<PAGE>
USAA LIFE
INSURANCE COMPANY
VARIABLE ANNUITY
==============================================================================
Semiannual Report
June 30, 2000
[USAA LOGO 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-2
USAA LIFE INVESTMENT TRUST
USAA Life Fund Overviews................................................. B-3
Portfolios of Investments................................................ B-24
Notes to Portfolios of Investments....................................... B-43
Statements of Assets and Liabilities..................................... B-44
Statements of Operations................................................. B-45
Statements of Changes in Net Assets...................................... B-46
Notes to Financial Statements............................................ B-48
SCUDDER VARIABLE LIFE INVESTMENT FUND (VLIF)
CAPITAL GROWTH PORTFOLIO
Letter from the Fund's President......................................... C-2
Portfolio Management Discussion.......................................... C-3
Performance Update....................................................... C-4
Portfolio Summary........................................................ C-5
Investment Portfolio..................................................... C-6
Financial Statements..................................................... C-9
Financial Highlights..................................................... C-12
Notes to Financial Statements............................................ C-13
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
This report is for the information of USAA Life Variable Annuity contract
holders 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>
TABLE of CONTENTS, continued
--------------------------------------------------------------------------------
DEUTSCHE VIT EQUITY 500 INDEX
Letter to Shareholders.................................................... E-2
Schedule of Investments................................................... E-5
Statement of Assets and Liabilities....................................... E-11
Statement of Operations................................................... E-12
Statements of Changes in Net Assets....................................... E-13
Financial Highlights...................................................... E-14
Notes to Financial Statements............................................. E-15
DEUTSCHE VIT SMALL CAP INDEX
Letter to Shareholders.................................................... E-18
Schedule of Investments................................................... E-21
Statement of Assets and Liabilities....................................... E-43
Statement of Operations................................................... E-44
Statements of Changes in Net Assets....................................... E-45
Financial Highlights...................................................... E-46
Notes to Financial Statements............................................. E-47
DEUTSCHE VIT EAFE(R) EQUITY INDEX
Letter to Shareholders.................................................... E-50
Schedule of Investments................................................... E-54
Statement of Assets and Liabilities....................................... E-63
Statement of Operations................................................... E-64
Statements of Changes in Net Assets....................................... E-65
Financial Highlights...................................................... E-66
Notes to Financial Statements............................................. E-67
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank AG, Deutsche Fund Management, Inc., Bankers Trust
Company, DB Alex Brown LLC, Deutsche Asset Management, Inc. and Deutsche Asset
Management Investment Services Limited.
Deutsche VIT Funds are not insured by the FDIC and are not deposits, obligations
of or guaranteed by Deutsche Bank.
<PAGE>
USAA LIFE INSURANCE COMPANY VARIABLE ANNUITY SEMIANNUAL REPORT
PRESIDENT'S MESSAGE
FROM THE DESK OF JIM MIDDLETON
Your Variable Annuity is an innovative financial product that offers tax-
deferred growth, an array of investment options, and flexibility. Like no other
investment, it can be converted into a stream of retirement income. At USAA
Life, we call that smart money management. There are many aspects of the
Variable Annuity that make it a complete retirement package. The two I would
like to focus on in this Report are diversification and dollar-cost averaging.
Many investors find these investment strategies are a reliable, easy way to
manage their long-term retirement plan - just two more components of smart money
management.
DIVERSIFICATION
Diversification is the basis for a sound and balanced portfolio. A properly
diversified portfolio can reduce risk while optimizing potential returns. By
their very nature, variable fund accounts are diversified. A variable fund
account invests in an underlying fund whose portfolio holds a mix of stocks
and/or bonds. Sometimes the underlying fund also includes a mix of domestic and
international stocks and bonds. As a result, when individual securities or
market sectors fluctuate, your Variable Annuity may not be at as great a risk.
You can further diversify your Variable Annuity by allocating money to a number
of fund accounts. If the performance of one fund account begins to decline
because the underlying fund has invested in one or two market sectors that
falter, other fund accounts may be performing well and your overall risk may be
reduced. A discussion of the investment activity of each underlying fund is
provided by the portfolio manager and included later in this Report. A complete
listing of how each fund was invested, as of June 30, 2000, is also included. To
discuss your contract's investment mix or your allocation strategy for future
contributions call your USAA Life representative.
DOLLAR-COST AVERAGING
Another time-honored investment strategy - dollar-cost averaging - allows you to
systematically allocate a fixed dollar amount to your contract. The expectation
is that you'll buy fewer units when prices are high and more units when prices
are low. Over time, your average cost per unit should be lower than the average
price per unit for the same period.
Here's how it works: Assume you add $500 to your Variable Annuity each month for
a year. Taking market price fluctuations into consideration, you are able to
acquire a total of 311 units over a 12 month period as illustrated in the
hypothetical example on the next page. The average market price of a unit would
have been $19.85. Using dollar-cost averaging, you would have paid an average of
$19.29 for each unit - a difference of 56 cents each, or a total of $174.16 for
the 311 units. Initially, this may not seem like much of a difference; but over
time, the impact has the potential to be greater.
Dollar-cost averaging is an effective strategy for many investors. USAA Life's
Automatic Payment Plan is a form of dollar-cost averaging. It is an easy way to
add money to your Variable Annuity on a regular basis. A representative can
provide more information. However, keep in mind that there is no guarantee
dollar-cost averaging will result in a profit or protect against a loss.
Systematic investing involves continuous investment in securities regardless of
the fluctuating price levels of these securities. Always consider your ability
to continue through periods of both low and high price levels.
If you are using your Variable Annuity to fund an IRA, TSA or other qualified
retirement plan, annual contribution limits are subject to Internal Revenue Code
guidelines.
Withdrawals made before age 59 1/2 may be subject to a 10% federal tax penalty
on the taxable amount. Money not previously taxed is taxed as ordinary income
when withdrawn.
--------
iii
<PAGE>
USAA LIFE INSURANCE COMPANY VARIABLE ANNUITY SEMIANNUAL REPORT
PRESIDENT'S MESSAGE
HOW DOLLAR-COST AVERAGING WORKS
--------------------------------------------------------------------------------
Number of
Month Amount Added Market Price Per Unit Units Purchased
--------------------------------------------------------------------------------
1 $ 500 $ 25.00 20
--------------------------------------------------------------------------------
2 500 25.00 20
--------------------------------------------------------------------------------
3 500 22.73 22
--------------------------------------------------------------------------------
4 500 20.00 25
--------------------------------------------------------------------------------
5 500 20.00 25
--------------------------------------------------------------------------------
6 500 17.86 28
--------------------------------------------------------------------------------
7 500 15.15 33
--------------------------------------------------------------------------------
8 500 15.15 33
--------------------------------------------------------------------------------
9 500 16.67 30
--------------------------------------------------------------------------------
10 500 17.85 28
--------------------------------------------------------------------------------
11 500 20.00 25
--------------------------------------------------------------------------------
12 500 22.73 22
--------------------------------------------------------------------------------
Total $6,000 $238.14 311
--------------------------------------------------------------------------------
AVERAGE MARKET PRICE PER UNIT:
$19.85 ($238.14 divided by 12)
COST PER UNIT USING DOLLAR-COST AVERAGING:
$19.29 ($6000 divided by 311)
LOOKING FORWARD
The market continues to be unpredictable and volatile. As is always the case,
the direction the market takes and the longevity of its turns are uncertain.
Since market risk cannot be eliminated, choosing an investment strategy which
enables you to reduce that risk while maximizing growth potential should be your
primary concern. Consider the following:
. Your Variable Annuity is a long-term retirement plan. Short-term price
decreases shouldn't impact the overall future value of your contract. In
fact, inflation, taxation and failing to set aside enough money for
retirement are cause for more concern than the current state of market
activity.
. When altering your investment strategy, consider incremental changes. Try to
avoid making radical changes to your portfolio.
. If performance is driving your investing decisions, consider both current and
historical returns. A top performer today may not have the same historical
track record and vice versa. Information about the value of your contract and
the performance of your investment options is available 24 hours a day, 7
days a week by simply calling the toll-free USAA Touchline(R)
at 1-800-531-5433.
We remain committed to serving you by providing quick and accurate responses to
your questions. We encourage you to call a salaried USAA Life representative to
discuss this Report or your own personal financial situation.
1-800-531-4265
(456-9061 in San Antonio)
Sincerely,
/S/ JAMES A. MIDDLETON
-------------------------------------
James M. Middleton, Col., USAF, (Ret.)
President & CEO
USAA Life Insurance Company
-----
iv
<PAGE>
USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
========================================
Semiannual Report
June 30, 2000
[LOGO OF USAA
APPEARS HERE]
<PAGE>
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY VARIABLE ANNUITY
--------------------------------------------------------------------------------
AN OVERVIEW
--------------------------------------------------------------------------------
June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION
INCEPTION UNIT VALUE AUV AVERAGE ANNUAL TOTAL RETURN
FUND ACCOUNT OBJECTIVE DATE (AUV) ONE YEAR THREE YEAR FIVE YEAR SINCE INCEPTION
-----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
USAA LIFE Seeks the highest level of current
MONEY MARKET income consistent with preservation 2/6/95 $ 1.26 4.67% 4.35% 4.23% 4.26%
of capital and maintenance of (7-day yield
liquidity is 5.52%)
------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE Seeks maximum current income
INCOME without undue risk to principal 2/6/95 $13.89 2.39% 4.71% 5.09% 6.19%
------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE Seeks capital growth and
GROWTH AND current income 2/6/95 $23.66 -0.60% 9.61% 16.10% 17.20%
INCOME
------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE Seeks long-term capital
WORLD GROWTH appreciation 2/6/95 $23.82 21.08% 13.22% 16.19% 17.34%
------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE Seeks long-term capital growth,
DIVERSIFIED consistent with preservation of 2/6/95 $19.64 -0.85% 8.61% 12.18% 13.23%
ASSETS capital and balanced by current
income
------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE
AGGRESSIVE Seeks appreciation of capital 5/1/97 $28.33 60.48% 36.42% -- 38.78%
GROWTH
------------------------------------------------------------------------------------------------------------------------------------
USAA LIFE Seeks capital appreciation with
INTERNATIONAL current income as a secondary 5/1/97 $13.24 20.05% 7.28% -- 9.14%
objective
------------------------------------------------------------------------------------------------------------------------------------
SCUDDER VLIF Seeks to maximize long-term
CAPITAL GROWTH capital growth 2/6/95 $33.80 24.90% 22.49% 24.16% 25.21%
PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN Seeks long-term capital
GROWTH appreciation 2/6/95 $36.69 18.38% 29.28% 24.80% 27.12%
PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
DEUTSCHE VIT Seeks to match as closely as
EQUITY 500 possible the performance of the 5/1/98 $13.04 6.13% -- -- 12.89%
INDEX S&P 500(R) Index, before the
deduction of Fund expenses
------------------------------------------------------------------------------------------------------------------------------------
DEUTSCHE VIT Seeks to match as closely as
SMALL CAP possible the performance of the
INDEX Russell 2000(R) Small Stock Index 5/1/98 $10.73 13.00% -- -- 3.19%
before the deduction of Fund
expenses
------------------------------------------------------------------------------------------------------------------------------------
DEUTSCHE VIT Seeks to match as closely as
EAFE(R) possible the performance of the
EQUITY INDEX Morgan Stanley Capital 5/1/98 $12.36 14.62% -- -- 10.16%
International Europe Australia
Far East (EAFE(R)) Index before the
deduction of fund expenses
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE PERFORMANCE OF THE USAA LIFE AGGRESSIVE GROWTH FUND ACCOUNT AND THE DEUTSCHE
VIT SMALL CAP INDEX FUND ACCOUNT WILL REFLECT THE VOLATILITY OF INVESTMENTS IN
SMALL CAP STOCKS AND INITIAL PUBLIC OFFERINGS.
The 7-day yield more closely reflects the current earnings of the fund account
than the total return. An investment in the USAA Life Money Market Fund Account
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 at $1 per share, it is
possible to lose money by investing in the fund account. The 7-day yield
reflects the 7-day period ended June 30, 2000.
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. . Foreign investing is subject to additional
risks, such as currency fluctuations, market illiquidity, and political
instability. . The AUV total return figures are computed in accordance with a
formula prescribed by the Securities and Exchange Commission.
-----
A-2
<PAGE>
USAA LIFE INSURANCE COMPANY
To discuss your Variable Annuity,
call a USAA Life representative
Monday - Friday 7 a.m. to 8 p.m. CST
1-800-531-4265
(456-9061 in San Antonio)
----------------------------------------
For information about the value of your contract or
the performance of the fund accounts
call our toll-free Touchline(R)
24 hours a day, 7 days a week
1-800-531-5433
----------------------------------------
[LOGO OF USAA We know what it means to serve(TM)
APPEARS HERE] INSURANCE . BANKING . INVESTMENTS . MEMBER SERVICES
Copyright (C) 2000, USAA. All rights reserved. 28880-0800
----------
