<PAGE>
USAA Life Insurance Company
Variable Annuity
==============================================================
Annual Report
December 31, 1999
[USAA Logo]
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
====================================================================================================================================
<S> <C> <C>
President's Message............................................... iii
USAA Life Insurance Company Variable Annuity
Separate Account
Overview of the Variable Annuity Fund Accounts.................... A-2
Independent Auditors' Report...................................... 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
Independent Auditors' Report...................................... B-21
Portfolios of Investments......................................... B-22
Notes to Portfolios of Investments................................ B-41
Statements of Assets and Liabilities.............................. B-42
Statements of Operations.......................................... B-43
Statements of Changes in Net Assets............................... B-44
Notes to Financial Statements..................................... B-46
Scudder Variable Life Investment Fund (VLIF)
Capital Growth Portfolio
Letter from the Fund's President.................................. C-3
Portfolio Management Discussion................................... C-4
Performance Update................................................ C-5
Portfolio Summary................................................. C-6
Investment Portfolios, Financial Statements, and Financial
Highlights...................................................... C-7
Notes to Financial Statements..................................... C-15
Report of Independent Accountants................................. C-18
Tax Information................................................... C-19
About the Fund's Adviser.......................................... C-20
The Alger American Fund
Alger American Growth Portfolio
Portfolio Highlights.............................................. D-4
Schedule of Investments........................................... D-5
Financial Highlights.............................................. D-7
Statement of Assets and Liabilities............................... D-8
Statement of Operations........................................... D-9
Statement of Changes in Net Assets................................ D-10
Notes to Financial Statements..................................... D-11
Report of Independent Public Accountants.......................... D-13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table of Contents, Continued
====================================================================================================================================
<S> <C> <C>
BT Insurance Funds Trust
Equity 500 Index Fund
Letter to Shareholders............................................ E-5
Schedule of Investments........................................... E-7
Statement of Assets and Liabilities............................... E-12
Statement of Operations........................................... E-13
Statements of Changes in Net Assets............................... E-14
Financial Highlights.............................................. E-15
Notes to Financial Statements..................................... E-16
Report of Independent Auditors.................................... E-18
Proxy Voting Results.............................................. E-19
Small Cap Index Fund
Letter to Shareholders............................................ E-23
Schedule of Investments........................................... E-25
Statement of Assets and Liabilities............................... E-42
Statement of Operations........................................... E-43
Statements of Changes in Net Assets............................... E-44
Financial Highlights.............................................. E-45
Notes to Financial Statements..................................... E-46
Report of Independent Auditors.................................... E-48
Proxy Voting Results.............................................. E-49
EAFE(R) Equity Index Fund
This report is for the information of USAA Life Letter to Shareholders............................................ E-53
Variable Annuity contract holders and others who Schedule of Investments........................................... E-56
have received a copy of the currently effective Statement of Assets and Liabilities............................... E-64
Variable Annuity prospectus. It may be used as Statement of Operations........................................... E-65
sales literature only when preceded or accompanied Statements of Changes in Net Assets............................... E-66
by a current prospectus which includes complete Financial Highlights.............................................. E-67
information. The USAA Life Variable Annuity is Notes to Financial Statements..................................... E-68
distributed by USAA Investment Management Company, Report of Independent Auditors.................................... E-70
a registered broker dealer. Proxy Voting Results.............................................. E-71
</TABLE>
<PAGE>
USAA LIFE VARIABLE ANNUITY ANNUAL REPORT
- --------------------------------------------------------------------------------
President's Message
from the desk of Ed Rosane
[Photo of Ed Rosane]
I'm delighted to report that 1999 marked another year of solid growth for the
Dow Jones Industrial Average, which closed at 11,497 on December 31. However,
the Bond Market didn't fare as well. The 30-year Treasury Bond yield rose over
6%, causing bond prices to drop. This was due to three separate increases of
.25% in June, August and November to the Federal Funds Rate.
Whether you selected stocks or bonds to fund your variable annuity, remember
that conventional wisdom still holds that one of the best ways to plan for a
successful retirement is to diversify your portfolio. As you know, USAA Life's
Variable Annuity may help you do just that. See page A-2 of this report for
accumulation unit values and an overview of historical performance of your
funds.
----------------------------
1999 ANNUAL REPORT iii
<PAGE>
USAA LIFE VARIABLE ANNUITY ANNUAL REPORT
- --------------------------------------------------------------------------------
President's Message
Annuitization: Income to Last a Lifetime
One important way to secure your retirement is through annuitization. Fixed
annuitization can be a means of guaranteeing an income stream. Some options
provide income for life while others can be selected for a specified period
of time or dollar amount. Depending on the option you select, annuity income
can even continue to your beneficiaries if you die before the end of the
guaranteed period.
As an owner of a variable annuity, you have the option to annuitize your
contract when you decide to access your money. The following are a few of the
fixed annuity payout options from which you can choose.
Income Payments for Life with a Certain Period Guaranteed
This option guarantees payments for the life of the annuitant. In addition, the
annuitant can designate a beneficiary who, upon the death of the annuitant, will
continue to receive payments for the remainder of the contract's guaranteed
period.
Joint and Survivor Life Income
Under this option, the annuitant and a joint annuitant are guaranteed payments
as long as they live. If either the annuitant or the joint annuitant die, the
payments will continue to be made to the survivor for the remainder of his/her
life.
Income Payments for Life
You are guaranteed payments for the rest of your life under this option. The
highest possible income for a lifetime is provided because there is no
designated beneficiary and the payments stop upon the death of the annuitant.
Income for a Specified Period
This option guarantees payments for whatever period of time the annuitant
specifies (not to exceed 30 years). If the annuitant dies before the end of the
period, the remaining payments are made to the beneficiary.
Comparing Annuitization Options
Fixed annuitization can mean you never have to worry about outliving your
savings. Hopefully after reviewing the above annuitization options, you will
have a better idea of how your savings for retirement can be converted into
retirement income.
Looking Forward
I have enjoyed serving as your president and chief executive officer. However
as of March 1, 2000, I am retiring from USAA Life Insurance Company.
As your new president, Jim Middleton will uphold our standards of excellence.
Jim joined USAA in 1988 and most recently served as senior vice president of
USAA Life's Operations Integration and Program Control. Jim is a retired Air
Force Colonel whose service includes two tours at the Pentagon and a variety
of executive positions, including serving as the executive officer to a Major
Air Command.
I am confident that you will continue to enjoy USAA's commitment to integrity
demonstrated in our exceptional products and services.
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 USAA Life at 1-800-531-2923 (282-3460 in
San Antonio.) 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
__________________________________
Some monies withdrawn before age 59 1/2 may be subject to a 10% federal tax
penalty. Money not previously taxed is taxed as income when withdrawn when
you may be in a lower tax bracket. Operating expenses for the underlying
funds continue throughout the life of the Variable Annuity. USAA Life's
Variable Annuity is distributed by USAA Investment Management Company, a
registered broker dealer.
- ----------------------------
iv ANNUAL REPORT 1999
<PAGE>
USAA Life Insurance Company
Variable Annuity Separate Account
================================================================================
Annual Report
December 31, 1999
[USAA Logo]
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- -------------------------------------------------------------------------------
AN OVERVIEW
<TABLE>
<CAPTION>
December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
AUV Average AUV Average AUV Average
Accumulation Annual Annual Annual
Inception Unit Value Total Return Total Return Total Return
Fund Account Objective Date (AUV) One Year Three Year Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Seeks the highest level of current
USAA Life income consistent with preservation of
Money Market capital and maintenance of liquidity 2/6/95 $ 1.23 4.01% 4.15% 4.18%
(7-day yield
is 4.98%)
USAA Life Seeks maximum current income without
Income undue risk to principal 2/6/95 $13.26 -5.99% 3.91% 5.84%
USAA Life
Growth and Seeks capital growth and current
Income income 2/6/95 $23.30 13.73% 14.64% 18.76%
USAA Life
World Growth* Seeks long-term capital appreciation 2/6/95 $23.21 29.84% 17.39% 18.66%
USAA Life Seeks long-term capital growth,
Diversified consistent with preservation of
Assets capital and balanced by current income 2/6/95 $19.19 6.67% 11.42% 14.14%
USAA Life
Aggressive
Growth** Seeks appreciation of capital 5/1/97 $26.99 92.59% -- 44.94%
USAA Life Seeks capital appreciation with current
International* income as a secondary objective 5/1/97 $13.27 27.07% -- 11.07%
Scudder VLIF
Capital Growth Seeks to maximize long-term
Portfolio capital growth 2/6/95 $32.82 34.14% 30.05% 27.35%
Alger American Seeks long-term capital
Growth Portfolio appreciation 2/6/95 $35.58 32.67% 34.27% 29.47%
Seeks to match as closely as
possible the performance of the
BT Equity S&P 500 (R) Index, before the
500 Index deduction of Fund expenses 5/1/98 $13.15 19.32% -- 17.70%
Seeks to match as closely as
possible the performance of the
Russell 2000 (R) Small Stock
BT Small Index before the deduction of
Cap Index Fund expenses 5/1/98 $10.53 19.06% -- 3.01%
Seeks to match as closely as
possible the performance of the
Morgan Stanley Capital
International Europe Australia
BT EAFE (R) Far East (EAFE (R)) Index before
Equity Index* the deduction of Fund expenses 5/1/98 $13.15 26.46% -- 17.73%
- ----------------------
</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 December 31, 1999.
* Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability.
** The performance of the USAA Life Aggressive Growth Fund Account will reflect
the volatility of investments in small cap stocks and initial public
offerings.
The performance data quoted represent past performance and do not represent
the actual experience of amounts invested by a particular owner. Past
performance is not a guarantee of future results.
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 contract charges.
- ----------------------------
A-2 ANNUAL REPORT 1999
<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 as of
December 31, 1999, the related statements of operations for the year then
ended, the statements of changes in net assets for each of the years or
periods in the two-year period then ended, and the unit value information
presented in note 5 for each of the years or periods in the five-year period
then ended, for the USAA Life Money Market Fund Account, USAA Life Income
Fund Account, USAA Life Growth and Income Fund Account, USAA Life World
Growth Fund Account, USAA Life Diversified Assets Fund Account, USAA Life
Aggressive Growth Fund Account, USAA Life International Fund Account, the
Fund Account of the Capital Growth Portfolio-Class A shares of the Scudder
Variable Life Investment Fund (Scudder VLIF Capital Growth Portfolio Fund
Account), the Fund Account of the American Growth Portfolio of the Alger
American Fund (Alger American Growth Portfolio Fund Account), and the Fund
Accounts of the Equity 500 Index Fund, Small Cap Index Fund and EAFE(R)
Equity Index Fund, which are funds of the Bankers Trust (BT) Insurance
Funds Trust series (BT Equity 500 Index Fund Account, BT Small Cap Index Fund
Account and BT EAFE(R) Equity Index Fund Account), available
within the Separate Account of USAA Life Insurance Company. These financial
statements and the unit value information are the responsibility of the Separate
Account's management. Our responsibility is to express an opinion on these
financial statements and unit value information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
unit value information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Investments owned at December 31, 1999 were verified
by examination of the underlying portfolios of the USAA Life Investment Trust or
through confirmation for the Scudder, Alger, and BT Insurance Funds Trust Funds'
portfolios. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the unit value information
referred to above present fairly, in all material respects, the financial
position of the aforementioned fund accounts available within the Separate
Account of USAA Life Insurance Company as of December 31, 1999, and the results
of their operations for the year then ended, the changes in their net assets for
each of the years or periods in the two-year period then ended, and the unit
value information for each of the years or periods in the five-year period then
ended, in conformity with generally accepted accounting principles.
San Antonio, Texas /s/ KPMG LLP
February 4, 2000 KPMG LLP
----------------------------
1999 ANNUAL REPORT A-3
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
VARIABLE FUND ACCOUNTS (In Thousands, except Per Unit Data) December 31, 1999
<TABLE>
<CAPTION>
Investment at
Fund Shares Cost Market Value
----------- -------------- --------------
<S> <C> <C> <C>
Assets
Investments at market value:
USAA Life Money Market Fund 31,157 $ 31,157 $ 31,157
USAA Life Income Fund 1,761 19,370 16,099
USAA Life Growth and Income Fund 4,472 80,031 83,852
USAA Life World Growth Fund 1,461 20,975 23,335
USAA Life Diversified Assets Fund 3,209 45,834 39,823
USAA Life Aggressive Growth Fund 851 14,261 21.298
USAA Life International Fund 169 1,857 2,226
Scudder VLIF Capital Growth Portfolio - Class A shares 2,070 43,665 60,299
Alger American Growth Portfolio 1,598 74,700 102,851
BT Equity 500 Index Fund 2,007 25,885 30,460
BT Small Cap Index Fund 400 4,050 4,642
BT EAFE(R) Equity Index Fund 103 1,214 1,400
----------- --------
Total investments $ 362,999 417,442
Liabilities
Payable to USAA Life Insurance Company 3
--------
Net assets $417,442
========
Fund Account Accumulation
Units Unit Value Annuity Reserves
------------- ------------ ----------------
Net assets
Deferred annuity contracts in the accumulation period:
USAA Life Money Market Fund Account 25,382 $ 1.227534 $ 31,157
USAA Life Income Fund Account 1,208 13.262741 16,025
USAA Life Growth and Income Fund Account 3,598 23.296591 83,822
USAA Life World Growth Fund Account 1,003 23.209674 23,274
USAA Life Diversified Assets Fund Account 2,072 19.192009 39,769
USAA Life Aggressive Growth Fund Account 789 26.991318 21,297
USAA Life International Fund Account 168 13.269162 2,226
Scudder VLIF Capital Growth Portfolio Fund Account 1,837 32.816021 60,299
Alger American Growth Portfolio Fund Account 2,885 35.583778 102,666
BT Equity 500 Index Fund Account 2,317 13.147788 30,460
BT Small Cap Index Fund Account 441 10.526480 4,642
BT EAFE(R) Equity Index Fund Account 106 13.154856 1,400
---------
Net assets attributable to contractowners'
deferred annuity reserves 417,037
Annuity contracts in the annuity period:
USAA Life Income Fund Account 6 13.262741 74
USAA Life Growth and Income Fund Account 1 23.296591 29
USAA Life World Growth Fund Account 2 23.209674 61
USAA Life Diversified Assets Fund Account 3 19.192009 54
Alger American Growth Portfolio Fund Account 5 35.583778 184
---------
Net assets attributable to contractowners'
annuity payment reserves 402
---------
Net assets $417,439
=========
</TABLE>
See accompanying Notes to Financial Statements on page A-8.
- -----------------------------
A-4 ANNUAL REPORT 1999
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Statements of Operations
VARIABLE FUND ACCOUNTS (In Thousands) Year Ended December 31, 1999
<TABLE>
<CAPTION> Scudder VLIF Alger
USAA Life USAA Life USAA Life USAA Life USAA Life Capital American
Money USAA Life Growth World Diversified Agressive USAA Life Growth Growth
Market Income and Income Growth Assets Growth International Portfolio Portfolio
Fund Fund Fund Fund Fund Fund Fund Fund Fund
Account Account Account Account Account Account Account Account Account
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (loss):
Income
Dividends from
investments $ 1,408 $ 1,519 $ 1,074 $ 180 $ 1,359 $ - $ 17 $ 117 $ 102
------- ------- ------- ------- ------- ------- ------- ------- -------
Expenses
Mortality and
expense risk
charge 189 127 517 127 251 58 11 297 512
Administrative charge 29 20 79 19 39 9 2 46 79
------- ------- ------- ------- ------- ------- ------- ------- -------
Total expenses 218 147 596 146 290 67 13 343 591
------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment
income (loss) 1,190 1,372 478 34 1,069 (67) 4 (226) (489)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss)
on sale of investments - (442) 2,952 578 640 182 (6) 1,235 3,800
Capital gains distrobutions - 357 7,239 3,326 8,488 1,404 - 4,239 7,000
------- ------- ------- ------- ------- ------- ------- ------- -------
Net realized gain (loss) - (85) 10,191 3,904 9,128 1,586 (6) 5,474 10,800
Change in net unrealized
appreciation/
depreciation - (2,466) (631) 1,396 (7,854) 6,465 450 9,513 12,971
------- ------- ------- ------- ------- ------- ------- ------- -------
Net realized and
unrealized gain
(loss) on
investments - (2,551) 9,560 5,300 1,274 8,051 444 14,987 23,771
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net
assets resulting from
operations $ 1,190 $(1,179) $10,038 $ 5,334 $ 2,343 $ 7,984 $ 448 $14,761 $23,282
======= ======= ======= ======= ======= ======= ======= ======= =======
BT BT BT
Equity 500 Small Cap EAFE(R) Equity
Index Index Index
Fund Account Fund Account Fund Account
NET INVESTMENT INCOME (loss):
Income
Dividends from investments $ 193 $ 46 $ 21
------- ------- -------
Expenses
Mortality and expense
risk charge 146 23 7
Administrative charge 22 4 1
------- ------- -------
Total expenses 168 27 8
------- ------- -------
Net investment
income (loss) 25 19 13
------- ------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss)
on sale of investments 551 (63) 57
Capital gains distrobutions 91 130 39
------- ------- -------
Net realized gain (loss) 642 67 96
Change in net unrealized
appreciation/depreciation 3,398 615 158
------- ------- -------
Net realized and
unrealized gain (loss)
on investments 4,040 682 254
------- ------- -------
Increase (decrease) in net
assets resulting from
operations $ 4,065 $ 701 $ 267
======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements on page A-8.
1999 ANNUAL REPORT A-5
<PAGE>
Separate Account of USAA Life Insurance Company
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Variable Fund Accounts (In Thousands) Year Ended December 31,
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life USAA Life
Money Market Income Growth and Income World Growth
Fund Account Fund Account Fund Account Fund Account
------------------------- ------------------- ----------------------- -------------------------
1999 1998 1999 1998 1999 1998 1999 1998
--------- ----------- --------- -------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 1,190 $ 806 $ 1,372 $ 902 $ 478 $ 586 $ 34 $ 60
Net realized gain (loss) - - (85) 848 10,191 5,156 3,904 877
Change in net unrealized
appreciation/depreciation - - (2,466) (809) (631) (2,428) 1,396 784
-------- -------- -------- ------- ------- ------- ------- -------
Increase (decrease) in net
assets 1,190 806 (1,179) 941 10,038 3,314 5,334 1,721
-------- -------- -------- ------- ------- ------- ------- -------
FROM CONTRACT TRANSACTIONS:
Purchases and transfers in 43,930 31,473 6,859 13,695 8,507 17,854 1,933 2,249
Contract maintenance charges (11) (7) (10) (6) (65) (60) (16) (17)
Other redemptions (36,062) (25,292) (7,688) (3,591) (10,339) (8,004) (3,011) (3,749)
Adjustments to annuity reserves - - (2) - - - (1) -
-------- -------- -------- ------- ------- ------- ------- -------
Increase (decrease) in net
assets 7,857 6,174 (841) 10,098 (1,897) 9,790 (1,095) (1,517)
-------- -------- -------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets 9,047 6,980 (2,020) 11,039 8,141 13,104 4,239 204
NET ASSETS:
Beginning of period 22,110 15,130 18,119 7,080 75,710 62,606 19,096 18,892
-------- -------- -------- ------- ------- ------- ------- -------
End of period $ 31,157 $ 22,110 $ 16,099 $18,119 $83,851 $75,710 $23,335 $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 75,424 60,600 712 1,121 789 1,317 143 215
Units redeemed (68,802) (55,256) (784) (379) (888) (865) (207) (317)
-------- -------- -------- ------- ------- ------- ------- -------
Ending balance 25,382 18,760 1,214 1,286 3,599 3,698 1,005 1,069
======== ======== ======== ======= ======= ======= ======= =======
Scudder VLIF Capital Alger American BT Equity BT Small
Growth Portfolio Growth Portfolio 500 Index Cap Index
Fund Account Fund Account Fund Account Fund Account
------------------------- ------------------- ----------------------- -------------------------
1999 1998 1999 1998 1999 1998* 1999 1998*
--------- ----------- --------- -------- ----------- --------- ---------- ------------
FROM OPERATIONS:
Net investment income (loss) $ (226) $ 1 $ (489) $ (207) $ 25 $ 11 $ 19 $ 3
Net realized gain (loss) 5,474 2,176 10,800 7,053 642 260 67 (79)
Change in net unrealized
appreciation/depreciation 9,513 3,581 12,971 9,335 3,398 1,177 615 (23)
-------- -------- -------- ------- ------- ------- ------- -------
Increase (decrease) in net
assets 14,761 5,758 23,282 16,181 4,065 1,448 701 (99)
-------- -------- -------- ------- ------- ------- ------- -------
FROM CONTRACT TRANSACTIONS:
Purchases and transfers in 10,725 12,666 33,241 11,212 17,875 12,072 2,479 2,915
Contract maintenance charges (32) (24) (51) (37) (9) (1) (1) -
Other redemptions (2,875) (3,164) (8,794) (3,725) (3,971) (1,019) (804) (594)
Adjustments to annuity reserves - - - - - - - -
-------- -------- -------- ------- ------- ------- ------- -------
Increase (decrease) in net
assets 7,818 9,478 24,396 7,450 13,895 11,052 1,674 2,366
-------- -------- -------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets 22,579 15,236 47,678 23,631 17,960 12,500 2,375 2,267
NET ASSETS:
Beginning of period 37,720 22,484 55,172 31,541 12,500 - 2,267 -
-------- -------- -------- ------- ------- ------- ------- -------
End of period $ 60,299 $ 37,720 $102,850 $55,172 $30,460 $12,500 $ 4,642 $ 2,267
======== ======== ======== ======= ======= ======= ======= =======
UNITS ISSUED AND REDEEMED:
Beginning balance 1,543 1,125 2,058 1,730 1,136 - 257 -
Units issued 553 686 1,326 607 1,719 1,267 293 338
Units redeemed (259) (268) (494) (279) (538) (131) (109) (81)
-------- -------- -------- ------- ------- ------- ------- -------
Ending balance 1,837 1,543 2,890 2,058 2,317 1,136 441 257
======== ======== ======== ======= ======= ======= ======= =======
</TABLE>
A-6 ANNUAL REPORT 1999
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
VARIABLE FUND ACCOUNTS (In Thousands) Year Ended December 31,
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life BT EAFE(R)
Diversified Assets Aggressive Growth International Equity Index
Fund Account Fund Account Fund Account Fund Account
------------------------- ------------------- ----------------------- -------------------------
1999 1998 1999 1998 1999 1998 1999 1998
--------- ----------- --------- -------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 1,069 $ 916 $ (67) $ (26) $ 4 $ 3 $ 13 $ 6
Net realized gain (loss) 9,128 1,021 1,586 72 (6) (11) 96 (5)
Change in net unrealized
appreciation/depreciation (7,854) 323 6,465 765 450 33 158 28
-------- -------- -------- ------- ------- ------- ------- -------
Increase (decrease) in net
assets 2,343 2,260 7,984 811 448 25 267 29
-------- -------- -------- ------- ------- ------- ------- -------
FROM CONTRACT TRANSACTIONS:
Purchases and transfers in 8,540 10,280 9,536 3,295 733 767 1,068 610
Contract maintenance charges (26) (21) (7) (3) (1) (2) - -
Other redemptions (4,175) (2,568) (658) (1,981) (550) (738) (501) (73)
Adjustments to annuity reserves - - - - - - - -
-------- -------- -------- ------- ------- ------- ------- -------
Increase (decrease) in net
assets 4,339 7,691 8,871 1,311 182 27 567 537
-------- -------- -------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets 6,682 9,951 16,855 2,122 630 52 834 566
NET ASSETS:
Beginning of period 33,141 23,190 4,442 2,320 1,596 1,544 566 -
-------- -------- -------- ------- ------- ------- ------- -------
End of period $ 39,823 $ 33,141 $ 21,297 $ 4,442 $ 2,226 $ 1,596 $ 1,400 $ 566
======== ======== ======== ======= ======= ======= ======= =======
UNITS ISSUED AND REDEEMED:
Beginning balance 1,844 1,404 317 198 153 153 55 -
Units issued 639 748 813 306 71 79 99 63
Units redeemed (408) (308) (341) (187) (56) (79) (48) (8)
-------- -------- -------- ------- ------- ------- ------- -------
Ending balance 2,075 1,844 789 317 168 153 106 55
======== ======== ======== ======= ======= ======= ======= =======
</TABLE>
* Variable fund accounts commenced operations May 1, 1998.
See accompanying Notes to Financial Statements on page A-8.
1999 ANNUAL REPORT A-7
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
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Notes To Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
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-2 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); and the Fund Accounts of the
Equity 500 Index Fund, Small Cap Index Fund and EAFE(R) Equity Index Fund, which
are funds of the Bankers Trust (BT) Insurance Funds Trust series (BT Equity 500
Index Fund Account, BT Small Cap Index Fund Account and BT EAFE(R) Equity Index
Fund Account).
The assets of the 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 year ended December 31, 1999, advisory and administrative fees of
approximately $989,000 were paid or payable to USAA Investment Management
Company (USAA IMCO) by the funds of the USAA Life Investment Trust (the
Trust). USAA IMCO is indirectly wholly owned by USAA. The funds' advisory
fees are computed on an annualized rate of 0.20% of the monthly average net
assets for each calendar month of each fund of the Trust except for the USAA
Life Aggressive Growth Fund, which accrues at an annualized rate of 0.50%,
and USAA Life International Fund, which accrues at an annualized rate of
0.65%. The funds are an investment option for both the Variable Universal
Life Policy and the Flexible Premium Deferred Combination Fixed and Variable
Annuity Contract. Administrative fees are based on USAA IMCO's estimated
time incurred to provide such services.
- ----------------------------
A-8 ANNUAL REPORT 1999
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes To Financial Statements
(Continued) December 31, 1999
- --------------------------------------------------------------------------------
4) Expenses
A mortality and expense risk charge is deducted by USAA Life from the
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 administration expense charges. The mortality and
expense risk charge is guaranteed by USAA Life and cannot be increased.
The following expenses are charged to reimburse USAA Life for the expenses it
incurs in the establishment and maintenance of the Contracts and each
variable fund account. USAA Life assesses each variable fund account a daily
administrative 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.
----------------------------
1999 ANNUAL REPORT A-9
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes To Financial Statements
(Continued) December 31, 1999
- --------------------------------------------------------------------------------
5) Unit Values
A summary of unit values and units outstanding for variable annuity contracts
and the expense ratios, including expenses of the underlying funds, for each
period is as follows:
<TABLE>
<CAPTION>
USAA Life Money Market Fund Account
Year Ended December 31,
1999 1998 1997 1996 1995(a)
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 25,382 18,760 13,416 10,383 5,478
Annuity units (000) - - - - -
Accumulation unit value $ 1.227534 $ 1.178565 $ 1.127755 $ 1.082816 $ 1.040729
Net assets (000) $ 31,157 $ 22,110 $ 15,130 $ 11,243 $ 5,702
Ratio of expenses to
average net assets 1.10%(d) 1.10%(d) 1.50%(d) 1.50%(d) 1.50%(d)(e)
Ratio of expenses to
average net assets,
excluding reimbursements 1.31% 1.55% 1.85% 2.39% 3.44%(e)
USAA Life Income Fund Account
Year Ended December 31,
1999 1998 1997 1996 1995(a)
------ ------ ------ ------ -------
At end of period:
Accumulation units (000) 1,208 1,280 545 430 89
Annuity units (000) 6 6 - - -
Accumulation unit value $13.262741 $14.089499 $13.002940 $11.785992 $11.848795
Net assets (000) $ 16,099 $ 18,119 $ 7,080 $ 5,073 $ 1,051
Ratio of expenses to
average net assets 1.10%(d) 1.10%(d) 1.50%(d) 1.50%(d) 1.50%(d)(e)
Ratio of expenses to
average net assets,
excluding reimbursements 1.43% 1.30% 1.67% 1.80% 1.80%(e)
USAA Life Aggressive
USAA Life Diversified Assets Fund Account Growth Fund Account
Year Ended December 31, Year Ended December 31,
1999 1998 1997 1996 1995(a) 1999 1998 1997(b)
------ ------ ------ ------ -------- ------ ------ --------
At end of period:
Accumulation units (000) 2,072 1,841 1,401 696 86 789 317 197
Annuity units (000) 3 3 3 3 - - - -
Accumulation unit value $19.192009 $17.974654 $16.518656 $13.844197 $12.243941 $26.991318 $13.993064 $11.735078
Net assets (000) $ 39,823 $ 33,141 $ 23,190 $ 9,675 $ 1,047 $ 21,297 $ 4,442 $ 2,320
Ratio of expenses to
average net assets 1.10%(d) 1.10%(d) 1.50%(d) 1.50%(d) 1.50%(d)(e) 1.45%(d) 1.45%(d) 1.85%(d)(e)
Ratio of expenses to
average net assets,
excluding reimbursements 1.25% 1.20% 1.57% 1.76% 1.79%(e) 1.69% 1.59% 2.00%(e)
BT Equity 500 BT Small Cap
Alger American Growth Portfolio Fund Account Index Fund Account Index Fund Account
Year Ended December 31, Year Ended December 31, Year Ended December 31,
1999 1998 1997 1996 1995(a) 1999 1998(c) 1999 1998(c)
------ ------ ------ ------ -------- ------ -------- ------ --------
At end of period:
Accumulation units (000) 2,885 2,053 1,722 1,639 630 2,317 1,136 441 257
Annuity units (000) 5 5 8 9 - - - - -
Accumulation unit value $35.583778 $26.806157 $18.239579 $14.672583 $13.095503 $13.147788 $11.003536 $10.526480 $ 8.825971
Net assets (000) $ 102,850 $ 55,172 $ 31,541 $ 24,168 $ 8,245 $ 30,460 $ 12,500 $ 4,642 $ 2,267
Ratio of expenses to
average net assets 1.54% 1.54% 1.94% 1.94% 2.00%(e) 1.05%(d) 1.05%(d)(e) 1.20%(d) 1.20%(d)(e)
Ratio of expenses to
average net assets,
excluding reimbursements NA NA NA NA NA 1.16% 1.94%(e) 1.86% 2.33%(e)
</TABLE>
- -------------------------------
A-10 | ANNUAL REPORT | 1999
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes To Financial Statements
(Continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
USAA Life Growth and Income Fund Account
Year Ended December 31,
1999 1998 1997 1996 1995(a)
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 3,598 3,697 3,242 1,515 205
Annuity units (000) 1 1 4 3 -
Accumulation unit value $23.296591 $20.468785 $19.287258 $15.432048 $12.579981
Net assets (000) $ 83,851 $ 75,710 $ 62,606 $ 23,417 $ 2,574
Ratio of expenses to
average net assets 1.10%(d) 1.10%(d) 1.49% 1.50%(d) 1.50%(d)(e)
Ratio of expenses to
average net assets,
excluding reimbursements 1.12% 1.12% NA 1.68% 1.81%(e)
USAA Life World Growth Fund Account
Year Ended December 31,
1999 1998 1997 1996 1995(a)
------ ------ ------ ------ -------
At end of period:
Accumulation units (000) 1,003 1,066 1,168 692 161
Annuity units (000) 2 3 3 3 -
Accumulation unit value $23.209674 $17.860722 $16.144375 $14.314911 $11.947438
Net assets (000) $ 23,335 $ 19,096 $ 18,892 $ 9,948 $ 1,924
Ratio of expenses to
average net assets 1.40%(d) 1.40%(d) 1.74% 1.80%(d) 1.80%(d)(e)
Ratio of expenses to
average net assets,
excluding reimbursements 1.50% 1.41% NA 1.97% 2.02%(e)
USAA Life International
Fund Account Scudder VLIF Capital Growth Portfolio Fund Account
Year Ended December 31, Year Ended December 31,
1999 1998 1997(b) 1999 1998 1997 1996 1995(a)
------ ------ -------- ------ ------ ------ ------ --------
At end of period:
Accumulation units (000) 168 153 153 1,837 1,543 1,125 689 93
Annuity units (000) - - - - - - - -
Accumulation unit value $13.269162 $10.417977 $10.113861 $32.816021 $24.448446 $19.989715 $14.894774 $12.543192
Net assets (000) $ 2,226 $ 1,596 $ 1,544 $ 60,299 $ 37,730 $ 22,484 $ 10,266 $ 1,165
Ratio of expenses to
average net assets 1.85%(d) 1.85%(d) 2.25%(d)(e) 1.24% 1.26% 1.66% 1.68% 1.72%(e)
Ratio of expenses to
average net assets,
excluding reimbursements 2.04% 2.10% 2.39%(e) NA NA NA NA NA
BT EAFE(R) Equity
Index Fund Account
Year Ended December 31,
1999 1998(c)
------ ------
At end of period:
Accumulation units (000) 106 55
Annuity units (000) - -
Accumulation unit value $13.154856 $10.386978
Net assets (000) $ 1,400 $ 566
Ratio of expenses to
average net assets 1.40%(d) 1.40%(d)(e)
Ratio of expenses to
average net assets,
excluding reimbursements 1.83% 2.41%(e)
</TABLE>
(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 commenced operations
with an initial accumulation unit value of $1.00 per unit.
(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.
(e) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
1999 ANNUAL REPORT A-11
