PROSPECTUS
AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO
FLEXIBLE PREMIUM One Ameritas Way / 5900 "O" Street
VARIABLE ANNUITY POLICY P.O. Box 82550 / Lincoln, NE 68501
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This Prospectus describes a Variable Annuity Policy ("Policy") offered by
Ameritas Variable Life Insurance Company ("AVLIC"). The Policy is a deferred
annuity, designed to aid individuals in long-term financial planning, and
provides for the accumulation of capital on a tax deferred basis for retirement
or other long-term purposes. The Policy is offered to individuals on either a
tax qualified or non-tax qualified basis in exchange for first-year premium
payments of $2,000 or more and subsequent premium payments of $500 or more.
Smaller premium payments may be accepted on Bank-O-Matic or at AVLIC's
discretion.
Prior to the annuity date of the policy, the payments accumulate on a completely
variable basis, based on the assets supporting the Policy. The owner will
receive annuity payments on a fixed basis. The owner has significant flexibility
in determining the annuity date on which payments are scheduled to commence.
Full withdrawals may be made at any time, elective , and systematic partial
withdrawals may be made subject to certain restrictions, before the annuity
date. Withdrawals are subject to a contingent deferred sales charge and tax
penalty in certain circumstances. Any withdrawal amount may be paid in a lump
sum or, if elected, all or part may be paid out under an annuity income option.
Policy loans are available from policies purchased in 403(b) plans. The Policy
provides the flexibility necessary to permit an owner to devise an annuity that
best fits his or her needs.
Premium payments will be allocated to the Ameritas Variable Life Insurance
Company Separate Account VA-2 ("Account") or to the Fixed Account. The initial
premium payment will be allocated to the Money Market Subaccount, as of the
effective date, for 13 days. After the expiration of the 13-day period (see page
19) the accumulation value will be allocated to the Subaccounts or to the Fixed
Account as selected by the Policyowner. The assets of each Subaccount are
invested in shares of a corresponding portfolio of one of the following mutual
funds (collectively, the "Funds"): Variable Insurance Products Fund and the
Variable Insurance Products Fund II, (respectively, "VIPF" and "VIPF II";
collectively "Fidelity Funds"); the Alger American Fund ("Alger American Fund");
MFS Variable Insurance Trust ("MFS Trust"); and Morgan Stanley Universal Funds,
Inc. ("Morgan Stanley Fund"). VIPF, which is managed by Fidelity Management &
Research Company ("Fidelity"), offers the following portfolios: Money Market,
Equity-Income, Growth, High Income and Overseas Portfolios. VIPF II, also
managed by Fidelity, offers the following portfolios: Asset Manager, Investment
Grade Bond, Asset Manager: Growth, Index 500, and Contrafund Portfolios. The
Alger American Fund, which is managed by Fred Alger Management, Inc. ("Alger
Management"), offers the following portfolios: Alger American Growth ("Growth"),
Alger American Income and Growth ("Income and Growth"), Alger American Small
Capitalization ("Small Capitalization"), Alger American Balanced ("Balanced"),
Alger American MidCap Growth ("MidCap Growth"), and Alger American Leveraged
AllCap ("Leveraged AllCap") Portfolios. The MFS Trust, managed by Massachusetts
Financial Services Company ("MFS Co."), 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. The Morgan Stanley
Fund offers the following portfolios in connection with the Policy, all of which
are managed by Morgan Stanley Asset Management Inc. ("MSAM"): Emerging Markets
Equity, Global Equity, International Magnum, Asian Equity and U.S. Real Estate
Portfolios. This prospectus is accompanied by prospectuses for each of the
Funds, which describe the investment objectives, policies and risk
considerations relating to the respective portfolios. The Policy accumulation
value will vary in accordance with the investment performance of the Subaccounts
selected by the owner. Therefore, the owner bears the entire investment risk of
monies placed in the Account under this Policy prior to the annuity date.
This Prospectus sets forth the information that a prospective investor should
know before investing. A Statement of Additional Information about the Policy
and the Account is available free by writing AVLIC at the address above or by
calling a Client Service Representative at 1-800-745-1112. The Statement of
Additional Information, which has the same date as this Prospectus, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. The table of contents of the Statement of Additional Information is
included at the end of this Prospectus.
This Prospectus Must Be Accompanied Or Preceded By Current Prospectuses For
Variable Insurance Products Fund, Variable Insurance Products Fund II, Alger
American Fund, MFS Variable Insurance Trust, and Morgan Stanley Universal Funds,
Inc.
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.
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, 1997.
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TABLE OF CONTENTS
Page
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Definitions............................................................. 3
Fee Table............................................................... 5
Questions and Answers About The Policy.................................. 8
Financial Statements ................................................... 11
Performance Data........................................................ 13
Ameritas Variable Life Insurance Company and the Account................ 13
Ameritas Variable Life Insurance Company................................ 13
Ameritas Variable Life Insurance Company Separate Account VA-2.......... 13
The Funds............................................................... 14
Investment Policies and Objectives of the Funds' Portfolios............. 15
Addition, Deletion or Substitution of Investments....................... 18
The Fixed Account....................................................... 18
The Policy.............................................................. 19
Policy Application and Premium Payment............................. 19
Allocation of Premium.............................................. 19
Accumulation Value................................................. 20
Value of Accumulation Units........................................ 20
Transfers.......................................................... 20
Owner Inquiries.................................................... 20
Refund Privilege................................................... 20
Policy Loans....................................................... 21
Charges and Deductions.................................................. 21
Administrative Charges............................................. 21
Mortality and Expense Risk Charge.................................. 22
Contingent Deferred Sales Charge................................... 22
Taxes.............................................................. 23
Fund Investment Advisory Fees and Expenses......................... 23
Distributions Under the Policy.......................................... 23
Full and Partial Withdrawals....................................... 23
Critical Needs Withdrawals......................................... 24
Annuity Date....................................................... 24
Death of Annuitant Prior to Annuity Date .......................... 24
Election of Annuity Income Options................................. 25
Annuity Income Options............................................. 25
Deferment of Payment............................................... 25
General Provisions...................................................... 26
Control of Policy.................................................. 26
Beneficiary........................................................ 26
Change of Beneficiary.............................................. 26
Contestability..................................................... 26
Misstatement of Age or Sex......................................... 26
Reports and Records................................................ 27
Federal Tax Matters..................................................... 27
Introduction....................................................... 27
Taxation of Annuities in General................................... 27
Distribution of the Policies............................................ 28
Safekeeping of the Account's Assets..................................... 28
Third Party Services.................................................... 29
Voting Rights........................................................... 29
Legal Proceedings....................................................... 29
Statement of Additional Information..................................... 29
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The Policy, certain portfolios, and certain provisions 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.
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DEFINITIONS
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 Account is kept
separate from that of the general assets of AVLIC.
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.
ANNUITANT - The person or persons upon whose life expectancy the Policy is
written. The annuitant may also be the owner of the Policy.
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.
BENEFICIARY - The person to whom any benefits due upon death of the annuitant
are paid. The beneficiary is designated by the owner in the application. If
changed, the beneficiary is as shown in the latest change filed and recorded
with AVLIC. If no beneficiary survives the annuitant, the owner or the owner's
estate will be the beneficiary. The interest of any beneficiary is subject to
that of any assignee.
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 a pro rata amount of
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 4.5%. AVLIC may, at its sole
discretion declare higher interest rates for amounts allocated or transferred to
the Fixed Account.
DUE 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.
EFFECTIVE DATE - The date that the premium payment is 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 - The Variable Insurance Products Fund ("VIPF"), Variable Insurance
Products Fund II ("VIPF II") (collectively the "Fidelity Funds"), the Alger
American Fund, ("Alger American Fund"), the 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 Account.
JOINT ANNUITANT - The person other than the annuitant who may be designated by
the owner and on whose life annuity payments may also be based.
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NET CASH SURRENDER VALUE - The cash surrender value less premium tax, if any.
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.
PAYEE - The owner, annuitant, beneficiary, or any other person, estate, or legal
entity to whom benefits are to be paid.
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.
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. VIPF offers the
following portfolios: Money Market, Equity-Income, Growth, High Income and
Overseas Portfolios. VIPF 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. 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 - Under the Policy, the first-year premium payment must be
$2,000 or more and subsequent payments must be $500 or more. Smaller premium
payments may be accepted on Bank-O-Matic or at AVLIC's discretion.
QUALIFIED POLICIES - Policies purchased in connection with certain plans that
qualify for special federal income tax treatment.
SUBACCOUNT - A subdivision of the Account. Each Subaccount invests exclusively
in the shares of a specified portfolio of the Fund.
SUCCESSOR OWNER - The person who may be designated by the owner and to whom
Policy ownership passes upon the owner's death.
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.
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FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
This table is to assist the Policyowner to understand the various costs and
expenses that the Policyowner will bear, directly and indirectly at both the
Separate Account and portfolio level. The table does not include possible state
premium taxes.
Sales Load Imposed on Purchases....................................... 0%
Contingent Deferred Sales Charge-on premiums paid only (Maximum)...... 6.0%
% Year % Year
6.................1 4..................5
6.................2 3..................6
6.................3 2..................7
5.................4 0..................8+
Surrender Fees........................................................ 0%
Exchange Fee.......................................................... 0%
Transfer Fee (after 12 free transfers annually)....................... $10
Annual Policy Fee (up to $50, currently $30).......................... $30
Annual Administrative Fees and Expenses............................... .20%
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE).
Mortality and Expense Risk Fees....................................... 1.25%
(See "Charges and Deductions," page 19.)
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, 1996, was as follows:
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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
<S> <C> <C> <C>
FIDELITY
Money Market .21% .09% .30%
Equity-Income .51% .05% .56%(1)
Growth .61% .06% .67%(1)
High Income .59% .12% .71%
Overseas .76% .16% .92%(1)
Asset Manager .64% .09% .73%(1)
Investment Grade Bond .45% .13% .58%
Asset Manager: Growth .65% .20% .85%(1)
Index 500 .13% .15% .28%(2)
Contrafund .61% .10% .71%(1)
ALGER AMERICAN (3)
Growth .75% .04% .79%
Income and Growth .625% .185% .81%
Small Capitalization .85% .03% .88%
Balanced .75% .39% 1.14%
MidCap Growth .80% .04% .84%
Leveraged AllCap .85% .24% 1.09%
</TABLE>
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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
<S> <C> <C> <C>
MFS
Emerging Growth .75% .25%(4) 1.00%(5)
Utilities .75% .25%(4) 1.00%(5)
World Governments .75% .25%(4) 1.00%(5)
Research .75% .25%(4) 1.00%(5)
Growth With Income .75% .25%(4) 1.00%(5)
MORGAN STANLEY
Emerging Markets Equity(6) 1.25% .50% 1.75%
Global Equity(7) .80% .35% 1.15%
International Magnum(7) .80% .35% 1.15%
Asian Equity(7) .80% .40% 1.20%
U.S. Real Estate(7) .80% .30% 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, .93% for Overseas Portfolio, .74%
for Asset Manager Portfolio, .74% for Contrafund Portfolio, and .87%
for Asset Manger: 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 .28%,
.15% and .43% respectively, on an annualized basis.
(3) 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 .03% 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 .41% and 1.16%, respectively,
for the Emerging Growth Series; 2.00% and 2.75%, respectively, for the
Utilities Series; 1.28% and 2.03%, respectively, for the World
Governments Series; .73% and 1.48%, respectively, for the Research
Series; and 1.32% and 2.07%, 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) 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 1.25%, 4.92%, and 6.17%, respectively.
(7) This is an estimate of expenses for the fiscal year ending December 31,
1997. MSAM has agreed to a reduction in management fees and to
reimburse each portfolio if necessary, if such fees would cause the
total annual operating expenses to exceed the percentage indicated.
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.
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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.
1 year 3 years 5 years 10 years
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<S> <C> <C> <C> <C>
Money Market $79 $117 $139 $213
Equity-Income $81 $125 $152 $240
Growth $82 $129 $157 $251
High Income $83 $130 $159 $255
Overseas $85 $136 $170 $277
Asset Manager $83 $130 $160 $257
Investment Grade Bond $81 $126 $153 $242
Asset Manager: Growth $84 $134 $166 $270
Index 500 $78 $117 $138 $211
Contrafund $83 $130 $159 $255
Alger American Growth $83 $132 $163 $263
Alger American Income and Growth $84 $133 $164 $266
Alger American Small Capitalization $84 $135 $168 $273
Alger American Balanced $87 $143 $181 $298
Alger American MidCap Growth $84 $134 $166 $269
Alger American Leveraged AllCap $86 $141 $178 $293
MFS Emerging Growth $86 $138 $174 $284
MFS Utilities $86 $138 $174 $284
MFS World Governments $86 $138 $174 $284
MFS Research $86 $138 $174 $284
MFS Growth With Income $86 $138 $174 $284
Morgan Stanley Emerging Markets Equity $93 $161 $211 $356
Morgan Stanley Global Equity $87 $143 $181 $299
Morgan Stanley International Magnum $87 $143 $181 $299
Morgan Stanley Asian Equity $88 $144 $184 $304
Morgan Stanley U.S. Real Estate $87 $141 $179 $294
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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.
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market $79 $57 $99 $213
Equity-Income $81 $65 $112 $240
Growth $82 $69 $117 $251
High Income $83 $70 $119 $255
Overseas $85 $76 $130 $277
Asset Manager $83 $70 $120 $257
Investment Grade Bond $81 $66 $113 $242
Asset Manager: Growth $84 $74 $126 $270
Index 500 $78 $57 $98 $211
Contrafund $83 $70 $119 $255
Alger American Growth $83 $72 $123 $263
Alger American Income and Growth $84 $73 $124 $266
Alger American Small Capitalization $84 $75 $128 $273
Alger American Balanced $87 $83 $141 $298
Alger American MidCap Growth $84 $74 $126 $269
Alger American Leveraged AllCap $86 $81 $138 $293
MFS Emerging Growth $86 $78 $134 $284
MFS Utilities $86 $78 $134 $284
MFS World Governments $86 $78 $134 $284
</TABLE>
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MFS Research $86 $78 $134 $284
MFS Growth With Income $86 $78 $134 $284
Morgan Stanley Emerging Markets Equity $93 $101 $171 $356
Morgan Stanley Global Equity $87 $83 $141 $299
Morgan Stanley International Magnum $87 $83 $141 $299
Morgan Stanley Asian Equity $88 $84 $144 $304
Morgan Stanley U.S. Real Estate $87 $81 $139 $294
</TABLE>
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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.
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market $19 $57 $99 $213
Equity-Income $21 $65 $112 $240
Growth $22 $69 $117 $251
High Income $23 $70 $119 $255
Overseas $25 $76 $130 $277
Asset Manager $23 $70 $120 $257
Investment Grade Bond $21 $66 $113 $242
Asset Manager: Growth $24 $74 $126 $270
Index 500 $18 $57 $98 $211
Contrafund $23 $70 $119 $255
Alger American Growth $23 $72 $123 $263
Alger American Income and Growth $24 $73 $124 $266
Alger American Small Capitalization $24 $75 $128 $273
Alger American Balanced $27 $83 $141 $298
Alger American MidCap Growth $24 $74 $126 $269
Alger American Leveraged AllCap $26 $81 $138 $293
MFS Emerging Growth $26 $78 $134 $284
MFS Utilities $26 $78 $134 $284
MFS World Governments $26 $78 $134 $284
MFS Research $26 $78 $134 $284
MFS Growth With Income $26 $78 $134 $284
Morgan Stanley Emerging Markets Equity $33 $101 $171 $356
Morgan Stanley Global Equity $27 $83 $141 $299
Morgan Stanley International Magnum $27 $83 $141 $299
Morgan Stanley Asian Equity $28 $84 $144 $304
Morgan Stanley U.S. Real Estate $27 $81 $139 $294
</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.
QUESTIONS AND ANSWERS ABOUT THE POLICY
NOTE: The following section contains brief questions and answers about the
Policy. Reference should be made to the body of this Prospectus for more
detailed information. With respect to qualified policies, it should be noted
that the requirements of a particular retirement plan, an endorsement of the
Policy, or limitations or penalties imposed by the Internal Revenue Code may
impose limits or restrictions on premiums, withdrawals, distributions, or
benefits, or on other provisions of the Policies, and this Prospectus does not
describe any such limitations or restrictions. See "Federal Tax Matters," page
27. Also "you" or "your" refers to the owner; "we," "us" or "our" refers to
Ameritas Variable Life Insurance Company.
1. WHAT IS THE PURPOSE OF THE POLICY?
The Policy seeks to allow you to accumulate funds based on the investment
experience of the assets underlying the Policy, in the Account or the Fixed
Account, on a tax-deferred basis and to receive annuity payments when
desired.
<PAGE>
Once payments commence under an annuity income option, the annuity
payments do not depend on the investment experience of the Policy's
underlying assets. Instead, the amount of the payments is set as of the
annuity date and does not change over the annuity payment period, unless an
interest payment option is selected. 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"). The owner can allocate premium
payments to one or more Subaccounts of the Ameritas Variable Life Insurance
Company Separate Account VA-2 (the "Subaccounts"), each of which will
invest in a corresponding portfolio of the Funds, or to the Fixed Account.
Because the accumulation value depends on the investment experience of
the selected Subaccounts, the owner bears the investment risk under this
Policy for monies placed in Subaccounts prior to the annuity date.
2. WHAT IS AN ANNUITY AND WHAT ANNUITY OPTIONS ARE AVAILABLE?
An annuity provides for a series of periodic payments beginning on the
annuity date, based on the net cash surrender value on the annuity date, to
be paid to the designated payee. The owner may select from a number of
annuity income options, including annuity payments for the life of an
annuitant (or an annuitant and another person, the joint annuitant) with or
without a guaranteed number of annuity payments, or for a designated
period, for a designated amount, or for an interest payment option. The
annuity payments remain the same throughout the payment period, unless an
interest payment option is selected.
The owner also has some flexibility in choosing the annuity date; however,
without AVLIC's prior approval, payments must begin no later than the first
day of the month after the annuitant's 95th birthday (90th in Oregon). (See
"Annuity Date," page 24 and "Annuity Income Options," page 25.)
3. WHAT TYPES OF INVESTMENTS UNDERLIE THE ACCOUNT?
Currently, the assets supporting the Policies prior to the annuity date are
invested exclusively in shares of the Funds or in the Fixed Account. VIPF
offers the following portfolios: Money Market, Equity-Income, Growth, High
Income and Overseas Portfolios. VIPF 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. 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. Each of the twenty-six Subaccounts
of the Account invests 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 and policies which are
described in the accompanying prospectuses for the Funds.
(See "The Funds," page 14).
4. INVESTMENTS IN THE FIXED ACCOUNT.
Premium payments allocated 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 (4.5%) or at higher "declared rates." (See "Fixed
Account," page 18).
5. HOW DO I PURCHASE A POLICY?
You may purchase a Policy with a first-year premium payment of at least
$2,000. You may make subsequent premium payments of $500 or more. Smaller
premium payments may be accepted on Bank-O-Matic or at AVLIC's discretion.
The total of all premium payments made under annuity contracts having the
same annuitant may not exceed $1,000,000 without AVLIC's prior approval.
(See "Policy Application and Premium Payment," page 19.)
6. HOW MAY I ALLOCATE THE PREMIUM PAYMENT?
On the effective date of the Policy, the premium paid is allocated to the
Money Market Subaccount. Thirteen days after the effective date, the
accumulation value is allocated among the Subaccounts or Fixed Account in
accordance with the allocation instructions designated by the owner in the
application. (See "Allocation of Premium," page 19.)
7. CAN I TRANSFER AMOUNTS?
Transfers of the accumulation value among the Subaccounts of the Account
can be made 12 times each policy year without charge. A transfer charge may
be imposed each additional time amounts are transferred between
Subaccounts. This charge will be deducted pro rata from each Subaccount
(and if applicable, the Fixed Account) in which the Policyowner is
invested. The maximum transfer charge is $10.00 per transfer. Transfers
must be at least $250, or, if less, the entire value of the Subaccount
from which the transfer is made. The minimum amount which can remain
in a Subaccount as a result of a transfer is $100.00. Any amount below
this minimum must be included in the amount transferred. Transfers may also
be made from the Subaccounts to the Fixed Account. Up to one hundred
percent of the amount deposited in the Fixed Account plus interest thereon
may be transferred out of the Fixed Account during the 30 day period
following the yearly anniversary of the date of the policy.
<PAGE>
Transfers from the Fixed Account are free and will not be considered one
of the 12 free yearly transfers. (See "Transfers," page 20.)
8. CAN I GET TO MY MONEY IF I NEED IT?
All or part of the accumulation value of the Policy may be withdrawn before
the earlier of the annuitant's death or the annuity date. Policy loans are
available from policies purchased in 403(b) plans. The withdrawal right may
be restricted by Section 403(b)(11) of the IRS code, if the annuity is used
in connection with a Section 403(b) retirement plan. Amounts withdrawn may
also be subject to a contingent deferred sales charge depending upon the
size of the withdrawal, the Policy accumulation value, and the time since
the Policy premiums were deposited. A policyowner may withdraw that portion
of the policy accumulation value that exceeds the total premiums deposited
without a contingent deferred sales charge. Thereafter, unless waived, a
contingent deferred sales charge is assessed only on premiums paid based
upon the number of years since the 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. (See "Contingent
Deferred Sales Charge," page 22.) WE GUARANTEE THAT THIS CHARGE WILL NOT BE
INCREASED. In addition, upon a full withdrawal the owner will be assessed a
pro rata portion of the annual policy fee. (See "Annual Policy Fee," page
21.) Certain withdrawals may also be subject to a federal penalty tax as
well as federal income tax. (See "Federal Tax Matters," page 27.) Full or
partial withdrawals from the Fixed Account may be deferred for up to 6
months from the date of written request.
9. WHAT ARE THE CHARGES UNDER MY POLICY?
In order to permit investment of the entire premium payment, we currently
do not deduct sales charges at the time of investment. However, unless
waived, a contingent deferred sales charge, as described above, is imposed
on certain full or partial withdrawals of the Policies and annuitization to
cover certain expenses relating to the sale of the Policies, including
commissions to registered representatives and other promotional expenses.
(See "Contingent Deferred Sales Charge," page 22.) We will, when taxes,
including premium taxes, are imposed by state law upon the receipt of the
premium payment, deduct such taxes on receipt of the payment. If, instead,
premium taxes are imposed upon annuitization, such taxes will be deducted
at that time. (See "Taxes," page 23.) In addition, an annual administration
fee of .20% of the year end balance of the accumulation value is deducted
to cover administrative expenses, and the policyowner may be charged a
$10.00 per transfer fee after the 12 free transfers of each policy. (See
"Annual Administration Fee," and "Transfers," pages 21 and 20.) Certain
other charges are deducted under the Policy to cover administrative
expenses of operating the Policy and mortality and expense risks. These
charges include a daily charge at the annual rate of 1.25% of average daily
net assets of the Account plus an annual charge which is currently $30.00.
Mortality and expense risk charges are not charged against the Fixed
Account. (See "Mortality and Expense Risk Charge," page 22 and "Annual
Policy Fee," page 21.)
10. WHAT HAPPENS IF THE ANNUITANT DIES BEFORE THE ANNUITY DATE?
In the event that the annuitant dies prior to the annuity date, upon due
proof of death, the death benefit becomes payable. The death benefit may be
paid as either a lump sum cash benefit or under an annuity income option.
(See "Death of Annuitant Prior to Annuity Date," page 24.)
11. WHAT HAPPENS IF THE OWNER DIES BEFORE THE ANNUITY DATE?
In the event that the owner (or joint owner) dies prior to the annuity
date, his or her entire interest in the Policy will be distributed within
five years after the date of death. If the person to whom ownership passes,
the owner's designated beneficiary, chooses to take his or her interest as
an annuity, to be paid to himself or herself or for his or her benefit,
then under certain circumstances, that portion is treated as distributed on
the date distributions begin. Special rules apply where the owner's
designated beneficiary is the surviving spouse of the deceased owner.
(These provisions are described in greater detail in the Statement of
Additional Information - see "IRS Required Distributions," page 7.)
12. CAN THE POLICY BE RETURNED AFTER IT IS DELIVERED?
The owner is granted a period of time to examine a Policy and return it for
a refund. The owner may cancel the Policy within the period specified on
the policy form, which is within 10 days after the owner receives the
Policy, unless the particular state in which the Policy is sold requires a
longer period. The refund will be the greater of the premiums paid or the
premiums paid adjusted by investment gains and losses. (See "Refund
Privilege," page 20.)
13. WHO DO I CALL IF I HAVE QUESTIONS ABOUT MY ANNUITY?
Any questions about procedures or your Policy will be answered by us at One
Ameritas Way, 5900 "O" Street, P.O. Box 82550, Lincoln, Nebraska, 68501, or
by calling 1-800-745-1112. All inquiries should include the policy number
and the owner's name. In addition, confirmations will be mailed to the
owner for any transactions that take place, and an annual report will be
sent once each policy year showing the accumulation value in each
Subaccount, and any charges, transfers or withdrawals during the year.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
The financial statements for AVLIC and the Account (as well as the auditors'
report thereon) are in the Statement of Additional Information.
ACCUMULATION UNIT VALUES
- ------------------------
Following are the accumulation unit values for the Subaccounts as of October 23,
1987, when the Account commenced business; December 31, 1987, 1988, 1989, 1990,
1991, 1992, 1993, 1994, 1995 and 1996. The number of outstanding accumulation
units in each Subaccount as of December 31, 1987, 1988, 1989, 1990, 1991, 1992,
1993, 1994, 1995 and 1996 are also shown:
ACCUMULATION UNIT
AS OF: 10-23-87 12-31-87 12-31-88 12-31-89 12-31-90 12-31-91 12-31-92 12-31-93 12-31-94 12-31-95 12-31-96
-------- -------- -------- -------- -------- --------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market - - 1.020 1.099 1.173 1.000 1.262 1.286 1.325 1.385 1.442
Equity-Income - - 11.315 13.118 10.971 11.850 16.460 19.217 20.322 27.112 30.599
Growth 9.840 10.364 11.853 15.380 13.399 18.510 20.795 24.517 24.207 32.375 36.673
High Income 9.500 9.742 10.750 10.167 9.797 9.550 15.910 18.938 18.414 21.896 24.658
Overseas 9.240 9.457 10.099 12.597 12.216 13.100 11.507 15.601 15.674 16.964 18.967
Asset Manager* - - - - 10.523 12.550 14.076 16.830 15.609 18.030 20.407
Inv. Grade Bond** - - - - - 11.080 12.074 13.232 12.577 14.574 14.851
Asset Manager:
Growth***** - - - - - - - - - 12.270 14.536
Index 500***** - - - - - - - - - 75.455 91.522
Contrafund***** - - - - - - - - - 13.903 16.657
Alger American
Growth*** - - - - - - 20.017 24.209 24.259 32.678 36.580
Income and
Growth*** - - - - - - 13.831 15.073 13.654 18.224 21.541
Small Cap*** - - - - - - 27.043 30.286 28.603 40.773 41.950
Balanced**** - - - - - - - 11.499 10.872 13.813 15.028
MidCap**** - - - - - - - 13.563 13.190 18.820 20.796
Leveraged
AllCap***** - - - - - - - - - 17.358 19.207
MFS Emerging
Growth***** - - - - - - - - - 11.693 13.514
MFS Utilities***** - - - - - - - - - 13.345 15.620
MFS World
Governments***** - - - - - - - - - 11.184 11.489
MFS Research****** - - - - - - - - - - -
MFS Growth
With Income****** - - - - - - - - - - -
Emerging Markets
Equity****** - - - - - - - - - - -
Global Equity******
International - - - - - - - - - - -
Magnum******
Asian Equity****** - - - - - - - - - - -
U.S. Real - - - - - - - - - - -
Estate******
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF ACCUMULATION UNITS
OUTSTANDING
AS OF: 12-31-87 12-31-88 12-31-89 12-31-90 12-31-91 12-31-92 12-31-93
----------- ------------ ------------ ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market - 157,416.729 208,280.871 11,911,544.496 15,150,911.120 23,516,860.733 24,394,597.763
Equity-Income - 15,337.513 79,609.928 536,146.361 873,089.237 1,090,217.227 1,692,367.958
Growth 1,251.918 3,944.769 4,476.273 344,241.440 832,635.695 1,058,120.400 1,930,905.248
High Income 155.907 15,646.599 52,878.092 75,439.485 429,942.219 404,678.129 780,485.192
Overseas 109.209 2,271.707 72,009.171 214,204.062 261,859.646 452,257.534 1,680,013.325
Asset Manager* - - - 187,701.160 1,037,390.785 2,461,567.482 5,540,619.649
Inv. Grade Bond** - - - - 151,044.569 799,187.033 1,220,611.462
Asset Manager:
Growth***** - - - - - - -
Index 500***** - - - - - - -
Contrafund***** - - - - - - -
Alger American
Growth*** - - - - - 61,910.658 166,606.094
Income and
Growth*** - - - - - 33,407.531 98,620.982
Small Cap*** - - - - - 222,600.706 539,880.302
Balanced**** - - - - - - 34,686.690
MidCap**** - - - - - - 91,504.219
Leveraged
AllCap***** - - - - - - -
MFS Emerging
Growth***** - - - - - - -
MFS Utilities***** - - - - - - -
MFS World
Governments***** - - - - - - -
MFS Research****** - - - - - - -
MFS Growth - - - - - - -
With Income****** - - - - - - -
Emerging Markets
Equity****** - - - - - - -
Global Equity****** - - - - - - -
International
Magnum****** - - - - - - -
Asian Equity****** - - - - - - -
U.S Real
Estate****** - - - - - - -
</TABLE>
<TABLE>
<CAPTION>
12-31-94 12-31-95 12-31-96
--------------- -------------- ----------------
<S> <C> <C> <C>
Money Market 48,755,227.272 41,390,848.004 38,305,988.303
Equity-Income 2,332,200.380 4,341,950.825 4,005,999.533
Growth 2,448,226.330 2,680,503.815 2,841,801.470
High Income 1,076,076.694 1,638,820.985 1,983,835.169
Overseas 2,050,429.513 2,693,065.371 2,676,510.350
Asset Manager* 7,758,786.284 6,384,770.138 5,829,761.845
Inv. Grade Bond** 1,185,301.883 1,584,105.144 1,649,736.501
Asset Manager:
Growth***** - 18,219.455 131,061.318
Index 500***** - 8,789.710 136,170.960
Contrafund***** - 179,239.249 1,297,694.248
Alger American
Growth*** 641,126.689 743,312.674 999,195.999
Income and
Growth *** 172,001.664 366,345.060 453,812.266
Small Cap*** 671,144.393 1,084,733.736 1,182,697.070
Balanced**** 94,786.818 182,890.799 268,181.328
MidCap**** 268,394.026 793,128.739 1,089,363.623
Leveraged
All Cap***** - 59,364.752 188,702.059
MFS Emerging
Growth***** - 80,881.596 874,037.108
MFS Utilities***** - 40,557.341 191,935.241
MFS World
Governments***** - 15,779.622 68,811.144
MFS Research****** - - -
MFS Growth - - -
With Income****** - - -
Emerging Markets
Equity****** - - -
Global Equity****** - - -
International
Magnum****** - - -
Asian Equity****** - - -
U.S Real
Estate****** - - -
</TABLE>
* No activity prior to December 31, 1989.
** No activity prior to December 31, 1990.
*** No activity prior to December 31, 1991.
**** No activity prior to December 31, 1992.
***** No activity prior to December 31, 1994.
****** No activity prior to December 31, 1996.
<PAGE>
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.
AVLIC AND THE ACCOUNT
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's financial
statements may be found at page 10 of the Statement of Additional Information.
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 One Ameritas Way, 5900 "O" Street, P.O. Box
82550, Lincoln, Nebraska 68501.
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, 1996 of over
$2.9 billion. AmerUs Life had total assets as of December 31, 1996 of over
$4.3 billion.
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 Policyowners, 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, tax-deference and other investment methods.
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
AVLIC established the Ameritas Variable Life Insurance Company Separate Account
VA-2 (the "Account") on May 28, 1987, under Nebraska law as a separate
investment account. This Account holds assets that are segregated from all of
AVLIC's other assets and are not chargeable with liabilities arising out of any
other business AVLIC may conduct. Income, gains, or losses of the Account are
credited without regard to other income, gains, or losses of AVLIC. Although the
assets maintained in the Account will not be charged with any liabilities
arising out of AVLIC's other business, all obligations arising under the
policies are liabilities of AVLIC who will at all times maintain assets in the
Account with a total market value at least equal to the reserve and other
contract liabilities for the Account. The Account will at all times contain
assets equal to or greater than account values invested in the separate account.
Nevertheless, to the extent assets in the Account exceed AVLIC's liabilities in
the Account, AVLIC may, from time to time, withdraw the assets available to
cover general account obligations.
<PAGE>
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any SEC
supervision of the management or investment policies or practices of the
Account. For state law purposes, the Account is treated as a Division of AVLIC.
THE FUNDS
There are currently twenty-six Subaccounts within the Account available to
Policyowners for new allocations. Each Subaccount of the Account will invest
only in the shares of a corresponding portfolio of the VIPF, VIPF II, The Alger
American Fund, the MFS Fund and the Morgan Stanley Universal Funds (collectively
the "Funds".) Each Fund is registered with the SEC under the Investment Company
Act of 1940 as an open-end management investment company.
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.
The investment objectives and policies of each portfolio are summarized below.
There is no assurance that any of the portfolios will achieve their stated
objectives. More detailed information, including a description of investment
objectives, policies, restrictions, expenses and risks, is in the prospectuses
for each of the Funds, which must accompany or precede this Prospectus. All
underlying fund information, including Fund prospectuses, has been provided to
AVLIC by the underlying Funds. AVLIC has not independently verified this
information. One or more of the Portfolios may employ investment techniques that
involve certain risks, including investing in non-investment grade, high risk
debt securities, entering into repurchase agreements and reverse repurchase
agreements, lending portfolio securities, engaging in "short sales against the
box," investing in instruments issued by foreign banks, entering into firm
commitment agreements and investing in warrants and restricted securities. In
addition, certain of the portfolios may invest in securities of foreign issuers.
The Leveraged AllCap Portfolio may borrow money to increase its portfolio of
securities, and may purchase or sell options and enter into futures contracts on
securities indexes to increase gain or to hedge the value of the Portfolio.
Certain of the portfolios are permitted to invest a portion of their assets in
non-investment grade, high risk debt securities; these portfolios include The
High Income, Equity-Income, Asset Manager: Growth, Asset Manager Portfolios of
the Fidelity Funds, and the Research Portfolio of the MFS Fund. Certain
portfolios are designed to invest a substantial portion of their assets
overseas, such as the Overseas Portfolio of VIPF and the International Magnum
Portfolio of the Morgan Stanley Fund. Other portfolios invest primarily in the
securities markets of emerging nations. Investments of this type involve
different risks than investments in more established economies, and will be
affected by greater volatility of currency exchange rates and overall economic
and political factors. Such portfolios include the Emerging Markets Equity and
Asian Equity Portfolios of the Morgan Stanley Fund. The Emerging Markets Equity
Portfolio may also invest in non-investment grade, high risk debt securities and
securities of Russian companies. Investment in Russian companies may involve
risks associated with that nation's system of share registration and custody.
Securities of non-U.S. issuers (including issuers in emerging nations) may also
be purchased by each of the portfolios of the MFS Trust and the Global Equity
Portfolio of the Morgan Stanley Fund. Investments acquired by the U.S. Real
Estate Portfolio of the Morgan Stanley Fund may be subject to the risks
associated with the direct ownership of real estate and direct investments in
real estate investment trusts. Further information about the risks associated
with investments in each of the Funds and their respective portfolios is
contained in the prospectus relating to that Fund. These prospectuses, together
with this Prospectus, should be read carefully and retained.
Each Policyowner should periodically consider the allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investing in the Funds' various portfolios.
The Account will purchase and redeem shares from the Funds at net asset value.
Shares will be redeemed to the extent necessary for AVLIC to collect charges,
pay the Surrender Values, partial withdrawals, and make policy loans or to
transfer assets among Investment Options as requested by Policyowners. Any
dividend or capital gain distribution received from a portfolio of the Funds
will be reinvested immediately at net asset value in shares of that portfolio
and retained as assets of the corresponding Subaccount.
Since each of the Funds is designed to provide investment vehicles for variable
annuity and variable life insurance contracts of various insurance companies and
will be sold to separate accounts of other insurance companies as investment
vehicles for various types of variable life insurance policies and variable
annuity contracts, there is a possibility that a material conflict may arise
between the interests of the Account and one or 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. The risks
of such mixed and shared funding are described further in the prospectuses of
the Funds.
<PAGE>
<TABLE>
<CAPTION>
FIDELITY FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Money Market1 High-quality U.S. dollar denominated money market Seeks to obtain as high a level of current
instruments of domestic and foreign Issuers. income as is consistent with preserving
(Commercial Paper, Certificate of Deposit.) capital and providing liquidity.
Equity-Income1 At least 65% in income producing common or preferred Seeks reasonable income by investing primarily
stock. The remainder will normally be invested in in income producing equity securities. The goal
convertible and non-convertible debt obligations. is to achieve a yield in excess of the composite
yield of the Standard & Poor's 500 Composite
Stock Price Index.
Growth1 Portfolio purchases normally will be common stocks of Seeks to achieve capital appreciation by
both well-known established companies and smaller, investing primarily in common stocks.
less-known companies, although the investments are
not restricted to any one type of security.
Dividend income will only be considered if it might
have an effect on stock values.
High Income1 At least 65% in income producing debt Seeks to obtain a high level of current income
securities and preferred stocks, up to 20% in common by investing in high income producing lower-
stocks and other equity securities, and up to 15% rated debt securities (sometimes called "junk
in securities subject to restriction on resale. bonds"), preferred stocks including covertible
securities and restricted securities.
Overseas1 At least 65% invested in securities of issuers Seeks long-term growth of capital primarily
outside of North America. Most issuers will be through investments in foreign securities.
located in developed countries in the Americas, the
Far East and Pacific Basin, Scandinavia and
Western Europe. While the primary purchases will be
common stocks, all types of securities may be
purchased.
Asset Manager2 Equities (Growth, High Dividends, Utility), bonds Seeks to obtain high total return with reduced
(Government, Agency, Mortgage backed, Convertible risk over the long term by allocating its assets
and Zero Coupon) and money market instruments. among domestic and foreign stocks, bonds, and
short-term fixed-income securities.
Investment A portfolio of investment grade fixed-income Seeks as high a level of current income as is
Grade Bond2 securities with a dollar weighted average maturity consistent with the preservation of capital.
of less than ten years.
Asset Manager: Focuses on stocks for high potential returns but also Seeks to maximize total return by allocating its
Growth2 purchases bonds and short-term instruments. assets among foreign and domestic stocks, bonds,
short-term instruments and other investments.
Index 500 2 At least 80% (65% if fund assets are below Seeks investment results that correspond to the
$20 million) in equity securities of companies that total return of common stocks of companies that
compose the Standard & Poor's 500. Also purchases compose the Standard & Poor's 500.
short-term debt securities for cash management
purposes and uses various investment techniques, such
as futures contracts, to adjust its exposure to the
Standard & Poor's 500.
Contrafund2 Portfolio purchases will normally be common stock or Seeks long-term capital appreciation.
securities convertible into common stock of companies
believed to be undervalued due to an overly
pessimistic appraisal by the public.
</TABLE>
1 VIPF
2 VIPF II
<PAGE>
<TABLE>
<CAPTION>
ALGER
AMERICAN FUND
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Growth The Portfolio will invest its assets in companies Seeks long-term capital appreciation.
whose securities are traded on domestic stock
exchanges or in the over-the-counter market. Except
during temporary defensive periods, the Portfolio
will invest at least 65% of its total assets in the
securities of companies that have a total market
capitalization of $1 billion or greater.
Income and The Portfolio attempts to invest 100% of its Seeks to provide a high level of dividend
Growth assets, and except during temporary defensive periods, income to the extent consistent with prudent
it is a fundamental policy of the Portfolio to investment management. Capital appreciation
invest, at least 65% of its total assets in dividend is a secondary objective of the Portfolio.
paying equity securities.
Small Capitalization Except during temporary defensive periods, the Seeks long-term capital appreciation.
Portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of
purchase of the securities, have total market
capitalization within the range of companies
included in the Russell 2000 Growth Index or the S& P
SmallCap 600 Index, updated quarterly. The Portfolio
may invest up to 35% of its total assets in equity
securities of companies that, at the time of purchase,
have total market capitalization outside the range of
companies included in those Indexes and in excess of
that amount (up to 100% of its assets) during
temporary defensive periods.
Balanced The Portfolio will invest its assets in common stocks Seeks current income and long-term capital
and investment grade preferred stock and debt appreciation by investment in common stocks
securities as well as securities convertible and fixed income securities, with emphasis
into common stocks. Except during defensive periods, on income producing securities which appear to
it is anticipated that 25% of the portfolio assets have some potential for capital appreciation.
will be invested in fixed income senior securities.
MidCap Growth Except during temporary defensive periods, the Seeks long-term capital appreciation.
Portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of
purchase of the securities, have total market
capitalization within the range of companies included
in the S&P MidCap 400 Index, updated quarterly.
The S&P MidCap 400 Index is designed to track the
performance of medium capitalization companies. The
Portfolio may invest up to 35% of its total assets
in securities that, at the time of purchase, have
total market capitalization outside the range of
companies included in the S&P MidCap 400 Index and in
excess of that amount (up to 100% of its assets)
during temporary defensive periods.
Leveraged AllCap Invests at least 85% of net assets in equity Seeks long-term capital appreciation.
securities of companies of any size, except during
defensive periods. May purchase put and call
options and sell covered options to increase gain
and to hedge. May enter into futures contracts and
purchase and sell options on these futures
contracts. May also borrow money for purchase of
additional securities.
<PAGE>
MFS FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
Emerging Growth Series At least 80% normally will be invested in equity Seeks to provide long-term capital growth;
securities of emerging growth companies. Up to 25% dividend and interest income is incidental.
may be invested in foreign securities not including
ADRs.
Utilities Series At least 65%, but up to 100% normally will be Seeks capital growth and current income (above
invested in equity and debt securities of both that available from a portfolio invested
domestic and foreign companies in the utilities entirely in equity securities).
industry. Normally, not more than 35% will be
invested in equity and debt securities of
issuers in other industries, including foreign
securities, emerging market securities and non-dollar
denominated securities.
World Governments Series At least 80% normally will be invested in debt Seeks to provide long-term growth of capital and
securities. May invest up to 100% of assets in future income.
foreign securities, including emerging market
securities.
Research Series Invests in common stocks or securities convertible Seeks to provide long-term growth of capital
into common stocks of companies believed to possess and future income.
better than average prospects for long-term growth.
Up to 10% may be invested in non-investment
grade debt; up to 20% may be invested in foreign
securities (including emerging market issues.)
Growth With Income At least 65% will normally be invested in common Seeks to provide reasonable current income and
Series stocks or securities convertible into common stocks long-term growth of capital and income.
of companies believed to have long-term prospects
for growth and income. Expects to invest not more
than 15% in foreign securities (including emerging
market issues.)
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY
FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Emerging Markets Equity Invests primarily in equity securities of emerging Long-term capital appreciation.
market country issuers with a focus on those countries
whose economies the portfolio's adviser believes to
be developing strongly and in which markets are
becoming more sophisticated.
Global Equity Invests primarily in equity securities of Long-term capital appreciation.
issuers throughout the world, including U.S.
issuers and emerging market countries, using an
approach that is oriented to the selection of
individual stocks that the portfolio's adviser
believes are undervalued.
International Magnum Invests primarily in equity securities of Long-term capital appreciation.
non-U.S. issuers, generally in accordance with
weightings determined by the portfolio's adviser, in
countries comprising the Morgan Stanley Capital
International Europe, Australia, Far East Index,
commonly known as the "EAFE Index."
Asian Equity Invests primarily in equity securities of Long-term capital appreciation.
Asian issuers, excluding Japan, using an
approach that is oriented to the selection of
individual stocks believed by the portfolio's
adviser to be undervalued.
U.S. Real Estate Invests primarily in equity securities of companies Above-average current income and long
primarily engaged in the U.S. real estate industry, term capital appreciation.
including real estate investment trusts.
</TABLE>
<PAGE>
Each portfolio pays its manager a monthly fee for managing its investments and
business affairs. In addition, each portfolio's total operating expenses will
include fees for shareholder services and other expenses, such as custodial,
legal, accounting and other miscellaneous fees. (See "Fee Table" page 5). A
complete description of the expenses, fees and charges of the portfolios is
found in the Funds' prospectuses and Statements of Additional Information.
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 additions to, deletions from, or substitutions for the shares that are held
in the Account or that the Account may purchase. The Account may, to the extent
permitted by law, purchase other securities for other Policies or permit a
conversion between Policies upon request by the owners.
AVLIC also reserves the right, in its sole discretion, to establish additional
Subaccounts of the Account, each of which would invest in shares corresponding
to a new portfolio of the Fund or in shares of another investment company having
a specified investment objective. AVLIC may, in its sole discretion, establish
new Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant. Any new Subaccounts may be made
available to existing owners on a basis to be determined by AVLIC.
If any of these substitutions or changes are made, AVLIC may by appropriate
endorsement change the Policy to reflect the substitution or change. If AVLIC
deems it to be in the best interest of owners, and subject to any approvals that
may be required under applicable law, the Account may be operated 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. To the extent permitted by applicable law, AVLIC may also
transfer the assets of the Account associated with the Policies to another
separate account. 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 Account. The owner will be notified of any material change in the
investment policy of any portfolio in which the owner has an interest.
FIXED ACCOUNT
Owners may elect to allocate all or a portion of their premium payments to the
Fixed Account and they may also transfer monies from the Separate Account to the
Fixed Account or from the Fixed Account to the Separate Account, subject to
certain restrictions. (See "Transfers," page 20).
Payments allocated to the Fixed Account and transfers 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 rate described below, may fall to a lower rate after the
expiration of a declared rate period. Because of exemptive and exclusionary
provisions, interests in the general account have not been registered under the
Securities Act of 1933 (the "1933 Act") nor is the general account registered as
an investment company under the Investment Company Act of 1940 (the "1940 Act").
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 staff of 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 in prospectuses.
AVLIC guarantees that it will credit interest at an effective annual rate of at
least 4.5%. AVLIC may, at its discretion, declare higher interest rate(s) for
amounts allocated or transferred to the general account ("Declared Rate(s)").
Each month AVLIC will establish the declared rate for the monies transferred or
allocated to the Fixed Account that month. The owner will earn interest on the
amount transferred or allocated at the rate declared for a 12-month period
effective the month of transfer or allocation. After the end of the 12-month
period, the monies will earn interest at the rate established by AVLIC for each
month.
<PAGE>
THE POLICY
The rights and benefits under the Policy are summarized in this prospectus. The
Policy itself is what controls the rights and benefits. A copy of the Policy is
available upon request from AVLIC.
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.
This 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 (One Ameritas Way, 5900 "O" Street, P.O. Box 82550,
Lincoln, Nebraska 68501). The application 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. 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 may make additional premium payments of
$500 or more. Smaller premium payments may be accepted on Bank-O-Matic 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 for the Policy will be the same day as the effective date for
the Policy, unless it falls on the 29th, 30th or 31st of a month, in which case
the policy date will be set at the 28th day of that month. The policy date is
used to determine policy anniversary dates and policy years.
ALLOCATION OF PREMIUM
In the application for a Policy, the owner allocates the 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%.
The initial premium is allocated on the effective date of the Policy to the
Money Market Subaccount. The initial premium, less any applicable premium taxes,
will be used to purchase accumulation units of the Money Market Subaccount at
the price next computed on the effective date.
Thirteen days after the effective 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 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.
<PAGE>
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 accumulation
value 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 any annual administrative fee and 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 and, if applicable, any
federal and state income tax charges.
TRANSFERS
Accumulation value may be transferred among the Subaccounts 12 times each policy
year without charge. A transfer charge of $10.00 may be imposed each additional
time amounts are transferred between Subaccounts. 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 100% of the accumulation value
may be made from the Fixed Account to the various Subaccounts during the 30 day
period following the yearly anniversary date of the policy. Transfers from the
Fixed Account are free and will not count as one of the 12 free transfers. 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
Policyowners 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 Policyowner 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.
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.
OWNER INQUIRIES
Inquiries should be addressed to Ameritas Variable Life Insurance Company, One
Ameritas Way, 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. The refund is equal to the greater of the
premiums paid or the premiums adjusted by investment gains and losses. To cancel
the Policy, the owner should mail or deliver it 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.
<PAGE>
POLICY LOANS
After the first policy anniversary the policyowner 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.
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 your principal 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, subject to distribution limitations.
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 policyowner is currently
earning 4.5% and is guaranteed to earn 4.5% 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
policyowner 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 policyowners 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 policyowner 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, as described more fully
below.
ADMINISTRATIVE CHARGES
ANNUAL POLICY FEE. An annual policy fee of up to $50.00 (currently $30.00) is
deducted from the accumulation value on the last valuation date of each policy
year. This charge reimburses AVLIC for the administrative costs of maintaining
the Policy on AVLIC's system.
ANNUAL ADMINISTRATION FEE. A charge of .20% of the accumulation value is
calculated and deducted from the accumulation value on the last valuation date
of each policy year. 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
annual administrative fees.
<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. 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.
These risks are AVLIC's. The expense risk undertaken by AVLIC, with respect to
the 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 of that portion of the policy 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 the policy year in which
the 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 policy 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 24).
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
6..................1 4...................5
6..................2 3...................6
6..................3 2...................7
5..................4 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
<PAGE>
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 25.) Full or
partial withdrawals from the Fixed Account may be deferred for up to 6 months
from the date of written request.
TAXES
AVLIC will, where such taxes are imposed by state law of the Policyowner'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 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 gross 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 27.) Based upon these expectations,
no charge is being made currently to the Account for corporate federal income
taxes which may be attributable to the Account.
AVLIC will periodically review the question of a charge to the Account for
corporate federal income taxes related to the 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 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 to AVLIC. The partial withdrawals may also be established on a
predetermined, systematic basis. 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 27.) 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 a pro rata amount of 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
25.)
<PAGE>
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 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 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 $100 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 Account will be paid within seven days of
receipt of written request, subject to postponement in certain circumstances.
(See "Deferment of Payment," page 26.) 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 27.)
Since the owner assumes the investment risk with respect to amounts held in the
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 first day of the month nearest 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 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 designated 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 where a life annuity is selected
and prior to the seventh 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 of a written request,
or, without AVLIC's prior approval, deferred to a date beyond the first policy
anniversary date nearest the annuitant's 95th birthday (90th birthday in
Oregon). An annuity date may only be changed by written request during the
annuitant's lifetime. Request must be made 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 beneficiary. Upon receipt of due proof of death of the
annuitant, the death benefit becomes payable. The death benefit paid will equal
the greater of the accumulation value or total premiums paid less withdrawals,
on the date due proof of death is received by AVLIC at its Home Office. The
death benefit 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
beneficiary, or if no such election was made by the owner and a cash benefit has
not been paid, the beneficiary may make this election after the annuitant's
death. Since "due proof of death" includes a "Claimant's Statement," which
specifies how the 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 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 beneficiary must
elect to receive the benefits under an annuity option within 60 days "after
<PAGE>
the day on which such lump sum became payable," as defined in the Internal
Revenue Code. The death benefit will be paid to the beneficiary within seven
days of when it becomes payable.
ELECTION OF ANNUITY INCOME OPTIONS
The amounts of any annuity payments payable will be set on the annuity date
based on the net cash surrender value on that date that is applied under an
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 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.
(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 1/2% 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 practice can be changed at any time at AVLIC's discretion.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum death benefit due from the Account
will occur within seven days from the date the amount becomes payable, except
that AVLIC may be permitted to defer such payment if:
<PAGE>
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
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.
GENERAL PROVISIONS
The rights and benefits under the Policy are summarized in this prospectus. The
Policy itself is what controls the rights and benefits. A copy of the Policy is
available upon request from AVLIC.
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
any successor-owner or owners, if living; otherwise to the estate of the last
owner to die.
BENEFICIARY
The owner may name both primary and contingent beneficiaries. The
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 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
AVLIC cannot contest the validity of this Policy after the policy date, subject
to the "Misstatement of Age or Sex" provision. However, if the annuitant commits
suicide within two years of the policy date, the death benefit under the Policy
will be limited to the Cash Surrender Value of the policy.
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 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.
<PAGE>
REPORTS AND RECORDS
AVLIC will maintain all records relating to the 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 report. The
owner will also be sent confirmations of transactions under the Policy, such as
the purchase payment and transfers and withdrawals, and 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.
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," page 23.)
The qualified policies are designed for use 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 Internal Revenue 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 IRS Code requires that no distribution 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 the 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, the assignment, pledge, or
agreement to assign or pledge any portion of the accumulation value generally
will be treated as a distribution.
<PAGE>
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 "investment in the policy"
at that time. Any additional amount is not taxable.
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, or (3) received in substantially
equal payments as a life annuity subject to Internal Revenue Service
requirements, including special "recapture" rules.
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, 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 is
generally determined under the same rules applicable to nonqualified policies.
However, special favorable tax treatment may be available for certain
distributions (including lump sum distributions). Adverse tax consequences may
result from: distributions prior to age 59 1/2 (subject to certain exceptions),
distributions that do not conform to specified commencement and minimum
distribution rules, aggregate distributions in excess of a specified annual
amount, and in certain other circumstances. Distributions from qualified plans
are subject to specific tax withholding rules. Eligible rollover distributions
from a qualified plan or annuities used in 403(b) plans are subject to income
tax withholding at a rate of 20% unless the policyowner 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.
DISTRIBUTION OF THE POLICIES
Ameritas Investment Corp. ("Investment Corp."), 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. Investment Corp. 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 Investment Corp. and who are licensed as life insurance
agents for AVLIC. Investment Corp. 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% 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 Investment Corp. on AVLIC's
variable annuities was $10,067,075 for 1996; $6,896,847 for 1995; and $7,647,138
for 1994.
SAFEKEEPING OF THE ACCOUNT'S ASSETS
AVLIC holds the assets of the 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 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
<PAGE>
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 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 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 Account.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Account is a party or to which the
assets of the Account are subject. AVLIC is not involved in any litigation that
is of material importance in relation to its total assets or that relates to the
Account.
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 first page or by calling 1-800-745-1112. The
following is the Table of Contents for that Statement:
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL INFORMATION AND HISTORY....................... 2
THE POLICY............................................ 2
GENERAL MATTERS....................................... 6
FEDERAL TAX MATTERS................................... 7
DISTRIBUTION OF THE POLICY............................ 8
SAFEKEEPING OF ACCOUNT ASSETS......................... 9
AVLIC................................................. 9
STATE REGULATION...................................... 9
LEGAL MATTERS......................................... 9
EXPERTS............................................... 9
OTHER INFORMATION..................................... 9
FINANCIAL STATEMENTS.................................. 9
</TABLE>
<PAGE>
APPENDIX A
LONG TERM MARKET TRENDS
The information below covering the period of 1926-1996 is an examination of the
basic relationship between risk and return among the different asset classes,
and between nominal and real (inflation adjusted) returns. The information is
provided because the Policyowners have varied investment portfolios available
which have different investment objectives and policies. The chart generally
demonstrates how different classes of investments have performed during the
period. The study of asset returns provides a period long enough to include most
of the major types of events that investors have experienced in the past. This
is a historical record and is not intended as a projection of future
performance.
The graph depicts the growth of a dollar invested in common stocks, small
company stocks, long-term government bonds, Treasury bills, and a hypothetical
asset returning the inflation rate over the period from the end of 1925 to the
end of 1996. All results assume reinvestment of dividends on stocks or coupons
on bonds and no taxes. Transaction costs are not included, except in the small
stock index starting in 1982. Charges associated with a variable insurance
policy are not reflected in the chart.
Each of the cumulative index values is initiated at $1.00 at year-end 1925. The
graph illustrates that common stocks and small stocks gained the most over the
entire 71-year period: investments of one dollar would have grown to $1,370.95
and $4,495.99 respectively, by year-end 1996. This growth, however, was earned
by taking substantial risk. In contrast, long-term government bonds (with an
approximate 20-year maturity), which exposed the holder to less risk, grew to
only $33.73. Note that the return and principal value of an investment in stocks
will fluctuate with changes in market conditions. Prices of small company stocks
are generally more volatile than those of large company stocks. Government bonds
and Treasury Bills are guaranteed by the U.S. Government and, if held to
maturity, offer a fixed rate of return and a fixed principal value.
The lowest risk strategy over the past 71 years was to buy U.S. Treasury bills.
Since Treasury bills tended to track inflation, the resulting real
(inflation-adjusted) returns were near zero for the entire 1926-1996 period.
Omitted graph illustrates long term market trends as described in the narrative
above.
Year End 1925 = $1.00
Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook
(C)Ibbotson Associates, Chicago. All Rights Reserved.
<PAGE>
APPENDIX B
STANDARD & POOR'S 500
The Standard and Poor's (S & P 500) is a weighted index of 500 widely held
stocks: 400 Industrials, 40 Financial Company Stocks, 40 Public Utilities, and
20 Transportation stocks, most of which are traded on the New York Stock
Exchange. This information is provided because the Policyowners have varied
investment options available. The investment options, except the Fixed Account
and the Money Market Account, involve investments in the stock market. The S & P
500 is generally regarded as an accurate composite of the overall stock market.
<TABLE>
<CAPTION>
PERCENT CHANGE OF TOTAL RETURN
STANDARD & POOR'S 500 INDEX
%
YEAR CHANGE
- -----------------------------------------
<S> <C> <C>
Omitted graph depicts the activity
1 1972 18.90 of the S&P 500 Index for the years
2 1973 -14.77 1971-1996.
3 1974 -26.39
4 1975 37.16
5 1976 23.57
6 1977 -7.42
7 1978 6.38
8 1979 18.20
9 1980 32.27
10 1981 -5.01
11 1982 21.44
12 1983 22.38
13 1984 6.10
14 1985 31.57
15 1986 18.56
16 1987 5.10
17 1988 16.61
18 1989 31.69
19 1990 -3.14
20 1991 30.45
21 1992 7.61
22 1993 10.08
23 1994 1.32
24 1995 37.58
25 1996 22.96
</TABLE>
THE CHART ASSUMES THE RETURN EXPERIENCED BY THE STANDARD & POOR'S 500 INDEX FOR
THE LAST 25 YEARS. THE CHART ASSUMES THAT DIVIDENDS ARE REINVESTED INTO THE
INDEX. FUTURE RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER. THE INFORMATION IN THE CHART IS NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE.
INDEX PERFORMANCE IS NOT ILLUSTRATIVE OF POLICY SUBACCOUNT PERFORMANCE, AND
INVESTMENTS ARE NOT MADE IN THE INDEX. THE POLICY IS NOT SPONSORED, ENDORSED,
SOLD OR PROMOTED BY STANDARD & POOR'S.
<PAGE>
Part B Registration No. 33-33844
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF ADDITIONAL INFORMATION
FOR
MULTI-PREMIUM VARIABLE ANNUITY POLICY
Offered by
Ameritas Variable Life Insurance Company
(formerly Bankers Life Assurance Company of Nebraska)
(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 Multi-Premium Variable Annuity
Policy ("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC").
You may obtain a copy of the Prospectus dated May 1, 1997, 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, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
GENERAL INFORMATION AND HISTORY...................................... 2
- -------------------------------
THE POLICY........................................................... 2
- ----------
Accumulation Value......................................... 2
------------------
Value of Accumulation Units................................ 2
---------------------------
CALCULATION OF PERFORMANCE DATA...................................... 3
- -------------------------------
GENERAL MATTERS...................................................... 6
- ---------------
The Policy................................................. 6
----------
Non-Participating.......................................... 6
-----------------
Assignment................................................. 6
----------
Annuity Data............................................... 7
------------
Ownership.................................................. 7
---------
Joint Annuitant............................................ 7
---------------
IRS Required Distributions................................. 7
--------------------------
FEDERAL TAX MATTERS.................................................. 7
- -------------------
Taxation of AVLIC.......................................... 7
-----------------
Tax Status of the Policies................................. 8
--------------------------
Qualified Policies......................................... 8
------------------
DISTRIBUTION OF THE POLICY........................................... 8
- --------------------------
SAFEKEEPING OF ACCOUNT ASSETS........................................ 9
- -----------------------------
AVLIC ........................................................... 9
- -----
STATE REGULATION..................................................... 9
- ----------------
LEGAL MATTERS........................................................ 9
- -------------
EXPERTS.............................................................. 9
- -------
OTHER INFORMATION.................................................... 9
- -----------------
FINANCIAL STATEMENTS................................................. 9
- --------------------
</TABLE>
-1-
<PAGE>
GENERAL INFORMATION AND HISTORY:
- --------------------------------
In order to supplement the description in the Prospectus, the following
provides additional information concerning the company 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 or annual administration 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 0.003425% (equivalent to an annual rate of 1.25%
of the average daily net assets) for mortality and expense risks;
minus
(3) any applicable charge for federal and state income taxes, if any;
and
(4) 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.
-2-
<PAGE>
CALCULATION OF PERFORMANCE DATA
- -------------------------------
As disclosed in the prospectus, premium payments will be allocated to the
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 managedby Morgan Stanley Asset Management, Inc.
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.
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.
Table 1: The subaccounts will quote average annual returns for the period
since the underlying portfolios commenced operation after deducting charges at
the Separate Account level. 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, and/or from the date that the portfolios began
operations for the period ending December 31, 1996. The average annual total
returns to be shown in Table 1 were computed by finding the average annual
compounded rates of return over the periods shown that would equate the initial
amount invested to the withdrawal value, in accordance with the following
formula: P(1+T)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. The returns reflect the risk
and administrative charge (1.25% on an annual basis), annual administration fee
of .20% and the annual policy fee. 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.
-3-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for Period Ending on 12/31/96
---------------------------------------------------------------------------------------------
One Year Five Year Life of Fund
------------------------------ ----------------------------- ------------------------------
Surrender Surrender Surrender
Subaccounts Contracts Continue Contracts Continue Contracts Continue
- ---------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP
- -----------------------------------
Equity Income 3.66% 9.66% 14.14% 14.61% 9.79% 9.79%
Growth 4.08% 10.08% 11.11% 11.63% 11.31% 11.31%
High Income 3.42% 9.42% 10.84% 11.37% 8.27% 8.27%
Overseas 2.61% 8.61% 4.44% 5.11% 3.40% 3.40%
Fidelity VIP II
- -----------------------------------
Asset Manager 3.98% 9.98% 6.83% 7.44% 7.62% 7.62%
Inv. Grade Bond -7.30% -1.30% 1.65% 2.38% 3.73% 3.73%
Asset Manager: Growth 9.27% 15.27% N/A N/A 14.31% 16.87%
Index 500 12.08% 18.09% N/A N/A 12.34% 12.94%
Contrafund 10.61% 16.61% N/A N/A 23.05% 25.43%
</TABLE>
Inception of Funds: High-Income, 9/19/85; Equity-Income, 10/9/86; Growth,
10/9/86; Overseas, 1/28/87; Asset Manager, 9/6/89; Investment Grade Bond,
12/5/88; Index 500, 8/27/92; Contrafund, 1/3/95; Asset Manager: Growth, 1/3/95.
<TABLE>
<CAPTION>
One Year Five Year Life of Fund
------------------------------ ----------------------------- ------------------------------
Surrender Surrender Surrender
Subaccounts Contracts Continue Contracts Continue Contracts Continue
- ---------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Alger American
- -----------------------------------
Growth 2.74% 8.74% 12.48% 12.83% 15.16% 15.16%
Income and Growth 9.00% 15.00% 7.64% 8.11% 7.25% 7.25%
Small Captalization -6.31% -0.31% 6.33% 6.84% 16.82% 16.82%
Balanced -0.40% 5.60% 5.05% 5.59% 4.20% 4.20%
Mid-Cap Growth 1.29% 7.29% N/A N/A 19.10% 19.93%
Leveraged All-Cap 1.45% 7.45% N/A N/A 34.05% 36.34%
MFS Variable Ins. Trust
- -----------------------------------
Emerging Growth 6.37% 12.37% N/A N/A 15.93% 19.74%
Utilities 7.85% 13.85% N/A N/A 18.85% 21.31%
World Governments -6.48% -0.48% N/A N/A 0.49% 2.75%
Research 11.60% 17.56% N/A N/A 7.05% 11.01%
Growth with Income 13.70% 19.66% N/A N/A 10.94% 15.61%
Morgan Stanley Universal Funds, Inc.
Emerging Markets Equity N/A N/A N/A N/A N/A N/A
Global Equity N/A N/A N/A N/A N/A N/A
International Magnum N/A N/A N/A N/A N/A N/A
Asian Equity N/A N/A N/A N/A N/A N/A
U.S. Real Estate N/A N/A N/A N/A N/A N/A
</TABLE>
Inception of Funds: Alger American Income-Growth Portfolio, 11/15/88; Alger
American Balanced, 9/5/89; Alger American Small Capitalization, 9/21/88; Alger
American Growth, 1/9/89; Alger American Mid-Cap, 5/1/93, Alger American
Leveraged AllCap, 1/25/95; MFS Emerging Growth, 7/24/95; MFS Utilities,
1/3/95; MFS World Governments, 6/14/94; MFS Research, 7/26/95; MFS Growth With
Income, 10/9/95; Morgan Stanley Emerging Markets Equity, 10/1/96; Morgan Stanley
Global Equity, 1/2/97; Morgan Stanley International Magnum, 1/2/97; Morgan
Stanley Asian Equity, not seeded as of 2/28/97; Morgan Stanley U.S. Real Estate,
not seeded as of 2/28/97.
-4-
<PAGE>
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. Table 2 shows the cumulative total return on a
hypothetical investment in the subaccounts for the last year, 5 years, and 10
years if applicable, and/or from the date the portfolios began operations for
the period ending December 31, 1996. The returns reflect the risk and
administrative charge (1.25% on an annual basis), annual administrative fee of
(.20%) and the policy fee. Since the contract is intended as a long-term
product, the table also shows the cumulative total returns assuming that no
money was withdrawn from contract. The first column shows the cumulative total
return if you surrender the contract at the end of the period, the second column
shows the cumulative total return if you do not surrender the contract.
<TABLE>
<CAPTION>
Cumulative Total Return for Period Ending on 12/31/96
---------------------------------------------------------------------------------------------
One Year Five Year Life of Fund
------------------------------ ----------------------------- ------------------------------
Surrender Surrender Surrender
Subaccounts Contracts Continue Contracts Continue Contracts Continue
- ---------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP
- ---------------------------------
Equity Income 3.66% 9.66% 93.72% 97.72% 163.51% 163.51%
Growth 4.08% 10.08% 69.35% 73.35% 203.96% 203.96%
High Income 3.42% 9.42% 67.31% 71.31% 148.35% 148.35%
Overseas 2.61% 8.61% 24.28% 28.28% 39.96% 39.96%
Fidelity VIP II
- ---------------------------------
Asset Manager 3.98% 9.98% 39.13% 43.13% 72.53% 72.53%
Inv. Grade Bond -7.30% -1.30% 8.50% 12.50% 34.95% 34.95%
Asset Manager: Growth 9.27% 15.27% N/A N/A 31.06% 37.06%
Index 500 12.08% 18.09% N/A N/A 67.00% 71.00%
Contrafund 10.61% 16.61% N/A N/A 52.12% 58.12%
</TABLE>
<TABLE>
<CAPTION>
One Year Five Year Life of Fund
------------------------------ ----------------------------- ------------------------------
Surrender Surrender Surrender
Subaccounts Contracts Continue Contracts Continue Contracts Continue
- ---------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Alger American
- ---------------------------------
Growth 2.74% 8.74% 80.07% 82.85% 213.28% 213.28%
Income and Growth 9.00% 15.00% 44.50% 47.68% 78.11% 78.11%
Small Captalization -6.31% -0.31% 35.92% 39.20% 268.87% 268.87%
Balanced -0.40% 5.60% 27.91% 31.28% 35.72% 35.72%
Mid-Cap Growth 1.29% 7.29% N/A N/A 91.48% 96.48%
Leveraged All-Cap 1.45% 7.45% N/A N/A 77.65% 83.65%
MFS Variable Ins. Trust
- ---------------------------------
Emerging Growth 6.37% 12.37% N/A N/A 24.05% 30.05%
Utilities 7.85% 13.85% N/A N/A 41.79% 47.79%
World Governments -6.48% -0.48% N/A N/A 1.27% 7.27%
Research 11.60% 17.56% N/A N/A 10.42% 16.42%
Growth with Income 13.70% 19.66% N/A N/A 13.83% 19.83%
Morgan Stanley Universal Funds, Inc.
- ------------------------------------
Emerging Markets Equity N/A N/A N/A N/A N/A N/A
Global Equity N/A N/A N/A N/A N/A N/A
International Magnum N/A N/A N/A N/A N/A N/A
Asian Equity N/A N/A N/A N/A N/A N/A
U.S. Real Estate N/A N/A N/A N/A N/A N/A
</TABLE>
YIELDS
- ------
Some subaccounts may also advertise yields. Yields quoted in advertising
reflect the change in value of a hypothetical 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.
-5-
<PAGE>
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 account 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 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) 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, 1996 for the
Money Market Fund was 3.71% and the effective yield for the 7-day period ended
December 31, 1996 for the Money Market Fund was 3.80%.
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, notwithstanding 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.
-6-
<PAGE>
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 successor owner upon the death of the owner(s). If no successor
owner is designated or if no successor owner is living, the successor owner is
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.
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. If approved by AVLIC, the joint annuitant shall be named in the
Policy schedule pages or added by endorsement. An annuitant or joint annuitant
may not be replaced.
The annuity date shall be determined based on the date of birth of the
annuitant. If the annuitant or joint annuitant dies prior to the annuity date,
the survivor shall be the sole annuitant. Another joint annuitant may not be
designated. Payment to a beneficiary shall not be made until the death of the
surviving annuitant.
IRS Required Distributions
- --------------------------
If the owner (or any joint owner) dies before the entire interest in the
Policy is distributed, the value of the Policy must be distributed to the
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 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 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 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.
-7-
<PAGE>
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
Account unless the investments made by the 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 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.
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. 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 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
institutions that have entered into agreements with Ameritas Investment Corp.
The offering
-8-
<PAGE>
of the Policies is continuous and Ameritas Investment Corp. has discontinued the
offering of this policy in certain states and continues to offer it in other
states. However, Ameritas Investment Corp. does reserve the right to discontinue
the offering of the Policies.
SAFEKEEPING OF ACCOUNT ASSETS
- -----------------------------
Title to assets of the 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 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 Account and
certifies their adequacy.
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, Director and Secretary and General Counsel.
EXPERTS
- -------
The financial statements of AVLIC as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, and the financial
statements of the Account as of December 31, 1996 and for each of the three
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.
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 Accounts.
-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, 1996,
and the related statements of operations and changes in net assets for each of
the three 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, 1996. 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, 1996, and the results of its operations
and changes in its net assets for each of the three years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
<S> <C>
ASSETS
INVESTMENTS AT NET ASSET VALUE:
Variable Insurance Products Fund:
Money Market Portfolio - 71,503,732.540 shares at
$1.00 per share (cost $71,503,733) $ 71,503,733
Equity-Income Portfolio - 6,375,543.739 shares at
$21.03 per share (cost $99,972,066) 134,077,685
Growth Portfolio - 3,570,738.040 shares at
$31.14 per share (cost $77,205,775) 111,192,783
High Income Portfolio - 4,203,994.114 shares at
$12.52 per share (cost $44,644,167) 52,634,006
Overseas Portfolio - 2,865,386.075 shares at
$18.84 per share (cost $43,328,965) 53,983,874
Variable Insurance Products Fund II:
Asset Manager Portfolio - 7,283,488.356 shares at
$16.93 per share (cost $98,260,500) 123,309,458
Investment Grade Bond Portfolio - 2,172,541.324 shares at
$12.24 per share (cost $25,097,268) 26,591,906
Contrafund Portfolio - 1,820,292.255 shares at
$16.56 per share (cost $26,532,239) 30,144,040
Asset Manager: Growth Portfolio - 235,282.226 shares at
$13.10 per share (cost $2,949,992) 3,082,197
Index 500 Portfolio - 203,711.023 shares at
$89.13 per share (cost $16,715,585) 18,156,763
Alger American Fund:
Small Capitalization Portfolio - 1,383,186.051 shares at
$40.91 per share (cost $44,552,949) 56,586,141
Growth Portfolio - 1,228,263.919 shares at
$34.33 per share (cost $34,074,114) 42,166,300
Income and Growth Portfolio - 1,394,185.376 shares at
$8.42 per share (cost $14,194,473) 11,739,041
Balanced Portfolio - 569,554.981 shares at
$9.24 per share (cost $6,042,018) 5,262,688
Midcap Growth Portfolio - 1,370,386.612 shares at
$21.35 per share (cost $25,292,322) 29,257,754
Leveraged Allcap Portfolio - 322,162.842 shares at
$19.36 per share (cost $6,003,860) 6,237,073
Dreyfus Stock Index Fund:
Stock Index Fund Portfolio - 460,407.134 shares at
$20.28 per share (cost $6,449,564) 9,337,057
MFS Variable Insurance Trust:
Emerging Growth Series Portfolio - 1,479,016.961 shares at
$13.24 per share (cost $19,212,194) 19,582,184
World Governments Series Portfolio - 119,563.323 shares at
$10.58 per share (cost $1,231,712) 1,264,980
Utilities Series Portfolio - 394,662.255 shares at
$13.66 per share (cost $5,210,876) 5,391,086
----------------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 811,500,749
======================
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 AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
------------------ ------------------ --------------------
<S> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 13,564,184 $ 10,791,789 $ 6,905,119
EXPENSES
Charges to policyowners for assuming
mortality and expense risk 8,898,318 6,093,514 4,473,521
------------------ ------------------ --------------------
INVESTMENT INCOME - NET 4,665,866 4,698,275 2,431,598
------------------ ------------------ --------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NET
Capital gain distributions received 25,240,462 2,906,457 9,513,298
Unrealized increase/(decrease) 40,926,181 83,391,448 (18,327,838)
------------------ ------------------ --------------------
NET GAIN/(LOSS) ON INVESTMENTS 66,166,643 86,297,905 (8,814,540)
------------------ ------------------ --------------------
NET INCREASE/(DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS 70,832,509 90,996,180 (6,382,942)
NET INCREASE IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS 151,795,930 93,106,859 123,008,669
------------------ ------------------ --------------------
TOTAL INCREASE IN NET ASSETS 222,628,439 184,103,039 116,625,727
NET ASSETS
Beginning of period 588,872,310 404,769,271 288,143,544
------------------ ------------------ --------------------
End of period $ 811,500,749 $ 588,872,310 $ 404,769,271
================== ================== ====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS
A. 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, 1996, there are twenty
subaccounts within the Account. Five of the subaccounts invest only in a
corresponding Portfolio of the 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. One subaccount invests only in a
corresponding Portfolio of Dreyfus Stock Index Fund which is a
non-diversified open-end management investment company managed by Dreyfus
Service Corporation. Three 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. All five funds are 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, and 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.
AVLIC currently does not expect to incur any federal income tax liability
attributable to the Account with respect to the sale of the variable
annuity policies. If, however, AVLIC determines that it may incur such
taxes attributable to the Account, it may assess a charge for such taxes
against the account.
B. POLICYHOLDER 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 policyholder,
including the Fixed Account option which is not reflected in this separate
account. The withdrawal of these charges are included as other operating
transfers.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS
C: INFORMATION BY FUND:
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
-------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 57,326,277 $ 117,719,005 $ 86,780,936 $ 35,882,984 $ 45,684,513
Distibuted earnings 3,799,567 4,953,256 7,626,017 3,198,460 1,280,345
Mortality risk charge (915,893) (1,517,611) (1,328,474) (502,495) (667,514)
Unrealized increase/(decrease) --- 10,895,466 5,069,624 2,214,664 5,099,697
Net premium transferred 11,293,782 2,027,569 13,044,680 11,840,393 2,586,833
-------------- ---------------- -------------- -------------- --------------
Balance 12-31-96 $ 71,503,733 $ 134,077,685 $ 111,192,783 $ 52,634,006 $ 53,983,874
============== ================ ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
-------------------------------------------------------------------------------
Asset Investment Asset Mgr.:
Manager Grade Bond Contrafund Growth Index 500
-------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 115,119,774 $ 23,086,779 $ 2,491,998 $ 223,546 $ 663,229
Distributed earnings 7,548,811 1,152,156 36,378 118,882 39,805
Mortality risk charge (1,484,230) (312,284) (190,299) (14,233) (84,732)
Unrealized increase/(decrease) 8,603,434 (301,584) 3,604,329 135,704 1,418,021
Net premium transferred (6,478,331) 2,966,839 24,201,634 2,618,298 16,120,440
-------------- ---------------- -------------- -------------- --------------
Balance 12-31-96 $ 123,309,458 $ 26,591,906 $ 30,144,040 $ 3,082,197 $ 18,156,763
============== ================ ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
-------------------------------------------------------------------------------------------------
Small Income and Midcap Leveraged
Capitalization Growth Growth Balanced Growth Allcap
-------------- ---------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 44,227,409 $ 24,289,630 $ 6,676,424 $ 2,526,276 $ 14,927,096 $ 1,030,461
Distributed earnings 228,276 922,125 4,990,761 1,483,047 441,180 21,457
Mortality risk charge (658,360) (432,284) (114,917) (52,447) (290,924) (44,009)
Unrealized increase/(decrease) 1,332,624 3,162,174 (3,244,881) (1,099,570) 1,684,242 216,090
Net premium transferred 11,456,192 14,224,655 3,431,654 2,405,382 12,496,160 5,013,074
-------------- ---------------- -------------- -------------- ------------- ----------------
Balance 12-31-96 $ 56,586,141 $ 42,166,300 $ 11,739,041 $ 5,262,688 $ 29,257,754 $ 6,237,073
============== ================ ============== ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Dreyfus
------------------------------------------------ --------------
Emerging World Stock
Growth Governments Utilities Index Fund TOTAL
-------------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 945,719 $ 176,476 $ 541,258 $ 8,552,520 $ 588,872,310
Distributed earnings 162,364 --- 441,088 360,671 38,804,646
Mortality risk charge (123,685) (10,173) (32,684) (121,070) (8,898,318)
Unrealized increase/(decrease) 378,565 44,953 194,795 1,517,834 40,926,181
Net premium transferred 18,219,221 1,053,724 4,246,629 (972,898) 151,795,930
-------------- ---------------- -------------- -------------- ----------------
Balance 12-31-96 $ 19,582,184 $ 1,264,980 $ 5,391,086 $ 9,337,057 $ 811,500,749
============== ================ ============== ============== ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS
C: INFORMATION BY FUND:
Variable Insurance Products Fund
---------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 64,578,099 $ 47,394,555 $ 59,264,436 $ 19,815,317 $ 32,138,329
Distributed earnings 3,385,236 4,417,946 390,703 1,473,552 241,854
Mortality risk charge (738,735) (943,916) (957,307) (415,996) (465,500)
Unrealized increase/(decrease) --- 17,850,823 20,702,655 4,685,960 3,572,714
Net premium transferred (9,898,323) 48,999,597 7,380,449 10,324,151 10,197,116
---------------- ---------------- -------------- -------------- --------------
Balance 12-31-95 $ 57,326,277 $ 117,719,005 $ 86,780,936 $ 35,882,984 $ 45,684,513
================ ================ ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
---------------------------------------------------------------------------------
Asset Investment Contrafund Asset Mgr.: Index 500
Manager Grade Bond (1) Growth (2) (3)
---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 121,107,120 $ 14,907,528 $ --- $ --- $ ---
Distributed earnings 2,486,418 741,402 30,567 9,363 ---
Mortality risk charge (1,449,245) (253,150) (3,944) (266) (1,143)
Unrealized increase/(decrease) 15,665,746 2,423,519 7,472 (3,498) 23,156
Net premium transferred (22,690,265) 5,267,480 2,457,903 217,947 641,216
---------------- ---------------- -------------- -------------- --------------
Balance 12-31-95 $ 115,119,774 $ 23,086,779 $ 2,491,998 $ 223,546 $ 663,229
================ ================ ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
-----------------------------------------------------------------------------------------------
Small Income and Midcap Leveraged
Capitalization Growth Growth Balanced Growth Allcap (4)
---------------- ---------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 19,196,546 $ 15,553,231 $ 2,348,430 $ 1,030,537 $ 3,540,066 $ ---
Distributed earnings --- 156,976 30,164 24,117 692 ---
Mortality risk charge (390,434) (218,376) (51,556) (20,525) (96,907) (1,843)
Unrealized increase/(decrease) 8,996,789 4,297,843 848,211 340,663 2,128,071 17,122
Net premium transferred 16,424,508 4,499,956 3,501,175 1,151,484 9,355,174 1,015,182
---------------- ---------------- -------------- -------------- -------------- ------------
Balance 12-31-95 $ 44,227,409 $ 24,289,630 $ 6,676,424 $ 2,526,276 $ 14,927,096 $ 1,030,461
================ ================ ============== ============== ============== ============
</TABLE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Dreyfus
------------------------------------------------- --------------
Emerging World (6) Utilities Stock
Growth (5) Governments (7) Index Fund TOTAL
---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ --- $ --- $ --- $ 3,895,077 $ 404,769,271
Distributed earnings 25,522 16,669 33,188 233,877 13,698,246
Mortality risk charge (1,676) (481) (592) (81,922) (6,093,514)
Unrealized increase/(decrease) (8,574) (11,684) (14,585) 1,869,045 83,391,448
Net premium transferred 930,447 171,972 523,247 2,636,443 93,106,859
---------------- ---------------- -------------- -------------- --------------
Balance 12-31-95 $ 945,719 $ 176,476 $ 541,258 $ 8,552,520 $ 588,872,310
================ ================ ============== ============== ==============
(1) Commenced business 08/25/95. (5) Commenced business 08/25/95.
(2) Commenced business 09/15/95. (6) Commenced business 08/24/95.
(3) Commenced business 09/21/95. (7) Commenced business 09/18/95.
(4) Commenced business 08/30/95.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS
C. INFORMATION BY FUND:
Variable Insurance Products Fund
-----------------------------------------------------------------------------
Money Equity High
Market Income Growth Income Overseas
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-94 $ 31,379,124 $ 32,522,382 $ 47,340,345 $ 14,780,768 $ 26,209,548
Distributed earnings 2,394,455 2,724,507 3,209,519 1,502,298 154,645
Mortality risk charge (689,406) (506,822) (627,238) (226,605) (394,955)
Unrealized increase/(decrease) --- (101,881) (1,669,742) (1,667,003) (325,590)
Net premium transferred 31,493,926 12,756,369 11,011,552 5,425,859 6,494,681
-------------- -------------- -------------- -------------- --------------
Balance 12-31-94 $ 64,578,099 $ 47,394,555 $ 59,264,436 $ 19,815,317 $ 32,138,329
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
-----------------------------------------------------------------------------
Small Income Midcap
Capitalization Growth and Growth Balanced Growth
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-94 $ 16,350,688 $ 4,033,279 $ 1,486,488 $ 398,861 $ 1,241,078
Distributed earnings 920,888 349,387 79,765 15,142 3,756
Mortality risk charge (191,599) (77,513) (21,926) (8,792) (17,859)
Unrealized increase/(decrease) (1,419,617) 57,051 (188,024) (31,583) 73,432
Net premium transferred 3,536,186 11,191,027 992,127 656,909 2,239,659
-------------- -------------- -------------- -------------- --------------
Balance 12-31-94 $ 19,196,546 $ 15,553,231 $ 2,348,430 $ 1,030,537 $ 3,540,066
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund II Dreyfus
------------------------------ --------------
Asset Investment Stock
Manager Grade Bond Index Fund TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance 01-01-94 $ 93,247,898 $ 16,150,701 $ 3,002,384 $ 288,143,544
Distributed earnings 4,919,949 43,054 101,052 16,418,417
Mortality risk charge (1,466,830) (201,910) (42,066) (4,473,521)
Unrealized increase/(decrease) (12,320,921) (662,594) (71,366) (18,327,838)
Net premium transferred 36,727,024 (421,723) 905,073 123,008,669
-------------- -------------- -------------- --------------
Balance 12-31-94 $ 121,107,120 $ 14,907,528 $ 3,895,077 $ 404,769,271
============== ============== ============== ==============
</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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
BALANCE SHEETS
--------------
(in thousands, except per share data)
-------------------------------------
December 31,
-------------------------------------------------
1996 1995
---------------------- --------------------
<S> <C> <C>
ASSETS
- ------
Investments:
Fixed maturity securities, available for sale (amortized cost
$62,048 - 1996 and $38,753 - 1995) $ 62,621 $ 40,343
Loans on insurance policies 4,309 2,639
---------------------- --------------------
Total investments 66,930 42,982
Cash and cash equivalents 10,684 5,660
Accrued investment income 1,096 790
Reinsurance recoverable-affiliates 9 57
Prepaid reinsurance premium-affiliates 2,156 1,506
Deferred policy acquisition costs 79,272 57,664
Other 483 106
Separate Accounts 947,580 682,482
---------------------- --------------------
$ 1,108,210 $ 791,247
====================== ====================
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
Policy and contract reserves $ 749 $ 609
Accumulated contract values 77,560 44,568
Unearned policy charges 1,243 964
Unearned reinsurance ceded allowance 3,139 2,279
Federal income taxes--
Current 875 685
Deferred 9,921 11,398
Other 8,134 4,266
Separate Accounts 947,580 682,482
---------------------- --------------------
Total Liabilities 1,049,201 747,251
---------------------- --------------------
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 29,700
Retained earnings 14,510 9,860
Net unrealized investment gain 129 436
---------------------- --------------------
Total Stockholder's Equity 59,009 43,996
---------------------- --------------------
$ 1,108,210 $ 791,247
====================== ====================
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,
-----------------------------------------------------------------
1996 1995 1994
------------------- ------------------- --------------------
<S> <C> <C> <C>
INCOME:
Insurance revenues:
Contract charges $ 26,345 $ 18,350 $ 13,528
Premium-reinsurance ceded (5,895) (4,289) (2,009)
Reinsurance ceded allowance 2,235 1,859 502
Investment revenues:
Investment income, net 3,603 3,492 3,046
Realized gains, net 19 28 19
Other 567 261 337
------------------- ------------------- --------------------
26,874 19,701 15,423
------------------- ------------------- --------------------
BENEFITS AND EXPENSES:
Policy Benefits:
Death benefits 716 268 417
Interest credited 2,736 1,995 1,524
Increase in policy and contract reserves 140 183 195
Other 52 32 46
Sales and operating expenses 10,041 6,815 5,940
Amortization of deferred policy acquisition costs 5,531 3,057 2,521
------------------- ------------------- --------------------
19,216 12,350 10,643
------------------- ------------------- --------------------
Income before federal income taxes 7,658 7,351 4,780
------------------- ------------------- --------------------
Income taxes - current 3,819 1,685 (608)
Income taxes - deferred (811) 902 2,278
------------------- ------------------- --------------------
Total income taxes 3,008 2,587 1,670
------------------- ------------------- --------------------
NET INCOME $ 4,650 $ 4,764 $ 3,110
=================== =================== ====================
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, 1996, 1995 AND 1994
----------------------------------------------------
(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, 1994 40,000 $ 4,000 $ 23,700 $ 1,986 $ - $ 29,686
Capital contribution from
Ameritas Life Insurance Corp. - - 6,000 - - 6,000
Net unrealized investment loss, net - - - - (173) (173)
Net income - - - 3,110 - 3,110
--------------- ------------ -------------- ----------- ---------- ------------
BALANCE, December 31, 1994 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
=============== ============= ============= ============ ========== ==========
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)
December 31,
----------------------------------------------------
1996 1995 1994
---------------- ----------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Income $ 4,650 $ 4,764 $ 3,110
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs 5,531 3,057 2,521
Policy acquisition costs deferred (26,596) (16,020) (17,481)
Interest credited to contract values 2,736 1,995 1,524
Amortization of discounts or premiums (83) (70) (49)
Net realized gains on investment transactions (19) (28) (19)
Deferred income taxes (811) 902 2,278
Change in assets and liabilities:
Accrued investment income (306) (15) (98)
Reinsurance recoverable-affiliates 48 412 (469)
Prepaid reinsurance premium (650) (487) (451)
Other assets (377) (18) (16)
Policy and contract reserves 140 183 195
Unearned policy charges 279 234 247
Federal income tax payable-current (310) 698 (81)
Unearned reinsurance ceded allowance 860 610 595
Other liabilities 3,868 1,939 (1,823)
------------- ------------------ --------------
Net cash used in operating activities (11,040) (1,844) (10,017)
------------- ------------------ --------------
INVESTING ACTIVITIES
- --------------------
Purchase of fixed maturity securities available for sale (31,514) (7,760) (15,673)
Proceeds from maturities or repayment of fixed maturity securities
available for sale 5,307 3,738 5,108
Proceeds from sales of fixed maturity securities available for sale 3,014 - -
Net change in loans on insurance policies (1,670) (1,042) (576)
------------- ------------------ --------------
Net cash used in investing activities (24,863) (5,064) (11,141)
------------- ------------------ --------------
FINANCING ACTIVITIES
- --------------------
Return of capital (15,000) - 6,000
Capital contribution 25,670 - -
Net change in accumulated contract values 30,257 4,448 2,873
------------- ------------------ --------------
Net cash from financing activities 40,927 4,448 8,873
------------- ------------------ --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,024 (2,460) (12,285)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,660 8,120 20,405
============= ================== ==============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,684 $ 5,660 $ 8,120
============= ================== ==============
Supplemental cash flow information:
- ----------------------------------
Net cash paid (received) on income taxes $ 4,129 $ 987 $ (527)
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, 1996, 1995 AND 1994
(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), a mutual life insurance company, 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 and fixed premium annuities in 1996. The
variable life, variable annuity and fixed premium 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 composed of debt securities which a
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 a company. Debt and equity 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.
The Company records write-offs or allowances for its investments based upon an
evaluation of specific problem investments. The Company reviews, on a continual
basis, all invested assets to identify investments where the Company has 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, 1996, 1995 and 1994.
CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with a
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.
PREMIUM REVENUE AND BENEFITS TO POLICYHOLDERS
RECOGNITION OF UNIVERSAL LIFE-TYPE CONTRACTS REVENUE AND BENEFITS TO
POLICYHOLDERS
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 policyholder, premiums paid by the policyholder or
interest accrued to policyholder 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.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------
(Continued):
- -------------
RECOGNITION OF INVESTMENT CONTRACT REVENUE AND BENEFITS TO POLICYHOLDERS
Contracts that do not subject the Company to risks arising from policyholder
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 primarily
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 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 annually based on actual
experience and changes in assumptions.
An analysis of the costs carried in the balance sheets as deferred acquisition
costs is as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $57,664 $45,940 $30,659
Acquisition costs deferred 26,596 16,020 17,481
Amortization of deferred policy acquisition costs (5,531) (3,057) (2,521)
Adjustment for unrealized investment (gain) loss 543 (1,239) 321
- -------------------------------------------------------------------------------------------------------------------------
Ending balance $79,272 $57,664 $45,940
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 gains or
losses included in stockholder's equity.
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.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
2. INVESTMENTS
- ---------------
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $3,308 $2,819 $2,411
Cash equivalents 618 597 609
Loans on insurance policies 214 128 82
- ---------------------------------------------------------------------------------------------------------------------------------
Gross investment income 4,140 3,544 3,102
Investment expenses 537 52 56
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income $3,603 $3,492 $3,046
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net pretax realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net gains on disposals of fixed maturity securities available for sale $19 $28 $19
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed maturity securities available for sale and gross
gains and losses realized on those sales were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------
Proceeds Gains Losses
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$3,014 $30 $ -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no disposals of fixed maturity securities available for sale during
1995 or 1994 other than calls or maturities.
The amortized cost and fair value of investments in fixed maturity securities
available for sale by type of investment were as follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------
Amortized Gross Unrealized Fair
----------------------------
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <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
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Amortized Gross Unrealized Fair
----------------------------
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Corporate $20,667 $930 $ - $21,597
Mortgage-backed 3,628 114 - 3,742
U.S. Treasury securities and obligations of
U.S. government agencies 14,458 550 4 15,004
- ---------------------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale $38,753 $1,594 $4 $40,343
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
2. INVESTMENTS (continued)
- ---------------------------
The December 31, 1995 balance of stockholder's equity was increased by $609
(comprised of an increase in the carrying value of the securities of $2,177,
reduced by $1,240 of related adjustments to deferred acquisition costs and $328
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, 1996 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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $7,582 $7,652
Due after one year through five years 17,266 17,568
Due after five years through ten years 22,264 22,303
Due after ten years 1,529 1,504
Mortgage-backed securities 13,407 13,594
- --------------------------------------------------------------------------------------------------------------------------
Total $62,048 $62,621
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. INCOME TAXES
- ----------------
The items that give rise to deferred tax assets and liabilities relate to the
following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized investment gains $277 $606
Deferred policy acquisition costs 23,727 17,276
Prepaid expenses 172 118
Other 0 500
- -------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 24,176 18,500
- -------------------------------------------------------------------------------------------------------------
Future policy and contract benefits 12,620 5,939
Deferred future revenues 1,534 1,039
Other 101 124
- -------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 14,255 7,102
- -------------------------------------------------------------------------------------------------------------
Net deferred tax liability $9,921 $11,398
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The difference between the U.S. federal income tax rate and the consolidated
tax provision rate is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Other 4.3 0.2 (0.1)
- ---------------------------------------------------------------------------------------------------------------------
Provision for income taxes 39.3% 35.2% 34.9%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
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 31, 1996, 1995 and 1994 was $8,907, $4,858 and $4,029
respectively. The Company also leased office space and furniture and equipment
from affiliates during 1995 and 1994. The cost of these leases to the Company
for the years ended December 31, 1995, and 1994 was $37 and $40, respectively.
Under the terms of investment advisory agreements, the Company paid $73, $44 and
$43 for the years ended December 31, 1996, 1995 and 1994 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 $100 retention limit. The Company paid $3,301, $2,280
and $1,333 of net reinsurance premiums to affiliates for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company has received
reinsurance recoveries from affiliates of $659, $1,472 and $519 for the years
ended December 31, 1996, 1995 and 1994, 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.
The Company's variable life and variable annuity products are distributed
through Ameritas Investment Corp., a wholly-owned subsidiary of AMAL
Corporation. The Company received $54, $192 and $272 for the years ended
December 31, 1996, 1995 and 1994 respectively, from this affiliate to partially
defray the costs of materials and prospectuses. Policies placed by this
affiliate generated commission expense of $20,373, $14,028 and $15,223 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Transactions with related parties are not necessarily indicative of revenues and
expenses which would have occurred had the parties not been related.
5. EMPLOYEE AND AGENT BENEFIT PLANS
- ------------------------------------
The Company is included in the noncontributory defined-benefit pension plan that
covers substantially all full-time employees of ALIC and its subsidiaries.
Pension costs include current service costs, which are accrued and funded on a
current basis, and past service costs, which are amortized over the average
remaining service life of all employees on the adoption date. The assets and
liabilities of this plan are not segregated. The Company had no full time
employees during 1996 or 1995. Total Company contributions for the year ended
December 31, 1994 was $47.
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. The Company had no full time
employees during 1996 or 1995. Total Company contributions for the year ended
December 31, 1994 was $20.
The Company is also included in the postretirement benefit plans provided to
retired employees of Ameritas Life Insurance Corp. and its subsidiaries. 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. The assets and liabilities of this plan are not segregated. The
Company had no full time employees during 1996 or 1995. Total Company
contribution for the year ended December 31, 1994 was $7.
Expenses for the defined benefit pension plan and postretirement group medical
plan are allocated to the Company based on percentage of payroll.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
6. STOCKHOLDER'S EQUITY
- ------------------------
Net income(loss), as determined in accordance with statutory accounting
practices, was $855, $(19), and $(3,900) for 1996, 1995 and 1994, respectively.
The Company's statutory surplus was $44,100, $13,800, and $12,600 at December
31, 1996, 1995 and 1994, respectively. Effective January 1, 1996 the Company
changed reserving methods used for most existing products resulting in an
increase in statutory surplus of approximately $20,601.
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 of each year. 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, fair value has been determined using an interest rate spread
matrix based upon quality, weighted average maturity and Treasury yields.
Loans on insurance policies
Fair values for policy loans are estimated using discounted cash flow
analyses at interest rates currently offered for similar loans with similar
remaining terms. Policy loans with similar characteristics are aggregated
for purposes of the calculations.
Cash and cash equivalents, accrued investment income and reinsurance
recoverable
The carrying amounts reported in the balance sheet equals fair value due to
the nature of these instruments.
Accumulated contract values
Funds on deposit which do not have fixed maturities are carried at the
amount payable on demand at the reporting date.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued):
- ----------------------------------------------------
<TABLE>
<CAPTION>
Estimated fair values as of December 31, are as follows:
December 31
--------------------------------------------------------
1996 1995
--------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturity securities available for sale $62,621 $62,621 $40,343 $40,343
Loans on insurance policies 4,309 3,843 2,639 2,346
Cash and cash equivalents 10,684 10,684 5,660 5,660
Accrued investment income 1,096 1,096 790 790
Reinsurance recoverable - affiliates 9 9 57 57
Financial Liabilities:
Accumulated contract values excluding amounts held under
insurance contracts $70,640 $70,640 $39,283 $39,283
</TABLE>
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 1940, 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.
<TABLE>
<CAPTION>
Amounts in the Separate Accounts are:
December 31
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Separate Account V $136,079 $93,610
Separate Account VA-2 811,501 588,872
- ---------------------------------------------------------------------------------------------------------------------------------
$947,580 $682,482
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The assets of Account V are invested in shares of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, Alger American Fund,
Dreyfus Stock Index Fund 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, 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 (effective June 17, 1993), Balanced Portfolio (effective June
28, 1993) 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 three portfolios: the Emerging Growth Portfolio (effective August 25, 1995),
World Governments Portfolio (effective August 24, 1995) and the Utilities
Portfolio (effective September 18, 1995)
Separate Account VA-2 allows investment in the Variable Insurance Products Fund,
Variable Insurance Products Fund II, Alger American Fund, Dreyfus Stock Index
Fund and the MFS Variable Insurance Trust with the same portfolios as described
above.
