PROFILE OF THE
OVERTURE ANNUITY III-P
VARIABLE ANNUITY CONTRACT
May 1, 1998
THIS PROFILE IS A SUMMARY OF SOME MORE INPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE POLICY. THE POLICY IS MORE FULLY
DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE
PROSPECTUS CAREFULLY.
1. THE ANNUITY CONTRACT
The variable annuity policy offered by Ameritas Variable Life Insurance
Company (AVLIC) is a policy between you, the owner, and AVLIC, an insurance
company. The Policy provides a means for investing on a tax-deferred basis in 26
investment subaccounts and a Fixed Account of AVLIC. The Policy is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed income options.
This Policy offers 26 subaccounts which are listed in Section 4. These
subaccounts are designed to offer a better return than the Fixed Account.
However, this is NOT guaranteed. You can also lose your money.
The Fixed Account offers an interest rate guaranteed by the insurance
company, AVLIC. This interest rate is set as declared effective for the month of
issue, and is guaranteed for the remainder of the Policy Year. In subsequent
Policy Years, amounts in the Fixed Account earn interest at the rate declared in
the month of the last Policy Anniversary. While your money is in the Fixed
Account, your principal and all interest earned is guaranteed by AVLIC.
You can put money into any or all of the subaccounts and the Fixed Account.
You can transfer between subaccounts up to 15 times a year without charge. After
15 transfers, the charge is $10 for each additional transfer. There are
restrictions on the Fixed Account.
The Policy, like all deferred annuity policies, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your Policy.
The money you can accumulate during the accumulation phase will determine
the income payments during the income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
If you want to receive regular income from your annuity, you can choose one
of five options: (1) monthly payment of interest only; (2) monthly payment for a
fixed amount until depleted; (3) monthly payments for a certain period up to 20
years (as you select); (4) monthly payments for your life (assuming you are the
annuitant) that may include a guaranteed period; and (5) monthly payments for
your life and for the life of another person (usually your spouse). The annuity
options are fixed only. Once you begin receiving regular payments, you cannot
change your payment plan.
3. PURCHASE
You can buy this Policy with $2,000 or more under most circumstances. Your
registered representative can help you fill out the proper forms. You can add
$500 or more any time during the accumulation phase.
4. INVESTMENT OPTIONS
You can put your money in any or all of these subaccounts described in the
fund prospectuses:
<TABLE>
<CAPTION>
MANAGED BY MANAGED BY MANAGED BY MANAGED BY
FIDELITY MGMT & FRED ALGER MGMT., INC. MASSACHUSETTS MORGAN STANLEY
RESEARCH COMPANY ---------------------- FINANCIAL SERVICES CO. ASSET NGNT. INC.
---------------- ALGER AMERICAN: ---------------------- ----------------
<S> <C> <C> <C>
VIP Money Market Growth Emerging Growth Emerging Markets Equity
VIP Equity-Income Income and Growth Utilities Global Equity
VIP Growth Small Capitalization World Governments International Magnum
VIP High Income Balanced Research Asian Equity
VIP Overseas MidCap Growth Growth With Income U.S. Real Estate
VIP II Asset Manager Leveraged AllCap
VIP II Investment Grade Bond
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
</TABLE>
Depending upon market conditions, you can make or lose money in any of these
subaccounts.
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<PAGE>
5. EXPENSES
The Policy has insurance features and investment features, and there are
costs related to each.
AVLIC currently deducts a $36 policy fee each year from your Policy. This
charge is guaranteed to be no more than $40 per year. AVLIC currently waives
this charge if the accumulation value of your Policy is at least $50,000. AVLIC
also deducts insurance charges of 1.40% of the average daily value of your
Policy. Investment charges range from .28% to 1.75% of the average daily value
of the subaccounts depending upon the subaccount.
If you take your money out, AVLIC may assess a withdrawal charge of up to
6% of the amount you withdraw. If required by state law, AVLIC will assess a
state premium tax charge at the time of premium receipt or when you make a
complete withdrawal or begin receiving regular income payments. State premium
tax ranges from 0% to 3.5%, depending upon the state. The following chart is to
help you understand the charges in the Policy. The column "Total Annual Charges"
shows the total of the $36 policy maintenance charge (which we represent as .12%
below, based on an assumed average contract size of $30,000), the 1.40%
insurance charges and the investment charge for each subaccount. The next two
columns show you two examples of the charges, in dollars, you would pay under a
Policy. The examples show the expenses you would pay on a $1,000 investment in a
Policy that earns 5% annually and that you withdraw your money: (1) at the end
of year 1, and (2) at the end of year 10. For year 1, the Total Annual Charges
are assessed as well as the withdrawal charges. For year 10, the example shows
the aggregate of all the annual charges assessed for the 10 years, but there is
no withdrawal charge.
The premium tax is assumed to be 0% in both examples.
<TABLE>
<CAPTION>
POLICY EXPENSES
---------------
EXAMPLES:
---------
TOTAL ANNUAL
TOTAL ANNUAL TOTAL ANNUAL EXPENSES AT END OF:
INSURANCE PORTFOLIO ANNUAL (1) (2)
SUBACCOUNT CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- ---------- ------- ------- ------- ------ --------
Managed by Fidelity Management & Research Company
<S> <C> <C> <C> <C> <C>
VIP Money Market 1.52% 0.31% 1.83% $78 $210
VIP Equity-Income 1.52% 0.57% 2.09% $81 $237
VIP Growth 1.52% 0.67% 2.19% $82 $247
VIP High Income 1.52% 0.71% 2.23% $82 $251
VIP Overseas 1.52% 0.90% 2.42% $84 $271
VIP II Asset Manager 1.52% 0.64% 2.16% $82 $244
VIP II Investment Grade Bond 1.52% 0.58% 2.10% $81 $238
VIP II Asset Manager: Growth 1.52% 0.76% 2.28% $83 $257
VIP II Index 500 1.52% 0.28% 1.80% $78 $206
VIP II Contrafund 1.52% 0.68% 2.20% $82 $248
Managed by Fred Alger Management Inc.
Alger American:
Growth 1.52% 0.79% 2.31% $83 $260
Income and Growth 1.52% 0.74% 2.26% $83 $255
Small Capitalization 1.52% 0.89% 2.41% $84 $270
Balanced 1.52% 1.01% 2.53% $85 $282
MidCap Growth 1.52% 0.84% 2.36% $84 $265
Leveraged AllCap 1.52% 1.00% 2.52% $85 $281
Managed by Massachusetts Financial Services Company
Emerging Growth 1.52% 0.90% 2.42% $84 $271
Utilities 1.52% 1.00% 2.52% $85 $281
World Governments 1.52% 1.00% 2.52% $85 $281
Research 1.52% 0.92% 2.44% $84 $273
Growth With Income 1.52% 1.00% 2.52% $85 $281
Managed by Morgan Stanley Asset Management Inc.
Emerging Markets Equity 1.52% 1.75% 3.27% $93 $353
Global Equity 1.52% 1.15% 2.67% $87 $296
International Magnum 1.52% 1.15% 2.67% $87 $296
Asian Equity 1.52% 1.20% 2.72% $87 $300
U.S. Real Estate 1.52% 1.10% 2.62% $86 $291
</TABLE>
For the newly formed subaccounts the charges have been estimated. The charges
reflect any expense reimbursement or fee waiver. For more detailed information,
see the Fee Table in the Prospectus.
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<PAGE>
6. TAXES
Your earnings are not taxed until you take them out. If you take money out,
earnings come out first and are taxed as income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% federal tax penalty on the
earnings. Payments during the income phase are considered partly a return of
your original investment so that part of each payment is not taxable as income.
7. ACCESS TO YOUR MONEY
You can take money out anytime during the accumulation phase. You can take
the greater of up to 10% of your accumulation value or total payments each year
without a charge. Withdrawals more than that may be charged up to 6% of each
withdrawal. After AVLIC has had a payment for 7 years, there is no charge for
withdrawal of that payment. Of course, you may also have to pay income tax and a
tax penalty on any money you take out. Each payment you add to your Policy has
its own 7 year withdrawal charge period.
8. PERFORMANCE
The value of the Policy will vary up or down depending upon the investment
performance of the subaccounts you choose. The policy has been offered since May
1, 1996. The following chart shows hypothetical historical total returns for
each subaccount for the periods shown as if the policy had been in force. Since
portfolio added to Separate Account. These numbers reflect the insurance
charges, the policy maintenance charge, the investment charges and all other
expenses of the subaccount. These numbers do not reflect any withdrawal charges
and if applied would reduce such performance. This chart is based upon an
average contract size of $30,000. Past performance is not a guarantee of future
results.
<TABLE>
<CAPTION>
HYPOTHETICAL HISTORICAL PERFORMANCE
-----------------------------------
SUBACCOUNT 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Managed by Fidelity Management & Research Company
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VIP Money Market 3.90% 3.83% 4.27% 2.71% 1.69% 2.31% 4.54% 6.46% 7.53% 5.77%
VIP Equity-Income 26.22% 12.56% 33.10% 5.45% 16.52% 15.12% 29.47% -16.63% 15.59% 20.85%
VIP Growth 21.65% 12.98% 33.36% -1.53% 17.58% 7.67% 43.36% -13.10% 29.52% 13.82%
VIP High Income 15.92% 12.32% 18.88% -3.12% 18.60% 21.32% 33.07% -3.73% -5.63% 9.95%
VIP Overseas 9.89% 11.52% 8.03% 0.19% 35.31% -12.10% 6.36% -3.17% 23.89% 6.45%
VIP II Asset Manager 18.86% 12.89% 15.21% -7.52% 19.41% 10.00% 20.67% 5.04% - -
VIP II Investment 7.43% 1.63% 15.57% -5.22% 9.25% 5.03% - - - -
Grade Bond
VIP II Asset Manager: 23.29% 19.00% - - - - - - - -
Growth
VIP II Index 500 30.75% 20.98% - - - - - - - -
VIP II Contrafund 22.31% 19.49% - - - - - - - -
Managed by Fred Alger Management, Inc.
Alger American:
Growth 23.88% 11.64% 34.34% -0.10% 20.63% - - - - -
Income and Growth 34.28% 17.89% 33.13% -9.68% 8.68% - - - - -
Small Capitalization 9.72% 2.60% 42.17% -5.83% 11.57% - - - - -
Balanced 18.04% 8.51% 26.71% -5.73% - - - - - -
MidCap Growth 13.29% 10.21% 42.30% -3.07% - - - - - -
Leveraged AllCap 17.90% 10.37% - - - - - - - -
Managed by Massachusetts Financial Services Company
Emerging Growth 20.10% 15.24% - - - - - - - -
Utilities 29.77% 16.74% - - - - - - - -
World Governments -2.62% 2.45% - - - - - - - -
Research - - - - - - - - - -
Growth With Income - - - - - - - - - -
Managed by Morgan Stanley Asset Management Inc.
Emerging Markets - - - - - - - - - -
Global Equity - - - - - - - - - -
International Magnum - - - - - - - - - -
Asian Equity - - - - - - - - - -
U.S. Real Estate - - - - - - - - - -
</TABLE>
iii
<PAGE>
9. DEATH BENEFIT
If you die before moving to the income phase, the person you have chosen as
your beneficiary will receive a death benefit. This death benefit will be the
greater of: (1) the money you have put in less any money you have taken out, and
the related withdrawal charges, or (2) the current value of your Policy. If
available, the death benefit may be the value of your Policy at the most recent
7th-year-anniversary plus any money you have added since that anniversary minus
any money you have taken out since that anniversary, and the related withdrawal
charges, with adjustments.
10. OTHER INFORMATION
FREE LOOK. If you cancel the policy within 10 days after receiving it (or
whatever period is required in your state), we will not assess a withdrawal
charge. You will receive whatever your Policy is worth on the day we receive
your returned policy. This may be more or less than your original payment. If
law requires us to return your original payment, we will put your money in the
Money Market subaccount during the free-look period and return your original
payment.
NO PROBATE. Usually, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
WHO SHOULD PURCHASE THE POLICY? This Policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes. The tax-deferred feature is most attractive to people in
high federal and state tax brackets. You would not buy this Policy if you are
looking for a short-term investment or if you cannot take the risk of getting
back less money than you put in.
ADDITIONAL FEATURES.
This Policy has additional features that might interest you. These include:
o You can arrange to have money automatically sent to you each month while
your Policy is still in the accumulation phase. Of course, you must pay
taxes on money you receive. We call this feature Systematic Withdrawal
Option.
o You can arrange to have a regular amount of money automatically invested in
subaccounts each month, theoretically giving you a lower average cost per
unit over time than a single one time purchase. We call this feature Dollar
Cost Averaging.
o AVLIC will automatically readjust the money between subaccounts periodically
to keep the blend you select. We call this feature Portfolio Rebalancing.
o AVLIC will periodically reallocate the earnings (not the principal amount)
among the subaccounts. We call this feature Earnings Sweep.
o Under certain medically related circumstances, AVLIC will give you your
money without a withdrawal charge. We call this feature a Critical Needs
Withdrawal.
These features are not available in all states and may not be suitable for your
particular situation.
11. INQUIRIES
If you need more information, please contact us at:
Ameritas
Variable Life Insurance
Company Logo
________________________________________
Ameritas Variable Life Insurance Company
5900 "O" Street
Lincoln NE 68510
800-745-1112
iv
<PAGE>
PROSPECTUS Ameritas Variable Life Insurance Company Logo
FLEXIBLE PREMIUM 5900 "O" Street, P. O . Box 82550
VARIABLE ANNUITY POLICY Lincoln, NE 68501
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium variable annuity policy contract
("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC"). The
Policy is a deferred annuity; it provides a vehicle for individuals to invest on
a tax-deferred basis for retirement savings or other long-term purposes. You may
purchase the Policy on either a tax-qualified or non-tax qualified basis.
You may purchase a non-tax qualified Policy for $2,000 or more. Minimum
additional subsequent premiums may be $500 or more; smaller amounts may be
accepted by automatic bank draft or at the discretion of AVLIC. The minimum
initial and subsequent premium for a tax qualified Policy purchased in a
periodic payment plan is $50 per month.
You may direct that premiums accumulate on a variable basis in one or more of
the 26 Subaccounts of the Ameritas Variable Life Insurance Company Separate
Account VA-2 ("Separate Account") or on a fixed basis in the Fixed Account, or
on a combination variable and fixed basis. The Separate Account uses its assets
to purchase shares in one or more of the following Portfolios of mutual funds:
<TABLE>
<CAPTION>
Variable Insurance Products Fund ("VIP")* Variable Insurance Products Funds II ("VIP II")*
<S> <C>
Money Market Asset Manager
Equity-Income Investment Grade Bond
Growth Asset Manager: Growth
High Income Index 500
Overseas Contrafund
* VIP and VIP II are collectively referred to as "Fidelity Funds"
</TABLE>
<TABLE>
<CAPTION>
The Alger American Fund MFS Variable Insurance Morgan Stanley Universal Funds, Inc.
("Alger American Fund") Trust ("MFS Trust") ("Morgan Stanley Fund")
<S> <C> <C>
Alger American Growth Emerging Growth Emerging Markets Equity
Alger American Income and Growth Utilities Global Equity
Alger American Small Capitalization World Governments International Magnum
Alger American Balanced Research Asian Equity
Alger American MidCap Growth Growth With Income U.S. Real Estate
Alger American Leveraged AllCap
</TABLE>
The Owner bears the entire investment risk for monies placed in the Separate
Account under this Policy prior to the annuity date.
This prospectus contains information you should know before investing. A
Statement of Additional Information, which has the same date as this prospectus,
has been filed with the Securities and Exchange Commission; it is incorporated
herein by reference and is available free by writing AVLIC at the address above
or by calling a Client Service Representative at 1-800- 745-1112. The table of
contents of the Statement of Additional Information appears at the end of this
prospectus.
Prospectuses for the mutual fund options identified above can be obtained
without charge by calling 1-800-745-1112.
Read the prospectuses carefully and retain them for future reference.
These securities are not deposits with, or obligations of, or guaranteed or
endorsed by, any financial institution; and the securities are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency. These securities involve investment risk, including the possible
loss of principal.
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES REGULATORY AUTHORITY NOR HAS THE
COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date of This Prospectus is May 1, 1998.
- --------------------------------------------------------------------------------
ANNUITY III-P 1
<PAGE>
TABLE OF CONTENTS
PAGE
Definitions................................................................ 3
Fee Table.................................................................. 5
Fund Expense Summary ...................................................... 5
Condensed Financial Information ........................................... 8
Performance Data........................................................... 10
Year 2000.................................................................. 10
AVLIC, the Separate Account and the Funds.................................. 10
Ameritas Variable Life Insurance Company............................... 10
The Separate Account................................................... 11
The Funds.............................................................. 11
The Fixed Account.......................................................... 12
The Policy................................................................. 13
Policy Application and Premium Payment................................. 13
Allocation of Premium.................................................. 13
Accumulation Value..................................................... 14
Value of Accumulation Units............................................ 14
Transfers.............................................................. 14
Systematic Programs.................................................... 15
Owner Inquiries........................................................ 15
Refund Privilege....................................................... 15
Policy Loans........................................................... 15
Charges and Deductions..................................................... 16
Administrative Charges................................................. 16
Mortality and Expense Risk Charge...................................... 17
Contingent Deferred Sales Charge....................................... 17
Taxes.................................................................. 18
Fund Investment Advisory Fees and Expenses............................. 18
Distributions Under the Policy............................................. 18
Full and Partial Withdrawals........................................... 18
Critical Needs Withdrawals............................................. 18
Annuity Date........................................................... 19
Death of Annuitant Prior to Annuity Date............................... 19
Guaranteed Minimum Death Benefit (GMDB) Rider.......................... 20
Election of Annuity Income Options..................................... 20
Annuity Income Options................................................. 20
Addition, Deletion, or Substitution of Investments..................... 21
Deferment of Payment................................................... 21
General Provisions......................................................... 22
Control of Policy...................................................... 22
Annuitant's Beneficiary................................................ 22
Change of Beneficiary.................................................. 22
Contestability......................................................... 22
Misstatement of Age or Sex............................................. 22
Reports and Records.................................................... 22
Federal Tax Matters........................................................ 23
Introduction........................................................... 23
Taxation of Annuities in General....................................... 23
Distribution of the Policies............................................... 24
Safekeeping of the Separate Account's Assets............................... 25
Third Party Services....................................................... 25
Voting Rights.............................................................. 25
Legal Proceedings.......................................................... 25
Statement of Additional Information........................................ 26
The Policy, certain provisions, and certain portfolios are not
available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
- --------------------------------------------------------------------------------
2 ANNUITY III-P
<PAGE>
DEFINITIONS
ACCUMULATION UNIT - A unit used to measure the value of the Policy prior to the
annuity date.
ACCUMULATION VALUE - The value of all amounts accumulated under the Policy prior
to the annuity date. On the Issue Date, the Accumulation Value is equal to the
initial premium, less any premium tax, plus any interest credited based on the
Money Market portfolio value as of the Policy Date.
ANNUITANT - The person upon whose life expectancy the Policy is written. The
annuitant may also be the owner of the Policy.
ANNUITANT'S BENEFICIARY - The person to whom any benefits due upon death of the
annuitant are paid. The annuitant's beneficiary is designated by the owner in
the application. If changed, the annuitant's beneficiary is as shown in the
latest change filed and recorded with AVLIC. If no annuitant's beneficiary
survives the annuitant, the owner or the owner's estate will be the beneficiary.
The interest of any annuitant's beneficiary is subject to that of any assignee.
ANNUITY DATE - The date on which annuity payments begin.
ANNUITY INCOME OPTION - One of several ways in which annuity payments may be
made. Payments are based on the cash surrender value as of the annuity date,
less any applicable premium taxes. The dollar amount of each annuity payment
will not change over time, except in the case where the interest payment option
is selected.
ANNUITY PAYMENT - One of a series of payments made under an annuity income
option.
AVLIC ("We, Us, Our") - Ameritas Variable Life Insurance Company, a Nebraska
stock company.
CASH SURRENDER VALUE - The amount available for full or partial withdrawal,
which is the accumulation value less any withdrawal charge, and applicable
premium taxes and, in the case of a full withdrawal, less the annual policy fee.
CONTINGENT DEFERRED SALES CHARGE - The charge assessed upon certain withdrawals
and annuitizations to cover certain expenses relating to the sale of the
Policies.
DECLARED RATES - AVLIC guarantees that it will credit interest in the Fixed
Account at an effective annual rate of at least 3.5%. AVLIC may, at its sole
discretion declare higher interest rates for amounts allocated or transferred to
the Fixed Account.
EFFECTIVE DATE - The Valuation Date on which premiums are applied to purchase a
Policy for the owner.
FIXED ACCOUNT - An account that is a part of AVLIC's general account to which
all or a portion of premium payments may be allocated for accumulation at fixed
rates of interest.
FUNDS - Variable Insurance Products Fund ("VIP"), Variable Insurance Products
Fund II ("VIP II") (collectively the "Fidelity Funds"), the Alger American Fund
("Alger American Fund"), MFS Variable Insurance Trust ("MFS Trust") and Morgan
Stanley Universal Funds, Inc. ("Morgan Stanley Fund") are the funds available
for investment as of the date of this prospectus. In the future, additional
funds may be added or subtracted by AVLIC as the available funding options. The
Funds have one or more portfolios. There is a portfolio that corresponds to each
of the Subaccounts of the Separate Account.
ISSUE DATE - The date all financial, contractual and administrative requirements
have been met to issue the policy. The free look period begins on this date.
JOINT ANNUITANT - Applicable in the context of annuity income options only, the
person other than the annuitant who may be designated by the owner and on whose
life annuity payments may also be based.
NET CASH SURRENDER VALUE - The cash surrender value less premium tax, if any,
and less any outstanding policy loan.
NET PREMIUM - The premium payment less a percent of premium charge equal to the
premium tax, if imposed by the state in which the policy is delivered.
- --------------------------------------------------------------------------------
ANNUITY III-P 3
<PAGE>
NONQUALIFIED POLICIES - Policies that do not qualify for special federal income
tax treatment.
OWNER - The owner of the Policy, as designated in the application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee is
the owner. A collateral assignee is not the owner.
OWNER'S DESIGNATED BENEFICIARY - The person who may be designated by the owner
and to whom Policy ownership passes upon the owner's death.
POLICY - The variable annuity policy offered by AVLIC and described in this
Prospectus.
POLICY DATE - The date set forth in the Policy that is the date used to
determine policy anniversary dates and policy years. Policy anniversaries are
measured from the policy date. On the Issue Date, the Policy Date will be the
date within two days after AVLIC received the application and initial premium.
If the Policy Date would fall on the 29th, 30th, or 31st of a month, the Policy
Date will be set at the 28th day of that month.
POLICY YEAR - The period from one policy anniversary date until the next policy
anniversary date.
PORTFOLIO - The separate investment portfolios of the Fidelity Funds, the Alger
American Fund, the MFS Trust, and the Morgan Stanley Fund. VIP offers the
following portfolios: Money Market, Equity-Income, Growth, High Income and
Overseas Portfolios. VIP II offers the following portfolios: Asset Manager,
Investment Grade Bond, Asset Manager: Growth, Index 500, and Contrafund
Portfolios. The Alger American Fund offers the following portfolios: Alger
American Growth, Alger American Income and Growth, Alger American Small
Capitalization, Alger American Balanced, Alger American MidCap Growth, and Alger
American Leveraged AllCap Portfolios. The MFS Trust offers the following
portfolios or series in connection with this Policy: MFS Emerging Growth, MFS
Utilities, MFS World Governments, MFS Research and MFS Growth With Income
Portfolios. The Morgan Stanley Fund offers the following portfolios in
connection with the Policy: Emerging Markets Equity, Global Equity,
International Magnum, Asian Equity and U.S. Real Estate Portfolios.
PREMIUM PAYMENT - The minimum first year premium on a non-tax qualified policy
is $2000 or more and the minimum subsequent premium payment is $500 or more.
Smaller premium payments may be accepted on Bank-O-Matic or at AVLIC's
discretion. The minimum initial and subsequent premium for a tax qualified
policy purchased in a periodic payment plan is $50 per month.
QUALIFIED POLICIES - Policies purchased in connection with certain plans that
qualify for special federal income tax treatment.
SATISFACTORY PROOF OF DEATH - All of the following must be submitted: (1) A
certified copy of the death certificate; (2) A Claimant Statement; (3) The
Policy; and (4) Any other information that AVLIC may require to establish the
validity of the claim.
SEPARATE ACCOUNT - Ameritas Variable Life Insurance Company Separate Account
VA-2, a separate investment account established by AVLIC to receive and invest
the premium paid under the Policy. The investment performance of the Separate
Account is kept separate from that of the general assets of AVLIC.
SUBACCOUNT - A subdivision of the Separate Account. Each Subaccount invests
exclusively in the shares of a specified portfolio of the Fund.
VALUATION DATE - A valuation date is each day on which the New York Stock
Exchange is open for trading.
VALUATION PERIOD - The period between two successive valuation dates, commencing
at the close of trading on the New York Stock Exchange ("NYSE") on one valuation
date and ending at the close of trading on the NYSE on the next succeeding
valuation date.
- --------------------------------------------------------------------------------
4 ANNUITY III-P
<PAGE>
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
This table is to assist the Owner to understand the various costs and expenses
that the Owner will bear, directly and indirectly at both the Separate Account
and portfolio level. The table does not include possible state premium taxes.
Fee table information relating to the underlying funds was provided by the
underlying funds. AVLIC has not independently verified such information.
Sales Load Imposed on Purchases......................................... 0%
Contingent Deferred Sales Charge - on premiums paid only (Maximum)..... 6.0%
YEAR % YEAR %
1...............6 5...............4
2...............6 6...............3
3...............6 7...............2
4...............5 8+..............0
Surrender Fees.......................................................... 0%
Exchange Fee ........................................................... 0%
Transfer Fee (after 15 free transfers per policy year).................. $10
Annual Policy Fee (up to $40, currently $36, $30 in North Dakota,
may be reduced or eliminated)........................................... $36
Separate Account Annual Expenses (as a percentage of average account value)
Mortality and Expense Risk Fees....................................... 1.25%
Daily Administrative Fee (as a percentage of average account value)... .15%
(See "Charges and Deductions", page 16).
Total Separate Account Annual Expenses ............................... 1.40%
FUND EXPENSE SUMMARY
The information shown below relating to the Funds was provided to AVLIC by the
Funds and AVLIC has not independently verified such information. Each of the
Funds is managed by an investment advisory organization that is not affiliated
with AVLIC. Each such organization is entitled to receive a fee for its services
based on the value of the relevant portfolio's net assets. The amount of
expenses, including the asset based advisory fee referred to above, borne by
each portfolio for the fiscal year ended December 31, 1997, was as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSES TOTAL
MANAGEMENT
FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED
EXPENSE REIMBURSEMENT EXPENSE REIMBURSEMENT MAY REFLECT EXPENSE
REIMBURSEMENT
FIDELITY FUNDS
<S> <C> <C> <C>
VIP Money Market .21% .10% .31%
VIP Equity-Income .50% .07% .57%(1)
VIP Growth .60% .07% .67%(1)
VIP High Income .59% .12% .71%
VIP Overseas .75% .15% .90%(1)
VIP II Asset Manager .55% .09% .64%(1)
VIP II Investment Grade Bond .44% .14% .58%
VIP II Asset Manager: Growth .60% .16% .76%(1)
VIP II Index 500 .24% .04% .28%(2)
VIP II Contrafund .60% .08% .68%(1)
</TABLE>
- -------------------------------------------------------------------------------
ANNUITY III-P 5
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSES TOTAL
MANAGEMENT
FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED
EXPENSE REIMBURSEMENT EXPENSE REIMBURSEMENT MAY REFLECT EXPENSE
REIMBURSEMENT
ALGER AMERICAN FUND(3)
<S> <C> <C> <C>
Growth .75% .04% .79%
Income and Growth .625% .115% .74%
Small Capitalization .85% .04% .89%
Balanced .75% .26% 1.01%
MidCap Growth .80% .04% .84%
Leveraged AllCap .85% .15% 1.00%
MFS TRUST
Emerging Growth .75% .15%(4) .90%(5)
Utilities .75% .25%(4) 1.00%(5)
World Governments .75% .25%(4) 1.00%(5)
Research .75% .17%(4) .92%(5)
Growth With Income .75% .25%(4) 1.00%(5)
MORGAN STANLEY FUND
Emerging Markets Equity(6) 0% 1.75% 1.75%
Global Equity(7) 0% 1.15% 1.15%
International Magnum(7) 0% 1.15% 1.15%
Asian Equity(7) 0% 1.20% 1.20%
U.S. Real Estate(7) 0% 1.10% 1.10%
</TABLE>
(1) A portion of the brokerage commissions that certain funds pay was used
to reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Without these reductions, the total operating
expenses presented in the table would have been .58% for Equity-Income
Portfolio, .69% for Growth Portfolio, .92% for Overseas Portfolio, .65%
for Asset Manager Portfolio, .71% for Contrafund Portfolio, and .77%
for Asset Manager: Growth Portfolio.
(2) Fidelity agreed to reimburse a portion of Index 500 Portfolio's
expenses during the period. Without this reimbursement, the fund's
management fee, other expenses and total expenses would have been .27%,
.13% and .40% respectively, on an annualized basis.
(3) Fred Alger Management, Inc. ("Alger Management") has agreed to
reimburse the portfolios to the extent that the aggregate annual
expenses (excluding interest, taxes, fees for brokerage services and
extraordinary expenses) exceed respectively: Alger American Income and
Growth, and Alger American Balanced, 1.25%; Alger American Small
Capitalization, Alger American MidCap Growth, Alger American Leveraged
All Cap, and the Alger American Growth, 1.50%. As long as the expense
limitations continue for a portfolio, if a reimbursement occurs, it has
the effect of lowering the portfolio's expense ratio and increasing its
total return. Included in "Other Expenses" of Leveraged AllCap is .04%
of interest expense.
(4) MFS has agreed to bear expenses for each series, subject to
reimbursement by each series, such that each series "Other Expenses"
shall not exceed .25% of the average daily net assets of the series
during the current fiscal year. Absent this expense arrangement, "Other
Expenses" and "Total" expenses would be .45% and 1.20%, respectively,
for the Utilities Series; .40% and 1.15%, respectively, for the World
Governments Series; and .35% and 1.10%, respectively, for the Growth
With Income Series.
(5) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series
with its custodian and dividend disbursing agent, and may enter into
other such arrangements and directed brokerage arrangements (which
would also have the effect of reducing the series' expenses). Any such
fee reductions are not reflected under "Other Expenses."
(6) For the fiscal year ended December 31, 1997 fund's expenses were
voluntarily reduced by the fund's investment adviser. Absent
reimbursement the management fee, other expenses and total expenses
would have been 1.25%, 2.87% and 4.12%, respectively.
(7) The fund's expenses were voluntarily reduced by the fund's investment
adviser. Absent reimbursement the management fee, other expenses and
total expenses would have been as follows based on the annualized
period January 2, 1997 through December 31, 1997 for Global Equity and
International Magnum portfolios. The U.S. Real Estate and Asian Equity
portfolios were based on the annualized period March 3, 1997 through
December
- --------------------------------------------------------------------------------
6 ANNUITY III-P
<PAGE>
31, 1997. Global Equity: .80%; 1.63%; and 2.43%. International
Magnum: .80%; 1.98%; and 2.78%. U.S. Real Estate: .80%; 1.52%; and
2.32%. Asian Equity: .80%; 2.30%; and 3.10%.
Expense reimbursement agreements are expected to continue in future years but
may be terminated at any time. As long as the expense limitations continue for a
portfolio, if a reimbursement occurs, it has the effect of lowering the
portfolio's expense ratio and increasing its total return.
- ---------------
Example: If you surrender your contract at the end of the applicable time period
you would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
VIP Money Market $78 $117 $137 $210
VIP Equity-Income $81 $124 $150 $237
VIP Growth $82 $127 $155 $247
VIP High Income $82 $129 $158 $251
VIP Overseas $84 $134 $167 $271
VIP II Asset Manager $82 $127 $154 $244
VIP II Investment Grade Bond $81 $125 $151 $238
VIP II Asset Manager: Growth $83 $130 $160 $257
VIP II Index 500 $78 $116 $136 $206
VIP II Contrafund $82 $128 $156 $248
Alger American Growth $83 $131 $162 $260
Alger American Income and Growth $83 $130 $159 $255
Alger American Small Capitalization $84 $134 $167 $270
Alger American Balanced $85 $138 $173 $282
Alger American MidCap Growth $84 $133 $164 $265
Alger American Leveraged AllCap $85 $137 $172 $281
MFS Emerging Growth $84 $134 $167 $271
MFS Utilities $85 $137 $172 $281
MFS World Governments $85 $137 $172 $281
MFS Research $84 $135 $168 $273
MFS Growth With Income $85 $137 $172 $281
Morgan Stanley Emerging Markets Equity $93 $160 $209 $353
Morgan Stanley Global Equity $87 $142 $180 $296
Morgan Stanley International Magnum $87 $142 $180 $296
Morgan Stanley Asian Equity $87 $143 $182 $300
Morgan Stanley U.S. Real Estate $86 $140 $177 $291
</TABLE>
Example: If you annuitize your contract at the end of the applicable time period
you would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
VIP Money Market $78 $57 $ 97 $210
VIP Equity-Income $81 $64 $110 $237
VIP Growth $82 $67 $115 $247
VIP High Income $82 $69 $118 $251
VIP Overseas $84 $74 $127 $271
VIP II Asset Manager $82 $67 $114 $244
VIP II Investment Grade Bond $81 $65 $111 $238
VIP II Asset Manager: Growth $83 $70 $120 $257
VIP II Index 500 $78 $56 $ 96 $206
VIP II Contrafund $82 $68 $116 $248
Alger American Growth $83 $ 71 $122 $260
Alger American Income and Growth $83 $ 70 $119 $255
Alger American Small Capitalization $84 $ 74 $127 $270
Alger American Balanced $85 $ 78 $133 $282
Alger American MidCap Growth $84 $ 73 $124 $265
Alger American Leveraged AllCap $85 $ 77 $132 $281
MFS Emerging Growth $84 $ 74 $127 $271
MFS Utilities $85 $ 77 $132 $281
MFS World Governments $85 $ 77 $132 $281
</TABLE>
- --------------------------------------------------------------------------------
ANNUITY III-P 7
<PAGE>
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
MFS Research $84 $ 75 $128 $273
MFS Growth With Income $85 $ 77 $132 $281
Morgan Stanley Emerging Markets Equity $93 $100 $169 $353
Morgan Stanley Global Equity $87 $ 82 $140 $296
Morgan Stanley International Magnum $87 $ 82 $140 $296
Morgan Stanley Asian Equity $87 $ 83 $142 $300
Morgan Stanley U.S. Real Estate $86 $ 80 $137 $291
</TABLE>
Example: If you do not surrender your contract at the end of the applicable time
period you would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
VIP Money Market $18 $ 57 $ 97 $210
VIP Equity-Income $21 $ 64 $110 $237
VIP Growth $22 $ 67 $115 $247
VIP High Income $22 $ 69 $118 $251
VIP Overseas $24 $ 74 $127 $271
VIP II Asset Manager $22 $ 67 $114 $244
VIP II Investment Grade Bond $21 $ 65 $111 $238
VIP II Asset Manager: Growth $23 $ 70 $120 $257
VIP II Index 500 $18 $ 56 $ 96 $206
VIP II Contrafund $22 $ 68 $116 $248
Alger American Growth $23 $ 71 $122 $260
Alger American Income and Growth $23 $ 70 $119 $255
Alger American Small Capitalization $24 $ 74 $127 $270
Alger American Balanced $25 $ 78 $133 $282
Alger American MidCap Growth $24 $ 73 $124 $265
Alger American Leveraged AllCap $25 $ 77 $132 $281
MFS Emerging Growth $24 $ 74 $127 $271
MFS Utilities $25 $ 77 $132 $281
MFS World Governments $25 $ 77 $132 $281
MFS Research $24 $ 75 $128 $273
MFS Growth With Income $25 $ 77 $132 $281
Morgan Stanley Emerging Markets Equity $33 $100 $169 $353
Morgan Stanley Global Equity $27 $ 82 $140 $296
Morgan Stanley International Magnum $27 $ 82 $140 $296
Morgan Stanley Asian Equity $27 $ 83 $142 $300
Morgan Stanley U.S. Real Estate $26 $ 80 $137 $291
</TABLE>
The examples assume an average $30,000 annuity investment. The examples should
not be considered a representation of past or future expenses. Actual expenses
may be greater or lesser than those shown and will vary according to the
portfolio(s) selected.
CONDENSED FINANCIAL INFORMATION
The financial statements for AVLIC and Separate Account VA-2 (as well as the
auditors' reports thereon) are in the Statement of Additional Information. The
Separate Account additionally funds variable annuity contracts not offered by
this prospectus which have unit values not applicable to the contracts offered
by this prospectus.
- --------------------------------------------------------------------------------
8 ANNUITY III-P
<PAGE>
ACCUMULATION UNIT VALUES
Following are the accumulation unit values for the Subaccounts as of May 3,
1996 (when contracts offered by this prospectus were first sold), December 31,
1997 and 1996. The number of outstanding accumulation units in each Subaccount
as of December 31, 1997 and 1996 are also shown.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AS OF AS OF UNITS AS OF
FUND MAY 3, 1996 DECEMBER 31 DECEMBER 31 YEAR
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIDELITY FUNDS
- --------------------------------------------------------------------------------------------------------------------
VIP Money Market 1.00 1.067 20,436,303 1997
1.026 15,869,778 1996
- --------------------------------------------------------------------------------------------------------------------
VIP Equity-Income 19.14 26.327 1,335,963 1997
20.839 551,719 1996
- --------------------------------------------------------------------------------------------------------------------
VIP Growth 29.37 37.575 466,990 1997
30.857 226,024 1996
- --------------------------------------------------------------------------------------------------------------------
VIP High Income 11.49 14.397 794,776 1997
12.407 299,530 1996
- --------------------------------------------------------------------------------------------------------------------
VIP Overseas 17.65 20.538 364,157 1997
18.670 172,406 1996
- --------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager 15.18 19.963 695,593 1997
16.778 258,707 1996
- --------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond 11.45 13.046 535,604 1997
12.130 172,451 1996
- --------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth 12.01 16.797 325,264 1997
13.611 86,483 1996
- --------------------------------------------------------------------------------------------------------------------
VIP II Index 500 76.17 115.593 228,476 1997
88.329 64,464 1996
- --------------------------------------------------------------------------------------------------------------------
VIP II Contrafund 14.54 20.091 1,224,466 1997
16.411 519,665 1996
- --------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- --------------------------------------------------------------------------------------------------------------------
Growth 32.93 43.399 332,203 1997
34.999 160,462 1996
- --------------------------------------------------------------------------------------------------------------------
Income and Growth 18.34 28.358 316,900 1997
21.100 93,066 1996
- --------------------------------------------------------------------------------------------------------------------
Small Capitalization 43.60 44.686 315,757 1997
40.681 171,379 1996
- --------------------------------------------------------------------------------------------------------------------
Balanced 14.19 17.595 213,057 1997
14.891 82,766 1996
- --------------------------------------------------------------------------------------------------------------------
Midcap Growth 21.56 24.445 476,963 1997
21.555 306,352 1996
- --------------------------------------------------------------------------------------------------------------------
Leveraged AllCap 19.53 22.840 211,221 1997
19.353 134,999 1996
- --------------------------------------------------------------------------------------------------------------------
MFS TRUST
- --------------------------------------------------------------------------------------------------------------------
Emerging Growth 13.00 15.906 1,262,367 1997
13.231 587,317 1996
- --------------------------------------------------------------------------------------------------------------------
Utilities 12.56 19.176 479,485 1997
14.768 162,086 1996
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
ANNUITY III-P 9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
World Governments 9.96 10.233 120,701 1997
10.495 45,205 1996
- --------------------------------------------------------------------------------------------------------------------
Research - 15.644 195,402 1997
- - 1996
- --------------------------------------------------------------------------------------------------------------------
Growth and Income - 16.694 282,861 1997
- - 1996
- --------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY FUND
- --------------------------------------------------------------------------------------------------------------------
Emerging Markets - 9.718 190,098 1997
- - 1996
- ---------------------------------------------------------------------------------------------------------------------
Global Equity - 11.894 178,203 1997
- - 1996
- ---------------------------------------------------------------------------------------------------------------------
International Magnum - 10.636 110,996 1997
- - 1996
- ---------------------------------------------------------------------------------------------------------------------
Asian Equity - 5.595 65,672 1997
- - 1996
- ---------------------------------------------------------------------------------------------------------------------
U.S. Real Estate - 11.690 122,379 1997
- - 1996
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE DATA
Separate Account VA-2 may advertise certain information regarding the
performance of the Subaccounts. Performance data may be advertised as average
annual total return and/or cumulative total return. The Money Market Subaccount
may advertise yield and/or effective yield. The yield figures are based on
historical earnings and are not intended to indicate future performance. Other
Subaccounts may advertise current yield. Details on how performance measures are
calculated for the Subaccounts are found in the Statement of Additional
Information. Performance advertising will reflect the mortality and expense risk
charge and the annual policy fee.
YEAR 2000
Like other insurance companies and their separate accounts, AVLIC and the
Separate Account could be adversely affected if the computer systems they rely
upon do not properly process date-related information and data involving the
years 2000 and after. AVLIC has taken steps it believes are reasonable to timely
address this issue in its own computer system, and to obtain assurances that its
major service providers are taking comparable steps. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on AVLIC and the Separate Account.
AVLIC, THE SEPARATE ACCOUNT AND THE FUNDS
AMERITAS VARIABLE LIFE INSURANCE COMPANY
Ameritas Variable Life Insurance Company ("AVLIC") is a stock life insurance
company organized in the State of Nebraska. AVLIC was incorporated on June 22,
1983 and commenced business December 29, 1983. AVLIC is currently licensed to
sell life insurance in 46 states and the District of Columbia.
AVLIC is a wholly owned subsidiary of AMAL Corporation, a Nebraska stock
company. AMAL Corporation is a joint venture of Ameritas Life Insurance Corp.
(Ameritas Life), which owns a majority interest in AMAL Corporation; and AmerUs
Life Insurance Company ("AmerUs Life"), an Iowa stock life insurance company,
which owns a minority interest in AMAL Corporation. The Home Offices of both
AVLIC and Ameritas Life are at 5900 "O" Street, P.O. Box 82550, Lincoln,
Nebraska 68501. Owner inquiries can be sent to this address, or may be made by
calling 1-800- 745-1112. All inquiries should include the Policy number and the
Owner's name.
On April 1, 1996 Ameritas Life consummated an agreement with AmerUs Life whereby
AVLIC became a wholly owned subsidiary of a newly formed holding company, AMAL
Corporation. Under terms of the agreement the AMAL Corporation is 66% owned by
Ameritas Life and 34% owned by AmerUs Life. AmerUs Life has options to purchase
an additional interest in AMAL Corporation if certain conditions are met.
Ameritas Life and its subsidiaries had total assets at December 31, 1997 of over
$3.4 billion. AmerUs Life had total assets as of December 31, 1997 of over
$10.3 billion.
- --------------------------------------------------------------------------------
10 ANNUITY III-P
<PAGE>
AVLIC has a rating of A (Excellent) from A.M. Best Company, a firm that analyzes
insurance carriers, and a rating of AA ("Excellent") from Standard & Poor's for
claims-paying ability. Ameritas Life enjoys a long standing A+ (Superior) rating
from A.M. Best.
Ameritas Life, AmerUs Life and AMAL Corporation guarantee the obligations of
AVLIC. This guarantee will continue until AVLIC is recognized by a National
Rating Agency as having a financial rating equal to or greater than Ameritas
Life, or until AVLIC is acquired by another insurance company who has a
financial rating by a National Rating Agency equal to or greater than Ameritas
Life and who agrees to assume the guarantee; provided that if AmerUs Life sells
its interest in AMAL Corporation to another insurance company who has a
financial rating by a National Rating Agency equal to or greater than that of
AmerUs Life, and the purchaser assumes the guarantee, AmerUs Life will be
relieved of its obligations under the Guarantee.
AVLIC may publish in advertisements and reports to the Owners, the ratings and
other information assigned it by one or more independent rating services. The
purpose of the ratings is to reflect the financial strength and/or claims-paying
ability of AVLIC. The ratings do not relate to the performance of the separate
account. Further, AVLIC may publish charts and other information concerning
asset allocation, dollar cost averaging, portfolio rebalancing, diversification,
earnings sweep, tax deference, long term market trends, index performance and
other investment methods and programs. AVLIC may also publish information
concerning the objectives, policies, and risk level of the Portfolios.
THE SEPARATE ACCOUNT
Ameritas Variable Life Insurance Company Separate Account VA-2 ("Separate
Account") was established under Nebraska law on May 28, 1987 to receive and
invest premiums paid under the Policy. Assets of the Separate Account are held
separately from all other assets of AVLIC and are not chargeable with
liabilities from any other business AVLIC may conduct. Income, gains, or losses
of the Separate Account are credited without regard to other income, gains, or
losses of AVLIC.
The Separate Account purchases and redeems shares from the Portfolios at the net
asset value. Shares are redeemed for AVLIC to pay withdrawals and surrenders,
collect charges, and make Policy loans or transfer assets from one Portfolio to
another, or to the Fixed Account, as requested by the Owner. Any dividend or
capital gain distribution is automatically reinvested in the corresponding
Subaccount.
All obligations arising under the policies are liabilities of AVLIC. AVLIC will
always keep assets in the Separate Account with a total market value at least
equal to the reserve and other contract liabilities of the Separate Account. The
Separate Account will at all times contain assets equal to or greater than
account values invested in the Separate Account. To the extent assets in the
Separate Account exceed AVLIC's liabilities in the Separate Account, AVLIC may
withdraw excess assets to cover general account obligations.
The Separate Account is a unit investment trust registered with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940
Act"). Such registration does not involve any SEC supervision of the management
or investment policies or practices of the Separate Account.
THE FUNDS
Each Fund is registered with the SEC under the 1940 Act as an open-ended
management investment company or a series thereof. There are currently
twenty-six Subaccounts within the Separate Account, each investing only in a
corresponding portfolio of the Funds.
The assets of each portfolio of the Funds are held separate from the assets of
the other portfolios. Thus, each portfolio operates as a separate investment
portfolio, and the income or losses of one portfolio generally have no effect on
the investment performance of any other portfolio.
There is no assurance that any of the portfolios will achieve its investment
objectives. More detailed information, including a description of investment
risks, investment advisory services, total expenses and charges is in the
prospectuses of the Funds, which are available without charge by calling AVLIC.
These prospectuses should be read in conjunction with this Prospectus, and
retained. All underlying fund information, including Fund prospectuses, has been
provided to AVLIC by the Funds. AVLIC has not independently verified this
information.
You should periodically reconsider your allocation among the Portfolios in light
of current market conditions and the investment risks attendant to investing in
the portfolios.
The Funds may be available for variable annuity or variable life insurance
contracts of various insurance companies. Though unlikely, there is a
possibility that a material conflict could arise between the interests of the
Separate Account and one or
- --------------------------------------------------------------------------------
ANNUITY III-P 11
<PAGE>
more of the separate accounts of another participating insurance company. In the
event of a material conflict, the affected insurance companies agree to take any
necessary steps, including removing its separate accounts from the Funds, to
resolve the matter. See the prospectuses of the Funds for more information.
The eligible Portfolios of the Funds, along with their investment advisers; are
listed in the following table:
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISERS ELIGIBLE PORTFOLIOS
- ------------------ ----------------------------- -------------------
<S> <C> <C>
Fidelity Funds Fidelity Management and VIP Money Market
Research Company VIP Equity-Income
VIP Growth
VIP High Income
VIP Overseas
VIP II Asset Manager
VIP II Investment Grade Bond
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
Alger American Fund Fred Alger Management, Inc. Alger American Growth
Alger American Income and Growth
Alger American Small Capitalization
Alger American Balanced
Alger American MidCap Growth
Alger American Leveraged AllCap
MFS Trust Massachusetts Financial Services Emerging Growth
Company Utilities
World Governments
Research
Growth With Income
Morgan Stanley Fund Morgan Stanley Asset Emerging Markets Equity
Management Inc. Global Equity
International Magnum
Asian Equity
U.S. Real Estate
</TABLE>
THE FIXED ACCOUNT
You may allocate all or a portion of your Premium Payments and make transfers to
the Fixed Account. Amounts in the Fixed Account earn a fixed rate of interest
guaranteed by AVLIC never to be less than 3.5%. The Fixed Account is not
available to Oregon policyholders.
Amounts allocated to the Fixed Account receive an interest rate declared
effective for the month of issue. The declared interest rate is guaranteed for
the remainder of the Policy Year. During subsequent Policy Years, all amounts in
the Fixed Account will earn the interest rate that was declared in the month of
the last Policy anniversary. Declared interest rates may be lower or higher than
the previous period.
Amounts allocated to the Fixed Account or transfered from the Separate Account
to the Fixed Account are placed in the General Account of AVLIC, which supports
insurance and annuity obligations. The General Account includes all of AVLIC's
assets, except those assets segregated in the separate accounts. AVLIC has the
sole discretion to invest the assets of the General Account, subject to
applicable law. AVLIC bears an investment risk for all amounts allocated or
transferred to the Fixed Account and interest credited thereto, less any
deduction for charges and expenses, whereas the owner bears the investment risk
that the declared interest rate described above may fall to a lower rate after
the expiration of a declared rate period.
- --------------------------------------------------------------------------------
12 ANNUITY III-P
<PAGE>
Because of exemptive and exclusionary provisions, interests in the General
Account have not been registered under the Securities Act of 1933 nor is the
General Account registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the General Account nor any interest therein
is generally subject to the provisions of the 1933 or 1940 Act. We understand
that the SEC has not reviewed the disclosures in this Prospectus relating to the
Fixed Account portion of the Contract; however, disclosures regarding the Fixed
Account portion of the Contract may be subject to generally applicable
provisions of the Federal Securities Laws regarding the accuracy and
completeness of statements made.
THE POLICY
The Policy is a variable annuity policy. The rights and benefits of the Policy
are described below and in the policy form; however, AVLIC reserves the right to
make any modification to conform the Policy to, or to give the owner the benefit
of, any federal or state statute or any rule or regulation thereunder. If
necessary, AVLIC will provide notice of such modifications to, and receive
approval from, the Securities and Exchange Commission and/or state insurance
authorities. You will be notified of any material modification to the policy.
The policy may be purchased on a non-tax qualified basis ("nonqualified
policy"). The Policy may also be purchased in connection with certain plans
qualifying for favorable federal income tax treatment ("qualified policy").
POLICY APPLICATION AND PREMIUM PAYMENT
Individuals wishing to purchase a Policy must complete an application and submit
it to AVLIC's Home Office ( 5900 "O" Street, P.O. Box 82550, Lincoln, Nebraska
68501). The application to purchase a non-qualified annuity must be submitted
with an initial premium payment of not less than $2,000 unless other provisions
for payment of the $2,000 premium are made. An application to purchase an
annuity in qualified plans may be submitted with initial monthly premiums of as
little as $50 in periodic payment plans providing for $600 in premiums per year.
Acceptance is subject to AVLIC's underwriting rules, and AVLIC reserves the
right to reject an application for any reason. After the Policy is issued, an
owner of a policy in a non-qualified plan may make additional premium payments
of $500 or more. Smaller premium payments may be accepted on Bank-O-Matic in
tax-qualified plans or at AVLIC's discretion. Also, AVLIC has the right not to
accept total premiums greater than $1,000,000, or a premium payment where the
total premium payments made under AVLIC annuity contracts having the same
annuitant exceed $1,000,000. If the application and initial premium payment can
be accepted in the form received, the initial premium payment will be applied to
the purchase of a Policy within two business days after receipt by AVLIC at its
Home Office. In those instances where other provisions for the payment of the
initial premium are made, the initial premium will be applied after the
application has been accepted and within two business days after AVLIC has
received the initial premium in its Home Office in Federal Funds. The date that
the initial premium is applied to the purchase of the Policy is the effective
date of the Policy.
If an incomplete application is received, AVLIC will request the information
necessary to complete the application. Once the application is completed and the
initial premium received, the initial premium payment will be applied to the
purchase of a Policy within two business days. If after five business days after
its receipt with the initial premium the application remains incomplete, AVLIC
will return the applicant's premium payment unless it obtains the applicant's
permission to retain the premium payment pending completion of the application.
The policy date is used to determine policy anniversary dates and policy years.
On the Issue Date, the Policy Date will be the date two days after AVLIC
received the application and initial premium. If the Policy Date would fall on
the 29th, 30th, or 31st of a month, the Policy Date will be set at the 28th day
of that month.
ALLOCATION OF PREMIUM
In the application for a Policy, the owner allocates the net premium to one or
more Subaccounts of the Account and/or to the Fixed Account. Allocations must be
whole number percentages and must total 100%.
On the Issue Date, the policy's Accumulation Value will be based on the Money
Market Subaccount value as if the Policy had been issued and the initial Net
Premium invested within two Valuation Dates of receipt by AVLIC of the
application and initial premium.
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ANNUITY III-P 13
<PAGE>
The Accumulation Value is allocated on the issue date of the Policy to one or
more Subaccounts of the Separate Account or to the Fixed Account. The
Accumulation Value will be used to purchase accumulation units of the
Subaccounts of the Separate Account or the Fixed Account at the price next
computed on the issue date.
If state or other applicable law or regulation requires return of at least your
premium payments should you return the Annuity pursuant to the Refund Privilege,
your Accumulation Value will be allocated to the Money Market Subaccount.
Thirteen days after the issue date, the accumulation value of the Policy will be
allocated among the Subaccounts, or to the Fixed Account, as selected by the
owner in the application.
The value of amounts allocated to Subaccounts of the Separate Account will vary
with the investment performance of these Subaccounts and the owner bears the
entire investment risk. This will affect the Policy's cash surrender value which
on the annuity date affects the level of annuity payments payable. Owners should
periodically review their allocation of values in light of market conditions and
overall financial planning requirements.
ACCUMULATION VALUE
The accumulation value of the policy is equal to the total premiums received,
reduced by any applicable premium taxes, as affected by charges, withdrawals,
and the investment experience of the designated Subaccounts and the interest
earned in the Fixed Account.
On the effective date, the accumulation value of the Policy is equal to the
initial premium received, reduced by any applicable premium taxes. Thereafter,
the accumulation value of the Policy is determined as of the close of trading on
the New York Stock Exchange on each valuation date by multiplying the number of
accumulation units of each Subaccount credited to the Policy by the current
value of an accumulation unit for each Subaccount and by adding the amount in
the Fixed Account. The current value of an accumulation unit reflects the
increase or decrease in value due to investment results of the Subaccount and
certain charges, as described below. The number of accumulation units credited
to the Policy is decreased by the annual policy fee, any withdrawals, and any
charges upon withdrawal and, upon annuitization, any applicable premium taxes
and charges.
The accumulation value is expected to change from valuation period to valuation
period, reflecting the net investment experience of the selected portfolios of
the Funds, interest earned in the Fixed Account, additional premium payments,
partial withdrawals as well as the deduction of any applicable charges under the
Policy.
VALUE OF ACCUMULATION UNITS
The accumulation units of each Subaccount are valued separately. The value of an
accumulation unit may change each valuation period according to the net
investment performance of the shares purchased by each Subaccount and the daily
charge under the Policy for mortality and expense risks, the daily charge under
the policy for the administrative fee, and, if applicable, any federal and state
income tax charges.
TRANSFERS
Accumulation value may be transferred among the Subaccounts and/or the Fixed
Account 15 times each policy year without charge. A transfer charge of $10.00
may be imposed each additional time amounts are transferred between Subaccounts
and/or the Fixed Account. This charge will be deducted pro rata from each
Subaccount (and, if applicable, the Fixed Account) in which the Policyowner is
invested. The total amount transferred each time must be at least $250, or the
balance of the Subaccount, if less. Accumulation values may also be transferred
from the Subaccounts of the separate account to the Fixed Account without
limitation. Transfers of up to the greater of: 25% of the accumulation value of
the Fixed Account; the amount of any transfer from the Fixed Account during the
prior thirteen months; or $1,000 may be made from the Fixed Account to the
various Subaccounts during the 30 day period following the yearly anniversary
date of the policy. This provision is not available while dollar cost averaging
from the Fixed Account. The minimum amount that may remain in a Subaccount or
the Fixed Account after a transfer is $100. AVLIC will effect transfers and
determine all values in connection with transfers on the later of the date
designated in the request or at the end of the valuation period during which the
transfer request is received at the Home Office.
The privilege to initiate transactions by telephone will be made available to
Owners automatically. AVLIC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if it does not, AVLIC
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures AVLIC follows for transactions initiated by telephone include, but
are not limited to, requiring the Owner to provide the policy number at the time
of giving transfer instructions; AVLIC's tape recording of all telephone
transfer instructions; and the provision, by AVLIC, of written confirmation of
telephone transactions.
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14 ANNUITY III-P
<PAGE>
The registered representative noted on your application will have the authority
to initiate telephone transfers. If you do not wish your registered
representative to have this authority, you must specify this in the application.
Transfers may be subject to additional limitations at the fund level.
Specifically, fund managers may have the right to refuse sales, or suspend or
terminate the offering of portfolio shares, if they determine that such action
is necessary in the best interests of the portfolio's shareholders. If a fund
manager refuses a transfer for any reason, the transfer will not be allowed.
AVLIC will not be able to process the transfer if the fund manager refuses.
SYSTEMATIC PROGRAMS
AVLIC may offer systematic programs as discussed below. Transfers of
Accumulation Value made pursuant to these programs will be counted in
determining whether the transfer fee applies. Lower minimum amounts may be
allowed to transfer as part of a systematic program. All other normal transfer
restrictions, as described above, apply. There is no separate charge for
participation in these programs at this time.
PORTFOLIO REBALANCING. Under the Portfolio Rebalancing program, the Owner can
instruct AVLIC to allocate Accumulation Value among the Subaccounts of the
Account, on a systematic basis, in accordance with allocation instructions
specified by the Owner. The Fixed Account can not be used in this program.
DOLLAR COST AVERAGING. Under the Dollar Cost Averaging program, the owner can
instruct AVLIC to automatically transfer, on a systematic basis, a predetermined
amount or percentage specified by the Owner from the Fixed Account or the Money
Market Subaccount to any other Subaccount(s). Dollar cost averaging is permitted
from the Fixed Account, if no more than 1/36th of the value of the Fixed Account
at the time dollar cost averaging is established is transferred each month.
EARNINGS SWEEP. Permits systematic redistribution of earnings among Subaccounts.
The Owner can request participation in the available programs when purchasing
the Policy or at a later date. The Owner can change the allocation percentage or
discontinue any program by sending written notice or calling the Home Office.
Other scheduled programs may be made available. AVLIC reserves the right to
modify, suspend or terminate such programs at any time. Use of Systematic
Programs may not be advantageous, and does not guarantee success.
OWNER INQUIRIES
Inquiries should be addressed to Ameritas Variable Life Insurance Company, 5900
"O" Street, P.O. Box 82550, Lincoln, Nebraska 68501 or made by calling
1-800-745-1112. All inquiries should include the policy number and the owner's
name.
REFUND PRIVILEGE
The owner is given a period of time to examine a Policy and return it for a
refund. The owner may cancel the Policy within the period of time stated on the
policy form, which is 10 days after receipt of the Policy, unless state law
requires a longer period of time. In states that permit it to do so, AVLIC will
refund the Accumulation Value calculated on the date AVLIC receives the Policy
and refund request. This amount may be more or less than the premium payments
made. In other states, the refund is equal to the greater of the premiums paid
or the premiums adjusted by investment gains and losses. All Individual
Retirement Annuity or custodial IRA annuity refunds will be a return of premium
payment. To cancel the Policy, the owner should return it to the selling agent,
or to AVLIC at the Home Office. A refund, if the premium was paid by check, may
be delayed until the check has cleared the owner's bank.
POLICY LOANS
After the first policy anniversary the Owner of a policy purchased in a 403(b)
qualified plan may borrow up to the lesser of: $50,000 (including all loans
outstanding during the preceding year); or 50% of the cash surrender value of
the policy; or 50% of the present value of the non-forfeitable accrued benefits
of the owner under the policy. One loan may be taken each year and the minimum
initial loan amount is $2,500. The loans usually are funded within 7 days of the
receipt of a written request. Any outstanding loan balance will be deducted from
policy proceeds payable due to death, surrender, or upon annuitization.
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ANNUITY III-P 15
<PAGE>
All loans must be repaid within five years with substantially level amortized
payments made at least quarterly. Repayment for loans to purchase a dwelling to
be used, within a reasonable time, as a residence may be made over a longer
period. If any repayment due under the loan is unpaid for ninety (90) days, the
balance will become due without notice. The loan will be repaid by deducting the
balance and any applicable charges and taxes from the accumulation value.
The current loan interest rate will be 7.5% and is guaranteed not to exceed 8%
per annum. When a loan is made, accumulation values equal to the amount of the
loan will be transferred from the Account and/or Fixed Account to the General
Account of AVLIC as security for the indebtedness. The Owner is currently
earning 4.5% and is guaranteed to earn 3.5% on the amount securing the
indebtedness. The accumulation values transferred out of the Account will be
allocated among the subaccounts or Fixed Account as instructed by the Owner when
the loan is requested. If no instructions are given, the amounts will be
withdrawn in proportion to the various accumulation values in the subaccounts or
the Fixed Account. Upon repayment of the loan, the transfers back into the
Account or Fixed Account will be allocated in accordance with the allocation
instructions in effect when the payments are made.
The loans to Owners of a policy purchased in 403(b) qualified plans will be
considered distributions from the policy and subject to taxation unless the
requirements of IRS Code Section 72(p), including repayment, are met. In
addition policies purchased in plans subject to ERISA may be subject to ERISA
requirements. AVLIC may refuse to make a loan which violates these requirements.
AVLIC may be required to report the loan as income to the Owner if the loan
violates the IRS requirements or is not repaid according to the IRS requirements
and the loan terms. This provision is not available in all states.
CHARGES AND DEDUCTIONS
Charges will be deducted periodically from the accumulation value of the Policy
to compensate AVLIC for, among other things: (1) issuing and administering the
Policy; (2) assuming certain risks in connection with the Policy; and (3)
incurring expenses in distributing the Policy. The nature and amount of these
charges are described more fully below.
No deductions are made from the premium payments before they are allocated to
the Account or Fixed Account, unless taxes are imposed by state law upon the
receipt of a premium payment. In that case AVLIC will deduct the premium tax due
when the premiums are received. Other charges, such as transfer and contingent
deferred sales charges, may be levied upon, respectively transfers or
withdrawals or, in some cases, upon annuitization or withdrawals, as described
more fully below.
ADMINISTRATIVE CHARGES
ANNUAL POLICY FEE. An annual policy fee of up to $40.00 (currently $36.00,
$30.00 in North Dakota) is deducted from the accumulation value on the last
valuation date of each policy year or upon a full withdrawal. This charge
reimburses AVLIC for the administrative costs of maintaining the Policy on
AVLIC's system. AVLIC currently waives this charge if the accumlation value of
your policy is at least $50,000.
From time to time AVLIC may reduce the amount of the annual policy fee. AVLIC
may do so when annuities are sold to individuals or a group of individuals in a
manner that reduces the administrative costs of policy maintenance. AVLIC would
consider such factors as: (a) the size and type of group; (b) the number of
Annuities purchased by an Owner; (c) the amount of premium payments; and/or (d)
other transactions where maintenance and/or administrative expenses are likely
to be reduced.
Any elimination of the annual policy fee will not discriminate unfairly between
Annuity purchasers. AVLIC will not make any changes to this charge where
prohibited by law.
ADMINISTRATIVE FEE. A daily charge equal to an annual rate of .15% of the
accumulation value is calculated. This charge is subtracted when determining the
daily accumulation unit value. No administrative fee is imposed on the Fixed
Account. This charge, which is guaranteed not to be increased, is designed to
reimburse AVLIC for administrative expenses incurred in connection with issuing
the Policies and ongoing administrative expenses incurred in connection with
servicing and maintaining the Policies. These expenses include the cost of
processing the application and premium payments, establishing policy records,
processing and servicing owner transactions and policy changes, recordkeeping,
preparing and mailing reports, processing death benefit claims and overhead.
AVLIC does not expect to make a profit on the charges for the annual policy and
daily administrative fees.
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16 ANNUITY III-P
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE
AVLIC imposes a charge to compensate it for bearing certain mortality and
expense risks under the Policies. For assuming these risks, AVLIC makes a daily
charge equal to an annual rate of 1.25% of the value of the average daily net
assets of the Separate Account. Of that amount, approximately .55% is charged to
cover the mortality risks and .70% is charged to cover the expense risks assumed
under the Policies. This charge is subtracted when determining the daily
accumulation unit value. AVLIC guarantees that this charge will never increase.
If this charge is insufficient to cover assumed risks, the loss will fall on
AVLIC. Conversely, if the charge proves more than sufficient, any excess will be
added to AVLIC's surplus. No mortality and risk expense charge is imposed on the
Fixed Account.
The mortality risk borne by AVLIC under the Policies, assuming the selection of
one of the forms of life annuities, is to make monthly annuity payments
(determined in accordance with the annuity tables and other provisions contained
in the Policies) regardless of how long all annuitants may live. This
undertaking assures that neither an annuitant's own longevity, nor an
improvement in life expectancy greater than expected, will have any adverse
effect on the monthly annuity payments the annuitant will receive under the
Policy. It therefore relieves the annuitant from the risk that he will outlive
the funds accumulated for retirement. In addition, AVLIC bears a mortality risk
under the Policies, regardless of the annuity option selected, in that it
guarantees the purchase rates for the annuity income options available under the
Policy and it guarantees the death benefit of the Policy prior to the annuity
date to be the greater of the accumulation value or the premium payments made,
or, where available, the Guaranteed Minimum Death Benefit. These risks are
AVLIC's. The expense risk undertaken by AVLIC, with respect to the Separate
Account, is that the deductions for administrative costs under the Policies may
be insufficient to cover the actual future costs incurred by AVLIC for providing
policy administration services.
If the contingent deferred sales charge on withdrawals is insufficient to cover
the distribution expenses, the deficiency will be met from AVLIC's general
account funds, including the amount derived from the charge levied for mortality
and expense risks.
CONTINGENT DEFERRED SALES CHARGE
Since no deduction for a sales charge is made from the premium payment, unless
waived, a contingent deferred sales charge is imposed on certain partial and
full withdrawals and upon certain annuitizations to cover certain expenses
relating to the distribution of the Policy, including commissions to registered
representatives and other promotional expenses. No charge is assessed for the
withdrawal, in a Policy Year, of the greater of 10% of the policy accumulation
value or that portion of the accumulation value that exceeds the total premiums
deposited. The contingent deferred sales charge is assessed only on premiums
paid based upon the number of years since premiums withdrawn were paid, on a
first paid, first withdrawn basis. The contingent deferred sales charge is a
maximum of 6% of the premium payment withdrawn and grades to 0% after the
seventh year after the withdrawn premiums were deposited.
Those annuitants whose policies have been in force for at least one year and
meet certain conditions may make withdrawals without surrender charges. (See
"Critical Needs Withdrawals," page 18).
Where a partial or full withdrawal is taken or amounts are applied under an
annuity option, which are subject to a contingent deferred sales charge, the
contingent deferred sales charge will be expressed as a percentage of the
premium payments withdrawn or annuitized as follows:
Year % Year %
1...............6 5................4
2...............6 6................3
3...............6 7................2
4...............5 8+...............0
In the case of a partial withdrawal or annuitization, the contingent deferred
sales charge will be deducted from the amounts remaining under the Policy. The
charge will be allocated pro rata among the Subaccounts (or the Fixed Account)
based on the accumulation value in each prior to the withdrawal or annuitization
unless an owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. A contingent deferred sales charge will not be assessed on premium
payments withdrawn at least two years after deposit, if withdrawn and applied
under annuity income option c or d. (See "Annuity Income Options," page 20)
Full or partial withdrawals from the Fixed Account may be deferred for up to 6
months from the date of written request.
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ANNUITY III-P 17
<PAGE>
TAXES
AVLIC will, where such taxes are imposed by state law of the Owner's residence
as made known to AVLIC upon the receipt of a premium payment, deduct premium
taxes. If instead, premium taxes are imposed upon annuitization or withdrawals
by said state, AVLIC will deduct applicable premium taxes at that time.
Applicable premium tax rates depend upon such factors as the owner's current
state of residency, and the insurance laws and the status of AVLIC in states
where premium taxes are incurred. Currently, premium taxes range from 0% to 3.5%
of the premium paid. Applicable premium tax rates are subject to change by
legislation, administrative interpretations or judicial acts. The owner will be
notified of any applicable premium taxes. Owners are responsible for informing
AVLIC in writing of changes of residence.
Under present laws, AVLIC will incur state or local taxes (in addition to the
premium taxes described above) in several states. At present, these taxes are
not significant; thus, AVLIC is not currently making a charge. If they increase,
however, AVLIC may make charges for such taxes. Such charges would be deducted
from the accumulation unit value.
AVLIC does not expect to incur any federal income tax liability attributable to
investment income or capital gains retained as part of the reserves under the
Policies. (See "Federal Tax Matters," page 23). Based upon these expectations,
no charge is being made currently to the Separate Account for corporate federal
income taxes which may be attributable to the Separate Account.
AVLIC will periodically review the question of a charge to the Separate Account
for corporate federal income taxes related to the Separate Account. Such a
charge may be made in future years for any federal income taxes incurred by
AVLIC. This might become necessary if the tax treatment of AVLIC is ultimately
determined to be other than what AVLIC currently believes it to be, if there are
changes made in the federal income tax treatment of annuities at the corporate
level, or if there is a change in AVLIC's tax status. In the event that AVLIC
should incur federal income taxes attributable to investment income or capital
gains retained as part of the reserves under the Policy, the accumulation unit
value would be correspondingly adjusted by any provision or charge for such
taxes.
FUND INVESTMENT ADVISORY FEES AND EXPENSES
Because the Account purchases shares of the Funds, the net assets of the Account
will reflect the value of Funds' shares and, therefore, the investment advisory
fees and other expenses incurred by the Funds. A complete description of the
expenses and deductions from the Funds' portfolios is found in the Funds'
prospectuses and Statements of Additional Information.
AVLIC may receive administrative fees from the investment advisers of certain
funds.
DISTRIBUTIONS UNDER THE POLICY
FULL AND PARTIAL WITHDRAWALS
The owner may make elective and systematic partial withdrawals or a full
withdrawal of the Policy to receive part or all of the accumulation value (less
any applicable charges), at any time before the annuity date and while the
annuitant is living, by sending a written request on a form approved by AVLIC to
AVLIC. The withdrawal right may be restricted by Section 403(b)(11) of the IRS
Code and, should the withdrawal be an eligible rollover distribution from a
qualified plan or an annuity in a 403(b) plan, it will be subject to a mandatory
20% withholding under the IRS Code unless the distribution is paid directly by
AVLIC into an eligible retirement plan in a direct rollover. (See "Federal Tax
Matters," page 23). No partial or full withdrawals may be made after the annuity
date except as permitted under the particular annuity option. The amount
available for full or partial withdrawal ("cash surrender value") is the
accumulation value at the end of the valuation period during which the written
request for withdrawal is received, less any contingent deferred sales charge,
any applicable premium taxes, and in the case of a full withdrawal, less the
annual policy fee that would be due on the last valuation date of the policy
year. The cash surrender value may be paid in a lump sum to the owner, or, if
elected, all or any part may be paid out under an annuity income option. (See
"Annuity Income Options," page 20).
CRITICAL NEEDS WITHDRAWALS
Annuitants whose policies have been in force for at least one year may, under
certain conditions, make withdrawals without surrender charges. These conditions
include: the annuitant must be 65 or younger when the policy was issued; the
policy
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18 ANNUITY III-P
<PAGE>
accumulation value must exceed $5,000; the annuitant must provide a
medical doctor's verification of diagnosis of terminal illness with less than 12
months to live; or verification of 90 consecutive days of confinement in a
medical facility for an approved medical reason; and no additional premium
payments are made during the waiver period. The waiver of withdrawal charges
during medical confinement will continue for 90 days after release. This waiver
of withdrawal charges is not available in all states.
In the absence of specific direction from the owner, amounts will be withdrawn
from the Subaccounts and the Fixed Account on a pro rata basis. Any partial
withdrawal that would reduce the cash surrender value to less than $1000 will be
considered a request for full withdrawal. Any partial annuitization will be
allocated first to earnings and then to principal.
All withdrawals of amounts held in the Separate Account will be paid within
seven days of receipt of written request, subject to postponement in certain
circumstances. (See "Deferment of Payment," page 21). Payments under the Policy
of any amounts derived from a premium paid by check may be delayed until such
time as the check has cleared the payor's bank. If, at the time the owner makes
a partial or full withdrawal request, he or she has not provided AVLIC with a
written election not to have federal income taxes withheld, AVLIC must by law
withhold such taxes from the taxable portion of any full or partial withdrawal
and remit that amount to the federal government. At the owner's request, AVLIC
will provide a form to request a withdrawal and to notify AVLIC of the owner's
election whether to have federal income taxes withheld. Moreover, the Internal
Revenue Code provides that a 10% penalty tax may be imposed on certain early
withdrawals. (See "Federal Tax Matters - Taxation of Annuities in General," page
23).
Since the owner assumes the investment risk with respect to amounts held in the
Separate Account and because certain withdrawals are subject to a contingent
deferred sales charge, the total amount paid upon withdrawals under the Policy
(taking into account any prior withdrawals) may be more or less than the premium
payments made.
ANNUITY DATE
The owner may specify an annuity date by written request, which can be no later
than the policy anniversary nearest annuitant's 85th birthday. The annuity date
may be extended up to the policy anniversary nearest the annuitant's 95th
birthday (90th birthday in Oregon) without AVLIC's prior approval. The 29th,
30th, or 31st day of any month may not be selected as the annuity date. If no
annuity date is specified, the annuity date will be the later of the fifth
policy anniversary date (Seventh policy anniversary date in Oregon) or the
policy anniversary which is nearest the annuitant's 85th birthday. The annuity
date is the date that annuity payments are scheduled to commence under the
Policy, unless the Policy has been surrendered or an amount has been paid as
proceeds to the annuitant's beneficiary prior to that date. In selecting an
annuity date, the owner may wish to consider the applicability of a contingent
deferred sales charge, which is imposed upon an annuitization prior to the third
policy year following the premium payment where a life annuity is selected, and
prior to the eighth policy year if any other annuity option is selected.
The owner may advance or defer the annuity date; however, the annuity date may
not be advanced to a date prior to 30 days after the date a written request is
received, or, without AVLIC's prior approval, deferred to a date beyond the
policy anniversary date nearest the annuitant's 95th birthday. An annuity date
may only be changed by written request during the annuitant's lifetime. Request
must be received at AVLIC's Home Office at least 30 days before the then
scheduled annuity date. The annuity date and annuity income options available
for qualified contracts may also be controlled by endorsements, the plan or
applicable law.
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the annuitant dies prior to the annuity date, an amount will be paid as
proceeds to the annuitant's beneficiary. Upon receipt of satisfactory proof of
death of the annuitant, the death benefit or, if applicable, the Guaranteed
Minimum Death Benefit (GMDB), becomes payable. The death benefit will equal the
greater of the accumulation value or total premiums paid less withdrawals, on
the date satisfactory proof of death is received by AVLIC at its Home Office.
The death benefit or, where applicable, the GMDB, is payable as a lump sum cash
benefit or under one of the annuity income options. The owner may elect an
annuity income option for the annuitant's beneficiary, or if no such election
was made by the owner and a cash benefit has not been paid, the annuitant's
beneficiary may make this election after the annuitant's death. Since
"satisfactory proof of death" includes a "Claimant's Statement," which specifies
how the annuitant's beneficiary wishes to receive the benefit (unless the owner
previously selected an option), the amount of the death benefit will continue to
reflect the investment performance of the Separate Account until that
information is supplied to AVLIC. In order to take advantage of the favorable
tax treatment accorded to receiving the death benefit as an annuity, the
annuitant's beneficiary must elect to receive the benefits under an annuity
option within 60 days "after the day on which such lump sum became payable," as
defined in the Internal Revenue Code. The death benefit will be paid to the
annuitant's beneficiary within seven days of when it becomes payable.
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ANNUITY III-P 19
<PAGE>
GUARANTEED MINIMUM DEATH BENEFIT (GMDB) RIDER
This rider provides for payment of the GMDB in lieu of the death benefit payable
prior to annuity date if the GMDB is greater than such death benefit payable
prior to annuity date. The GMDB depends on the annuitant's issue age, and when
the company receives satisfactory proof of death. The GMDB is calculated based
upon the 7 year period in which satisfactory proof of death is received. Each 7
year period begins with a 7 year policy anniversary, i.e. the 7th, 14th, 21st,
etc. policy anniversary. The GMDB applies only for annuitants who are issue age
0-70.
If satisfactory proof of the annuitant's death is received prior to the 7th
policy anniversary, or after the policy anniversary nearest the annuitant's 85th
birthday, the GMDB is zero, and the death benefit payable will equal the greater
of the accumulation value, or total premiums paid less partial withdrawals, on
the date satisfactory proof of death is received.
If satisfactory proof of the annuitant's death is received on or after the 7th
policy anniversary and before the policy anniversary nearest the annuitant's
75th birthday, the GMDB is calculated based upon the greater of (i) and (ii),
where (i) is the accumulation value as of the most recent 7 year policy
anniversary and (ii) is the GMDB immediately preceding the most recent 7 year
policy anniversary. The GMDB is increased by premiums paid since the most recent
7 year policy anniversary, decreased by any partial withdrawals and any partial
withdrawal charges since the most recent 7 year policy anniversary, and
decreased by an additional adjustment for each partial withdrawal made since the
most recent 7 year policy anniversary. However, if satisfactory proof of the
annuitant's death is received on or after the policy anniversary nearest the
annuitant's 75th birthday and before the policy anniversary nearest the
annuitant's 85th birthday, the most recent 7 year policy anniversary on or prior
to the policy anniversary nearest the annuitant's 75th birthday will be used in
determining the GMDB.
For annuitants Issue Age 68 to 70, the accumulation value as of the 7th policy
anniversary will be used in calculating the GMDB prior to the policy anniversary
nearest the annuitant's 85th birthday. For annuitants Issue Age 69 and 70, the
references to "75th birthday" in the preceding paragraph should be replaced by
"76th birthday" (when issue age is 69) and "77th birthday" (when issue age is
70).
There is no additional charge for this rider, and this rider may not be
available in all states.
ELECTION OF ANNUITY INCOME OPTIONS
The amounts of any annuity payments payable will be based on the net cash
surrender value as of the annuity date, and the annuity income option. The net
cash surrender value is equal to the cash surrender value less any premium
taxes, if applicable. Thereafter, the monthly annuity payment will not change,
except in the event option (ai), Interest Payment, is elected in which case the
payment will vary based on the rate of interest determined by AVLIC. All or part
of the net cash surrender value may be placed under one or more annuity income
options. If annuity payments are to be paid under more than one option, AVLIC
must be told what part of the net cash surrender value is to be paid under each
option.
The annuity income options are shown below. Election of an annuity income option
must be made by written request to AVLIC at least thirty (30) days in advance of
the annuity date. If no election is made, payments will be made beginning on the
annuity date as an annuity under option c, as shown below. Subject to AVLIC's
approval, the owner (or after the annuitant's death, the annuitant's
beneficiary) may select any other annuity income option AVLIC then offers.
Annuity income options are not available to: (1) an assignee; or (2) any other
than a natural person except with AVLIC's consent. If an annuity option selected
does not generate monthly payments of at least $20, AVLIC reserves the right to
pay the net cash surrender value as a lump sum payment.
If an annuity income option is chosen which depends on the continuation of life
of the annuitant or of a joint annuitant, proof of birth date may be required
before annuity payments begin. For annuity income options involving life income,
the actual age of the annuitant or joint annuitant will affect the amount of
each payment. Since payments to older annuitants are expected to be fewer in
number, the amount of each annuity payment shall be greater. For annuity income
options that do not involve life income, the length of the payment period will
affect the amount of each payment, with the shorter the period, the greater the
amount of each annuity payment.
ANNUITY INCOME OPTIONS
(ai) INTEREST PAYMENT. AVLIC will hold any amount applied under this option.
Interest on the unpaid balance will be paid or credited each month at a
rate determined by AVLIC.
(aii) DESIGNATED AMOUNT ANNUITY. Monthly annuity payments will be for a fixed
amount. Payments continue until the amount AVLIC holds runs out.
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20 ANNUITY III-P
<PAGE>
(b) DESIGNATED PERIOD ANNUITY. Monthly annuity payments are paid for a period
certain, as the owner elects, up to 20 years.
(c) LIFE ANNUITY. Monthly annuity payments are paid for the life of an
annuitant, ceasing with the last annuity payment due prior to his or her
death. Variations provide for guaranteed payments for a period of time.
(d) JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid based
on the lives of the two annuitants and thereafter for the life of the
survivor, ceasing with the last annuity payment due prior to the
survivor's death.
The rate of interest payable under options ai, aii or b will be guaranteed at 3%
compounded yearly. Payments under options c and d will be based on the 1983
Table "a" Annuity Table at 3.5% interest. AVLIC may, at any time of election of
an annuity income option, offer more favorable rates in lieu of the guaranteed
rates specified in the Annuity Tables. These rates may be based on Annuity
Tables which distinguish between males and females.
Under current administrative practice, AVLIC allows the beneficiary to transfer
amounts applied under options ai, aii, and b to either option c or d after the
annuity date. However, there is no guarantee that AVLIC will continue this
practice which can be changed at any time at AVLIC's discretion.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
AVLIC reserves the right, subject to applicable law, and if necessary, after
notice to and prior approval from the SEC and or state insurance authorities, to
make additional Portfolios available to you. We may also eliminate, combine or
substitute Subaccounts if, in our judgment, marketing needs, tax considerations,
or investment conditions warrant. This may happen due to a change in law or a
change in a Portfolio's investment objectives or restrictions, or for some other
reason. AVLIC may operate the Separate Account as a management company under the
1940 Act, it may be deregistered under that Act if registration is no longer
required, or it may be combined with other AVLIC separate accounts. AVLIC may
also transfer the assets of the Separate Account to another separate account.
If any of these substitutions or changes are made, AVLIC may by appropriate
endorsement change the policy to reflect the substitution or change. In
addition, AVLIC may, when permitted by law, restrict or eliminate any voting
rights of Owners or other persons who have voting rights as to the Separate
Account.
You will be notified of any material change in the investment Policy of any
Portfolio in which you have an interest.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum death benefit due from the Separate
Account will occur within seven days from the date the amount becomes payable,
except that AVLIC may be permitted to defer such payment if:
a) the New York Stock Exchange is closed other than customary weekend and
holiday closing or trading on the New York Stock Exchange is restricted
as determined by the SEC; or
b) the SEC by order permits the postponement for the protection of owners;
or
c) an emergency exists as determined by the SEC, as a result of which
disposal of securities is not reasonably practicable, or it is not
reasonably practicable to determine the value of the net assets of the
Separate Account; or
d) surrenders or partial withdrawals from the Fixed Account may be deferred
for up to 6 months from the date of written request.
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ANNUITY III-P 21
<PAGE>
GENERAL PROVISIONS
CONTROL OF POLICY
The owner is as shown in the application or subsequent written endorsement.
Subject to the rights of any irrevocable beneficiary and any assignee of record,
all rights, options, and privileges belong to the owner, if living; otherwise to
the owner's designated beneficiary, if living; otherwise to the estate of the
owner.
ANNUITANT'S BENEFICIARY
The owner may name both primary and contingent annuitant's beneficiaries. The
annuitant's beneficiary(ies) and their designated class are specified in the
application. Payments will be shared equally among beneficiaries of the same
class unless otherwise stated. If a beneficiary dies before the annuitant,
payments will be made to any surviving beneficiaries of the same class;
otherwise to any beneficiary(ies) of the next class; otherwise to the owner;
otherwise to the estate of the owner.
CHANGE OF BENEFICIARY
The owner may change the annuitant's beneficiary and owner's designated
beneficiary by written request on a Change of Beneficiary form at any time
during the annuitant's lifetime unless otherwise provided in the previous
designation of beneficiary. AVLIC, at its option, may require that the Policy be
returned to the Home Office for endorsement of any change, or that other forms
be completed. The change will take effect as of the date the change is recorded
at the Home Office. AVLIC will not be liable for any payment made or action
taken before the change is recorded. No limit is placed on the number of changes
that may be made.
CONTESTABILITY
Except for the "Misstatement of Age or Sex" provision, below, AVLIC cannot
contest the validity of this Policy after the policy date.
MISSTATEMENT OF AGE OR SEX
AVLIC may require proof of age and sex before making annuity payments. If the
age or sex of the annuitant and/or joint annuitant (if any) has been misstated,
we will adjust the benefits and amounts payable under this Policy. If the
misstatement of age or sex is not found until after the income payments have
started:
1. If we made any overpayments, we will add interest at the rate of 6% per
year compounded yearly and charge them against payments to be made in the
future.
2. If we made underpayments, the balance due plus interest at the rate of 6%
per year compounded yearly will be paid in a lump sum.
REPORTS AND RECORDS
AVLIC will maintain all records relating to the Separate Account and will mail
the owner, at the last known address of record, within 30 days after each policy
anniversary, an annual report which shows the current accumulation value as
allocated among the Subaccounts or the Fixed Account, and charges made during
the policy year. The owner may ask for more frequent reports, but except for the
annual report, AVLIC reserves the right to charge a fee for each requested
report. The owner will also be sent confirmations of transactions under the
Policy, such as the purchase payment and transfers and withdrawals. Quarterly
statements are also mailed detailing Policy activity during the calendar
quarter. Instead of receiving an immediate confirmation of transactions made
pursuant to some types of periodic payment plan (such as a dollar cost averaging
program, or payment made by automatic bank draft or salary reduction
arrangement), the Owner may receive confirmation of such transactions in their
quarterly statements. The Owner should review the information in these
statements carefully. All errors or corrections must be reported to AVLIC
immediately to assure proper crediting to the Policy. AVLIC will assume all
transactions are accurately reported on quarterly statements unless AVLIC is
otherwise notified within 30 days after receipt of the statement. A periodic
report for the Fund and a list of the portfolio securities held in each
portfolio of the Fund and any other information required by the 1940 Act will
also be provided.
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22 ANNUITY III-P
<PAGE>
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under a contract. Any person concerned about these tax implications
should consult a competent tax adviser before making a premium payment. This
discussion is based upon AVLIC's understanding of the present federal income tax
laws as they are currently interpreted by the Internal Revenue Service.
No representation is made as to the likelihood of the continuation of the
present federal income tax laws or of the current interpretation by the Internal
Revenue Service. Moreover, no attempt has been made to consider any applicable
state or other tax laws, other than premium taxes. (See "Taxes," 18).
Qualified policies are used by individuals in connection with retirement plans
which are intended to qualify as plans qualified for special income tax
treatment under Sections 401, 403(a), 403(b), 408 or 457 of the Internal Revenue
Code (the "Code"). The ultimate effect of federal income taxes on the
contributions, on the accumulation value, on annuity payments and on the
economic benefit to the owner, the annuitant or the beneficiary depends on the
type of retirement plan, on the tax and employment status of the individual
concerned and on AVLIC's tax status. In addition, certain requirements must be
satisfied in purchasing a qualified policy in connection with a tax qualified
plan in order to receive favorable tax treatment. With respect to qualified
policies an endorsement of the policy and/or limitations or penalties imposed by
the Code may impose limits on premiums, withdrawals, distributions or benefits,
or on other provisions of the policies. Therefore, purchasers of qualified
policies should seek competent legal and tax advice regarding the suitability of
the Policy for their situation, the applicable requirements and the tax
treatment of the rights and benefits of a Policy. Section 403(b)(11) of the Code
requires that no distribution attributable to salary deferred contributions may
be made from a plan under Section 403(b) except after age 59-1/2, separation
from service, death or disability, or in the case of hardship, except in a tax
free exchange to another qualified contract. The following discussion assumes
that qualified policies are purchased in connection with retirement plans that
qualify for the special federal income tax treatment described above.
TAXATION OF ANNUITIES IN GENERAL
NONQUALIFIED POLICIES. The following discussion assumes that the Policy will
qualify as an annuity policy for federal income tax purposes. The Statement of
Additional Information discusses such qualifications.
Section 72 of the Code governs taxation of annuities in general. AVLIC believes
that an annuity owner generally is not taxed on increases in the value of a
Policy until distribution occurs either in the form of a lump sum received by
withdrawing all or part of the accumulation value (i.e."withdrawals") or as
annuity payments under the annuity income option elected. The exception to this
rule is the treatment afforded to owners that are not natural persons.
Generally, an owner of a Policy who is not a natural person must include in
income any increase in the excess of the owner's cash value over the owner's
"investment in the policy" during the taxable year, even if no distribution
occurs. There are, however, exceptions to this rule which you may wish to
discuss with your tax counsel. The following discussion applies to Policies
owned by natural persons.
The taxable portion of a distribution (in the form of an annuity or lump sum
payment) is taxed as ordinary income, subject to any income averaging rules
applicable to taxpayers generally. For this purpose, a gift of the policy, the
assignment, pledge, indirect loan, or agreement to assign or pledge or
indirectly loan any portion of the accumulation value generally will be treated
as a distribution.
Generally, in the case of a withdrawal under a nonqualified policy, amounts
received are first treated as taxable income to the extent that the accumulation
value immediately before the withdrawal exceeds the which are allocable to
"investment in the policy" made after August 13, 1982 at that time. Any
additional amount is not taxable. If a withdrawal is allocable to "investment in
the policy" made prior to August 14, 1982, it is taxed under the "cost recovery
rule" so that withdrawals are treated as a recovery of "investment in the
policy" until such investment has been fully recovered. Thereafter, withdrawals
are fully taxable as ordinary income. Where a policy contains "investment in the
policy" both before and after the above referenced dates, special ordering rules
apply.
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ANNUITY III-P 23
<PAGE>
Although the tax consequences may vary depending on the annuity income option
elected under the Policy, in general, only the portion of the annuity payment
that represents the amount by which the accumulation value exceeds the
"investment in the policy" will be taxed. For fixed annuity payments, in
general, there is no tax on the amount of each payment which represents the same
ratio that the "investment in the policy" bears to the total expected value of
the annuity payment for the term of the payment; however, the remainder of each
annuity payment is taxable. Any distribution received subsequent to the
investment in the policy being recovered will be fully taxable.
In the case of a distribution pursuant to a nonqualified policy, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions: (1) made
on or after the date on which the owner is actual age 59-1/2, (2) made as a
result of death or disability of the owner, (3) received in substantially equal
payments as a life annuity subject to Internal Revenue Service requirements,
including special "recapture" rules or (4) which are allocable to "investment in
the policy" made prior to August 14, 1982.
QUALIFIED POLICIES. The rules governing the tax treatment of distributions under
qualified plans vary according to the type of plan and the terms and conditions
of the plan itself. Generally, in the case of a distribution to a participant or
beneficiary under a Policy purchased in connection with these plans, only the
portion of the payment in excess of the "investment in the policy" allocated to
that payment is subject to tax. The "investment in the policy" equals the
portion of plan contributions invested in the Policy that was not excluded from
the participant's gross income, and may be zero. In general, for allowed
withdrawals prior to the annuity starting date, a ratable portion of the amount
received is taxable, based on the ratio of the investment in the policy to the
total Policy value. The amount excluded from a taxpayer's income will be limited
to an aggregate cap equal to the investment in the policy. The taxable portion
of annuity payments with annuity starting dates on or before November 18, 1996,
is generally determined under rules similar to those applicable to annuity
distributions from nonqualified policies. However, for annuity payments with
annuity starting dates after November 18, 1996, annuitants must use a simplified
method for determining the tax-free portion of annuity payments by dividing
"investments in the policy" by the number of annuity payments set by tables in
the Internal Revenue Code based on the age of the primary annuitant. This method
does not apply if the annuitant is over age 75 and there are 5 or more years of
guaranteed payments. For annuity payments based on the lives of more than one
individual and that have annuity starting dates after December 31, 1997,
annuitants must use the simplified method based on the combined ages of both the
individuals when calculating the excludable portion of annuities based on the
separate tables set forth in the Code for that purpose. In the case of an
annuity that does not depend in whole or in part on the life expectancy of one
or more individuals, the expected number of payments is the number of monthly
annuity payments under the policy. However, special favorable tax treatment may
be available for certain distributions (including lump sum distributions).
Adverse tax consequences may result from excess contributions, distributions
prior to age 59-1/2 (subject to certain exceptions), distributions that do not
conform to specified commencement and minimum distribution rules, and in certain
other circumstances.
Distributions from qualified plans are subject to specific tax withholding
rules. "Eligible rollover distributions" from a qualified plan (other than IRAs
of any type and 457 deferred compensation plans) or annuities used in 403(b)
plans are subject to income tax withholding at a rate of 20% unless the Owner
elects to have the distribution paid directly by AVLIC to an eligible retirement
plan in a direct rollover. If the distribution is not an "eligible rollover
distribution," it is generally subject to the same withholding rules as
distributions from non-qualified policies. However, Section 457 non-qualified
deferred compensation plan distributions are generally subject to withholding as
wages.
DISTRIBUTION OF THE POLICIES
Ameritas Investment Corp. ("AIC"), a wholly owned subsidiary of AMAL Corporation
and an affiliated company of AVLIC, will act as the principal underwriter of the
Policies pursuant to an Underwriting Agreement between itself and AVLIC. AIC was
organized under the laws of the State of Nebraska on December 29, 1983, and is a
broker/dealer registered pursuant to the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. The Policies are
sold by individuals who are registered representatives of AIC and who are
licensed as life insurance agents for AVLIC. AIC and AVLIC may authorize
registered representatives of other registered broker/dealers to sell the
Policies subject to applicable law.
Registered Representatives who sell the Policy will receive commissions based
upon a commission schedule. After issuance of the Policy, commissions will
equal, at most, 6.5% of premiums paid. Further, Registered Representatives who
meet certain production standards may receive additional compensation, and
managers receive override commissions with respect to the policies.
The gross variable annuity compensation received by AIC on AVLIC's variable
annuities was $11,961,951 for 1997; $10,067,075 for 1996; and $6,896,847 for
1995.
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24 ANNUITY III-P
<PAGE>
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
AVLIC holds the assets of the Separate Account. The assets are kept physically
segregated and held separate and apart from the general account assets. AVLIC
maintains records of all purchases and redemptions of the Funds' shares by each
of the Subaccounts.
THIRD PARTY SERVICES
AVLIC is aware that certain third parties are offering investment advisory,
asset allocation, money management and timing services in connection with the
contracts. AVLIC does not engage any such third parties to offer such services
of any type. In certain cases, AVLIC has agreed to honor transfer instructions
from such services where it has received powers of attorney, in a form
acceptable to it, from the contract owners participating in the service. Firms
or persons offering such services do so independently from any agency
relationship they may have with AVLIC for the sale of contracts. AVLIC takes no
responsibility for the investment allocations and transfers transacted on a
contract owner's behalf by such third parties or any investment allocation
recommendations made by such parties. Contract owners should be aware that fees
paid for such services are separate and in addition to fees paid under the
contracts.
VOTING RIGHTS
To the extent required by law, the portfolio shares held in the Separate Account
will be voted by AVLIC at shareholder meetings of the Funds in accordance with
instructions received from persons having voting interests in the corresponding
Subaccount. The 1940 Act currently requires shareholder voting on matters such
as the election of the Board of Trustees of the Funds, the approval of the
investment advisory contract, changes in the fundamental investment policies of
the Funds, and approval of the independent accountants. If, however, the 1940
Act or any regulation thereunder should be amended, or if the present
interpretation thereof should change, and, as a result, AVLIC determines that it
is allowed to vote the portfolio shares in its own right, AVLIC may elect to do
so.
The number of votes which are available to an owner will be calculated
separately for each Subaccount of the Separate Account.
Prior to the annuity date, the owner holds a voting interest in each Subaccount
to which the accumulation value is allocated.
The number of votes which are available to an owner will be determined by
dividing the accumulation value attributable to a Subaccount by the net asset
value per share of the applicable portfolio. In determining the number of votes,
fractional shares will be recognized.
The number of votes of the portfolio which are available will be determined as
of the date coincident with the date established by that portfolio for
determining shareholders eligible to vote at the meeting of the Funds. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Funds.
Shares of Funds as to which no timely instructions are received, or shares held
by AVLIC as to which owners have no beneficial interest will be voted in
proportion to the voting instructions which are received with respect to all
Policies participating in that Subaccount.
Each person having a voting interest in a Subaccount will receive proxy
material, reports and other materials relating to the appropriate portfolio.
On and after the Annuity Date, there are no voting rights because amounts are no
longer held in the Separate Account.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. AVLIC is not involved in
any litigation that is of material importance in relation to its ability to meet
its obligations
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ANNUITY III-P 25
<PAGE>
under the Policies, or that relates to the Separate Account. AIC is not involved
in any litigation that is of material importance in relation to its ability to
perform under its underwriting agreement.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available that contains more details
concerning the subjects discussed in this Prospectus. This can be obtained by
writing to the address on the front or by calling 1-800-745-1112. The following
is the Table of Contents for that Statement:
GENERAL INFORMATION AND HISTORY.............................. 2
THE POLICY................................................... 2
GENERAL MATTERS.............................................. 6
FEDERAL TAX MATTERS.......................................... 7
DISTRIBUTION OF THE POLICY................................... 8
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS ...................... 8
AVLIC ....................................................... 8
STATE REGULATION............................................. 8
LEGAL MATTERS................................................ 8
EXPERTS...................................................... 8
OTHER INFORMATION............................................ 9
FINANCIAL STATEMENTS......................................... 9
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26 ANNUITY III-P
<PAGE>
APPENDIX A
QUALIFIED DISCLOSURES
* Information Statement For:
408(b) IRA Plans
408(k) SEP IRA Plans
408(p) SIMPLE IRA Plans
408A Roth IRA Plans (when available)
* Information Statement For:
401(a) Pension/Profit Sharing Plans
403(b) ERISA Plans
403(b) Tax Sheltered Annuity (TSA) Plans-Withdrawal
Restrictions
Ameritas Variable Life Insurance Company Logo
<PAGE>
If this annuity is being purchased as a qualified plan as defined under
specified sections of the Internal Revenue Code, as purchaser (owner) or
fiduciary of an Employee Benefit Plan purchasing the annuity, you should
carefully review the Information Statement for your specific plan.
Depending on the type of plan, we are required to provide this disclosure to you
to meet the requirements of the Internal Revenue Code ("Code") and/or the
Employee Retirement Income Security Act of 1974 (ERISA).
Acknowledgment of your receipt of the required disclosure is included within the
application language above your signature.
Table of Contents
Information Statement
408(b) Individual Retirement Annuity (IRA) Plans
408(k) Simplified Employee Pension (SEP IRA) Plans
408(p) Savings Incentive Match (SIMPLE IRA) Plans
408A Roth IRA Plans (when available).............................QD-1
Information Statement
401(a) Pension/Profit Sharing Plans...............................QD-9
403(b) ERISA Plans
403(b) Tax Sheltered Annuity (TSA) Plans-Withdrawal Restrictions
<PAGE>
Ameritas Variable Life INFORMATION STATEMENT
Insurance Company Logo 408(B) INDIVIDUAL RETIREMENT ANNUITY (IRA) PLANS
408(K) SIMPLIFIED EMPLOYEE PENSION (SEP IRA) PLANS
408(P) SAVINGS INCENTIVE MATCH (SIMPLE IRA)
408A ROTH IRA (when available)
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For purchasers of a 408(b) Individual Retirement Annuity (IRA) Plan, 408(k)
Simplified Employee Pension (SEP IRA) Plan, 408(p) Savings Incentive Match
(SIMPLE IRA) Plan or a 408A Roth IRA (if available), please review the
following:
PART 1. PROCEDURE FOR REVOKING THE IRA PLAN:
After you establish an IRA Plan with Ameritas Variable Life Insurance Company
(AVLIC), you are able to revoke your IRA within a limited time and receive a
full refund of the initial premium paid, if any. The period for revocation will
not be less than the legal minimum of seven (7) days following the date your IRA
is established with AVLIC.
To revoke your IRA, you should send a signed and dated written notice to:
Ameritas Variable Life Insurance Company, Policyholder Service Department, P.O.
Box 82550, Lincoln, NE 68501.
If your IRA contract was delivered to you, the contract should accompany your
notice of revocation. Your notice of revocation will be considered mailed on the
date of the postmark (or certification or registration, if applicable), if sent
by United States mail, properly addressed and by first class postage prepaid.
To obtain further information about the revocation procedure, contact your AVLIC
Representative or call 1-800-745-1112.
PART II. PROVISIONS OF THE IRA LAW:
AVLIC's OVERTURE ANNUITY III-P (Form 4786), can be used for a Regular IRA, a
Rollover IRA, a Spousal IRA Arrangement, a Simplified Employee Pension Plan (SEP
IRA), a salary reduction Simplified Employee Pension Plan (SARSEP) or a SIMPLE
IRA. A separate policy must be purchased for each individual under each plan. In
addition, AVLIC's Overture Annuity III-P, at some point after December 31 1997,
will be made available for use as a ROTH IRA. State income tax treatment of IRAs
varies, so this disclosure only discusses the federal tax treatment of IRAs.
Please discuss state income tax treatment of an IRA with your tax advisor.
While provisions of the IRA law are similar for all such plans, any major
differences are set forth under the appropriate topics below.
ELIGIBILITY:
REGULAR IRA PLAN: Any individual under age 70 1/2 and earning income from
personal services, is eligible to establish an IRA Plan, although deductibility
of the contributions is determined by adjusted gross income ("AGI") and whether
the individual(or the individual's spouse) is an "active participant" in an
employer sponsored retirement plan.
ROLLOVER IRA: This is an IRA plan purchased with your distributions from
another IRA (including a SEP IRA, SARSEP or SIMPLE IRA), a Section 401(a)
Qualified Retirement Plan, or a Section 403(b) Tax Sheltered Annuity (TSA).
Amounts transferred as Rollover Contributions are not taxable in the year of
distribution (provided the rules for Rollover treatment are satisfied) and may
or may not be subject to withholding. Rollover Contributions are not
deductible.
SPOUSAL IRA ARRANGEMENT: A Spousal IRA, consisting of a separate contract for
each spouse, may be set up provided a joint return is filed, the "nonworking
spouse" has less taxable compensation, if any, for the tax year than the
working spouse, and is under age 70 1/2 at the end of the tax year.
Divorced spouses can continue a spousal IRA or start a Regular IRA based on the
standard IRA eligibility rules. All taxable alimony received by the divorced
spouse under a decree of divorce or separate maintenance is treated as
compensation for purposes of the IRA deduction limit.
ROTH IRAS (WHEN AVAILABLE): A Roth IRA must be designated as such when it is
established.
1. A REGULAR ROTH IRA is a Roth IRA established to receive annual contributions
and/or rollover contributions from other Roth IRAs where no portion of the
rollover is attributable to an IRA other than a Roth IRA.
2. A CONVERSION ROTH IRA is a Roth IRA established to receive rollovers or
conversions from non-Roth IRAs and is limited to such contributions.
Roth IRAs are available beginning in 1998. Unlike Regular IRAs, contributions to
a Roth IRA are not deductible for tax purposes. However, any gain accumulated in
a Roth IRA may be nontaxable, depending upon how and when withdrawals are made.
Eligibility to contribute to a Roth IRA (Regular, Spousal or Conversion) is
subject to income and other limits. Unlike deductible IRAs, if eligible, you may
contribute to a Roth IRA even after age 70 1/2.
3. SPOUSAL ROTH IRA ARRANGEMENT: Beginning in 1998, a Spousal Roth IRA may be
set up for a "non-working" spouse that has less taxable compensation, if
any, for the tax year than the "working" spouse, regardless of age, provided
the spouses file a joint tax return and subject to the adjusted gross income
("AGI") limits described in PART II, MAXIMUM CONTRIBUTIONS - SPOUSAL ROTH
IRA ARRANGEMENT. Divorced spouses can continue a Spousal Roth IRA or start a
Regular Roth IRA based on standard Roth IRA eligibility rules. Taxable
alimony received by the divorced spouse under a decree of divorce or
separate maintenance is treated as compensation for purposes of Roth IRA
eligibility limits.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP IRA): An employee is eligible to
participate in a SEP IRA Plan based on eligibility requirements set forth in
form 5305-SEP or other plan document provided by the employer.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SARSEP): An employee is
eligible to participate in a SARSEP plan based on eligibility requirements set
forth in form 5305A-SEP or the plan document provided by the employer. New
SARSEP plans may not be established after December 31, 1996. SARSEPs established
prior to January 1, 1997, may continue to receive contributions after 1996, and
new employees hired after 1996 are also permitted to participate in such plans.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES OF SMALL EMPLOYERS (SIMPLE IRA) : An
employee is eligible to participate in a SIMPLE IRA Plan based on eligibility
requirements set forth in Form 5304-SIMPLE or other plan document provided by
the employer.
QD-1 IRA/SEP/SIMPLE/ROTH
ANNUITY III-P; 2/98
<PAGE>
NONTRANSFERABILITY: You may not transfer, assign or sell your IRA Plan
(including a SIMPLE IRA, SEP IRA, SARSEP or Roth IRA) to anyone (except in the
case of transfer incident to divorce).
NONFORFEITABILITY: The value of your IRA Plan (all types included) belongs to
you at all times, without risk of forfeiture.
PREMIUM: The annual premium (if applicable) of your IRA Plan or Roth IRA may
not exceed the lesser of $2,000, or 100% of compensation for the year (or for
Spousal IRAs, or Spousal Roth IRAs, the combined compensation of the spouses
reduced by any Roth IRA or deductible IRA contribution made by the "working"
spouse). Any premium in excess of or in addition to $2,000 will be permitted
only as a "Rollover Contribution" (or "Conversion" contribution to a Roth IRA).
Your contribution must be made in cash. For IRAs established under SEP Plans
(SEP IRAs), premiums are limited to the lesser of $30,000 or 15% of the first
$150,000 of compensation (adjusted for cost of living increases). In addition,
if the IRA is under a SARSEP established prior to January 1, 1997, annual
premiums made by salary reduction are limited to $7,000 (adjusted for cost of
living increases). Premiums under a SIMPLE IRA will be limited to permissible
levels of annual employee elective contributions (up to $6,000 adjusted for
cost of living increases) plus the applicable percentage of employer matching
contributions (up to 3% of compensation but not in excess of $6,000, as
adjusted) or of employer nonelective contributions (2% of compensation (subject
to the cap under Code Section 401(a)(17) as indexed) for each eligible
employee).
MAXIMUM CONTRIBUTIONS:
REGULAR IRA PLAN: In any year that your annuity is maintained under the rules
for a Regular IRA Plan, your maximum contribution is limited to 100% of your
compensation or $2,000, whichever is less. Further, this is the maximum amount
you may contribute to ALL IRAs in a year (including Roth IRAs, but not SIMPLE
IRAs or Education IRAs). The amount of permissible contributions to your Regular
IRA may or may not be deductible. Whether IRA contributions (other than
Rollovers) are deductible depends on whether you (or your spouse, if married)
are an active participant in an employer-sponsored retirement plan and whether
your adjusted gross income ("AGI") is above the "phase-out level." Beginning for
tax years after 1997, you will only be deemed to be an active participant
because of your spouse's participation in an employer- sponsored plan, if your
combined adjusted gross income exceeds $150,000. SEE PART III, DEDUCTIBLE IRA
CONTRIBUTIONS.
ROLLOVER IRA: A Plan to Plan Rollover is a method for accomplishing continued
tax deferral on otherwise taxable distributions from certain plans. Rollover
contributions are not subject to the contribution limits on Regular IRA
contributions, but also are not tax deductible.
There are two ways to make a rollover to an IRA:
(1) PARTICIPANT ROLLOVERS are available to participants, surviving spouses
or former spouses who receive eligible rollover distributions from
401(a) Qualified Retirement Plans, TSAs or IRAs (including SEPs,
SARSEPs, and SIMPLE IRAs). Participant Rollovers are accomplished by
contributing part or all of the eligible amounts (which includes amounts
withheld for federal income tax purposes) to your new IRA within 60 days
following receipt of the distribution. IRA to IRA Rollovers are limited
to one per distributing plan per 12 month period, while direct IRA to
IRA transfers (where you do not directly receive a distribution) are not
subject to this limitation. Distributions from a SIMPLE IRA may not be
rolled over or transferred to an IRA (which isn't a SIMPLE IRA) during
the 2 year period following the date you first participate in any SIMPLE
Plan maintained by your employer.
(2) DIRECT ROLLOVERS are available to participants, surviving spouses and
former spouses who receive eligible rollover distributions from 401(a)
Qualified Retirement Plans or TSAs. Direct Rollovers are made by
instructing the plan trustee, custodian or issuer to pay the eligible
portion of your distribution directly to the trustee, custodian or
issuer of the receiving IRA. Direct Rollover amounts are not subject to
mandatory federal income tax withholding.
FOR RULES APPLICABLE TO ROLLOVERS OR TRANSFERS TO ROTH IRAS, SEE THE
PARAGRAPHS ON REGULAR AND CONVERSION ROTH IRAS, BELOW.
Certain distributions are NOT considered to be eligible for Rollover and
include: (1) distributions which are part of a series of substantially equal
periodic payments (made at least annually) for 10 years or more; (2)
distributions attributable to after-tax employee contributions to a 401(a)
Qualified Retirement Plan or TSA; (3) required minimum distributions made during
or after the year you reach age 70 1/2 or, if later and applicable, the year in
which you retire; and (4) amounts in excess of the cash (except for certain loan
offset amounts) or in excess of the proceeds from the sale of property
distributed.
At the time of a Rollover, you must irrevocably designate in writing that the
transfer is to be treated as a Rollover Contribution. Eligible amounts which are
not rolled over are normally taxed as ordinary income in the year of
distribution. If a Rollover Contribution is made to an IRA from a Qualified
Retirement Plan, you may later be able to roll the value of the IRA into a new
employer's plan PROVIDED YOU MAKE NO CONTRIBUTIONS TO THE IRA OTHER THAN FROM
THE FIRST EMPLOYER'S PLAN. THIS IS KNOWN AS "CONDUIT IRA," AND YOU SHOULD
DESIGNATE YOUR ANNUITY AS SUCH WHEN YOU COMPLETE YOUR APPLICATION.
SPOUSAL IRA ARRANGEMENT: In any year that your annuity is maintained under the
rules for a Spousal IRA, the maximum combined contribution to the Spousal IRA
and the "working" spouse's IRA for tax years after 1996, is the lesser of 100%
of the combined compensation of both spouses which is includable in gross income
(reduced by the amount of any contributions to a Roth IRA or the amount allowed
as a deduction to the "working" spouse for contribution to his or her own IRA)
or $4,000. No more than $2,000 may be contributed to either spouse's IRA.
Whether the contribution is deductible or non-deductible depends on whether
either spouse is an "active participant" in an employer-sponsored retirement
plan for the year, and whether the adjusted gross income of the couple is above
the applicable phase-out level. (SEE PART III, DEDUCTIBLE IRA CONTRIBUTIONS).
The contribution limit for divorced spouses is the lesser of $2,000 or the total
of the taxpayer's taxable compensation and alimony received for the year.
(Married individuals who live apart for the entire year and who file separate
tax returns are treated as if they are single when determining the maximum
deductible contribution limits).
REGULAR ROTH IRA (WHEN AVAILABLE): The maximum total annual contribution an
individual can make to all IRAs (including Roth IRAs, but not Education or
SIMPLE IRAs) is the lesser of $2,000 or 100% of compensation. (This limit does
not apply to rollover contributions). For Regular Roth IRAs (which are available
beginning in the 1998 tax year) this $2,000 limitation is phased out for
adjusted gross incomes between $150,000 and $160,000 for joint filers; between
$95,000 and $110,000 for single taxpayers; and between $0 and $15,000 for
married individuals who file a separate return. AGI for this purpose includes
any deductible contribution to a Regular IRA, but does not include any amount
included in income as a result of a rollover or conversion from a non-Roth IRA
to a Conversion Roth IRA. Rollovers and transfers may also be made from one
Regular Roth IRA to another. Such rollovers or transfers are generally subject
to the same timing and frequency rules as apply to Participant Rollovers and
transfers from one Regular or Rollover IRA to another. (SEE PART II, MAXIMUM
CONTRIBUTIONS: ROLLOVER IRA, ABOVE).
IRA/SEP/SIMPLE/ROTH QD-2
ANNUITY III-P; 2/98
<PAGE>
CONVERSION ROTH IRA (WHEN AVAILABLE): Beginning in the 1998 tax year, rollovers
or conversions may be made from non-Roth IRAs to a Conversion Roth IRA. To be
eligible to make such a conversion or rollover from a non-Roth IRA, the
taxpayer's adjusted gross income ("AGI") for the taxable year cannot exceed
$100,000 (joint or individual) and he or she must not be married filing a
separate tax return (unless the taxpayer lives apart from his of her spouse at
all times during the year). A rollover from a non-Roth IRA to a Conversion Roth
IRA does not count toward the limit of one rollover per IRA in any 12-month
period under the normal rollover rules. Also, eligible rollover distributions
received by you or your spouse from a qualified plan other than an IRA, may not
be directly rolled over to a Roth IRA. However, you may be able to roll such a
distribution over to a non-Roth IRA, then convert that IRA to a Conversion Roth
IRA. Also if you are eligible to make a conversion, you may transfer amounts
from most non-Roth IRAs (other than SIMPLE IRAs and Education IRAs). AGI for the
purpose of determining eligibility to convert to a Roth IRA does not include any
amount included in income as a result of a rollover or conversion from a
non-Roth IRA to a Conversion IRA, but does include the amount of any deductible
contribution made to a Regular IRA for the tax year.
SPOUSAL ROTH IRA ARRANGEMENT: Beginning in the 1998 tax year, if the
"non-working" spouse's compensation is less than $2,000, the spouses file a
joint tax return, and their combined AGI (unreduced by any deductible IRA
contribution made for the year, but not including any amounts includible in
income as a result of a conversion to a Roth IRA) is $150,000 or below, a
contribution of up to $2,000 may be made to a separate Spousal Roth IRA in the
name of the "non-working" spouse. The $2,000 limit is phased out proportionately
between $150,000 and $160,000 of AGI (modified as described above). Spouses are
not required to make equal contributions to both Roth IRAs; however no more than
$2,000 may be contributed to the "working" or "non-working" spouse's Roth IRA
for any year, and the total amount contributed annually to all IRAs (including
both Roth and Regular IRAs, but not SIMPLE or Education IRAs) for both spouses
cannot exceed $4,000. If the combined compensation of both spouses (reduced by
any deductible IRA or Roth contributions made for the "working" spouse) is less
than $4,000, the total contribution for all IRAs is limited to the total amount
of the spouses' combined compensation. These limits do not apply to rollover
contributions.
For divorced spouses, the contribution limit to a Roth IRA is the lesser of
$2,000 or the total of the taxpayer's compensation and alimony received for the
year, subject to the applicable phase-out limits for eligibility to make
contributions to a Roth IRA. (Married individuals who live apart for the entire
year and who file separate tax returns are treated as if they are single when
determining the maximum contribution they are eligible to make in a Roth IRA).
SEP IRA PLAN: In any year that your annuity is maintained under the rules for a
SEP Plan, the employer's maximum contribution is the lesser of $30,000 or 15% of
your first $150,000 of compensation (adjusted for cost-of-living increases) or
as changed under Section 415 of the Code. You may also be able to make
contributions to your SEP IRA the same as you do to a Regular IRA; however, you
will be considered an "active participant" for purposes of determining your
deduction limit. In addition to the above limits, if your annuity is maintained
under the rules for a SARSEP, the maximum amount of employee pre-tax
contributions which can be made is $7,000 (adjusted for cost of living
increases). After December 31, 1996, new SARSEP plans may not be established.
Employees may, however, continue to make salary reductions to a SARSEP plan
established prior to January 1, 1997. In addition, employees hired after
December 31, 1996 may participate in SARSEP plans established by their employers
prior to 1997.
SIMPLE IRA: Contributions to a SIMPLE IRA may not exceed the permissible amounts
of employee elective contributions and required employer matching contributions
or non-elective contributions. Annual employee elective contributions must be
expressed as a percentage of compensation and may not exceed $6,000 (adjusted
for cost of living increases). If an employer elects a matching contribution
formula, it is generally required to match employee contributions dollar for
dollar up to 3% of the employee's compensation for the year (but not in excess
of $6,000 as adjusted for cost-of-living adjustments). An employer may elect a
lower percentage match (but not below 1%) for a year, provided certain notice
requirements are satisfied and the employer's election will not result in the
matching percentage being lower than 3% in more than 2 of the 5 years in the
5-year period ending with that calendar year. Alternatively, an employer may
elect to make non-elective contributions of 2% of compensation for all employees
eligible to participate in the plan and who have at least $5,000 in compensation
for the year. The employer must notify employees of this election within
specified timeframes in advance of the plan year or election period.
"Compensation" for purposes of the 2% non-elective contribution option may not
exceed the limit on compensation under Code Section 401(a)(17) ($150,000,
adjusted for cost of living increases).
DISTRIBUTIONS: Payments to you from your IRA Plan (other than a Roth IRA) must
begin no later than the April 1 following the close of the calendar year in
which you attain age 70 1/2, the Required Beginning Date (RBD). If you have not
already withdrawn your entire balance by this date, you may elect to receive the
entire value of your IRA Plan on or before the RBD in one lump sum; or arrange
for an income to be paid over your lifetime, your expected lifetime, or over the
lifetimes or expected lifetimes of you and your designated beneficiary. UNDER A
ROTH IRA, YOU ARE NOT REQUIRED TO TAKE DISTRIBUTIONS WHILE YOU ARE LIVING, EVEN
AFTER YOU REACH AGE 70 1/2.
RATE OF DISTRIBUTION: If you arrange for the value of your IRA Plan (other than
a Roth IRA) to be paid to you as retirement income rather than as one lump sum,
then you must abide by IRS rules governing how quickly the value of your IRA
plan must be paid out to you. Generally, it is acceptable to have an insurance
company annuity pay income to you for as long as you live, or for as long as you
and your beneficiary live.
MINIMUM DISTRIBUTION REQUIREMENTS FOR IRAS OTHER THAN ROTH IRAS : Once you reach
your RBD, you must withdraw a minimum amount each year or be subject to a 50%
non-deductible excise tax on the difference between the minimum required
distribution and the amount distributed. To determine the required minimum
distribution, divide your entire interest in your IRA (as of December 31 of your
age 70 1/2 year) by your life expectancy or the joint life expectancies of you
and your designated beneficiary. Your single or joint life expectancy is
determined by using IRS life expectancy tables. See IRS Publications 575 and
590.
Your life expectancy (and that of your spousal beneficiary, if applicable) will
be recalculated annually, unless you irrevocably elect otherwise by the time
distributions are required to begin. With the recalculation method, if a person
whose life expectancy is recalculated dies, his or her life expectancy will be
zero in all subsequent years. The life expectancy of a non-spouse beneficiary
cannot be recalculated. Where life expectancy is not recalculated, it is reduced
by one year for each year after your 70 1/2 year to determine the applicable
remaining life expectancy. Also, if your benefit is payable in the form of a
joint and survivor annuity, a larger minimum distribution amount may be required
under IRS regulations, unless your spouse is the designated beneficiary.
QD-3
IRA/SEP/SIMPLE/ROTH
ANNUITY III-P; 2/98
<PAGE>
If you die after the RBD, amounts undistributed at your death must be
distributed at least as rapidly as under the method being used to determine
distributions at the time of your death. If you die before the RBD, your entire
interest must generally be distributed by the end of the calendar year which
contains the fifth anniversary of your death (the "five year payout rule").
However, if a beneficiary is designated, the beneficiary may elect to receive
distributions over the life expectancy of the beneficiary if the beneficiary so
elects by December 31 of the year following the year of your death. If the
beneficiary fails to make an election, the entire benefit will be paid to the
beneficiary under the "five year payout rule". Also, if the designated
beneficiary is your spouse, the life annuity distribution must begin by the
later of December 31 of the calendar year following the calendar year of your
death or December 31 of the year in which you would have attained age 70 1/2. If
your designated beneficiary is not your spouse, life annuity distributions must
begin by December 31 of the year following your death. A surviving spouse may in
the alternative elect to treat the policy as his or her own IRA. This election
may be expressly made or will be deemed made if the spouse makes a regular IRA
contribution to the policy, makes a rollover to or from the IRA, or fails to
elect minimum distributions as described above.
ROTH IRA MINIMUM DISTRIBUTION REQUIREMENTS WHILE YOU ARE LIVING. As long as you
are alive, you are not required to take distributions from a Roth IRA, even
after you reach age 70 1/2.
ROTH IRA MINIMUM DISTRIBUTION REQUIREMENTS AFTER YOUR DEATH. Minimum
distribution requirements apply to Roth IRAs only after you die. If you die
after you have reached your Annuity Date, and have begun to receive
distributions under an annuity option (not including an interest only option),
the remaining portion of your policy interests will continue to be distributed
to your designated beneficiary at least as rapidly as under the method being
used prior to your death (provided such method satisfies the requirements of
Code Section 408(b)(3), as modified by Code Section 408A(c)(5).
If you die before the Annuity Date or before distribution of your entire
interest in the policy has been made or begun, your entire interest in your Roth
IRA must be distributed by the end of the calendar year which contains the fifth
anniversary of your death (the "five year payout rule"). However, if there is a
designated beneficiary, he or she may elect to receive distributions over his or
her life expectancy provided the election is made and distributions commence by
December 31 of the year following the year of your death. If the beneficiary
does not make this election, the entire benefit will be paid to him or her under
the "five year payout rule". If your designated beneficiary is your surviving
spouse, he or she may elect to delay distributions until the later of the end of
the calendar year following the year in which you died or the end of the year in
which you would have reach age 70 1/2. If your sole designated beneficiary is
your surviving spouse, he or she may elect to treat the policy as his or her own
Roth IRA by making an express election to do so, by making a regular Roth IRA
contribution or rollover contribution (as applicable or as permissible) to the
policy, or by failing to elect minimum distributions under the "five year payout
rule" or the life annuity options discussed above.
Life expectancies will be determined by using IRS life expectancy tables. A
surviving spouse's life expectancy will be recalculated annually, unless he or
she irrevocably elects otherwise. Non-spousal beneficiary life expectancies will
be determined using the beneficiary's attained age in the calendar year
distributions are required to begin and reducing life expectancy by one for each
year thereafter.
TAKING REQUIRED MINIMUM DISTRIBUTIONS FROM ONE IRA: If you are required to take
minimum distributions from more than one IRA (either as owner of one or more
Regular IRAs and/or as a beneficiary of one or more decedent's Roth IRAs or
Regular IRAs), you may not have to take a minimum distribution from each IRA.
(Regular and Roth IRAs are treated as different types of IRAs, so minimum
distributions from a Roth IRA will not satisfy the minimum distributions
required from a Regular IRA). Instead, you may be able to calculate the minimum
distribution amount required for each IRA (considered to be of the same type)
separately, add the relevant amounts and take the total required amount from one
IRA or Roth IRA (as applicable). Because of this, AVLIC cannot monitor the
required distribution amounts from AVLIC IRAs. Please check with your tax
advisor to verify that you are receiving the proper amount from all of your
IRAs.
PART III. RESTRICTIONS AND TAX CONSIDERATIONS:
TIMING OF CONTRIBUTIONS: Once you establish an IRA, (including a Regular Roth or
Spousal Roth IRA) contributions must be made by the due date, not including
extensions, for filing your tax return. (Participant Rollovers must be made
within 60 days of your receipt of the distribution.) A CONTRIBUTION MADE BETWEEN
JANUARY 1 AND THE FILING DUE DATE FOR YOUR RETURN, MUST BE SUBMITTED WITH
WRITTEN DIRECTION THAT IT IS BEING MADE FOR THE PRIOR PLAN YEAR OR IT WILL BE
TREATED AS MADE FOR THE CURRENT TAX YEAR. SEP IRA contributions must be made by
the due date of the Employer's tax return (including extensions). SIMPLE IRA
contributions, if permitted, must be made by the tax return due date for the
employer (including extensions) for the year for which the contribution is made.
Note, an employer is required to make SIMPLE plan contributions attributable to
employee elective contributions as soon as it is administratively feasible to
segregate these contributions from the employer's general assets, but in no
event later than the 30th day of the month following the month in which the
amounts would have otherwise been payable to the employee in cash.
TIMING OF ROTH IRA CONVERSIONS: Conversions from a non-Roth IRA to a Conversion
Roth IRA for a tax year, MUST BE MADE BY DECEMBER 31 OF THAT YEAR. You DO NOT
have until the due date of your tax return for a year to convert a Regular IRA
to a Conversion Roth IRA for that tax year. For example, if you wish to convert
a Regular IRA to a Conversion Roth IRA in 1998, the conversion must be completed
by December 31, 1998, even though your tax return for 1998 may not be due until
April 15, 1999.
DEDUCTIBLE IRA CONTRIBUTIONS: The amount of permissible contributions to your
Regular IRA may or may not be deductible. FOR TAX YEARS BEGINNING BEFORE JANUARY
1, 1998, if you or your spouse are not active participants in an employer
sponsored retirement plan, any permissible contribution you make to your IRA
will be deductible. If you or your spouse are an active participant in an
employer-sponsored retirement plan, the size of your deduction if any, will
depend on your combined adjusted gross income (AGI). If your combined AGI is
less than $40,000, and you file a joint tax return you can deduct your entire
contribution. If you are single and your AGI is less than $25,000, you may also
take a full deduction. For married couples filing joint returns, the deduction
is phased out between $40,000 and $50,000. For single individuals, the deduction
is phased out between $25,000 and $35,000. If you are married and covered by an
employer plan, but file a separate tax return from your spouse, your deduction
is phased out between $0 and $10,000 of AGI. If your AGI is not above the
applicable phase out level, a minimum contribution of $200 is permitted
regardless of whether the phase out rules provide for a lesser amount.
FOR TAX YEARS BEGINNING ON AND AFTER JANUARY 1, 1998, if you or your spouse are
not an active participant in an employer sponsored retirement plan, any
permissible contribution you make to your IRA (other than a Roth IRA) will be
deductible. If you are not an active participant in an employer sponsored plan,
but your spouse is an active participant, you may take a full deduction for your
IRA contribution (other than to a Roth IRA) if your AGI is below $150,000; if
you are not an active participant but your spouse is, the maximum deductible
contribution for you is phased out at AGIs between $150,000 and $160,000. If you
are an active participant in an employer sponsored requirement plan you may make
deductible contributions if your AGI is below a threshold level of income. For
single taxpayers and married taxpayers filing jointly the available deduction is
reduced proportionately over a phaseout range.
IRA/SEP/SIMPLE/ROTH QD-4
ANNUITY III-P; 2/98
<PAGE>
Active participants with income above the phaseout range are not entitled to an
IRA deduction. Due to changes made by the Taxpayer Relief Act of 1997, the
phaseout limits are scheduled to increase as follows:
Married filing Single/Head
Year Jointly of Household
- ---------------------------------------------------------------------------
AGI AGI
1998.....................$50,000 - $60,000............$30,000 - $40,000
1999.....................$51,000 - $61,000............$31,000 - $41,000
2000.....................$52,000 - $62,000............$32,000 - $42,000
2001.....................$53,000 - $63,000............$33,000 - $43,000
2002.....................$54,000 - $64,000............$34,000 - $44,000
2003.....................$60,000 - $70,000............$40,000 - $50,000
2004.....................$65,000 - $75,000............$45,000 - $55,000
2005.....................$70,000 - $80,000............$50,000 - $60,000
2006.....................$75,000 - $85,000............$50,000 - $60,000
2007 and thereafter......$80,000 - $100,000...........$50,000 - $60,000
You can elect to treat deductible contributions as non-deductible. SEP IRA,
SARSEP SIMPLE IRA and Roth IRA contributions are not deductible by you.
Remember, except for rollovers, conversions or transfers, the maximum amount you
may contribute to all IRAs (including Roth and Regular IRAs, but not SIMPLE IRAs
or Education IRAs) for a calendar year is $2,000 or 100% of compensation,
whichever is less.
NON-DEDUCTIBLE REGULAR IRA CONTRIBUTIONS: It is possible for you to make
non-deductible contributions to your Regular IRA (not including SIMPLE IRAs)
even if you are not eligible to make deductible contributions to a Regular IRA
or non-deductible contributions to a Roth IRA for the year. The amount of
non-deductible contributions you can make depends on the amount of deductible
contributions you make. The sum of your non-deductible and deductible
contributions for a year may not exceed the lesser of (1) $2,000 ($4,000
combined when a Spousal IRA is also involved), or (2) 100% of your compensation
(or, if a Spousal IRA is involved, 100% of you and your spouse's combined
compensation, reduced by the amount of any deductible IRA contribution and
non-deductible Roth IRA contribution made by the "working" spouse). For plan
years beginning on and after January 1, 1998, the sum of your annual
non-deductible (including Roth IRA) and deductible contributions, other than
when combined with a Spousal IRA or Spousal Roth IRA, may not exceed $2,000. IF
YOU WISH TO MAKE A NON-DEDUCTIBLE CONTRIBUTION, YOU MUST REPORT THIS ON YOUR TAX
RETURN BY FILING FORM 8606 (NON-DEDUCTIBLE IRA). REMEMBER, YOU ARE REQUIRED TO
KEEP TRACK OF YOUR NON-DEDUCTIBLE CONTRIBUTIONS AS AVLIC DOES NOT KEEP A RECORD
OF THESE FOR YOU. THIS INFORMATION WILL BE NECESSARY TO DOCUMENT THAT THE
CONTRIBUTIONS WERE MADE ON A NON-DEDUCTIBLE BASIS AND THEREFORE, ARE NOT TAXABLE
UPON DISTRIBUTION.
EFFECTS OF CONVERSION OF REGULAR IRA TO ROTH IRA: If you convert all or part of
a non-Roth IRA to a Conversion Roth IRA, the amount taken out of the non-Roth
IRA will be taxable as if it had been distributed to you in the year of
conversion. If you made non-deductible contributions to any Regular IRA, part of
the amount taken out of a Regular IRA for conversion will be taxable and part
will be non-taxable. (Use IRS Form 8606 to determine how much of the withdrawal
from your Regular IRA is taxable and how much is non-taxable). The taxable
portion of the amount converted is includable in your income for the year of
conversion. However, if the conversion takes place in 1998, one quarter of the
taxable amount will be includable in your income in 1998 and in each of the next
three years.
Amounts properly converted from a non-Roth IRA to a Roth IRA are not subject to
the 10% early withdrawal penalty. However, if you make a conversion to a Roth
IRA, but keep part of the money for any reason, that amount will be taxable in
the year distributed from the non-Roth IRA and the taxable portion may be
subject to the 10% early withdrawal penalty.
Roth IRAs are new and a number of ambiguities exist in the law. Also, at the
time of drafting of this Information Statement, there is pending legislation
which could dramatically change the tax treatment of conversions to and
distributions from Roth IRAs retroactive to January 1, 1998. This Information
Statement is based on AVLIC's interpretation of the law as it exists at the time
of drafting. You should consult with your tax advisor to ensure that you receive
the tax benefits you desire before you contribute to a Roth IRA, convert a
non-Roth IRA to a Conversion Roth IRA or take distributions from a Roth IRA.
EXCESS CONTRIBUTIONS: There is a 6% IRS penalty tax on IRA contributions made in
excess of permissible contributions. However, excess contributions made in one
year may be applied against the contribution limits in a later year if the
contributions in the later year are less than the limit. This penalty tax can be
avoided if the excess amount, together with any earnings on it, is returned to
you before the due date of your tax return for the year for which the excess
amount was contributed. Any earnings so distributed will be taxable in the year
for which the contribution was made and may be subject to the 10% premature
distribution penalty tax (SEE PART III, PREMATURE IRA DISTRIBUTIONS). The 6%
excess contribution penalty tax will apply to each year the excess amount
remains in the IRA Plan, until it is removed either by having it returned to you
or by making a reduced contribution in a subsequent year. To the extent an
excess contribution is absorbed in a subsequent year by contributing less than
the maximum deduction allowable for that year, the amount absorbed will be
deductible in the year applied (provided you are eligible to take a deduction).
If a taxpayer transfers amounts contributed for a tax year to a Regular IRA (and
any earnings allocated to such amounts) to a Roth IRA by the due date for filing
the return for such tax year (not including extensions), the amounts are not
included in the taxpayer's gross income to the extent that no deduction was
allowed for the contribution.
EXCESS CONTRIBUTIONS TO A CONVERSION ROTH IRA: If you are ineligible and convert
a Regular IRA to a Conversion Roth IRA, all or a part of the amount you convert
may be an excess contribution. (Examples may include conversions made when your
Roth AGI exceeds $100,000 or because you fail to timely make the rollover
contribution from the Regular IRA to the Conversion Roth IRA). You will have an
excess contribution if the ineligible amounts you convert and the contributions
you make to all your IRAs for the tax year exceed your IRA contribution limits
for the year. To avoid the 6% excise tax on excess contributions, you must
withdraw the excess contributions plus earnings before the due date of your tax
return.
In addition, an ineligible conversion may have other significant tax
consequences to the extent conversion amounts are treated as excess
contributions. First, distributions from the Regular IRA will not be eligible
for the special tax treatment which applies to conversions. For example, if an
ineligible conversion is made in 1998, the amounts ineligible for conversion
will not be eligible to be spread over four years for income tax purposes and to
the extent taxable, may be subject to the 10% premature distribution penalty.
Second, even though you must remove the excess contributions from the Roth
Conversion IRA, you may not be able to return these amounts to your Regular IRA.
Therefore, you may lose future tax-deferred growth on amounts you incorrectly
convert.
QD-5 IRA/SEP/SIMPLE/ROTH
ANNUITY III-P; 2/98
<PAGE>
LOANS AND PROHIBITED TRANSACTIONS: You may not borrow from your IRA Plan
(including Roth IRAs) or pledge it as security for a loan. This would disqualify
your entire IRA Plan, and its full value(or taxable portions of your Roth IRA or
non-deductible Regular IRA) would be includable in your taxable income in the
year of violation. This amount would also be subject to the 10% penalty tax on
premature distributions. Your IRA Plan will similarly be disqualified if you or
your beneficiary engage in any transaction prohibited by Section 4975 of the
Internal Revenue Code.
TAXABILITY OF REGULAR IRA DISTRIBUTIONS: Any cash distribution from your IRA
Plan, other than a Roth IRA, is normally taxable as ordinary income. All IRAs of
an individual are treated as one contract. All distributions during a taxable
year are treated as one distribution; and the value of the contract, income on
the contract, and investment in the contract is computed as of the close of the
calendar year with or within which the taxable year ends. If an individual
withdraws an amount from an IRA during a taxable year and the individual has
previously made both deductible and non-deductible IRA contributions, the amount
excludable from income for the taxable year is the portion of the amount
withdrawn which bears the same ratio to the amount withdrawn for the taxable
year as the individual's aggregate non-deductible IRA contributions bear to the
balance of all IRAs of the individual.
TAXABILITY OF ROTH IRA DISTRIBUTIONS: "Qualified distributions" from a Roth IRA
are not included in the taxpayer's gross income and are not subject to the
additional ten percent (10%) early withdrawal penalty tax. To be a "qualified
distribution," the distribution must satisfy a five-year holding period and meet
one of the following four requirements: (1) be made on or after the date on
which the individual attains age 59 1/2; (2) be made to a beneficiary or the
individual's estate on or after the individual's death; (3) be attributable to
the individual being disabled; or (4) be a distribution to pay for a "qualified"
first-time home purchase (up to a lifetime limit of $10,000). In the case of a
rollover or conversion from a Regular IRA to a Conversion Roth IRA, the
five-year holding period for escaping inclusion in income begins with the first
day of the tax year in which the most recent rollover or conversion contribution
is made to the Conversion Roth IRA. For a Regular Roth IRA, the five-year
holding period begins with the first day of the year you made any contributions
to a Regular Roth IRA.
If a distribution from a Roth IRA is not a qualified distribution and it
includes earnings, the earnings distributed are includable in taxable income and
may be subject to the 10% premature distribution penalty. (SEE PART III,
PREMATURE IRA DISTRIBUTIONS).
Unlike Regular IRAs, distributions from Roth IRAs come first from contributions
and converted amounts and last from earnings. Generally, all Roth IRAs (both
Regular Roth IRAs and Conversion Roth IRAs) must be treated as one for purposes
of determining the taxation of distributions. However, in some circumstances,
one or more Roth IRAs may have to be treated separately.
You should be aware that Congress has before it legislation that would
substantially revise these rules. To ensure that you receive the tax result you
desire, you should consult with your tax advisor before taking a distribution
from a Roth IRA.
LUMP SUM DISTRIBUTION: If you decide to receive the entire value of your IRA
Plan in one lump sum, the full amount is taxable when received (except as to
non-deductible contributions or "qualified distributions" from a Roth IRA), and
is not eligible for the special tax rules on lump sum distributions which are
used with other types of Qualified Retirement Plans.
PREMATURE IRA DISTRIBUTIONS: There is a 10% penalty tax on taxable amounts
distributed from your IRA (including the taxable portion of any non-qualified
distributions from a Roth IRA) prior to the attainment of age 59 1/2, except
for: (1) distributions made to a beneficiary on or after the owner's death; (2)
distributions attributable to the owner's being disabled as defined in Code
Section 72(m)(7); (3) distributions that are part of a series of substantially
equal periodic payments (made at least annually) for the life of the annuitant
or the joint lives of the annuitant and his or her beneficiary; (4)
distributions made on or after January 1, 1997 for medical expenses which exceed
7.5% of the annuitant's adjusted gross income; (5) distributions made on or
after January 1, 1997, to purchase health insurance for the individual and/or
his or her spouse and dependents if he or she: (a) has received unemployment
compensation for 12 consecutive weeks or more; (b) the distributions are made
during the tax year that the unemployment compensation is paid or the following
tax year; and (c) the individual has not been re-employed for 60 days or more;
(6) distributions made on or after January 1, 1998 for certain qualified higher
education expenses of the taxpayer, the taxpayer's spouse, or any child or
grandchild of the taxpayer or the taxpayer's spouse; or (7) qualified first-time
home buyer distributions made on or after January 1, 1998 (up to a lifetime
maximum of $10,000) used within 120 days of withdrawal to buy, build or rebuild
a first home that is the principal residence of the individual, his or her
spouse, or any child, grandchild, or ancestor of the individual or spouse. The
part of a distribution attributable to non-deductible contributions is not
includable in income and is not subject to the 10% penalty. In addition,
distributions from a SIMPLE Plan during the two-year period beginning on the
date the employee first participated in the employer's SIMPLE Plan will be
subject to a 25% (rather than 10%) premature distribution penalty tax.
Distributions from a Roth IRA made before the expiration of the applicable 5
year holding period (SEE TAXABILITY OF ROTH IRA DISTRIBUTIONS) are not treated
as qualified distributions and are subject to the 10% penalty tax to the extent
they are includable in taxable income.
MINIMUM REQUIRED DISTRIBUTIONS: SEE PART II, MINIMUM DISTRIBUTIONS FOR IRAS
OTHER THAN ROTH IRAS and ROTH IRA MINIMUM DISTRIBUTION REQUIREMENTS. If a
minimum distribution is not made from your IRA (including a Roth IRA) for a tax
year in which it is required, the excess, in any taxable year, of the amount
that should have been distributed over the amount that was actually distributed
is subject to an excise tax of 50%.
GIFT AND ESTATE TAX CONSEQUENCES: The designation of a beneficiary to receive
funds from a Regular or a Roth IRA is not considered a transfer subject to
federal gift taxes. However, funds remaining in your IRA (Regular or Roth) at
the time of your death are includable in your federal gross estate for tax
purposes.
MAXIMUM DISTRIBUTIONS: The Taxpayer Relief Act of 1997 repealed both the 15%
excess accumulation estate tax and excess distribution excise tax which
previously applied to excess retirement plan accumulations at death and excess
lifetime retirement plan distributions. These rules are repealed for plan
distributions made and decedents who die after December 31, 1996.
TAX FILING-REGULAR IRAS: You are not required to file a special IRA tax form for
any taxable year (1) for which no penalty tax is imposed with respect to the IRA
Plan, and (2) in which the only activities engaged in, with respect to the IRA
Plan, are making deductible contributions and receiving permissible
distributions. Information regarding such contributions or distributions will be
included on your regular Form 1040. In some years, you may be required to file
Form 5329 and/or Form 8606 in connection with your Regular IRA. Form 5329 is
filed as an attachment to Form 1040 or 1040A for any tax year that special
penalty taxes apply to your IRA. If you make non-deductible contributions to a
regular IRA, you must designate those contributions as non-deductible on Form
8606 and attach it to your Form 1040 or 1040A. There is a $100 penalty each time
you overstate the amount of your non-deductible contributions unless you can
prove the overstatement was due to reasonable cause. Additional information is
required on Form 8606 in years you receive a distribution from a Regular IRA.
There is a $50 penalty for each failure to file a required Form 8606 unless you
can prove the failure was due to reasonable cause. For further information,
consult the instructions for Form 5329 (Additional Taxes Attributable to
Qualified Retirement Plans (including IRAs), Annuities, and Modified Endowment
Contracts), Form 8606 and IRS Publication 590.
IRA/SEP/SIMPLE/ROTH QD-6
ANNUITY III-P; 2/98
<PAGE>
TAX FILING-ROTH IRA: It is your responsibility to keep records of your
contributions to a Roth IRA and to file any income tax forms the Internal
Revenue Service may require of you as a Roth IRA owner. You may need this
information to calculate your taxable income when distributions from the Roth
IRA begin.
TAX ADVICE: AVLIC is providing this general information as required by
regulations issued under the Internal Revenue Code and assumes no responsibility
for its application to your particular tax situation. Please consult your
personal tax advisor regarding specific questions you may have.
With respect to ROTH IRAS, you should be aware that Congress has before it
legislation that would substantially revise the rules relating to distributions
from and conversions to Roth IRAs which may apply retroactive to January 1,
1998. Because of this, you should consult with a tax advisor prior to
establishing, making contributions to, or taking distributions from a Roth IRA,
to ensure that you receive the tax result you anticipate.
ADDITIONAL INFORMATION: You may obtain more information about IRA Plans from any
district office of the IRS and IRS Publication 590.
PART IV. STATUS OF AMERITAS IRA PLAN:
INTERNAL REVENUE SERVICE APPROVAL LETTER: AVLIC has received approval from the
Internal Revenue Service as to the form of OVERTURE ANNUITY III-P (Form 4786),
for use in funding Regular IRA plans. It has also been approved as to form for
use in funding a SIMPLE IRA. It has not, however, been submitted to the IRS for
approval of its use as a Roth IRA, but it is expected that it will be in due
course. You may be required to accept a revised Roth IRA endorsement if the IRS
requires changes to your issued Roth IRA endorsement during the IRS approval
process. Such approval, when received, is a determination only as to the form of
the Annuity Contract, and does not represent a determination of the merits of
the annuity.
PART V. FINANCIAL DISCLOSURE:
The following is a general description and required financial disclosure
information for the variable annuity product, OVERTURE ANNUITY III-P (Form 4786)
offered by AVLIC, hereafter referred to as the policy.
In order for you to achieve your retirement objectives, you should be prepared
to make your IRA Plan a long term savings program. An IRA is not suited to
short-term savings, nor was it intended to be by Congress, as indicated by the
general rule that penalties apply to withdrawals before age 59 1/2, subject to
certain exceptions (see PART III; PREMATURE IRA DISTRIBUTIONS). However, you
should be aware of the values in your IRA Plan during the early years as well as
at retirement.
Prior to the annuity date, the policy allows you to accumulate funds based on
the investment experience of the assets underlying the policy in the Separate
Account or the Fixed Account. Currently, the assets which underlie the Separate
Account are invested exclusively in shares of mutual funds, the "Funds", managed
or administered by several fund managers. Each of the Subaccounts of the
Separate Account invest solely in the corresponding portfolio of the Funds. The
assets of each portfolio are held separately from the other portfolios and each
has distinct investment objectives which are described in the accompanying
prospectus for the Funds which you would have received when making the purchase
of your annuity. The accumulation value of your IRA Plan allocated to the
Separate Account will vary in accordance with the investment performance of the
Subaccounts you selected. Therefore, for assets in the Separate Account, you
bear the entire investment risk prior to the annuity date.
Premium payments and subsequent allocations to the Fixed Account are placed in
the general account of AVLIC which supports insurance and annuity obligations.
Policyowners are paid interest on the amounts placed in the Fixed Account at
guaranteed rates (3.5%) or at higher rates declared by AVLIC.
ACCUMULATION VALUE: On the effective date, the accumulation value of the policy
is equal to the premium received, reduced by any applicable premium taxes.
Thereafter, the accumulation value of the policy is determined as of the close
of trading on the New York Stock Exchange on each valuation date by multiplying
the number of accumulation units for each Subaccount credited to the policy by
the current value of an accumulation unit for each Subaccount, and by adding the
amount deposited in the Fixed Account, plus interest. The current value of an
accumulation unit reflects the increase or decrease in value due to investment
results of the Subaccount and certain charges, as described below. The number of
accumulation units credited to the policy is decreased by any annual policy fee,
any withdrawals and any charges upon withdrawal and, upon annuitization, any
applicable premium taxes and charges.
A valuation period is the period between successive valuation dates. It begins
at the close of trading on the New York Stock Exchange on each valuation date
and ends at the close of trading on the next succeeding valuation date. A
valuation date is each day that the New York Stock Exchange is open for
business.
The accumulation value is expected to change from valuation period to valuation
period, reflecting the net investment experience of the selected portfolios of
the Funds, interest earned in the Fixed Account, additional premium payments,
partial withdrawals, as well as the deduction of any applicable charges under
the policy. GROWTH IN THE ACCUMULATION VALUE BASED ON INVESTMENTS IN THE
SEPARATE ACCOUNT IS NEITHER GUARANTEED NOR PROJECTED.
VALUE OF ACCUMULATION UNITS: The accumulation units of each Subaccount are
valued separately. The value of an accumulation unit may change each valuation
period according to the net investment performance of the shares purchased by
each Subaccount and the daily charge under the policy for mortality and expense
risks, any daily administrative fee, and if applicable, any federal and state
income tax charges.
CASH SURRENDER VALUE: The amount available for full or partial withdrawal, which
is the accumulation value less any contingent deferred sales charge, any
applicable premium taxes, and, in the case of a full withdrawal, the annual
policy fee.
ANNUAL POLICY FEE: An annual policy fee of $36, $30 in North Dakota, is deducted
from the accumulation value on the last valuation date of each policy year and
on a full withdrawal if between policy anniversaries. This charge reimburses
AVLIC for the administrative costs of maintaining the policy on AVLIC's system.
This charge may be increased to a maximum of $40 and may be reduced or
eliminated. AVLIC currently waives this charge if the accumulation value of your
policy is at least $50,000.
DAILY ADMINISTRATIVE FEE: A daily charge at an annual rate of .15% of the
accumulation value. This charge is subtracted when determining the daily
accumulation unit value. This charge, which is guaranteed not to be increased,
is designed to reimburse AVLIC for administrative expenses incurred in
connection with issuing the policy and ongoing administrative expenses incurred
in connection with servicing and maintaining the policies. These expenses
include the cost of processing the application and premium payment, establishing
policy records, processing and servicing owner transactions and policy changes,
recordkeeping, preparing and mailing reports, processing death benefit claims,
and overhead costs.
QD-7 IRA/SEP/SIMPLE/ROTH
ANNUITY III-P; 2/98
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE: AVLIC imposes a charge to compensate it for
bearing certain mortality and expense risks under the policies. For assuming
these risks, AVLIC makes a daily charge equal to an annual rate of 1.25% of the
value of the average daily net assets of the Account. This charge is subtracted
when determining the daily accumulation unit value. AVLIC guarantees that this
charge will never increase. If this charge is insufficient to cover assumed
risks, the loss will fall on AVLIC. Conversely, if the charge proves more than
sufficient, any excess will be added to AVLIC's surplus. No mortality and
expense risk charge is imposed on the Fixed Account.
TAXES: AVLIC will, where such taxes are imposed by state law upon the receipt of
a premium payment, deduct premium taxes. If premium taxes are imposed upon
annuitization, AVLIC will deduct applicable premium taxes at that time.
Applicable premium tax rates depend upon such factors as the policyowner's
current state of residency, and the insurance laws and the status of AVLIC in
states where premium taxes are incurred. Currently, premium taxes range from 0%
to 3.5% of the premium paid. Applicable premium tax rates are subject to change
by legislation, administrative interpretations, or judicial acts. The owner will
be notified of any applicable premium taxes.
PARTIAL AND FULL WITHDRAWALS: The owner may make a partial or a full withdrawal
of the policy to receive part or all of the accumulation value (less any
applicable charges), at any time before the annuity date and while the annuitant
is living, by sending a written request to AVLIC. Partial withdrawals may be
either systematic or elective. Systematic withdrawals provide for an automatic
withdrawal, whereas, each elective withdrawal must be elected by the owner.
Systematic partial withdrawals are available on a monthly, quarterly,
semi-annual or annual mode. This withdrawal right may be restricted by Section
403(b)(11) of the Internal Revenue Code if the annuity is used in connection
with a Section 403(b) retirement plan. No partial or full withdrawals may be
made after the annuity date except as permitted under the particular annuity
option. The amount available for a full or partial withdrawal (cash surrender
value) is the accumulation value at the end of the valuation period during which
the written request for withdrawal is received, less any contingent deferred
sales charge, any applicable premium taxes, and in the case of a full
withdrawal, less the annual policy fee that would be due on the last valuation
date of the policy year. The cash surrender value may be paid in a lump sum to
the owner, or, if elected, all or any part may be paid out under an annuity
income option.
CONTINGENT DEFERRED SALES CHARGE: Since no deduction for a sales charge is made
from the premium payment, a contingent deferred sales charge is imposed on
certain partial and full withdrawals, and upon certain annuitizations to cover
certain expenses relating to the distribution of the policies, including
commissions to registered representatives and other promotional expenses.
Total withdrawals in a policy year which exceed the greater of: 1) 10% of the
accumulation value at the time of the withdrawal, or 2) any portion of the
accumulation value which exceeds the total premium deposit will be subject to a
contingent deferred sales charge (withdrawal charge). Contingent deferred sales
charges are assessed only on premiums paid based upon the number of years since
the policy year in which the premiums withdrawn were paid, on a first-paid,
first-withdrawn basis.
Where a partial or full withdrawal is taken or amounts are applied under an
annuity option, the amount withdrawn or annuitized (less any amount entitled to
the free withdrawal) will be subject to a contingent deferred sales charge
expressed in the following manner:
The charge will be a percentage of the premium payments withdrawn or annuitized.
CHARGE AS A % OF YEARS SINCE RECEIPT OF
EACH PREMIUM PAYMENT EACH PREMIUM PAYMENT
6 1
6 2
6 3
5 4
4 5
3 6
2 7
0 8+
In the case of a partial withdrawal or annuitization, the contingent deferred
sales charge will be deducted from the amounts remaining under the policy. The
charge will be allocated pro rata among the Subaccounts or the Fixed Account
based on the accumulation value in each prior to the withdrawal or annuitization
unless an owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account, in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. In the case of a full withdrawal or annuitization, the contingent
deferred sales charge is deducted from the amount paid to the owner. Contingent
deferred sales charges will not be imposed on certain withdrawals if the amounts
withdrawn are applied under annuity income option c or d.
SALES COMMISSIONS: No deductions are made from the premium payments for sales
charges. Compensation to the sales force is a maximum 6.5% based on premiums
paid. To offset the costs of compensation and distribution expenses, a
contingent deferred sales charge as described above is imposed on certain
partial and full withdrawals.
QD-8 IRA/SEP/SIMPLE/ROTH
ANNUITY III-P; 2/98
<PAGE>
Ameritas Variable Life EMPLOYEE BENEFIT PLAN
Insurance Company Logo INFORMATION STATEMENT
401(A) PENSION/PROFIT SHARING PLANS
403(B) ERISA PLANS
- --------------------------------------------------------------------------------
For purchasers of a 401(a) Pension/Profit Sharing Plan, or 403(b) ERISA Plan,
the purpose of this statement is to inform you as an independent Fiduciary of
the Employee Benefit Plan, of the Sales Representative's relationship to and
compensation from Ameritas Variable Life Insurance Company (AVLIC), as well as
to describe certain fees and charges under the OVERTURE ANNUITY III-P Policy
being purchased from the Sales Representative.
The Sales Representative is appointed with AVLIC as its Sales Representative and
is a Securities Registered Representative. In this position, the Sales
Representative is employed to procure and submit to AVLIC applications for
contracts, including applications for OVERTURE ANNUITY III-P.
COMMISSIONS, FEES AND CHARGES
The following commissions, fees and charges apply to OVERTURE ANNUITY III-P
(policy):
SALES COMMISSION: No deductions are made from the premium payments for sales
charges. Compensation to the Sales Representative's Broker/Dealer is a maximum
of up to 6.5% based on premiums paid. To offset the costs of compensation and
distribution expenses, a contingent deferred sales charge as described below is
imposed on certain partial and full withdrawals.
ANNUAL POLICY FEE: An annual policy fee of $36, $30 in North Dakota, is deducted
from the accumulation value in the policy on the last valuation date of each
policy year or on a full withdrawal if between policy anniversaries. This charge
reimburses AVLIC for the administrative costs of maintaining the policy on
AVLIC's system. This charge may be increased to a maximum of $40 and may be
reduced or eliminated. AVLIC currently waives this charge if the accumulation
value of your policy is at least $50,000.
DAILY ADMINISTRATIVE FEE: The administrative fee is a daily charge at an annual
rate of .15% of the accumulation value. This charge is subtracted when
determining the daily accumulation unit value. This charge is guaranteed not to
increase and is designed to reimburse AVLIC for administrative expenses of
issuing, servicing and maintaining the policies. AVLIC does not expect to make a
profit on either of these fees.
MORTALITY AND EXPENSE RISK CHARGE: AVLIC imposes a charge to compensate it for
bearing certain mortality and expense risks under the policies. AVLIC makes a
daily charge equal to an annual rate of 1.25% of the value of the average daily
net assets of the Account under the policies. This charge is subtracted when
determining the daily accumulation unit value. AVLIC guarantees that this charge
will never increase. If this charge is insufficient to cover assumed risks, the
loss will fall on AVLIC. Conversely, if the charge proves more than sufficient,
any excess will be added to AVLIC's surplus. No mortality and expense risk
charge is imposed on the Fixed Account.
PARTIAL AND FULL WITHDRAWALS: The policyowner may make a partial or a full
withdrawal of the policy to receive part or all of the accumulation value (less
any applicable charges), at any time before the annuity date and while the
annuitant is living by sending a written request to AVLIC. Partial withdrawals
may be either systematic or elective. Systematic withdrawals provide for an
automatic withdrawal, whereas, each elective withdrawal must be elected by the
owner. Systematic partial withdrawals are available on a monthly, quarterly,
semi-annual or annual mode. No partial or full withdrawals may be made after the
annuity date except as permitted under the particular annuity option. The amount
available for partial or full withdrawal (cash surrender value) is the
accumulation value at the end of the valuation period during which the written
request for withdrawal is received, less any contingent deferred sales charge,
any applicable premium taxes, and in the case of a full withdrawal, the annual
policy fee that would be due on the last valuation date of the policy year. The
cash surrender value may be paid in a lump sum to the owner, or if elected, all
or any part may be paid out under an annuity income option.
CONTINGENT DEFERRED SALES CHARGE: Since no deduction for a sales charge is made
from the premium payment(s), a contingent deferred sales charge is imposed
unless waived on certain partial and full withdrawals, and upon certain
annuitizations to cover expenses relating to Registered Representatives and
promotional expenses.
Total withdrawals in a policy year which exceed the greater of: (1) 10% of the
accumulation value at the time of the withdrawal, or (2) any portion of the
accumulation value which exceeds the total premium deposit will be subject to a
contingent deferred sales charge. Contingent deferred sales charges are assessed
only on premiums paid based upon the number of years since the policy year in
which the premiums withdrawn were paid, on a first-paid, first-withdrawn basis.
Where a partial or full withdrawal is taken or amounts are applied under an
annuity option, the amount withdrawn or annuitized (less any amount entitled to
the free withdrawal) will be subject to a contingent deferred sales charge
expressed as a percentage of the premium payments withdrawn or annuitized as
follows:
CHARGE AS A % OF EACH YEARS SINCE RECEIPT OF
PREMIUM PAYMENT EACH PREMIUM PAYMENT
6 1
6 2
6 3
5 4
4 5
3 6
2 7
0 8 +
QD-9 Pension
<PAGE>
In the case of a partial withdrawal or annuitization, the contingent deferred
sales charge will be deducted from the amounts remaining under the policy. The
charge will be allocated pro rata among the Subaccounts or the Fixed Account
based on the accumulation value in each prior to the withdrawal or annuitization
unless an owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account, in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. In the case of a full withdrawal or annuitization, the contingent
deferred sales charge is deducted from the amount paid to the owner. Contingent
deferred sales charges will not be imposed on certain withdrawals if the amounts
withdrawn are applied under annuity income option c or d.
TAXES: AVLIC will deduct premium taxes upon receipt of a premium payment or upon
annuitization depending upon the requirements of the law of the state of the
policyowner's residence. Currently, premium taxes range from 0% to 3.5% of the
premium paid, but are subject to change by legislation, administrative
interpretations, or judicial act.
FUND INVESTMENT ADVISORY FEES AND EXPENSES: At the direction of the policyowner,
the Separate Account VA-2 purchases shares of Funds which are available for
investment under this policy. The net assets of the Separate Account VA-2 will
reflect the value of the Fund shares and therefore, investment advisory fees and
other expenses of the Funds. A complete description of these fees and expenses
is contained in the Funds' Prospectuses.
403(B) TAX SHELTERED ANNUITY (TSA) PLANS-WITHDRAWAL RESTRICTIONS
- --------------------------------------------------------------------------------
For purchasers of a 403(b) Tax Sheltered Annuity (TSA) Plan, or 403(b) ERISA
Plan, the purpose of this statement is to inform you, as the purchaser of the
annuity or as the Fiduciary of an Employee Benefit Plan purchasing the annuity,
of the following distribution limitations, notwithstanding policy language to
the contrary. If this policy is purchased by the policyowner or his/her employer
as part of a retirement plan under Internal Revenue Code (IRC)Section 403(b),
distributions under the policy are limited as follows:
1. Distributions attributable to contributions made and interest accruing
after December 3l, 1988, pursuant to a salary reduction agreement within
the meaning of IRC Section 402(g)(3)(c) may be paid only:
(A) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled within the meaning of IRC Section 72(m)(7); or
(B) in the case of hardship. (Hardship distributions may not be made from
any income earned after December 31, 1988, which is attributable to
salary reduction contributions regardless of when the salary reduction
contributions were made).
2. Distributions attributable to funds transferred from IRC Section 403(b)(7)
custodial account may be paid or made available only:
(A) When the employee attains age 59 1/2, separates from service, dies or
becomes disabled within the meaning of IRC Section 72(m)(7); or
(B) in the case of financial hardship. Distributions on account of
financial hardship will be permitted only with respect to the
following amounts:
(I) benefits accrued as of December 31, 1988, but not earnings on
those amounts subsequent to that date.
(ii) contributions made pursuant to a salary reduction agreement
within the meaning of IRC Section 3121(a)(1)(D) after December
31, 1988, but not as to earnings on those contributions.
QD-10 TSA
<PAGE>
Part B Registration No. 33-98848
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF ADDITIONAL INFORMATION
FOR
FLEXIBLE PREMIUM VARIABLE ANNUITY POLICY
Offered by
Ameritas Variable Life Insurance Company
(A Nebraska Stock Company)
5900 "O" Street
Lincoln, Nebraska 68510
---------------------
This Statement of Additional Information expands upon subjects
discussed in the current Prospectus for the Flexible Premium Variable Annuity
Policy ("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC").
You may obtain a copy of the Prospectus dated May 1, 1998, by writing Ameritas
Variable Life Insurance Company, 5900 "O" Street, Lincoln, Nebraska 68510, or
calling, 1-800-745-1112. Terms used in the current Prospectus for the Policy are
incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD
BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated: May 1, 1998.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY ...................................... 2
- -------------------------------
THE POLICY ........................................................... 2
- ----------
Accumulation Value.......................................... 2
------------------
Value of Accumulation Units ................................ 2
---------------------------
Calculation of Performance Data ............................ 2
-------------------------------
GENERAL MATTERS....................................................... 6
- ---------------
The Policy ................................................. 6
----------
Non-Participating .......................................... 6
-----------------
Assignment ................................................. 6
----------
Annuity Data ............................................... 6
------------
Ownership .................................................. 6
---------
Joint Annuitant ............................................ 7
---------------
IRS Required Distributions ................................. 7
--------------------------
FEDERAL TAX MATTERS .................................................. 7
- -------------------
Taxation of AVLIC .......................................... 7
-----------------
Tax Status of the Policies ................................. 7
--------------------------
Qualified Policies ......................................... 7
------------------
DISTRIBUTION OF THE POLICY ........................................... 8
- --------------------------
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS ............................... 8
- --------------------------------------
AVLIC ................................................................. 8
- -----
STATE REGULATION ..................................................... 8
- ----------------
LEGAL MATTERS ........................................................ 8
- -------------
EXPERTS .............................................................. 8
- -------
OTHER INFORMATION .................................................... 9
- -----------------
FINANCIAL STATEMENTS.................................................. 9
- --------------------
-1-
<PAGE>
GENERAL INFORMATION AND HISTORY:
- --------------------------------
In order to supplement the description in the Prospectus, the following
provides additional information concerning AVLIC and its history.
As of April 1, 1996, AVLIC is a wholly owned subsidiary of AMAL
Corporation, a Nebraska stock company. AMAL Corporation is a joint
venture of Ameritas Life Insurance Corp. (Ameritas Life), which owns
a majority interest in AMAL Corporation; and AmerUs Life Insurance
Company (AmerUs Life), an Iowa stock life insurance company, which
owns a minority interest in AMAL Corporation.
AVLIC may publish in advertisements and reports to policyowners, the
ratings and other information assigned it by one or more independent
rating services. The purpose of the ratings are to reflect the
financial strength and/or claims-paying ability of AVLIC.
THE POLICY
- ----------
In order to supplement the description in the Prospectus, the following
provides additional information about the Policy which may be of interest to the
owners.
Accumulation Value
- ------------------
The Accumulation Value of a Policy on each valuation date is equal to:
(1) the aggregate of the values attributable to the Policy in each
Subaccount on the valuation date, determined for each Subaccount by
multiplying the Subaccount's accumulation unit value by the number
of the Subaccount accumulation units allocated to the Policy and/or
the net allocation plus interest in the Fixed Account; plus;
(2) the amount deposited in the Fixed Account, plus interest; less
(3) any partial withdrawal, and its charge, made on the valuation date;
less
(4) any annual policy fee deducted on that valuation date. In computing
the accumulation value, the number of Subaccount accumulation units
allocated to the Policy is determined after any transfer among the
Subaccounts.
Value of Accumulation Units
- ---------------------------
The value of each Subaccount's accumulation units reflects the investment
performance of that Subaccount. The accumulation unit value of each Subaccount
shall be calculated by:
(1) multiplying the per share net asset value of the corresponding Fund
portfolio on the valuation date by the number of shares held by the
Subaccount, before the purchase or redemption of any shares on that
date; minus
(2) a daily charge of .003415% (equivalent to an annual rate of 1.25% of
the average daily net assets) for mortality and expense risks; minus
(3) a daily charge of .0004098% (equivalent to an annual rate of .15% of
the average daily net assets) as daily administrative fee; minus
(4) any applicable charge for federal and state income taxes, if any;
and
(5) dividing the result by the total number of accumulation units held
in the Subaccount on the valuation date, before the purchase or
redemption of any units on that date.
Calculation of Performance Data
- -------------------------------
As disclosed in the prospectus, premium payments will be allocated to
Separate Account VA-2 which has twenty-six Subaccounts, with the assets of each
invested in corresponding portfolios of the Variable Insurance Products Fund or
the Variable Insurance Products Fund II (collectively the "Fidelity Funds"), the
Alger American Fund , the MFS Variable Insurance Trust, the Morgan Stanley
Universal Funds ("The Funds"), or to the Fixed Account. From time to time AVLIC
will advertise the performance data of the portfolios of the Funds.
Fidelity Management & Research Company (Fidelity) is the manager of the
Fidelity Funds. It maintains a large staff of experienced investment personnel
and a full complement of related support facilities. Alger American Funds are
managed by Fred Alger Management, Inc. It stresses proprietary research by its
large research team that follows approximately 1400 companies. MFS Variable
Insurance Trust is advised by Massachusetts Financial Services Company. MFS is
America's oldest mutual fund organization. Morgan Stanley Universal Funds, Inc.
are managed by Morgan Stanley Asset Management Inc.
-2-
<PAGE>
Performance information for any subaccount may be compared, in reports and
advertising to: (1) the Standard & Poor's 500 Stock Index ("S & P 500"). Dow
Jones Industrial Average ("DJIA"), Donahue Money Market Institutional Averages;
(2) other variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services or the Variable Annuity Research and Data
Service, widely used independent research firms which rank mutual funds and
other investment companies by overall performance, investment objectives, and
assets; and (3) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in a contract. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
annuity charges and investment management costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including (i) the ranking of any
subaccount derived from rankings of variable annuity separate accounts or other
investment products tracked by Lipper Analytical Series or by rating services,
companies, publications or other persons who rank separate accounts or other
investment products on overall performance or other criteria, and (ii) the
effect of tax deferred compounding on a subaccount's investment returns, or
returns in general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points in time, of the return
from an investment in a contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Standardized average annual total returns will be provided for the period
since the subaccounts have been offered in the Separate Account. The Contracts
have been offered since May 1, 1996. However, total return data may be
advertised based on the period of time that the underlying portfolios have been
in existence. The results for any period prior to the Contract being offered
will be calculated as if the Contracts had been offered during that period of
time, with all charges assumed to be those applicable to the Contracts. The
tables below are established to demonstrate performance results for each
underlying portfolio with charges deducted at the Separate Account level as if
the policy had been in force from the commencement of the portfolio. The
performance information is based on the historical investment experience of the
underlying portfolios and does not indicate or represent future performance.
Total Return
- ------------
Total returns quoted in advertising reflect all aspects of a subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18% which is the steady rate
that would equal 100% grown on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the subaccount's performance is not constant over
time, but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
The subaccounts will quote average annual returns for the period since
offered in the Separate Account, after deducting charges at the Separate Account
level. The average annual total returns will be computed by finding the average
annual compounded rates of return over a period of one, five and ten years (or,
if less, up to the life of the portfolio), that would equate the initial amount
invested to the withdrawal value, in accordance with the following formula: P(1
+ T)SUP n = ERV where P is a hypothetical investment payment of $1,000, T is the
average annual total return, n is the number of years, and ERV is the withdrawal
value at the end of the periods shown. This formula is used to obtain
standardized average annual total return. The returns will reflect the mortality
and expense risk charge (1.25% on an annual basis), daily administrative fee at
an annual rate of .15% and the annual policy fee. Table 1 shows the average
annual total return on a hypothetical investment in the subaccounts for the last
year, five years, and ten years if applicable (or from the date that the
subaccount began operations if less), for the period ending December 31, 1997.
Since the contract is intended as a long-term product, the table also shows the
average annual total return assuming that no money was withdrawn from the
contract. The first column shows the average annual total return if you
surrender the contract at the end of the period, the second column shows the
average annual return if you do not surrender the contract.
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/97
<TABLE>
<CAPTION>
Ten Year or
Since Offered in
One Year Five Year Separate Account
Subaccount Surrender Surrender Surrender
Inception Date Contracts Continue Contracts Continue Contracts Continue
---------------------------------------------------------------------------------------------------
Portfolios
- ----------
Fidelity VIP
- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity-Income 10-23-87 16.74% 22.74% 15.13% 15.58% 11.24%* 11.24%*
Growth 10-23-87 12.17% 18.17% 12.88% 13.37% 11.81%* 11.81%*
High Income 10-23-87 6.44% 12.44% 8.64% 9.21% 6.86%* 6.86%*
Overseas 10-23-87 0.41% 6.41% 9.15% 9.71% 4.83%* 4.83%*
Fidelity VIP II
- ---------------
Asset Manager 12-01-89 9.39% 15.39% 7.60% 8.19% 8.33% 8.33%
Inv. Grade Bond 06-01-91 -2.05% 3.95% 1.39% 2.14% 2.35% 2.35%
Asset Manager:
Growth 08-01-95 13.81% 19.81% NA NA 12.39% 13.96%
Index 500 08-01-95 21.27% 27.27% NA NA 9.18% 9.94%
Contrafund 08-01-95 12.83% 18.83% NA NA 11.20% 12.79%
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/97
Ten Year or
Since Offered in
One Year Five Year Separate Account
Subaccount Surrender Surrender Surrender
Inception Date Contracts Continue Contracts Continue Contracts Continue
-------------------------------------------------------------------------------------------
Portfolios
----------
Alger American Fund
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth 05-01-92 14.40% 20.40% 14.25% 14.72% 9.76% 9.92%
Income and Growth 05-01-92 24.80% 30.80% 11.89% 12.40% 7.57% 7.75%
Small Capitalization 05-01-92 0.25% 6.25% 7.31% 7.90% 6.41% 6.60%
Balanced 05-01-93 8.56% 14.56% NA NA 4.61% 4.95%
MidCap Growth 05-01-93 3.81% 9.81% NA NA 17.60% 18.07%
Leveraged AllCap 08-01-95 8.42% 14.42% NA NA 8.80% 10.51%
MFS Variable Ins. Trust
- -----------------------
Emerging Growth 08-01-95 10.62% 16.62% NA NA 17.26% 19.19%
Utilities 08-01-95 20.29% 26.29% NA NA 16.43% 17.89%
World Governments 08-01-95 -12.10% -6.10% NA NA -3.25% -1.45%
Research 05-01-97 NA NA NA NA 4.14% 6.43%
Growth With Income 05-01-97 NA NA NA NA 6.41% 8.87%
Morgan Stanley Universal Funds, Inc.
- ------------------------------------
Emerging Markets Equity 05-01-97 NA NA NA NA -13.32% 8.38%
Global Equity 05-01-97 NA NA NA NA 9.28% 15.32%
International Magnum 05-01-97 NA NA NA NA -4.59% 1.45%
Asian Equity 05-01-97 NA NA NA NA -55.27% -48.89%
U.S. Real Estate 05-01-97 NA NA NA NA 20.56% 28.06%
</TABLE>
* 10 Year Figure
Performance
- -----------
Quotations of average annual total return may also be shown for a
subaccount for periods prior to the date the portfolio was offered through the
Separate Account, based upon the actual historical performance of the mutual
fund portfolio in which that subaccount invests. This information reflects all
actual charges and deductions of the mutual fund portfolio and all Separate
Account charges and deductions, with respect to the Contracts, that
hypothetically would have been made had the Separate Account, with respect to
the Contracts, been invested in these portfolios for all of the periods
indicated. This is calculated in a manner similar to standardized average annual
total return, except the total return is based on an initial investment of
$30,000.
Table 2 shows the historical average annual total return on an investment
in the subaccounts for the last year, five years, and ten years (or, if less, up
to the life of the portfolio) for the period ending December 31, 1997.
HISTORICAL AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/97
<TABLE>
<CAPTION>
10 Years or
One Year Five Year Life of Fund
Surrender Surrender Surrender
Contracts Continue Contracts Continue Contracts Continue
--------------------------------------------------------------------------
Portfolios
- ----------
Fidelity VIP
- ------------
<S> <C> <C> <C> <C> <C> <C>
Equity-Income 20.22% 26.22% 18.02% 18.43% 15.04%* 15.04%*
Growth 15.65% 21.65% 15.86% 16.30% 15.51%* 15.51%*
High Income 9.92% 15.92% 11.74% 12.24% 11.17%* 11.17%*
Overseas 3.89% 9.89% 11.95% 12.46% 7.98%* 7.98%*
Fidelity VIP II
- ---------------
Asset Manager 12.86% 18.86% 10.80% 11.33% 11.11% 11.11%
Inv. Grade Bond 1.43% 7.43% 4.86% 5.51% 6.70% 6.70%
Asset Manager: Growth 17.29% 23.29% NA NA 19.91% 21.29%
Index 500 24.75% 30.75% 17.75% 18.17% 17.86% 18.13%
Contrafund 16.31% 22.31% NA NA 25.06% 26.33%
Alger American Fund
- -------------------
Growth 17.88% 23.88% 17.14% 17.56% 17.79% 17.79%
Income and Growth 28.28% 34.28% 15.23% 15.68% 12.14% 12.14%
Small Capitalization 3.72% 9.72% 10.47% 11.00% 17.55% 17.55%
Balanced 12.04% 18.04% 9.66% 10.21% 8.27% 8.27%
MidCap Growth 7.29% 13.29% NA NA 19.91% 20.34%
Leveraged AllCap 11.90% 17.90% NA NA 30.49% 31.70%
MFS Variable Ins. Trust
- -----------------------
Emerging Growth 14.10% 20.10% NA NA 19.86% 21.73%
Utilities 23.77% 29.77% NA NA 24.82% 26.09%
World Governments - 8.62% -2.62% NA NA 2.05% 3.37%
Research 12.47% 18.47% NA NA 18.45% 20.36%
Growth With Income 21.88% 27.88% NA NA 23.71% 25.76%
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
10 Years or
One Year Five Year Life of Fund
Surrender Surrender Surrender
Contracts Continue Contracts Continue Contracts Continue
-------------------------------------------------------------------------
Morgan Stanley Universal
- ------------------------
Funds, Inc.
-----------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets Equity -7.22% -1.22% NA NA -7.84% -2.97%
Global Equity NA NA NA NA 12.46% 18.50%
International Magnum NA NA NA NA -0.17% 5.87%
Asian Equity NA NA NA NA -56.82% -50.48%
U.S. Real Estate NA NA NA NA 12.95% 20.37%
</TABLE>
* 10 Year Figure
In addition to average annual returns, the subaccounts may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. The returns will reflect the mortality and
expense risk charge (1.25% on an annual basis), daily administration fee at an
annual rate of .15%, and the annual policy fee. Since the contract is intended
as a long-term product, the table shows the cumulative total returns assuming
that no money was withdrawn from contract. Table 3 shows the historical
cumulative total return on an investment in the subaccounts for the last year,
five years, and ten years (or, if less, up to the life of the portfolio) for the
period ending December 31, 1997.
HISTORICAL CUMULATIVE TOTAL RETURN FOR PERIOD ENDING ON 12/31/97
<TABLE>
<CAPTION>
10 Years or
Inception One Year Five Year Life of Fund
---------------------------------------------------------------------------
Portfolios
- ----------
Fidelity VIP
- ------------
<S> <C> <C> <C> <C>
Equity-Income 10/9/86 26.22% 132.94% 306.42%*
Growth 10/9/86 21.65% 112.76% 323.29%*
High Income 9/19/85 15.92% 78.16% 188.50%*
Overseas 1/28/87 9.89% 79.87% 115.59%*
Fidelity VIP II
- ---------------
Asset Manager 9/6/89 18.86% 71.03% 140.36%
Inv. Grade Bond 12/5/88 7.43% 30.76% 80.10%
Asset Manager:
Growth 1/3/95 23.29% NA 78.25%
Index 500 8/27/92 30.75% 130.40% 143.79%
Contrafund 1/3/95 22.31% NA 101.37%
Alger American Fund
- -------------------
Growth 1/9/89 23.88% 124.55% 335.17%
Income and Growth 11/15/88 34.28% 107.17% 184.81%
Small Capitalization 9/21/88 9.72% 68.49% 348.52%
Balanced 9/5/89 18.04% 62.57% 93.80%
MidCap Growth 5/3/93 13.29% NA 137.27%
Leveraged AllCap 1/25/95 17.90% NA 124.35%
MFS Variable Ins. Trust
- -----------------------
Emerging Growth 7/24/95 20.10% NA 61.61%
Utilities 1/3/95 29.77% NA 100.24%
World Governments 6/14/94 -2.62% NA 12.49%
Research 7/26/95 18.47% NA 57.04%
Growth With Income 10/9/95 27.88% NA 66.72%
Morgan Stanley
- --------------
Universal Funds, Inc.
- ------------------------
Emerging Markets Equity 10/1/96 -1.22% NA -3.70%
Global Equity 1/2/97 NA NA 18.39%
International Magnum 1/2/97 NA NA 5.83%
Asian Equity 3/3/97 NA NA -44.20%
U.S. Real Estate 3/3/97 NA NA 16.64%
</TABLE>
Yields
- ------
Some subaccounts may also advertise yields. Yields quoted in advertising
reflect the change in value of an investment in the subaccount over a stated
period of time, not taking into account capital gains or losses. Yields are
annualized and stated as a percentage. Yields do not reflect the impact of any
contingent deferred sales load.
Current yield for Money Market subaccount reflects the income generated by
a subaccount over a 7 day period. Current yield is calculated by determining the
net change, exclusive of capital changes, in the value of a hypothetical account
having one Accumulation Unit at the beginning of the period adjusting for the
maintenance charge, and dividing the difference by the value of the subaccount
at the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The resulting yield figure is
carried to the nearest hundredth of a percent. Effective yield
-5-
<PAGE>
for the Money Market subaccount is calculated in a similar manner to current
yield except that investment income is assumed to be reinvested throughout the
year at the 7 day rate. Effective yield is obtained by taking the base period
returns as computed above, and then compounding the base period return by adding
1, raising the sum to a power equal to (365/7) and subtracting one from the
result, according to the formula:
Effective Yield = [(Base Period Return + 1) SUP 365/7] - 1.
Since the reinvestment of income is assumed in the calculation of effective
yield, it will generally be higher than current yield.
The net average yield for the 7-day period ended December 31, 1997 for the
Money Market Fund was 3.96% and the effective yield for the 7-day period ended
December 31, 1997 for the Money Market Fund was 4.05%.
Current yield for subaccounts other than the Money Market subaccount
reflects the income generated by a subaccount over a 30-day period. Current
yield is calculated by dividing the net investment income per accumulation unit
earned during the period by the maximum offering price per unit on the last day
of the period, according to the formula:
YIELD =2[( FUNC{a-b} OVER cd+1) SUP 6 -1]
Where a = net investment income earned during the period by the portfolio
company attributable to shares owned by the subaccount, b = expenses accrued for
the period (net of reimbursements), c = the average daily number of accumulation
units outstanding during the period, and d = the maximum offering price per
accumulation unit on the last day of the period.
The yield reflects the mortality and expense risk charge and the annual policy
fee.
GENERAL MATTERS
- ---------------
The Policy
- ----------
The Policy, the application, any supplemental applications, and any
amendments or endorsements make up the entire contract. All statements made in
the application, in the absence of fraud, are considered representations and not
warranties. Only statements in the application that is attached to the Policy
and any supplemental applications made a part of the Policy when a change went
into effect can be used to contest a claim or the validity of the Policy. Only
the President, Vice President, Secretary or Assistant Secretary can modify the
Policy. Any changes must be made in writing, and approved by AVLIC. No agent has
the authority to alter or modify any of the terms, conditions or agreements of
the Policy or to waive any of its provisions.
Non-Participating
- -----------------
The Policies are non-participating. No dividends are payable and the Policies
will not share in the profits or surplus earnings of AVLIC.
Assignment
- ----------
Any non-qualified policy and any qualified policy, if permitted by the
plan or by law relevant to the plan applicable to the qualified policy, may be
assigned by the owner prior to the annuity date and during the annuitant's
lifetime. AVLIC is not responsible for the validity of any assignment. No
assignment will be recognized until AVLIC receives written notice thereof. The
interest of any beneficiary which the assignor has the right to change shall be
subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum, not withstanding any settlement agreement in effect at
the time the assignment was executed. AVLIC shall not be liable as to any
payment or other settlement made by AVLIC before receipt of written notice.
Annuity Data
- ------------
AVLIC will not be liable for obligations which depend on receiving
information from a payee until such information is received in a form
satisfactory to AVLIC.
Ownership
- ---------
The owner of the Policy on the policy date is the annuitant, unless
otherwise specified in the application. During the annuitant's lifetime, all
rights and privileges under this Policy may be exercised solely by the owner.
Ownership passes to the owner's designated beneficiary upon the death of the
owner(s). If the owner has not named an owner's designated beneficiary, or if no
such beneficiary is living, the ownership passes to the owner's estate. From
time to time AVLIC may require proof that the owner is still living.
In order to change the owner of the Policy or assign Policy rights, an
assignment of the Policy must be made in writing and filed with AVLIC at its
Home Office. The change will take effect as of the date the change is recorded
at the Home Office, and AVLIC will not be liable for any payment made or action
taken before the change is recorded. The payment of proceeds is subject to the
rights of any assignee of record. A change in the owner will be valid only upon
absolute and complete assignment of the Policy. A collateral assignment is not a
change of ownership.
-6-
<PAGE>
Joint Annuitant
- ---------------
The owner may, by written request at least 30 days prior to the annuity
date, name a joint annuitant. Such joint annuitant must meet AVLIC's
underwriting requirements. An annuitant may not be replaced. The annuity date
shall be determined based on the date of birth of the annuitant.
IRS Required Distributions
- --------------------------
If the owner dies before the entire interest in the Policy is distributed,
the value of the Policy must be distributed to the owner's designated
beneficiary as described in this section so that the Policy qualifies as an
annuity under the Code.
If the death occurs on or after the annuity date, the remaining portion of
such interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of death.
If the death occurs before the annuity date, the entire interest in the
Policy will be distributed within five years after date of death or be used to
purchase an immediate annuity under which payments will begin within one year of
the owner's death and will be made for the life of the owner's designated
beneficiary or for a period not extending beyond the life expectancy of that
beneficiary.
The owner's designated beneficiary is the person to whom ownership of the
Policy passes by reason of death and must be a natural person. AVLIC reserves
the right to require proof of death.
If any portion of the owner's interest is payable to (or for the benefit
of) the surviving spouse of the owner, the Policy may be continued with the
surviving spouse as the new owner.
FEDERAL TAX MATTERS
- -------------------
Taxation of AVLIC
- -----------------
AVLIC is taxed as a life insurance company under Part I of Subchapter L of
the Code. Since the Separate Account is not an entity separate from AVLIC and
its operations form a part of AVLIC, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment income
and realized net capital gains on the assets of the Separate Account are
reinvested and are taken into account in determining the Policy values. As a
result, such investment income and realized net capital gains are automatically
retained as part of the reserves under the Policy. Under existing federal income
tax law, AVLIC believes that Separate Account investment income and realized net
capital gains should not be taxed to the extent that such income and gains are
retained as part of the reserves under the Policy.
Tax Status of the Policies
- --------------------------
Section 817(h) of the Code provides in substance that Section 72 of the
Code will not apply and AVLIC will not be treated as the owner of the assets of
the Separate Account unless the investments made by the Separate Account are
"adequately diversified" in accordance with regulations prescribed by the
Secretary of Treasury (the "Treasury"). If the segregated account is not
"adequately diversified" any increase in the value of a variable annuity
contract will be taxed to the owner currently. The Separate Account, through the
fund, intends to comply with the diversification requirements prescribed by
Treasury regulations which affect how the Fund's assets may be invested.
Although AVLIC does not control the Fund, it has entered into an agreement
regarding participation in the Fund, which requires the Fund to be operated in
compliance with the requirements prescribed by the Treasury.
Qualified Policies
- ------------------
The Policies are designed for use with several types of qualified plans.
The following are brief descriptions of qualified plans with which the policies
may be used:
a. H.R. 10 Plans - Section 401 of the Code permits self-employed
individuals to establish qualified plans for themselves and their
employees. Such plans commonly are referred to as "H.R. 10" or
"Keogh" plans. Taxation of plan participants depends on the
specified plan.
The Code governs such plans with respect to maximum contributions,
distribution dates, non-forfeitability of interests, and tax rates
applicable to distributions. In order to establish such a plan, a
plan document, usually in prototype form preapproved by the
Internal Revenue Service, is adopted and implemented by the
employer. When issued in connection with H.R. 10 plans, a Policy
may be subject to special requirements to conform to the
requirements under such plans. Purchasers of a Policy for such
purposes will be provided with supplemental information required by
the Internal Revenue Service or other appropriate agency.
b. Individual Retirement Annuities - Section 408 of the Code permits
certain individuals to contribute to an individual retirement
program known as an "Individual Retirement Annuity" or an "IRA."
IRA's are subject to limitations on eligibility, maximum
contributions, and time of distribution. Distributions from certain
other types of qualified plans may be "rolled over" on a
tax-deferred basis into an IRA. Sales of a Policy for use with an
IRA may be subject to special requirements of the Internal Revenue
Service. Purchasers of a Policy for such purposes will be provided
with supplemental information required by the Internal Revenue
Service or other appropriate agency.
-7-
<PAGE>
c. Corporation Pension and Profit Sharing Plans -- Sections 401(a) and
403(a) of the Code permit corporate employers to establish various
types of retirement plans for employees. Such retirement plans may
permit the purchase of Policies in order to provide benefits under
the plans.
d. Plans of Public School Systems and Certain Tax Exempt Organizations
- Section 403(b) of the Code permits public school systems and
certain tax-exempt organizations to establish plans that provide
retirement benefits for employees through the purchase of annuity
contracts subject to applicable code limits. Such plans may permit
the purchase of the Policies in order to provide benefits under the
plans. Section 403(b)(11) of the Code became effective January 1,
1989. 403(b)(11) provided that the policyholder may not elect to
withdraw funds attributable to salary reduction contributions from
a plan under Section 403(b) before age 59-1/2 and pay the taxes.
The money may only be withdrawn as provided by the Code. On
November 28, 1988, the Division of Investment Management issued a
No Action Letter which stated that the Division would not recommend
enforcement action against registrants who followed
Section 403(b)(11) and did not allow such a withdrawal so long as
the No Action Letter is complied with. The Registrant is acting in
reliance on the November 28, 1988, No Action Letter and has
complied, is complying and/or will comply with its provisions. The
policyholder should fully review the prospectus and consult with
his or her tax consultant before purchasing this annuity as a part
of a Section 403(b) plan.
DISTRIBUTION OF THE POLICY
- --------------------------
Ameritas Investment Corp., the principal underwriter of the Policies, is
registered with the Securities and Exchange Commission under the Securities and
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Ameritas Investment Corp. is wholly
owned by AMAL Corporation, which also owns AVLIC.
The Policies are offered to the public through brokers, licensed under the
federal securities laws and state insurance laws, and properly licensed banking
institutes that have entered into agreements with Ameritas Investment Corp. The
offering of the Policies is continuous and Ameritas Investment Corp. does not
anticipate discontinuing the offering of this policy. However, Ameritas
Investment Corp. does reserve the right to discontinue the offering of the
policies.
Compensation for the Policies and for all other variable annuity policies
issued by AVLIC totaled $11,961,951 for 1997; $10,067,075 for 1996; and
$6,896,847 for 1995.
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
- --------------------------------------
Title to assets of the Separate Account is held by AVLIC. The assets are
kept physically segregated and held separate and apart from AVLIC's general
account assets. Accumulation values deposited or transferred to the Fixed
Account are held in the General Account of AVLIC. Records are maintained of all
purchases and redemptions of eligible portfolio shares held by each of the
Subaccounts.
AVLIC
- -----
All the stock of AVLIC is owned by AMAL Corporation located in the state of
Nebraska. AVLIC has entered into a Management and Administrative Service
Agreement with Ameritas Life and AmerUs Life, to provide certain services at
estimated cost to AVLIC to assist with the administration of the Policies and
the Separate Account.
STATE REGULATION
- ----------------
AVLIC is a stock life insurance company organized under the laws of
Nebraska, and is subject to regulation by the Nebraska State Department of
Insurance. An annual statement is filed with the Nebraska Commissioner of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of AVLIC as of December 31 of the preceding
calendar year. Periodically, the Nebraska Commissioner of Insurance examines the
financial condition of AVLIC, including the liabilities and reserves of the
Separate Account.
In addition, AVLIC is subject to the insurance laws and regulations of all
the states where it is licensed to operate. The availability of certain policy
rights and provisions depends on state approval and/or filing and review
process. Where required by state law or regulation, the Policy will be modified
accordingly.
LEGAL MATTERS
- -------------
All matters of Nebraska law pertaining to the validity of the Policy and
AVLIC's right to issue such Policies under Nebraska law have been passed upon by
Norman M. Krivosha, Secretary and General Counsel of AVLIC.
EXPERTS
- -------
The financial statements of AVLIC as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, and the financial
statements of Separate Account VA-2 as of December 31, 1997, and for each of the
two years in the period then ended, included in this Statement of Additional
Information have been audited by Deloitte & Touche LLP, 1040 NBC Center,
Lincoln, Nebraska 68508, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
-8-
<PAGE>
OTHER INFORMATION
- -----------------
A registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information or in the
Prospectus. Statements contained in this Statement of Additional Information and
the Prospectus concerning the content of the policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
- --------------------
The financial statements of AVLIC, which are included in this Statement of
Additional Information, should be considered only as bearing on the ability of
AVLIC to meet its obligations under the Policies. They should not be considered
as bearing on the investment performance of the assets held in the Separate
Account.
- 9 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ameritas Variable Life Insurance Company
Lincoln, Nebraska
We have audited the accompanying statement of net assets of Ameritas
Variable Life Insurance Company Separate Account VA-2 as of December 31, 1997,
and the related statements of operations and changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997. 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, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company
Separate Account VA-2 as of December 31, 1997, and the results of its operations
and changes in its net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
February 2, 1998
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENT OF NET ASSETS
-----------------------
DECEMBER 31, 1997
-----------------
ASSETS
INVESTMENTS AT NET ASSET VALUE:
VARIABLE INSURANCE PRODUCTS FUND:
---------------------------------
<S> <C>
Money Market Portfolio - 58,077,286.870 shares at
$1.00 per share (cost $58,077,287)
$ 58,077,287
Equity-Income Portfolio - 7,361,912.916 shares at
$24.28 per share (cost $119,682.351) 178,747,246
Growth Portfolio - 3,384,599.320 shares at
$37.10 per share (cost $72,572,355) 125,568,635
High Income Portfolio - 4,439,239.772 shares at
$13.58 per share (cost $47,744,396) 60,284,876
Overseas Portfolio - 2,871,975.918 shares at
$19.20 per share (cost $41,276,587) 55,141,938
VARIABLE INSURANCE PRODUCTS FUND II:
------------------------------------
Asset Manager Portfolio - 8,067,994.337 shares at
$18.01 per share (cost $110,214,804) 145,304,578
Investment Grade Bond Portfolio - 2,680,009.791 shares at
$12.56 per share (cost $31,289,066) 33,660,923
Contrafund Portfolio - 2,467,467.035 shares at
$19.94 per share (cost $38,418,603) 49,201,293
Index 500 Portfolio - 551,209.193 shares at
$114.39 per share (cost $50,487,012) 63,052,819
Asset Manager: Growth Portfolio - 876,715.624 shares at
$16.36 per share (cost $11,982,484) 14,343,068
ALGER AMERICAN FUND:
--------------------
Small Capitalization Portfolio - 1,594,180.984 shares at
$43.75 per share (cost $51,737,582) 69,745,418
Growth Portfolio - 1,291,695.359 shares at
$42.76 per share (cost $36,800,554) 55,232,893
Income and Growth Portfolio - 2,269,279.878 shares at
$10.99 per share (cost $22,858,940) 24,939,386
Midcap Growth Portfolio - 1,379,829.066 shares at
$24.18 per share (cost $25,840,414) 33,364,267
Balanced Portfolio - 760,580.036 shares at
$10.76 per share (cost $8,025,728) 8,183,841
Leveraged Allcap Portfolio - 357,163.335 shares at
$23.17 per share (cost $6,723,044) 8,275,474
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENT OF NET ASSETS
-----------------------
DECEMBER 31, 1997
-----------------
ASSETS, CONTINUED
MFS VARIABLE INSURANCE TRUST:
-----------------------------
<S> <C>
Emerging Growth Series Portfolio - 2,257,625.308 shares at
$16.14 per share (cost $30,505,051) 36,438,072
World Governments Series Portfolio - 208,268.140 shares at
$10.21 per share (cost $2,129,546) 2,126,418
Utilities Series Portfolio - 831,927.658 shares at
$17.99 per share (cost $12,048,853) 14,966,378
Research Series Portfolio - 289,420.764 shares at
$15.79 per share (cost $4,440,676) 4,569,954
Growth with Income Series Portfolio - 820,397.016 shares at
$16.44 per share (cost $12,813,533) 13,487,327
MORGAN STANLEY UNIVERSAL FUNDS:
-------------------------------
Asian Equity Portfolio - 182,876.009 shares at
$5.64 per share (cost $1,312,097) 1,031,421
Emerging Markets Equity Portfolio - 322,394.901 shares at
$9.43 per share (cost $3,701,150) 3,040,184
Global Equity Portfolio - 248,631.218 shares at
$11.74 per share (cost $2,888,847) 2,918,930
International Magnum Portfolio - 280,286.412 shares at
$10.38 per share (cost $3,188,025) 2,909,373
U.S. Real Estate Portfolio - 263,567.027 shares at
$11.41 per share (cost $2,865,683) 3,007,300
-------------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 1,067,619,299
==================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND
---------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- ------------ --------------
1997
----
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Dividend distributions received $ 18,333,107 $ 3,951,302 $ 2,247,348 $ 833,612
Mortality and expense risk charge (12,015,158) (951,568) (1,978,672) (1,491,200)
--------------- -------------- ------------ --------------
NET INVESTMENT INCOME(LOSS) 6,317,949 2,999,734 268,676 (657,588)
--------------- -------------- ------------ --------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments 34,973,424 ---- 11,299,164 3,731,404
Net change in unrealized appreciation(depreciation) 118,096,018 ---- 24,959,276 19,009,272
--------------- -------------- ------------ --------------
NET GAIN(LOSS) ON INVESTMENTS 153,069,442 ---- 36,258,440 22,740,676
--------------- -------------- ------------ --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 159,387,391 $ 2,999,734 $ 36,527,116 $ 22,083,088
=============== ============== ============ ==============
1996
----
INVESTMENT INCOME:
Dividend distributions received $ 13,564,184 $ 3,799,567 $ 166,964 $ 290,515
Mortality and expense risk charge (8,898,318) (915,893) (1,517,611) (1,328,474)
--------------- -------------- ------------ --------------
NET INVESTMENT INCOME(LOSS) 4,665,866 2,883,674 (1,350,647) (1,037,959)
--------------- -------------- ------------ --------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments 25,240,462 ---- 4,786,292 7,335,502
Net change in unrealized appreciation(depreciation) 40,926,181 ---- 10,895,466 5,069,624
--------------- -------------- ------------ --------------
NET GAIN(LOSS) ON INVESTMENTS 66,166,643 ---- 15,681,758 12,405,126
--------------- -------------- ------------ --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 70,832,509 $ 2,883,674 $ 14,331,111 $ 11,367,167
=============== ============== ============ ==============
(1) Commenced business 08/25/95.
(2) Commenced business 09/21/95.
(3) Commenced business 09/15/95.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND VARIABLE INSURANCE PRODUCTS FUND II
- ---------------------------------------- ----------------------------------------------------------------------------------------
ASSET INVESTMENT ASSET MANAGER
HIGH INCOME OVERSEAS MANAGER GRADE BOND CONTRAFUND INDEX 500 GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,454,785 $ 920,980 $ 4,269,843 $ 1,567,477 $ 238,666 $ 238,743 $ ----
(640,776) (738,232) (1,677,072) (353,893) (505,870) (585,714) (127,412)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
2,814,009 182,748 2,592,771 1,213,584 (267,204) (346,971) (127,412)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
426,996 3,656,013 10,710,793 ---- 630,759 484,440 7,452
4,550,641 3,210,442 10,040,817 877,219 7,170,889 11,124,629 2,228,379
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
4,977,637 6,866,455 20,751,610 877,219 7,801,648 11,609,069 2,235,831
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
$ 7,791,646 $ 7,049,203 $ 23,344,381 $ 2,090,803 $ 7,534,444 $ 11,262,098 $ 2,108,419
================== ================= ================ ================ ================ =============== ==================
$ 2,675,076 $ 609,688 $ 4,137,329 $ 1,152,156 $ ---- $ 11,145 $ 41,977
(502,495) (667,514) (1,484,230) (312,284) (190,299) (84,732) (14,233)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
2,172,581 (57,826) 2,653,099 839,872 (190,299) (73,587) 27,744
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
523,384 670,657 3,411,482 ---- 36,378 28,660 76,905
2,214,664 5,099,697 8,603,434 (301,584) 3,604,329 1,418,021 135,704
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
2,738,048 5,770,354 12,014,916 (301,584) 3,640,707 1,446,681 212,609
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
$ 4,910,629 $ 5,712,528 $ 14,668,015 $ 538,288 $ 3,450,408 $ 1,373,094 $ 240,353
================== ================= ================ ================ ================ =============== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
ALGER AMERICAN FUND
---------------------------------------------------------------
SMALL INCOME AND MIDCAP
CAPITALIZATION GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- -------------- --------------
1997
----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend distributions received $ ---- $ 156,764 $ 77,900 $ 17,621
Mortality and expense risk charge (763,410) (650,590) (236,367) (416,023)
--------------- -------------- -------------- --------------
NET INVESTMENT INCOME(LOSS) (763,410) (493,826) (158,467) (398,402)
--------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments 2,112,658 283,904 644,447 429,680
Net change in unrealized appreciation(depreciation) 5,974,644 10,340,154 4,535,877 3,558,421
--------------- -------------- -------------- --------------
NET GAIN(LOSS) ON INVESTMENTS 8,087,302 10,624,058 5,180,324 3,988,101
--------------- -------------- -------------- --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,323,892 $ 10,130,232 $ 5,021,857 $ 3,589,699
=============== ============== ============== ==============
1996
----
INVESTMENT INCOME:
Dividend distributions received $ ---- $ 21,310 $ 144,960 $ ----
Mortality and expense risk charge (658,360) (432,284) (114,917) (290,924)
--------------- -------------- -------------- --------------
NET INVESTMENT INCOME(LOSS) (658,360) (410,974) 30,043 (290,924)
--------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments 228,276 900,815 4,845,801 441,180
Net change in unrealized appreciation(depreciation) 1,332,624 3,162,174 (3,244,881) 1,684,242
--------------- -------------- -------------- --------------
NET GAIN(LOSS) ON INVESTMENTS 1,560,900 4,062,989 1,600,920 2,125,422
--------------- -------------- -------------- --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 902,540 $ 3,652,015 $ 1,630,963 $ 1,834,498
=============== ============== ============== ==============
(1) Commenced business 08/30/95. (4) Commenced business 09/18/95.
(2) Commenced business 08/25/95. (5) Commenced business 05/01/97.
(3) Commenced business 08/24/95. (6) Commenced business 05/01/97.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST
- ------------------------------------- --------------------------------------------------------------------------------------------
LEVERAGED EMERGING WORLD UTILITIES RESEARCH GROWTH WITH
BALANCED ALLCAP GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES
PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO(6)
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 72,040 $ ---- $ ---- $ 23,328 $ ---- $ ---- $ 55,234
(83,767) (107,315) (383,765) (23,313) (123,508) (21,546) (65,442)
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
(11,727) (107,315) (383,765) 15 (123,508) (21,546) (10,208)
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
97,681 ---- ---- 10,575 ---- ---- 258,379
937,442 1,319,217 5,563,031 (36,397) 2,737,314 129,278 673,794
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
1,035,123 1,319,217 5,563,031 (25,822) 2,737,314 129,278 932,173
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
$ 1,023,396 $ 1,211,902 $ 5,179,266 $ (25,807)$ 2,613,806 $ 107,732 $ 921,965
================ ================ ================ ===================== ================ ================ ================
$ 192,764 $ ---- $ ---- $ ---- $ 122,707 $ ---- $ ----
(52,447) (44,009) (123,685) (10,173) (32,684) ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
140,317 (44,009) (123,685) (10,173) 90,023 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
1,290,283 21,457 162,364 ---- 318,381 ---- ----
(1,099,570) 216,090 378,565 44,953 194,795 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
190,713 237,547 540,929 44,953 513,176 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
$ 331,030 $ 193,538 $ 417,244 $ 34,780 $ 603,199 $ ---- $ ----
================ ================ ================ ===================== ================ ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS
-----------------------------------------------------
ASIAN EMERGING GLOBAL
EQUITY MARKETS EQUITY EQUITY
PORTFOLIO (1) PORTFOLIO(2) PORTFOLIO (3)
---------------- ------------------ ----------------
1997
----
INVESTMENT INCOME:
<S> <C> <C> <C>
Dividend distributions received $ 1,300 $ 20,729 $ 18,981
Mortality and expense risk charge (3,852) (17,436) (12,407)
---------------- ------------------ ----------------
NET INVESTMENT INCOME(LOSS) (2,552) 3,293 6,574
---------------- ------------------ ----------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments ---- 91,711 40,539
Net change in unrealized appreciation(depreciation) (280,675) (660,966) 30,082
---------------- ------------------ ----------------
NET GAIN(LOSS) ON INVESTMENTS (280,675) (569,255) 70,621
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (283,227)$ (565,962)$ 77,195
================ ================== ================
1996
----
INVESTMENT INCOME:
Dividend distributions received $ ---- $ ---- $ ----
Mortality and expense risk charge ---- ---- ----
---------------- ------------------ ----------------
NET INVESTMENT INCOME(LOSS) ---- ---- ----
---------------- ------------------ ----------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments ---- ---- ----
Net change in unrealized appreciation(depreciation) ---- ---- ----
---------------- ------------------ ----------------
NET GAIN(LOSS) ON INVESTMENTS ---- ---- ----
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ ---- $ ---- $ ----
================ ================== ================
(1) Commenced business 05/12/97. (4) Commenced business 05/01/97.
(2) Commenced business 05/01/97. (5) Commenced business 05/01/97.
(3) Commenced business 05/02/97.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
------------------------------------- -----------------
INTERNATIONAL US REAL
MAGNUM ESTATE STOCK INDEX
PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO
------------------ ----------------- -----------------
<S> <C> <C>
$ 86,248 $ 42,620 $ 37,586
(14,166) (12,020) (29,822)
------------------ ----------------- -----------------
72,082 30,600 7,764
------------------ ----------------- -----------------
5,746 51,083 ----
(278,652) 141,617 240,273
------------------ ----------------- -----------------
(272,906) 192,700 240,273
------------------ ----------------- -----------------
$ (200,824)$ 223,300 $ 248,037
================== ================= =================
$ ---- $ ---- $ 198,026
---- ---- (121,070)
------------------ ----------------- -----------------
---- ---- 76,956
------------------ ----------------- -----------------
---- ---- 162,645
---- ---- 1,517,834
------------------ ----------------- -----------------
---- ---- 1,680,479
------------------ ----------------- -----------------
$ ---- $ ---- $ 1,757,435
================== ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND
----------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- ------------------------------
1997
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income(loss) $ 6,317,949 $ 2,999,734 $ 268,676 $ (657,588)
Net realized gain(loss) on investments 34,973,424 ---- 11,299,164 3,731,404
Net change in unrealized appreciation(depreciation) 118,096,018 ---- 24,959,276 19,009,272
--------------- -------------- -------------- --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 159,387,391 2,999,734 36,527,116 22,083,088
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 96,731,159 (16,426,180) 8,142,445 (7,707,236)
--------------- -------------- -------------- --------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 256,118,550 (13,426,446) 44,669,561 14,375,852
NET ASSETS AT JANUARY 1, 1997 811,500,749 71,503,733 134,077,685 111,192,783
--------------- -------------- ------------------------------
NET ASSETS AT DECEMBER 31, 1997 $ 1,067,619,299 $ 58,077,287 $ 178,747,246 $ 125,568,635
=============== ============== ============== ==============
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ 4,665,866 $ 2,883,674 $ (1,350,647)$ (1,037,959)
Net realized gain(loss) on investments 25,240,462 ---- 4,786,292 7,335,502
Net change in unrealized appreciation(depreciation) 40,926,181 ---- 10,895,466 5,069,624
--------------- -------------- -------------- --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 70,832,509 2,883,674 14,331,111 11,367,167
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 151,795,930 11,293,782 2,027,569 13,044,680
--------------- -------------- -------------- --------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 222,628,439 14,177,456 16,358,680 24,411,847
NET ASSETS AT JANUARY 1, 1996 588,872,310 57,326,277 117,719,005 86,780,936
--------------- -------------- -------------- --------------
NET ASSETS AT DECEMBER 31, 1996 $ 811,500,749 $ 71,503,733 $ 134,077,685 $ 111,192,783
=============== ============== ============== ==============
(1) Commenced business 08/25/95.
(2) Commenced business 09/21/95.
(3) Commenced business 09/15/95.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND VARIABLE INSURANCE PRODUCTS FUND II
- ---------------------------------------- ----------------------------------------------------------------------------------------
HIGH ASSET INVESTMENT ASSET MANAGER
INCOME OVERSEAS MANAGER GRADE BOND CONTRAFUND INDEX 500 GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,814,009 $ 182,748 $ 2,592,771 $ 1,213,584 $ (267,204)$ (346,971)$ (127,412)
426,996 3,656,013 10,710,793 ---- 630,759 484,440 7,452
4,550,641 3,210,442 10,040,817 877,219 7,170,889 11,124,629 2,228,379
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
7,791,646 7,049,203 23,344,381 2,090,803 7,534,444 11,262,098 2,108,419
(140,776) (5,891,139) (1,349,261) 4,978,214 11,522,809 33,633,958 9,152,452
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
7,650,870 1,158,064 21,995,120 7,069,017 19,057,253 44,896,056 11,260,871
52,634,006 53,983,874 123,309,458 26,591,906 30,144,040 18,156,763 3,082,197
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
$ 60,284,876 $ 55,141,938 $ 145,304,578 $ 33,660,923 $ 49,201,293 $ 63,052,819 $ 14,343,068
================== ================= ================ ================ ================ =============== ==================
$ 2,172,581 $ (57,826)$ 2,653,099 $ 839,872 $ (190,299)$ (73,587)$ 27,744
523,384 670,657 3,411,482 ---- 36,378 28,660 76,905
2,214,664 5,099,697 8,603,434 (301,584) 3,604,329 1,418,021 135,704
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
4,910,629 5,712,528 14,668,015 538,288 3,450,408 1,373,094 240,353
11,840,393 2,586,833 (6,478,331) 2,966,839 24,201,634 16,120,440 2,618,298
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
16,751,022 8,299,361 8,189,684 3,505,127 27,652,042 17,493,534 2,858,651
35,882,984 45,684,513 115,119,774 23,086,779 2,491,998 663,229 223,546
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
$ 52,634,006 $ 53,983,874 $ 123,309,458 $ 26,591,906 $ 30,144,040 $ 18,156,763 $ 3,082,197
================== ================= ================ ================ ================ =============== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
ALGER AMERICAN FUND
---------------------------------------------------------------
SMALL INCOME AND MIDCAP
CAPITALIZATION GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- -------------- -------------- ------------
1997
----
<S> <C> <C> <C> <C>
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (763,410) $ (493,826) $ (158,467) $ (398,402)
Net realized gain(loss) on investments 2,112,658 283,904 644,447 429,680
Net change in unrealized appreciation(depreciation) 5,974,644 10,340,154 4,535,877 3,558,421
---------------- -------------- -------------- ------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 7,323,892 10,130,232 5,021,857 3,589,699
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 5,835,385 2,936,361 8,178,488 516,814
---------------- -------------- -------------- ------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 13,159,277 13,066,593 13,200,345 4,106,513
NET ASSETS AT JANUARY 1, 1997 56,586,141 42,166,300 11,739,041 29,257,754
---------------- -------------- -------------- ------------
NET ASSETS AT DECEMBER 31, 1997 $ 69,745,418 $ 55,232,893 $ 24,939,386 $ 33,364,267
================ ============== ============== ============
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (658,360) $ (410,974) $ 30,043 $ (290,924)
Net realized gain(loss) on investments 228,276 900,815 4,845,801 441,180
Net change in unrealized appreciation(depreciation) 1,332,624 3,162,174 (3,244,881) 1,684,242
---------------- -------------- -------------- ------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 902,540 3,652,015 1,630,963 1,834,498
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 11,456,192 14,224,655 3,431,654 12,496,160
---------------- -------------- -------------- ------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 12,358,732 17,876,670 5,062,617 14,330,658
NET ASSETS AT JANUARY 1, 1996 44,227,409 24,289,630 6,676,424 14,927,096
---------------- -------------- -------------- ------------
NET ASSETS AT DECEMBER 31, 1996 $ 56,586,141 $ 42,166,300 $ 11,739,041 $ 29,257,754
================ ============== ============== ============
(1) Commenced business 08/30/95. (4) Commenced business 09/18/95.
(2) Commenced business 08/25/95. (5) Commenced business 05/01/97.
(3) Commenced business 08/24/95. (6) Commenced business 05/01/97.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST
- ------------------------------------- --------------------------------------------------------------------------------------------
LEVERAGED EMERGING WORLD UTILITIES RESEARCH GROWTH WITH
BALANCED ALLCAP GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES
PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO (6)
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ (11,727) $ (107,315)$ (383,765)$ 15 $ (123,508)$ (21,546)$ (10,208)
97,681 ---- ---- 10,575 ---- ---- 258,379
937,442 1,319,217 5,563,031 (36,397) 2,737,314 129,278 673,794
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
1,023,396 1,211,902 5,179,266 (25,807) 2,613,806 107,732 921,965
1,897,757 826,499 11,676,622 887,245 6,961,486 4,462,222 12,565,362
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
2,921,153 2,038,401 16,855,888 861,438 9,575,292 4,569,954 13,487,327
5,262,688 6,237,073 19,582,184 1,264,980 5,391,086 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
$ 8,183,841 $ 8,275,474 $ 36,438,072 $ 2,126,418 $ 14,966,378 $ 4,569,954 $ 13,487,327
================ ================ ================ ===================== ================ ================ ================
$ 140,317 $ (44,009)$ (123,685)$ (10,173)$ 90,023 $ ---- $ ----
1,290,283 21,457 162,364 ---- 318,381 ---- ----
(1,099,570) 216,090 378,565 44,953 194,795 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
331,030 193,538 417,244 34,780 603,199 ---- ----
2,405,382 5,013,074 18,219,221 1,053,724 4,246,629 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
2,736,412 5,206,612 18,636,465 1,088,504 4,849,828 ---- ----
2,526,276 1,030,461 945,719 176,476 541,258 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
$ 5,262,688 $ 6,237,073 $ 19,582,184 $ 1,264,980 $ 5,391,086 $ ---- $ ----
================ ================ ================ ===================== ================ ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS
-----------------------------------------------------
ASIAN EMERGING GLOBAL
EQUITY MARKETS EQUITY EQUITY
PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
---------------- ------------------ ----------------
1997
----
<S> <C> <C> <C>
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (2,552) $ 3,293 $ 6,574
Net realized gain(loss) on investments ---- 91,711 40,539
Net change in unrealized appreciation(depreciation) (280,675) (660,966) 30,082
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (283,227) (565,962) 77,195
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 1,314,648 3,606,146 2,841,735
---------------- ------------------ ----------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 1,031,421 3,040,184 2,918,930
NET ASSETS AT JANUARY 1, 1997 ---- ---- ----
---------------- ------------------ ----------------
NET ASSETS AT DECEMBER 31, 1997 $ 1,031,421 $ 3,040,184 $ 2,918,930
================ ================== ================
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ ---- $ ---- $ ----
Net realized gain(loss) on investments ---- ---- ----
Net change in unrealized appreciation(depreciation) ---- ---- ----
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ---- ---- ----
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS ---- ---- ----
---------------- ------------------ ----------------
TOTAL INCREASE(DECREASE) IN NET ASSETS ---- ---- ----
NET ASSETS AT JANUARY 1, 1996 ---- ---- ----
---------------- ------------------ ----------------
NET ASSETS AT DECEMBER 31, 1996 $ ---- $ ---- $ ----
================ ================== ================
(1) Commenced business 05/12/97. (4) Commenced business 05/01/97.
(2) Commenced business 05/01/97. (5) Commenced business 05/01/97.
(3) Commenced business 05/02/97.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
- ----------------------------------------------- ----------------
INTERNATIONAL US REAL
MAGNUM ESTATE STOCK INDEX
PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO
----------------------- ------------------- ----------------
<S> <C> <C>
$ 72,082 $ 30,600 $ 7,764
5,746 51,083 ----
(278,652) 141,617 240,273
----------------------- ------------------- ----------------
(200,824) 223,300 248,037
3,110,197 2,784,000 (9,585,094)
----------------------- ------------------- ----------------
2,909,373 3,007,300 (9,337,057)
---- ---- 9,337,057
----------------------- ------------------- ----------------
$ 2,909,373 $ 3,007,300 $ ----
======================= =================== ================
$ ---- $ ---- $ 76,956
---- ---- 162,645
---- ---- 1,517,834
----------------------- ------------------- ----------------
---- ---- 1,757,435
---- ---- (972,898)
----------------------- ------------------- ----------------
---- ---- 784,537
---- ---- 8,552,520
----------------------- ------------------- ----------------
$ ---- $ ---- $ 9,337,057
======================= =================== ================
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES
- -------------------------------------------
Ameritas Variable Life Insurance Company Separate Account VA-2 (the
Account) was established on May 28, 1987 under Nebraska law by Ameritas
Variable Life Insurance Company (AVLIC), a wholly-owned subsidiary of
AMAL Corporation, a holding company 66% owned by Ameritas Life Insurance
Corp (ALIC) and 34% owned by AmerUs Life Insurance Company (AmerUs). The
assets of the Account are segregated from AVLIC's other assets and are
used only to support variable annuity products issued by AVLIC.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. At December 31, 1997, there are
twenty-six subaccounts within the Account. Five of the subaccounts invest
only in a corresponding Portfolio of Variable Insurance Products Fund and
five invest only in a corresponding Portfolio of Variable Insurance
Products Fund II. Both funds are diversified open-end management
investment companies and are managed by Fidelity Management and Research
Company. Six of the subaccounts invest only in a corresponding Portfolio
of Alger American Fund which is a diversified open-end management
investment company managed by Fred Alger Management, Inc. Five of the
subaccounts invest only in a corresponding Portfolio of MFS Variable
Insurance Trust which is a diversified open-end management investment
company managed by Massachusetts Financial Services Company. Five of the
subaccounts invest only in a corresponding Portfolio of Morgan Stanley
Universal Funds, Inc. which is a diversified open-end management
investment company managed by Morgan Stanley Asset Management, Inc. All
five funds are registered under the Investment Company Act of 1940, as
amended. Each Portfolio is registered under the Investment Company Act of
1940, as amended. Each Portfolio pays the manager a monthly fee for
managing its investments and business affairs. The assets of the Account
are carried at the net asset value of the underlying Portfolios of the
Funds.
Pursuant to an order of the SEC allowing for the substitution, all
policyholder funds invested in a Portfolio of Dreyfus Stock Index Fund
were transferred to the Index 500 subaccount of the Fidelity Variable
Insurance Products Fund II as of March 31, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
VALUATION OF INVESTMENTS
The assets of the Account are carried at the net asset value of the
underlying Portfolios of the Funds. The value of the policyowners' units
corresponds to the Account's investment in the underlying subaccounts.
The availability of investment portfolio and subaccount options may vary
between products. Share transactions and security transactions are
accounted for on a trade date basis.
FEDERAL AND STATE TAXES
The operations of the Account are included in the federal income tax
return of AVLIC, which is taxed as a life insurance company under the
Internal Revenue Code. AVLIC has the right to charge the Account any
federal income taxes, or provision for federal income taxes, attributable
to the operations of the Account or to the policies funded in the
Account. Currently, AVLIC does not make a charge for income or other
taxes. Charges for state and local taxes, if any, attributable to the
Account may also be made.
2. POLICYOWNER CHARGES
- ---------------------------
AVLIC charges the Account for mortality and expense risks assumed. A
daily charge is made on the average daily value of the net assets
representing equity of policyowners held in each subaccount per each
product's current policy provisions. Additional charges are made at
intervals and in amounts per each product's current policy provisions.
These charges are prorated against the balance in each investment option
of the policyowner, including the Fixed Account option which is not
reflected in this separate account.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED
- ----------------
The Account invests in shares of mutual funds. Share activity and total shares owned were as follows:
VARIABLE INSURANCE PRODUCTS FUND
--------------------------------------------------------------------------------------
MONEY EQUITY HIGH
MARKET INCOME GROWTH INCOME OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Shares owned at January 1, 1997 71,503,732.540 6,375,543.739 3,570,738.040 4,203,994.114 2,865,386.075
Shares acquired 853,215,634.620 6,785,276.757 9,039,036.135 12,090,797.257 6,633,173.353
Shares disposed of (866,642,080.290) (5,798,907.580) (9,225,174.855) (11,855,551.599) (6,626,583.510)
---------------- ---------------- ---------------- --------------- ----------------
Shares owned at December 31, 1997 58,077,286.870 7,361,912.916 3,384,599.320 4,439,239.772 2,871,975.918
================ ================ ================ =============== ================
Shares owned at January 1, 1996 57,326,276.820 6,108,926.067 2,971,949.855 2,977,840.998 2,679,443.568
Shares acquired 952,580,461.010 4,533,341.253 20,102,201.432 10,915,589.970 4,863,839.985
Shares disposed of (938,403,005.290) (4,266,723.581) (19,503,413.247) (9,689,436.854) (4,677,897.478)
---------------- ---------------- ---------------- --------------- ----------------
Shares owned at December 31, 1996 71,503,732.540 6,375,543.739 3,570,738.040 4,203,994.114 2,865,386.075
================ ================ ================ =============== ================
(1) Commenced business 08/25/95.
(2) Commenced business 09/21/95.
(3) Commenced business 09/15/95.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND II ALGER AMERICAN FUND
- ----------------------------------------------------------------------------------------- -------------------------------------
ASSET INVESTMENT ASSET MANAGER SMALL
MANAGER GRADE BOND CONTRAFUND INDEX 500 GROWTH CAPITALIZATION GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3) PORTFOLIO PORTFOLIO
- ----------------- ---------------- --------------- ---------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
7,283,488.356 2,172,541.324 1,820,292.255 203,711.023 235,282.226 1,383,186.051 1,228,263.919
2,847,323.335 1,694,137.840 2,201,624.166 1,006,210.576 1,122,271.776 4,468,000.589 1,800,274.339
(2,062,817.354) (1,186,669.373) (1,554,449.386) (658,712.406) (480,838.378) (4,257,005.656) (1,736,842.899)
- ----------------- ---------------- --------------- ---------------- ----------------- ------------------- ----------------
8,067,994.337 2,680,009.791 2,467,467.035 551,209.193 876,715.624 1,594,180.984 1,291,695.359
================= ================ =============== ================ ================= =================== ================
7,290,675.998 1,849,902.201 180,841.664 8,760.127 18,976.724 1,122,238.230 779,513.143
1,781,334.161 1,534,023.132 2,922,203.640 377,062.682 327,941.500 1,905,469.668 1,332,399.847
(1,788,521.803) (1,211,384.009) (1,282,753.049) (182,111.786) (111,635.998) (1,644,521.847) (883,649.071)
- ----------------- ---------------- --------------- ---------------- ----------------- ------------------- ----------------
7,283,488.356 2,172,541.324 1,820,292.255 203,711.023 235,282.226 1,383,186.051 1,228,263.919
================= ================ =============== ================ ================= =================== ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED, CONTINUED
- ------------------------------
The Account invests in shares of mutual funds. Share activity and total shares owned were as follows:
ALGER AMERICAN FUND
--------------------------------------------------------------------
INCOME AND MIDCAP LEVERAGED
GROWTH GROWTH BALANCED ALLCAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (1)
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares owned at January 1, 1997 1,394,185.376 1,370,386.612 569,554.981 322,162.842
Shares acquired 2,269,264.497 1,673,797.476 422,401.028 415,875.563
Shares disposed of (1,394,169.995) (1,664,355.022) (231,375.973) (380,875.070)
--------------- ---------------- ---------------- ----------------
Shares owned at December 31, 1997 2,269,279.878 1,379,829.066 760,580.036 357,163.335
=============== ================ ================ ================
Shares owned at January 1, 1996 375,290.867 767,854.736 185,210.868 59,119.959
Shares acquired 1,439,623.568 1,365,941.530 534,194.021 379,180.932
Shares disposed of (420,729.059) (763,409.654) (149,849.908) (116,138.049)
--------------- ---------------- ---------------- ----------------
Shares owned at December 31, 1996 1,394,185.376 1,370,386.612 569,554.981 322,162.842
=============== ================ ================ ================
(1) Commenced business 08/30/95. (5) Commenced business 05/01/97.
(2) Commenced business 08/25/95. (6) Commenced business 05/01/97.
(3) Commenced business 08/24/95. (7) Commenced business 05/12/97.
(4) Commenced business 09/18/95. (8) Commenced business 05/01/97.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MFS VARIABLE INSURANCE TRUST MORGAN STANLEY UNIVERSAL FUNDS
- ----------------------------------------------------------------------------------------------- ------------------------------------
EMERGING WORLD UTILITIES RESEARCH GROWTH WITH ASIAN EMERGING
GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES EQUITY MARKETS EQUITY
PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO (6) PORTFOLIO (7) PORTFOLIO (8)
- ----------------- ----------------------- --------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1,479,016.961 119,563.323 394,662.255 ---- ---- ---- ----
2,976,120.153 298,925.691 898,208.994 337,744.371 905,870.017 190,839.842 443,006.443
(2,197,511.806) (210,220.874) (460,943.591) (48,323.607) (85,473.001) (7,963.833) (120,611.542)
- ----------------- ----------------------- --------------- ---------------- ---------------- ---------------- -----------------
2,257,625.308 208,268.140 831,927.658 289,420.764 820,397.016 182,876.009 322,394.901
================= ======================= =============== ================ ================ ================ =================
82,885.087 17,352.610 43,059.498 ---- ---- ---- ----
2,018,133.694 308,218.693 578,050.865 ---- ---- ---- ----
(622,001.820) (206,007.980) (226,448.108) ---- ---- ---- ----
- ----------------- ----------------------- --------------- ---------------- ---------------- ---------------- -----------------
1,479,016.961 119,563.323 394,662.255 ---- ---- ---- ----
================= ======================= =============== ================ ================ ================ =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED, CONTINUED
- ------------------------------
The Account invests in shares of mutual funds. Share activity and total shares owned were as follows:
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
-------------------------------------------------------- -----------------
GLOBAL INTERNATIONAL US REAL
EQUITY MAGNUM ESTATE STOCK INDEX
PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3) FUND PORTFOLIO
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Shares owned at January 1, 1997 ---- ---- ---- 460,407.134
Shares acquired 350,250.974 359,431.599 443,135.897 3,213.612
Shares disposed of (101,619.756) (79,145.187) (179,568.870) (463,620.746)
----------------- ------------------ ------------------ -----------------
Shares owned at December 31, 1997 248,631.218 280,286.412 263,567.027 (0.000)
================= ================== ================== =================
Shares owned at January 1, 1996 ---- ---- ---- 497,239.510
Shares acquired ---- ---- ---- 286,490.226
Shares disposed of ---- ---- ---- (323,322.602)
----------------- ------------------ ------------------ -----------------
Shares owned at December 31, 1996 ---- ---- ---- 460,407.134
================= ================== ================== =================
(1) Commenced business 05/02/97.
(2) Commenced business 05/01/97.
(3) Commenced business 05/01/97.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ameritas Variable Life Insurance Company
Lincoln, Nebraska
We have audited the accompanying balance sheets of Ameritas Variable Life
Insurance Company as of December 31, 1997 and 1996, and the related statements
of operations, changes in stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
February 2, 1998
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
BALANCE SHEETS
--------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
DECEMBER 31,
---------------------------------------------
1997 1996
--------------------- ------------------
ASSETS
------
<S> <C> <C>
Investments:
Fixed maturity securities, available for sale (amortized cost
$113,158 - 1997 and $62,048 - 1996) $ 115,955 $ 62,621
Equity securities, available for sale (amortized cost
$4,061 - 1997) 4,135 -
Loans on insurance policies 7,482 4,309
Other invested assets 2,206 -
---------------------- --------------------
Total investments 129,778 66,930
Cash and cash equivalents 13,711 10,684
Accrued investment income 1,801 1,096
Reinsurance recoverable-affiliates 514 9
Prepaid reinsurance premium-affiliates 2,298 2,156
Deferred policy acquisition costs 98,746 79,272
Other 199 483
Separate Accounts 1,265,348 947,580
---------------------- -------------------
$ 1,512,395 $ 1,108,210
====================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Policy and contract reserves $ 941 $ 749
Policy and contract claims 925 106
Accumulated contract values 154,281 77,560
Unearned policy charges 1,498 1,243
Unearned reinsurance ceded allowance 3,268 3,139
Federal income taxes--
Current 1,466 875
Deferred 9,326 9,921
Other 10,200 8,028
Separate Accounts 1,265,348 947,580
---------------------- -------------------
Total Liabilities 1,447,253 1,049,201
---------------------- -------------------
STOCKHOLDER'S EQUITY:
Common stock, par value $100 per share;
authorized 50,000 shares, issued and
outstanding 40,000 shares 4,000 4,000
Additional paid-in capital 40,370 40,370
Retained earnings 20,180 14,510
Net unrealized investment gain 592 129
---------------------- -----------------
Total Stockholder's Equity 65,142 59,009
---------------------- -----------------
$ 1,512,395 $ 1,108,210
====================== =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF OPERATIONS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
--------------------- ------------------- ---------------
INCOME:
Insurance revenues:
<S> <C> <C> <C>
Contract charges $ 33,717 $ 26,345 $ 18,350
Premium-reinsurance ceded (6,840) (5,895) (4,289)
Reinsurance ceded allowance 2,752 2,235 1,859
Investment revenues:
Investment income, net 8,277 3,603 3,492
Realized gains, net 368 19 28
Other 980 567 261
------------------- -------------------- ---------------
39,254 26,874 19,701
BENEFITS AND EXPENSES: ------------------- -------------------- ---------------
Policy benefits:
Death benefits 1,356 716 268
Interest credited 7,258 2,736 1,995
Increase in policy and contract reserves 192 140 183
Other 92 52 32
Sales and operating expenses 11,641 10,041 6,815
Amortization of deferred policy acquisition costs 9,584 5,531 3,057
------------------- -------------------- ---------------
30,123 19,216 12,350
------------------- -------------------- ---------------
INCOME BEFORE FEDERAL INCOME TAXES 9,131 7,658 7,351
------------------- -------------------- ---------------
Income taxes - current 4,305 3,819 1,685
Income taxes - deferred (844) (811) 902
------------------- -------------------- ---------------
Total income taxes 3,461 3,008 2,587
------------------- -------------------- ---------------
NET INCOME $ 5,670 $ 4,650 $ 4,764
=================== ==================== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
---------------------------------------------------
(IN THOUSANDS, EXCEPT SHARES)
-----------------------------
NET
COMMON STOCK ADDITIONAL UNREALIZED
-------------------- PAID - IN RETAINED INVESTMENT
SHARES AMOUNT CAPITAL EARNINGS GAIN (LOSS) TOTAL
------- --------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 40,000 $ 4,000 $ 29,700 $ 5,096 $ (173) $ 38,623
Net unrealized investment gain, net - - - - 609 609
Net income - - - 4,764 - 4,764
------- ---------- ------------- ------------ ------------ -----------
BALANCE, December 31, 1995 40,000 4,000 29,700 9,860 436 43,996
Return of capital - - (15,000) - - (15,000)
Capital contribution from
AMAL Corporation - - 25,670 - - 25,670
Net unrealized investment loss, net - - - - (307) (307)
Net income - - - 4,650 - 4,650
-------- ------------ -------------- ------------ ------------- -----------
BALANCE, December 31, 1996 40,000 4,000 40,370 14,510 129 59,009
Net unrealized investment gain, net - - - - 463 463
Net income - - - 5,670 - 5,670
-------- ------------ -------------- ----------- ------------- -----------
BALANCE, December 31, 1997 40,000 $ 4,000 $ 40,370 $ 20,180 $ 592 $ 65,142
======== ============ ============== =========== ============= ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------- ----------- -------
OPERATING ACTIVITIES
--------------------
<S> <C> <C> <C>
Net Income $ 5,670 $ 4,650 $ 4,764
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs 9,584 5,531 3,057
Policy acquisition costs deferred (30,642) (26,596) (16,020)
Interest credited to contract values 7,258 2,736 1,995
Amortization of discounts or premiums (40) (83) (70)
Change in fair value of other invested assets (631) - -
Net realized gains on investment transactions (368) (19) (28)
Deferred income taxes (844) (811) 902
Change in assets and liabilities:
Accrued investment income (705) (306) (15)
Reinsurance recoverable-affiliates (505) 48 412
Prepaid reinsurance premium-affiliates (142) (650) (487)
Other assets 284 (377) (18)
Policy and contract reserves 192 140 183
Policy and contract claims 819 106 (57)
Unearned policy charges 255 279 234
Federal income tax payable-current 591 (310) 698
Unearned reinsurance ceded allowance 129 860 610
Other liabilities 2,172 3,762 1,996
------------ ----------------- ------------
Net cash used in operating activities (6,923) (11,040) (1,844)
------------ ----------------- -----------
INVESTING ACTIVITIES
--------------------
Purchase of fixed maturity securities available for sale (92,291) (31,514) (7,760)
Purchase of equity securities available for sale (4,311) - -
Purchase of other invested assets (1,611) - -
Proceeds from maturities or repayment of fixed maturity securities
available for sale 25,168 5,307 3,738
Proceeds from sales of fixed maturity securities available for sale 16,419 3,014 -
Proceeds from the sale of equity securities available for sale 252 - -
Proceeds from the sale of other invested assets 35 - -
Net change in loans on insurance policies (3,173) (1,670) (1,042)
----------- ---------------- -----------
Net cash used in investing activities (59,512) (24,863) (5,064)
----------- ---------------- -----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- --------------
FINANCING ACTIVITIES
--------------------
<S> <C> <C> <C>
Return of capital - (15,000) -
Capital contribution - 25,670 -
Net change in accumulated contract values 69,462 30,257 4,448
------------- ------------- -------------
Net cash from financing activities 69,462 40,927 4,448
------------- ------------- -------------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 3,027 5,024 (2,460)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,684 5,660 8,120
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,711 $ 10,684 $ 5,660
============= ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
Cash paid for income taxes $ 3,714 $ 4,129 $ 987
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------------------------
Ameritas Variable Life Insurance Company (the Company), a stock life
insurance company domiciled in the State of Nebraska, was a wholly-owned
subsidiary of Ameritas Life Insurance Corp. (ALIC), until April of 1996 when
it became a wholly-owned subsidiary of AMAL Corporation, a holding company
66% owned by ALIC and 34% owned by AmerUs Life Insurance Company (AmerUs).
The company began issuing variable life insurance and variable annuity
policies in 1987, fixed premium annuities in 1996 and equity indexed
annuities in 1997. The variable life, variable annuity, fixed premium
annuity and equity indexed annuity policies are not participating with
respect to dividends.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The principal accounting and reporting practices followed are:
INVESTMENTS
The Company classifies its securities into categories based upon the
Company's intent relative to the eventual disposition of the securities. The
first category, held to maturity securities, is comprised of fixed maturity
securities which the Company has the positive intent and ability to hold to
maturity. These securities are carried at amortized cost. The second
category, available for sale securities, may be sold to address the
liquidity and other needs of the Company. Securities classified as available
for sale are carried at fair value on the balance sheet with unrealized
gains and losses excluded from income and reported as a separate component
of stockholder's equity, net of related deferred acquisition costs and
income tax effects. The third category, trading securities, is for debt and
equity securities acquired for the purpose of selling them in the near
term. The Company has classified all of its securities as available for
sale. Realized investment gains and losses on sales of securities are
determined on the specific identification method.
Other Invested Assets consist of exchange and privately traded options tied
to the Standard and Poor's Index and are valued at fair value with changes
in the fair value of these investments included in net investment income.
The Company records write-offs or allowances for its investments based upon
a evaluation of specific problem investments. The Company reviews, on a
continual basis, all invested assets to identify investments where the
Company may have credit concerns. Investments with credit concerns include
those the Company has identified as experiencing a deterioration in
financial condition. The Company has no write-offs or allowances recorded as
of December 31, 1997, 1996 and 1995.
CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with
remaining maturity of less than three months to be cash equivalents.
SEPARATE ACCOUNTS
The Company operates separate accounts on which the earnings or losses
accrue exclusively to contractholders. The assets (mutual fund investments)
and liabilities of each account are clearly identifiable and distinguishable
from other assets and liabilities of the Company. Assets are reported at
fair value.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------
(CONTINUED)
-----------
PREMIUM REVENUE AND BENEFITS TO POLICYOWNERS
RECOGNITION OF UNIVERSAL LIFE-TYPE CONTRACTS REVENUE AND BENEFITS TO
POLICYOWNERS
Universal life-type policies are insurance contracts with terms that are
not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyowner, premiums paid by the
policyowner or interest accrued to policyowners balances. Amounts received
as payments for such contracts are reflected as deposits and are not
reported as premium revenues.
Revenues for universal life-type policies consist of charges assessed
against policy account values for deferred policy loading, mortality risk
expense, the cost of insurance and policy administration. Policy benefits
and claims that are charged to expense include interest credited to
contracts under the fixed account investment option and benefit claims
incurred in the period in excess of related policy account balances.
RECOGNITION OF INVESTMENT CONTRACT REVENUE AND BENEFITS TO POLICYOWNERS
Contracts that do not subject the Company to risks arising from policyowner
mortality or morbidity are referred to as investment contracts. Certain
deferred annuities are considered investment contracts. Amounts received as
payments for such contracts are reflected as deposits and are not reported
as premium revenues.
Revenues for investment products consist of investment income and policy
administration charges. Contract benefits that are charged to expense
include benefit claims incurred in the period in excess of related contract
balances, and interest credited to contract balances.
POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are directly
related to the production of new business, have been deferred to the extent
that such costs are deemed recoverable from future premiums. Such costs
include commissions, certain costs of policy issuance and underwriting, and
certain variable distribution expenses.
Costs deferred related to universal life-type policies and investment-type
contracts are amortized generally over the lives of the policies, in
relation to the present value of estimated gross profits from mortality,
investment and expense margins. The estimated gross profits are reviewed
periodically based on actual experience and changes in assumptions.
A roll-forward of the amounts reflected in the balance sheets as deferred
acquisition costs is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 79,272 $ 57,664 $ 45,940
Acquisition costs deferred 30,642 26,596 16,020
Amortization of deferred policy acquisition costs (9,584) (5,531) (3,057)
Adjustment for unrealized investment (gain)/loss (1,584) 543 (1,239)
-------------------------------------------------------------------------------------------------------------------------
Ending balance $ 98,746 $ 79,272 $ 57,664
-------------------------------------------------------------------------------------------------------------------------
To the extent that unrealized gains or losses on available for sale
securities would result in an adjustment of deferred policy acquisition
costs had those gains or losses actually been realized, the related
unamortized deferred policy acquisition costs are recorded as an adjustment
of the unrealized investment gains or losses included in stockholder's
equity.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
--------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------
(CONTINUED)
-----------
FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy and contract benefits left with the Company
on variable universal life and annuity-type contracts are based on the
policy account balance, and are shown as accumulated contract values. In
addition the Company carries as future policy benefits a liability for
additional coverages offered under policy riders.
INCOME TAXES
The provision for income taxes includes amounts currently payable and
deferred income taxes resulting from the cumulative differences in assets
and liabilities determined on a tax return and financial statement basis at
the current enacted tax rates.
RECLASSIFICATIONS
Certain items on the prior year financial statements have been restated to
conform to current year presentation.
2. INVESTMENTS
---------------
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 6,622 $ 3,308 $ 2,819
Equity Securities available for sale 156 - -
Loans on insurance policies 370 214 128
Cash equivalents 643 618 597
Other invested assets 630 - -
------------------------------------------------------------------------------------------------------------------------
Gross investment income 8,421 4,140 3,544
Investment expenses 144 537 52
------------------------------------------------------------------------------------------------------------------------
Net investment income $ 8,277 $ 3,603 $ 3,492
------------------------------------------------------------------------------------------------------------------------
Net pretax realized investment gains (losses) were as follows:
YEARS ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
Net gains on disposals of fixed maturity securities
available for sale $ 365 $ 19 $ 28
Net gains on disposal of equity securities available for sale 3 - -
------------------------------------------------------------------------------------------------------------------------
Net gains on disposal of securities available for sale $ 368 $ 19 $ 28
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
2. INVESTMENTS (CONTINUED)
---------------------------
Proceeds from sales of securities available for sale and gross gains and
losses realized on those sales were as follows:
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------
PROCEEDS GAINS LOSSES
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 16,419 $ 161 $ 8
Equity securities available for sale 252 2 -
-----------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 16,671 $ 163 $ 8
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
PROCEEDS GAINS LOSSES
-----------------------------------------------------------------------------------------------------------------------------
Fixed maturity securities available for sale $ 3,014 $ 30 $ -
-----------------------------------------------------------------------------------------------------------------------------
There were no disposals of fixed maturity securities available for sale
during 1995 other than calls or maturities.
The amortized cost and fair value of investments in securities by type of
investment were as follows:
DECEMBER 31, 1997
----------------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
----------------
COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------------------
U. S. Corporate $ 75,705 $ 2,024 $ 16 $ 77,713
Mortgage-backed 25,518 592 - 26,110
U.S. Treasury securities and obligations of
U.S. government agencies 11,935 221 24 12,132
---------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale 113,158 2,837 40 115,955
---------------------------------------------------------------------------------------------------------------------
Equity securities available for sale 4,061 74 - 4,135
---------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 117,219 $ 2,911 $ 40 $ 120,090
---------------------------------------------------------------------------------------------------------------------
The December 31, 1997 balance of stockholder's equity was increased by $463
(comprised of an increase in the carrying value of the securities of $2,298,
reduced by $1,584 of related adjustments to deferred acquisition costs and
$251 in deferred income taxes) to reflect the net unrealized gain on
securities classified as available for sale.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
2. INVESTMENTS (CONTINUED)
---------------------------
DECEMBER 31, 1996
-----------------------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Corporate $ 33,690 $ 437 $ 114 $ 34,013
Mortgage-backed 13,407 209 22 13,594
U.S. Treasury securities and obligations of
U.S. government agencies 14,951 158 95 15,014
----------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale $ 62,048 $ 804 $ 231 $ 62,621
----------------------------------------------------------------------------------------------------------------------
The December 31, 1996 balance of stockholder's equity was decreased by $307
(comprised of a decrease in the carrying value of the securities of $1,017,
reduced by $545 of related adjustments to deferred acquisition costs and
$165 in deferred income taxes) to reflect the net unrealized gain on
securities classified as available for sale.
The amortized cost and fair value of fixed maturity securities available for
sale by contractual maturity at December 31, 1997 are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
AMORTIZED FAIR
COST VALUE
-------------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 7,376 $ 7,427
Due after one year through five years 21,509 21,841
Due after five years through ten years 42,116 43,252
Due after ten years 16,639 17,325
Mortgage-backed securities 25,518 26,110
-------------------------------------------------------------------------------------------------------------------------
Total $ 113,158 $ 115,955
-------------------------------------------------------------------------------------------------------------------------
The Company purchases exchange and privately traded options to support
certain equity index annuity policyowner liabilities. These derivatives,
reflected as other invested assets, are used to manage fluctuations in the
equity market risk granted to the policyowners of the equity advantage
annuities. These derivatives involve, to varying degrees, elements of credit
risk and market risk. Credit risk is the risk of loss from a private party
failing to perform according to the terms of the contract. Market risk is the
possibility that future changes in market prices may make the derivative
less valuable, which offset guarantees granted to policyowners.
The options value on the balance sheet reflects the risk of potential loss to the
entity.
The Company's outstanding positions, which expire over various terms ranging
from 1 to 7 years, shown in notional or contract amounts, along with their
cost and estimated fair values, are summarized as follows:
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------------------------------
NOTIONAL FAIR
AMOUNT COST VALUE
--------------------------------------------------------------------------------------------------------------------------
Options $ 1,340 $ 1,544 $ 2,206
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
3. INCOME TAXES
----------------
The items that give rise to deferred tax assets and liabilities relate
to the following:
YEARS ENDED DECEMBER 31
---------------------------
1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized investment gains on securites available for sale $ 1,080 $ 277
Deferred policy acquisition costs 29,271 23,727
Prepaid expenses 804 172
-----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 31,155 24,176
-----------------------------------------------------------------------------------------------------------------------------
Future policy and contract benefits 20,014 12,620
Deferred future revenues 1,668 1,534
Other 147 101
-----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 21,829 14,255
-----------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 9,326 $ 9,921
-----------------------------------------------------------------------------------------------------------------------------
The difference between the U.S. federal income tax rate and the consolidated tax provision rate is summarized as
follows:
YEARS ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
Federal statutory tax rate 35.0 % 35.0 % 35.0 %
Other 2.9 4.3 0.2
-----------------------------------------------------------------------------------------------------------------------------
Effective tax rate 37.9 % 39.3 % 35.2 %
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
------------------------------
Affiliates provide technical, financial and legal support to the Company
under administrative service agreements. The cost of these services to the
Company for years ended December 3l, 1997, 1996 and l995 was $9,810, $8,907
and $4,858, respectively. The Company also leased office space and furniture
and equipment from affiliates during 1995. The cost of these leases to the
Company for the year ended December 31, 1995 was $37. Under the terms of
investment advisory agreements, the Company paid $144, $73, and $44 for the
years ended December 1997, 1996 and 1995, respectively to Ameritas
Investment Advisors Inc., an indirect wholly-owned subsidiary of Ameritas
Life Insurance Corp.
The Company entered into reinsurance agreements (yearly renewable term)
with affiliates. Under this agreement,these affiliates assume life
insurance risk in excess of the Company's retenton limit. These reinsurance
contracts do not relieve the Company of its obligations to its
policyowners. The Company paid $3,810, $3,301 and $2,280 of net reinsurance
premiums to affiliates for the years ended December 3l, 1997, 1996 and l995
respectively. The Company has received reinsurance recoveries from
affiliates of $2,260, $659 and $1,472 for the years ended December 3l,1997,
1996 and 1995 respectively.
The Company has entered into guarantee agreements with ALIC, AmerUs and
AMAL Corporation whereby, they guarantee the full, complete and absolute
performance of all duties and obligations of the Company.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
------------------------------------------
The Company's variable life and annuity products are distributed through
Ameritas Investment Corp., a wholly-owned subsidiary of AMAL Corporation.
The Company received $93, $54 and $192 for the years ended December 31,
1997, 1996 and 1995 respectively, from this affiliate to partially defray
the costs of materials and prospectuses. Policies placed by this affiliate
generated commission expense of $23,232, $20,373 and $14,028 for the years
ended December 31, 1997, 1996 and 1995 respectively.
Transactions with related parties are not necessarily indicative of revenues
and expenses which would have occurred had the parties not been related.
5. BENEFIT PLANS
-----------------
The Company provides retirement and postretirement medical benefits to
qualifying employees. Prior to August l, 1997 these benefits were provided
under plans which covered substantially all employees of Ameritas Life
Insurance Corp. and its subsidiaries. Concurrent with the transfer of a
significant number of employees to the Company, effective August 1, 1997,
AMAL Corporation assumed the benefit obligations associated with these
plans.
The Company is included in a multi-employer noncontributory defined benefit
plan that covers substantially all full-time employees of Ameritas Life
Insurance Corp. and its subsidiaries and AMAL Corporation and it's
subsidiaries. Pension costs include current service costs, which are accrued
and funded on a current basis, and post service costs, which are amortized
over the average remaining service life of all employees on the adoption
date. Total Company contributions for the year ended December 31, 1997 were
$29. The Company had no full time employees during 1996 or 1995.
The Company's employees also participate in a defined contribution thrift
plan that covers substantially all full time employees of Ameritas Life
Insurance Corp. and its subsidiaries. Company matching contributions under
the plan range from 1% to 3% of the participant's compensation. Total
Company contributions for the year ended December 31, 1997 were $24. The
Company had no full time employees during 1996 or 1995.
The Company is also included in the postretirement benefit plan providing
group medical coverage to retired employees of AMAL Corporation and it's
subsidiaries. Prior to August 1, 1997 these benefits were provided under a
plan with Ameritas Life Insurance Corp. These benefits are a specified
percentage of premium until age 65 and a flat dollar amount thereafter.
Employees become eligible for these benefits upon the attainment of age 55,
15 years of service and participation in the plan for the immediately
preceding 5 years. Benefit costs include the expected cost of
postretirement benefits for newly eligible employees, interest cost, and
gains and losses arising from differences between actuarial assumptions and
actual experience. Total Company contributions for the year ended December
31, 1997 were $5. The Company had no full time employees during 1996 or
1995.
Expenses for the defined benefit plan and postretirement group medical plan
are allocated to the Company based on the number of associates in AMAL
Corporation and its subsidiaries.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
6. STOCKHOLDER'S EQUITY
------------------------
Net income (loss), as determined in accordance with statutory accounting
practices, was $2,048, $855 and $(19) for 1997, 1996 and 1995 respectively.
The Company's statutory surplus was $45,265, $44,100 and $13,800 at
December 31, 1997, 1996 and 1995 respectively. Effective January 1, 1996
the Company changed reserving methods used for most existing products
resulting in an increase in statutory surplus of approximately $20,60l.
The Company is required to maintain a certain level of surplus to be in
compliance with state laws and regulations. Company surplus is monitored
by state regulators to ensure compliance with risk based capital
requirements.
Under statutes of the Insurance Department of the State of Nebraska, the
Company is limited in the amount of dividends it can pay to its stockholder.
On February 28, 1996 the Board of Directors declared a return of
paid-in-capital of $15,000 payable by way of a note due on or before August
15, 1996. The note was retired on August 15, 1996. This action was approved
by the State of Nebraska Insurance Department and any additional
distributions of capital or surplus will require approval of the Insurance
Department.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------
The following disclosures are made regarding fair value information about
certain financial instruments for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates, in many cases, may not be realized
in immediate settlement of the instrument. All nonfinancial instruments are
excluded from disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997 and 1996. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date;
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for each class of financial instrument for which
it is practicable to estimate a value:
FIXED MATURITY SECURITIES AVAILABLE FOR SALE -- For publicly traded
securities, fair value is determined using an independent pricing
source. For securities without a readily ascertainable fair value,
the value has been determined using an interest rate spread matrix
based upon quality, weighted average maturity and Treasury yields.
EQUITY SECURITIES AVAILABLE FOR SALE -- Fair value is determined
using an independent pricing source.
LOANS ON INSURANCE POLICIES -- Fair values for loans on insurance
policies are estimated using a discounted cash flow analysis at
interest rates currently offered for similar loans with similar
remaining terms. Loans on insurance policies with similar
characteristics are aggregated for purposes of the calculations.
OTHER INVESTED ASSETS -- Fair value is determined using an
independent pricing source.
CASH AND CASH EQUIVALENTS, ACCRUED INVESTMENT INCOME AND
REINSURANCE RECOVERABLE -- The carrying amounts equal fair value.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
--------------------------------------------------
ACCUMULATED CONTRACT VALUES -- Funds on deposit which do not have
fixed maturities are carried at the amount payable on demand at the
reporting date, which approximates fair value.
DECEMBER 31
----------------------------------------------------------------
1997 1996
---------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturity securities,
available for sale $115,955 $115,955 $ 62,621 $ 62,621
Equity securities, available for sale 4,135 4,135 - -
Loans on insurance policies 7,482 6,657 4,309 3,843
Other invested assets 2,206 2,206 - -
Cash and cash equivalents 13,711 13,711 10,684 10,684
Accrued investment income 1,801 1,801 1,096 1,096
Reinsurance recoverable - affiliates 514 514 9 9
Financial liabilities:
Accumulated contract values excluding amounts
held under insurance contracts 144,109 144,109 70,640 70,640
8. SEPARATE ACCOUNTS
--------------------
The Company is currently marketing variable life and variable annuity
products which have separate accounts as an investment option. Separate
Account V (Account V) was formed to receive and invest premium receipts
from variable life insurance policies issued by the Company. Separate
Account VA-2 (Account VA-2) was formed to receive and invest premium
receipts from variable annuity policies issued by the Company. Both
Separate Accounts are registered under the Investment Company Act of l940,
as amended, as unit investment trusts. Account V and VA-2's assets and
liabilities are segregated from the other assets and liabilities of the
Company.
Amounts in the Separate Accounts are:
DECEMBER 31
-------------------------------
1997 1996
-------------------------------------------------------------------------------------------------------------------------------
Separate Account V $ 197,729 $ 136,079
Separate Account VA-2 1,067,619 811,501
-------------------------------------------------------------------------------------------------------------------------------
$1,265,348 $ 947,580
-------------------------------------------------------------------------------------------------------------------------------
The assets of Account V are invested in shares of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, Alger American
Fund, Morgan Stanley Universal Funds and MFS Variable Insurance Trust.
Each fund is registered with the SEC under the Investment Company Act of
1940, as amended, as an open-end diversified management investment company.
The Variable Insurance Products Fund and the Variable Insurance Products
Fund II are managed by Fidelity Management and Research Company. The
Variable Insurance Products Fund has five portfolios: the Money Market
Portfolio, the High Income Portfolio, the Equity Income Portfolio, the
Growth Portfolio and the Overseas Portfolio. The Variable Insurance
Fund II has five portfolios: the Investment Grade Bond Portfolio,
Asset Manager Portfolio,
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
8. SEPARATE ACCOUNTS (CONTINUED)
--------------------------------
Contrafund Portfolio (effective August 25, 1995), Asset Manager Growth
Portfolio (effective September 15, 1995) and the Index 500 Portfolio
(effective September 21, 1995). The Alger American Fund is managed by Fred
Alger Management, Inc. and has six portfolios: Income and Growth Portfolio,
Small Capitalization Portfolio, Growth Portfolio, MidCap Growth Portfolio,
Balanced Portfolio and the Leveraged Allcap Portfolio (effective August 30,
1995). The Dreyfus Stock Index Fund is managed by Wells Fargo Nikko
Investment Advisors and has the Stock Index Fund Portfolio. The MFS Variable
Insurance Trust is managed by Massachusetts Financial Services Company. The
MFS Variable Insurance Trust has five portfolios: the Emerging Growth
Portfolio (effective August 25, 1995), World Governments Portfolio
(effective August 24, 1995), Utilities Portfolio (effective September 18,
1995), Growth with Income Portfolio (effective October 9, 1995) and the
Research Portfolio (effective July 26, 1995). The Morgan Stanley Universal
Funds managed by Morgan Stanley Asset Management Inc. and has five
portfolios: the Asian Equity Portfolio (effective March 3, 1997), Global
Equity Portfolio (effective January 2, 1997), International Magnum
Portfolio (effective January 21, 1997), Emerging Markets Portfolio
(effective October 1, 1996) and the U.S. Real Estate Portfolio (effective
March 3, 1997).
Pursuant to an order of the SEC allowing for the substitution, all
policyowner funds invested in a Portfolio of Dreyfus Stock Index Fund were
transferred to the Index 500 Portfolio of the Fidelity Variable Insurance
Products Fund II as of March 31, 1997. The Dreyfus Stock Index Portfolio
was an investment alternative through the date of transfer for policyowners
of Separate Account V and VA-2.
Separate Account VA-2 allows investment in the Variable Insurance Products
Fund, Variable Insurance Products Fund II, Alger American Fund, MFS
Variable Insurance Trust and the Morgan Stanley Universal Funds with the
same portfolios as described above.
