 $13.095503
Net assets (000) $ 84,570 $ 55,172 $ 31,541 $ 24,168 $ 8,245
Ratio of expenses to
average net assets 1.54%(e) 1.54% 1.94% 1.94% 2.00%(e)
Ratio of expenses
to average net
assets, excluding
reimbursements N/A N/A N/A N/A N/A
BT EQUITY 500 BT SMALL CAP
INDEX FUND ACCOUNT INDEX FUND ACCOUNT
Six-month Year Ended Six-month Year Ended
Period Ended December 31, Period Ended December 31,
June 30, 1999 1998(c) June 30, 1999 1998(c)
------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
At end of period:
Accumulation
units (000) 1,947 1,136 422 257
Annuity units (000) - - - -
Accumulation
unit value $12.271729 $11.003536 $ 9.483757 $ 8.825971
Net assets (000) $ 23,893 $ 12,500 $ 4,000 $ 2,267
Ratio of expenses to
average net assets 1.05%(d)(e) 1.05%(d)(e) 1.20%(d)(e) 1.20%(d)(e)
Ratio of expenses
to average net
assets, excluding
reimbursements 1.26%(e) 1.94%(e) 1.89%(e) 2.33(e)
</TABLE>
A-10 SEMIANNUAL REPORT 1999
<PAGE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued) June 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE GROWTH AND INCOME FUND ACCOUNT USAA LIFE WORLD GROWTH FUND ACCOUNT
Year Ended Year Ended
Six-month December 31, Six-month December 31,
Period Ended ---------------------------------------------- Period Ended -------------------------------------------------
June 30, 1999 1998 1997 1996 1995(a) June 30, 1999 1998 1997 1996 1995(a)
------------- ---------- ---------- ---------- ---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3,523 3,697 3,242 1,515 205 978 1,066 1,168 692 161
1 1 4 3 - 3 3 3 3 -
$23.785966 $20.468785 $19.287258 $15.432048 $12.579981 $19.659120 $17.860722 $16.144375 $14.314911 $11.947438
$ 83,821 $ 75,710 $ 62,606 $ 23,417 $ 2,574 $ 19,289 $ 19,096 $ 18,892 $ 9,948 $ 1,924
1.10%(d)(e) 1.10%(d) 1.49% 1.50%(d) 1.50%(d)(e) 1.40%(d)(e) 1.40%(d) 1.74% 1.80%(d) 1.80%(d)(e)
1.11%(e) 1.12% N/A 1.68% 1.81%(e) 1.49%(e) 1.41% N/A 1.97% 2.02%(e)
USAA LIFE INTERNATIONAL FUND ACCOUNT SCUDDER VLIF CAPITAL GROWTH PORTFOLIO FUND ACCOUNT
Year Ended Year Ended
Six-month December 31, December 31,
Period Ended ------------------------ Period Ended ------------------------------------------------------
June 30, 1999 1998 1997(b) June 30, 1999 1998 1997 1996 1995(a)
------------- ---------- ---------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
153 153 153 1,730 1,543 1,125 689 93
- - - - - - - -
$ 11.012953 $ 10.417977 $ 10.113861 $ 27.048748 $ 24.448446 $ 19.989715 $ 14.894774 $ 12.543192
$ 1,684 $ 1,596 $ 1,544 $ 46,797 $ 37,720 $ 22,484 $ 10,266 $ 1,165
1.85%(d)(e) 1.85%(d) 2.25%(d)(e) 1.25%(e) 1.26% 1.66% 1.68% 1.72%(e)
2.07%(e) 2.10% 2.39%(e) N/A N/A N/A N/A N/A
BT EAFE(Registered Trademark)
Equity Index Fund Account
- ------------------------------
Six-month Year Ended
Period Ended December 31,
June 30, 1999 1998(c)
- ------------- ------------
89 55
- -
$ 10.774232 $ 10.386978 (a) Variable fund accounts commenced operations February 6, 1995 with an initial accumulation
unit value of $10.00 per unit, except for USAA Life Money Market Fund Account which
$ 955 $ 566 commenced operations with an initial accumulation value of $1.00 per unit.
1.40%(d)(e) 1.40%(d)(e) (b) Variable fund accounts commenced operations May 1, 1997 with an initial accumulation unit
value of $10.00 per unit.
(c) Variable fund accounts commenced operations May 1, 1998 with an initial accumulation unit
value of $10.00 per unit.
(d) The information 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.
1.90%(e) 2.41%(e) (e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
1999 SEMIANNUAL REPORT A-11
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