PROSPECTUS COMPANY LOGO
AMERITAS VARIABLE LIFE INSURANCE COMPANY
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. The minimum first year premium on a
non-tax qualified policy is $2000 or more and minimum subsequent premium payment
is $500 or more. Smaller premium payments may be accepted on Bank-O-Matic or at
AVLIC's discretion. The minimum initial and subsequent premium for a tax
qualified policy purchased in a periodic payment plan is $50 per month.
Prior to the annuity date of the policy the accumulation value varies according
to the value of the subaccounts and the Fixed Account. The owner will receive
annuity payments on a fixed basis based on the assets supporting the Policy and
the option chosen. 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. Under certain
circumstances withdrawals are subject to a contingent deferred sales charge and
tax penalty. 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 may 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
<S> <C>
Definitions.............................................................. 3
Fee Table................................................................ 5
Questions and Answers About The Policy................................... 9
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
Fixed Account............................................................ 18
The Policy............................................................... 19
Policy Application and Premium Payment............................... 19
Allocation of Premium................................................ 19
Accumulation Value................................................... 19
Value of Accumulation Units.......................................... 20
Transfers............................................................ 20
Systematic Programs.................................................. 20
Owner Inquiries...................................................... 21
Refund Privilege..................................................... 21
Policy Loans......................................................... 21
Charges and Deductions................................................... 21
Administrative Charges............................................... 22
Mortality and Expense Risk Charge.................................... 22
Contingent Deferred Sales Charge..................................... 22
Taxes................................................................ 23
Fund Investment Advisory Fees and Expenses........................... 23
Distributions Under the Policy........................................... 24
Full and Partial Withdrawals......................................... 24
Critical Needs Withdrawals........................................... 24
Annuity Date......................................................... 24
Death of Annuitant Prior to Annuity Date............................. 25
Election of Annuity Income Options................................... 25
Annuity Income Options............................................... 25
Deferment of Payment................................................. 26
General Provisions....................................................... 26
Control of Policy.................................................... 26
Beneficiary.......................................................... 26
Change of Beneficiary................................................ 26
Contestability....................................................... 27
Misstatement of Age or Sex........................................... 27
Reports and Records.................................................. 27
Federal Tax Matters...................................................... 27
Introduction......................................................... 27
Taxation of Annuities in General..................................... 28
Distribution of the Policies............................................. 28
Safekeeping of the Account's Assets...................................... 29
Third Party Services..................................................... 29
Voting Rights............................................................ 29
Legal Proceedings........................................................ 30
Statement of Additional Information...................................... 30
</TABLE>
The Policy, certain provisions, and certain portfolios are not available in
all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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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 the annual
administrative charges.
CONTINGENT DEFERRED SALES CHARGES - The charge assessed upon certain withdrawals
and annuitizations to cover certain expenses relating to the sale of the
Policies.
DECLARED RATES - AVLIC guarantees that it will credit interest in the Fixed
Account at an effective annual rate of at least 3.5%. AVLIC may, at its sole
discretion declare higher interest rates for amounts allocated or transferred to
the Fixed Account.
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 - 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 the
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.
NET PREMIUM - The premium payment less a percent of premium charge equal to the
premium tax, if imposed by the state in which the policy is delivered.
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, and 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 - The minimum first year premium on a non-tax qualified policy
is $2000 or more and minimum subsequent premium payments of $500 or more.
Smaller premium payments may be accepted on Bank-O-Matic or at AVLIC's
discretion. The minimum initial and subsequent premium for a tax qualified
policy purchased in a periodic payment plan is $50 per month.
QUALIFIED POLICIES - Policies purchased in connection with certain plans that
qualify for special federal income tax treatment.
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 %
1.................6 5..................4
2.................6 6..................3
3.................6 7..................2
4.................5 8+.................0
Surrender Fees....................................................... 0%
Exchange Fee ........................................................ 0%
Transfer Fee (after 15 free transfers per policy year)............... $10
Annual Policy Fee (up to $50, currently $36, $30 in North Dakota
may be reduced or eliminated) ....................................... $36
Annual Administration Fee and Expense................................ .20%
Separate Account Annual Expenses (as a percentage of average account value)
Mortality and Expense Risk Fees...................................... 1.25%
(See "Charges and Deductions", page 21).
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:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSES TOTAL
MANAGEMENT
Figures presented may reflect Figures presented may reflect Figures presented
expense reimbursement expense reimbursement may reflect expense
reimbursement
<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)
</TABLE>
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<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSES TOTAL
MANAGEMENT
Figures presented may reflect Figures presented may reflect Figures presented
expense reimbursement expense reimbursement may reflect expense
reimbursement
<S> <C> <C> <C>
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%
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."
<PAGE>
(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
<S> <C> <C> <C> <C>
Money Market $79 $118 $140 $215
Equity-Income $81 $126 $153 $242
Growth $82 $129 $158 $253
High Income $83 $130 $160 $257
Overseas $85 $137 $171 $278
Asset Manager $83 $131 $161 $259
Investment Grade Bond $82 $126 $154 $244
Asset Manager: Growth $84 $135 $167 $271
Index 500 $79 $117 $138 $213
Contrafund $83 $130 $160 $257
Alger American Growth $84 $133 $164 $265
Alger American Income and Growth $84 $133 $165 $267
Alger American Small Capitalization $85 $135 $169 $274
Alger American Balanced $87 $143 $182 $300
Alger American MidCap Growth $84 $134 $167 $270
Alger American Leveraged AllCap $87 $142 $179 $295
MFS Emerging Growth $86 $139 $175 $286
MFS Utilities $86 $139 $175 $286
MFS World Governments $86 $139 $175 $286
MFS Research $86 $139 $175 $286
MFS Growth With Income $86 $139 $175 $286
Morgan Stanley Emerging Markets Equity $93 $161 $212 $358
Morgan Stanley Global Equity $87 $144 $182 $301
Morgan Stanley International Magnum $87 $144 $182 $301
Morgan Stanley Asian Equity $88 $145 $185 $306
Morgan Stanley U.S. Real Estate $87 $142 $180 $296
</TABLE>
<TABLE>
<CAPTION>
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 $58 $100 $215
Equity-Income $81 $66 $113 $242
Growth $82 $69 $118 $253
High Income $83 $70 $120 $257
Overseas $85 $77 $131 $278
Asset Manager $83 $71 $121 $259
Investment Grade Bond $82 $66 $114 $244
Asset Manager: Growth $84 $75 $127 $271
Index 500 $79 $57 $98 $213
Contrafund $83 $70 $120 $257
<PAGE>
Alger American Growth $84 $73 $124 $265
Alger American Income and Growth $84 $73 $125 $267
Alger American Small Capitalization $85 $75 $129 $274
Alger American Balanced $87 $83 $142 $300
Alger American MidCap Growth $84 $74 $127 $270
Alger American Leveraged AllCap $87 $82 $139 $295
MFS Emerging Growth $86 $79 $135 $286
MFS Utilities $86 $79 $135 $286
MFS World Governments $86 $79 $135 $286
MFS Research $86 $79 $135 $286
MFS Growth With Income $86 $79 $135 $286
Morgan Stanley Emerging Markets Equity $93 $101 $172 $358
Morgan Stanley Global Equity $87 $84 $142 $301
Morgan Stanley International Magnum $87 $84 $142 $301
Morgan Stanley Asian Equity $88 $85 $145 $306
Morgan Stanley U.S. Real Estate $87 $82 $140 $296
</TABLE>
<TABLE>
<CAPTION>
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 $58 $100 $215
Equity-Income $21 $66 $113 $242
Growth $22 $69 $118 $253
High Income $23 $70 $120 $257
Overseas $25 $77 $131 $278
Asset Manager $23 $71 $121 $259
Investment Grade Bond $22 $66 $114 $244
Asset Manager: Growth $24 $75 $127 $271
Index 500 $19 $57 $98 $213
Contrafund $23 $70 $120 $257
Alger American Growth $24 $73 $124 $265
Alger American Income and Growth $24 $73 $125 $267
Alger American Small Capitalization $25 $75 $129 $274
Alger American Balanced $27 $83 $142 $300
Alger American MidCap Growth $24 $74 $127 $270
Alger American Leveraged AllCap $27 $82 $139 $295
MFS Emerging Growth $26 $79 $135 $286
MFS Utilities $26 $79 $135 $286
MFS World Governments $26 $79 $135 $286
MFS Research $26 $79 $135 $286
MFS Growth With Income $26 $79 $135 $286
Morgan Stanley Emerging Markets Equity $33 $101 $172 $358
Morgan Stanley Global Equity $27 $84 $142 $301
Morgan Stanley International Magnum $27 $84 $142 $301
Morgan Stanley Asian Equity $28 $85 $145 $306
Morgan Stanley U.S. Real Estate $27 $82 $140 $296
</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.
<PAGE>
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. 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 policy
anniversary nearest the annuitant's 85th 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.
Net 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 (3.5%) or at higher "declared rates". (See "Fixed Account,
page 18).
5. HOW DO I PURCHASE A POLICY?
You may purchase a Policy on a tax qualified or non-tax qualified basis. The
minimum first year premium on a non-tax qualified policy is $2000 or more
and minimum subsequent premium payments of $500 or more. Smaller premium
payments may be accepted on Bank-O-Matic or at AVLIC's discretion. The
minimum initial and subsequent premium for a tax qualified policy purchased
in a periodic payment plan is $50 per month. The total of all premium
payments made under AVLIC 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 net 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).
<PAGE>
7. CAN I TRANSFER AMOUNTS?
Transfers of the accumulation value among the Subaccounts of the Account
and/or the Fixed Account can be made 15 times each policy year without
charge. A transfer charge may be imposed each additional time amounts are
transferred between the Subaccounts and/or the Fixed Account. This charge
will be deducted pro rata from each Subaccount (and, if applicable, the
Fixed Account) in which the Policyowner is invested. The maximum transfer
charge is $10.00 per transfer. Transfers must be at least $250, or, if less,
the entire value of the Subaccount or the Fixed Account from which the
transfer is made. The minimum amount which can remain in a Subaccount or the
Fixed Account as a result of a transfer is $100.00. Any amount below this
minimum must be included in the amount transferred. Transfers of up to the
greater of: 25% of the accumulation value of the Fixed Account; the amount
of any transfer from the Fixed Account during the prior thirteen months; or
$1,000 may be made out of the Fixed Account during the 30 day period
following the yearly anniversary date of the policy. (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, without a contingent
deferred sales charge, withdraw the greater of 10% of the policy
accumulation value or that portion of the policy accumulation value that
exceeds the total premiums deposited. 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
the annual policy fee and administrative fees. (See Administrative Charges,"
page 22). 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 net 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 or withdrawals, 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 15 free transfers each policy
year. (See"Annual Administration Fee," and "Transfers," pages 22 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 $36.00,
$30.00 in North Dakota (maximum of $50 may be reduced or eliminated).
Mortality and expense risk charges are not charged against the Fixed
Account. (See "Mortality and Expense Risk Charge" and "Annual Policy Fee,"
page 22).
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 25).
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
21).
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>
FINANCIAL STATEMENTS
The financial statements for AVLIC and the Account (as well as the auditors'
report thereon) are in the Statement of Additional Information.
<TABLE>
<CAPTION>
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 9 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 the 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, portfolio rebalancing,
earnings sweep, 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 invest 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 Series At least 65% will normally be invested in common Seeks to provide reasonable current income and
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 3.5%. 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 for a
12-month period on the amount transferred or allocated at the rate declared
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.
The policy may be purchased on a non-tax qualified basis ("nonqualified
policy"). The Policy may also be purchased in connection with certain plans
qualifying for favorable federal income tax treatment ("qualified policy").
POLICY APPLICATION AND PREMIUM PAYMENT
Individuals wishing to purchase a Policy must complete an application and submit
it to AVLIC's Home Office (One Ameritas Way, 5900 "O" Street, P.O. Box 82550 ,
Lincoln, Nebraska 68501). The application to purchase a non-qualified annuity
must be submitted with an initial premium payment of not less than $2,000 unless
other provisions for payment of the $2,000 premium are made. An application to
purchase an annuity in qualified plans may be submitted with initial monthly
premiums of as little as $50 in periodic payment plans providing for $600 in
premiums per year. Acceptance is subject to AVLIC's underwriting rules, and
AVLIC reserves the right to reject an application for any reason. After the
Policy is issued, an owner of a policy in a non-qualified plan may make
additional premium payments of $500 or more. Smaller premium payments may be
accepted on Bank-O-Matic in tax-qualified plans or at AVLIC's discretion. Also,
AVLIC has the right not to accept total premiums greater than $1,000,000, or a
premium payment where the total premium payments made under AVLIC annuity
contracts having the same annuitant exceed $1,000,000. If the application and
initial premium payment can be accepted in the form received, the initial
premium payment will be applied to the purchase of a Policy within two business
days after receipt by AVLIC at its Home Office. In those instances where other
provisions for the payment of the initial premium are made, the initial premium
will be applied after the application has been accepted and within two business
days after AVLIC has received the initial premium in its home office in Federal
Funds. The date that the initial premium is applied to the purchase of the
Policy is the effective date of the Policy.
If an incomplete application is received, AVLIC will request the information
necessary to complete the application. Once the application is completed and the
initial premium received, the initial premium payment will be applied to the
purchase of a Policy within two business days. If after five business days after
its receipt with the initial premium the application remains incomplete, AVLIC
will return the applicant's premium payment unless it obtains the applicant's
permission to retain the premium payment pending completion of the application.
The policy date 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 net premium to one or
more Subaccounts of the Account 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.
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.
<PAGE>
On the effective date, the accumulation value of the Policy is equal to the
initial premium received, reduced by any applicable premium taxes. Thereafter,
the accumulation value of the Policy is determined as of the close of trading on
the New York Stock Exchange on each valuation date by multiplying the number of
accumulation units of each Subaccount credited to the Policy by the current
value of an accumulation unit for each Subaccount and by adding the amount in
the Fixed Account. The current value of an accumulation unit reflects the
increase or decrease in value due to investment results of the Subaccount and
certain charges, as described below. The number of accumulation units credited
to the Policy is decreased by 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 and/or the Fixed
Account 15 times each policy year without charge. A transfer charge of $10.00
may be imposed each additional time amounts are transferred between Subaccounts
and/or the Fixed Account. The charge will be deducted pro rata from each
Subaccount (and, if applicable, the Fixed Account) in which the Policyowner is
invested. The total amount transferred each time must be at least $250, or the
balance of the Subaccount, if less. Accumulation values may also be transferred
from the Subaccounts of the separate account to the Fixed Account without
limitation. Transfers of up to the greater of: 25% of the accumulation value of
the Fixed Account; the amount of any transfer from the Fixed Account during the
prior thirteen months; or $1,000 may be made from the Fixed Account to the
various Subaccounts during the 30 day period following the yearly anniversary
date of the policy. This provision is not available while dollar cost averaging
from the Fixed Account. The minimum amount that may remain in a Subaccount or
the Fixed Account after a transfer is $100. AVLIC will effect transfers and
determine all values in connection with transfers on the later of the date
designated in the request or at the end of the valuation period during which the
transfer request is received at the Home Office.
The privilege to initiate transactions by telephone will be made available to
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.
SYSTEMATIC PROGRAMS
AVLIC may offer systematic programs as discussed below. Transfers of
Accumulation Value made pursuant to these programs will be counted in
determining whether the transfer fee applies. Lower minimum amounts may be
allowed to transfer as part of a systematic program. There is no separate charge
for participation in these programs at this time. All other normal transfer
restrictions, as described above, apply.
PORTFOLIO REBALANCING. Under the Portfolio Rebalancing program, the Owner can
instruct AVLIC to allocate Accumulation Value among the Subaccounts of the
Account, on a systematic basis, in accordance with allocation instructions
specified by the Owner. The Fixed Account can not be used in this program.
DOLLAR COST AVERAGING. Under the Dollar Cost Averaging program, the owner can
instruct AVLIC to automatically transfer, on a systematic basis, a predetermined
amount or percentage specified by the Owner from the Fixed Account or the Money
Market Subaccount to any other Subaccount(s). Dollar cost averaging is permitted
from the Fixed Account, if no more than 1/36th of the value of the Fixed Account
at the time dollar cost averaging is established is transferred each month.
<PAGE>
EARNINGS SWEEP. Permits systematic redistribution of earnings among Subaccounts.
The Owner can request participation in the available programs when purchasing
the Policy or at a later date. The Owner can change the allocation percentage or
discontinue any program by sending written notice or calling the Home Office.
Other scheduled programs may be made available. AVLIC reserves the right to
modify, suspend or terminate such programs at any time. Use of Systematic
Programs may not be advantageous, and does not guarantee success.
OWNER INQUIRIES
Inquiries should be addressed to Ameritas Variable Life Insurance Company, 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.
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 3.5% on the amount securing the
indebtedness. The accumulation values transferred out of the Account will be
allocated among the subaccounts or Fixed Account as instructed by the
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
<PAGE>
the premiums are received. Other charges, such as transfer and contingent
deferred sales charges, may be levied upon, respectively transfers or
withdrawals or, in some cases, upon annuitization or withdrawals, as described
more fully below.
ADMINISTRATIVE CHARGES
ANNUAL POLICY FEE. An annual policy fee of up to $50.00 (currently $36.00,
$30.00 in North Dakota) 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.
From time to time AVLIC may reduce the amount of the annual policy fee. AVLIC
may do so when annuities are sold to individuals or a group of individuals in a
manner that reduces the administrative costs of policy maintenance. AVLIC would
consider such factors as: (a) the size and type of group; (b) the number of
Annuities purchased by an Owner; (c) the amount of premium payments; and/or (d)
other transactions where maintenance and/or administrative expenses are likely
to be reduced.
Any elimination of the annual policy fee will not discriminate unfairly between
Annuity purchasers. AVLIC will not make any changes to this charge where
prohibited by law.
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.
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, in a Policy Year, of the greater of 10% of the policy accumulation
value or that portion of the
<PAGE>
accumulation value that exceeds the total premiums deposited. The contingent
deferred sales charge is assessed only on premiums paid based upon the number of
years since premiums withdrawn, were paid, on a first paid, first withdrawn
basis. The contingent deferred sales charge is a maximum of 6% of the premium
payment withdrawn and grades to 0% after the seventh year after the withdrawn
premiums were deposited.
Those annuitants whose policies have been in force for at least one year and
meet certain conditions may make withdrawals without surrender charges. (See
"Critical Needs Withdrawals," page 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 %
1................6 5.................4
2................6 6.................3
3................6 7.................2
4................5 8+................0
In the case of a partial withdrawal or annuitization, the contingent deferred
sales charge will be deducted from the amounts remaining under the Policy. The
charge will be allocated pro rata among the Subaccounts (or the Fixed Account)
based on the accumulation value in each prior to the withdrawal or annuitization
unless an owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. A contingent deferred sales charge will not be assessed on premium
payments withdrawn at least two years after deposit, if withdrawn and applied
under annuity income option c or d. (See "Annuity Income Options," page 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 or
withdrawals by said state, AVLIC will deduct applicable premium taxes at that
time. Applicable premium tax rates depend upon such factors as the owner's
current state of residency, and the insurance laws and the status of AVLIC in
states where premium taxes are incurred. Currently, premium taxes range from 0%
to 3.5% of the 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.
<PAGE>
AVLIC may receive administrative fees from the investment advisers of certain
funds.
DISTRIBUTIONS UNDER THE POLICY
FULL AND PARTIAL WITHDRAWALS
The owner may make elective and systematic partial withdrawals or a full
withdrawal of the Policy to receive part or all of the accumulation value (less
any applicable charges), at any time before the annuity date and while the
annuitant is living, by sending a written request to AVLIC. The withdrawal right
may be restricted by Section 403(b)(11) of the IRS Code and, should the
withdrawal be an eligible rollover distribution from a qualified plan or an
annuity in a 403(b) plan, it will be subject to a mandatory 20% withholding
under the IRS Code unless the distribution is paid directly by AVLIC into an
eligible retirement plan in a direct rollover. (See "Federal Tax Matters," page
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 the annual policy and
administrative fees 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).
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 medical confinement will continue for 90 days after
release. This waiver of withdrawal charges is not available in all states.
In the absence of specific direction from the owner, amounts will be withdrawn
from the Subaccounts and the Fixed Account on a pro rata basis. Any partial
withdrawal that would reduce the cash surrender value to less than $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 28).
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 policy anniversary nearest annuitant's 85th birthday. The annuity date
may be extended up to the policy anniversary nearest the annuitant's 95th
birthday (90th birthday in Oregon) without AVLIC's prior approval. The 29th,
30th, or 31st day of any month may not be selected as the annuity date. If no
annuity date is specified, the annuity date will be the later of the fifth
policy anniversary date (Seventh policy anniversary date in Oregon) or the
policy anniversary which is nearest the annuitant's 85th birthday. The annuity
date is the date that annuity payments are scheduled to commence under the
Policy, unless the Policy has been surrendered or an amount has been paid as
proceeds to the 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 following the premium payment where a life annuity is selected, and
prior to the eighth policy year if any other annuity option is selected.
<PAGE>
The owner may advance or defer the annuity date; however, the annuity date may
not be advanced to a date prior to 30 days after the date a written request is
received, or, without AVLIC's prior approval, deferred to a date beyond the
policy anniversary date nearest the annuitant's 85th birthday. An annuity date
may only be changed by written request during the annuitant's or joint
annuitant's lifetime. Request must be received at AVLIC's Home Office at least
30 days before the then scheduled annuity date. The annuity date and annuity
income options available for qualified contracts may also be controlled by
endorsements, the plan or applicable law.
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the annuitant dies prior to the annuity date, an amount will be paid as
proceeds to the 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. When the
annuitant commits suicide within two years of the policy date, the death benefit
is the cash surrender value. (See "Contestability," page 27). 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 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.
<PAGE>
(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 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:
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 of 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.
<PAGE>
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, in states where applicable, 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.
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 Code may impose limits on premiums, withdrawals, distributions or benefits,
or on other provisions of the policies. Therefore, purchasers of qualified
policies should seek competent legal and tax advice regarding the suitability of
the Policy for their situation, the applicable requirements and the tax
treatment of the rights and benefits of a Policy. Section 403(b)(11) of the Code
requires that no distribution 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.
<PAGE>
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.
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 other certain 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
<PAGE>
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, 6.5% of premiums paid. Further, Registered Representatives who
meet certain production standards may receive additional compensation, and
managers receive override commissions with respect to the policies.
The gross variable annuity compensation received by 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 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.
<PAGE>
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 front 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...................................................... 5
FEDERAL TAX MATTERS.................................................. 6
DISTRIBUTION OF THE POLICY........................................... 7
SAFEKEEPING OF ACCOUNT ASSETS ....................................... 8
AVLIC ............................................................... 8
STATE REGULATION..................................................... 8
LEGAL MATTERS........................................................ 8
EXPERTS.............................................................. 8
OTHER INFORMATION.................................................... 8
FINANCIAL STATEMENTS................................................. 8
</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>
1 1972 18.90 Omitted graph depicts the activity
2 1973 -14.77 of the S&P 500 Index for the years
3 1974 -26.39 1971-1996.
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>
APPENDIX C
QUALIFIED DISCLOSURES
* Information Statement For:
408(b) IRA Plans
408(k) SEP Plans
408(p) SIMPLE Plans (if available)
* Information Statement For:
401(a) Pension/Profit Sharing Plans
403(b) ERISA Plans
403(b) Tax Sheltered Annuity (TSA) Plans-Withdrawal
Restrictions
AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO
<PAGE>
If this annuity is being purchased as a qualified plan as defined under
specified sections of the Internal Revenue Code, as purchaser (owner) or
fiduciary of an Employee Benefit Plan purchasing the annuity, you should
carefully review the Information Statement for your specific plan.
Depending on the type of plan, we are required to provide this disclosure to you
to meet the requirements of the Internal Revenue Service (IRS) and/or the
Employee Retirement Income Security Act of 1974 (ERISA).
Acknowledgment of your receipt of the required disclosure is included within the
application language above your signature.
Table of Contents
Information Statement
408(b) Individual Retirement Annuity (IRA) Plans
408(k) Simplified Employee Pension (SEP) Plans
408(p) Savings Incentive Match (SIMPLE) Plans (if available).... QD-1
Information Statement
401(a) Pension/Profit Sharing Plans............................. QD-7
403(b) ERISA Plans
403(b) Tax Sheltered Annuity (TSA) Plans - Withdrawal Restrictions
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO
INFORMATION STATEMENT
408(B) INDIVIDUAL RETIREMENT ANNUITY (IRA) PLANS
408(K) SIMPLIFIED EMPLOYEE PENSION (SEP) PLANS
408(P) SAVINGS INCENTIVE MATCH (SIMPLE) PLANS (IF AVAILABLE)
- --------------------------------------------------------------------------------
For purchasers of a 408(b) Individual Retirement Annuity (IRA) Plan, 408(k)
Simplified Employee Pension (SEP) Plan, or 408(p) Savings Incentive Match
(SIMPLE) Plan (if available), please review the following:
PART 1. PROCEDURE FOR REVOKING THE IRA PLAN:
After you establish an IRA Plan with Ameritas Variable Life Insurance Company
(AVLIC), you are able to revoke your IRA within a limited time and receive a
full refund of the initial premium paid, if any. The period for revocation will
not be less than the legal minimum of seven (7) days following the date your IRA
is established with AVLIC.
To revoke your IRA, you should send a signed and dated written notice to:
Ameritas Variable Life Insurance Company, Policyholder Service Department, P.O.
Box 82550, Lincoln, NE 68501.
If your IRA contract was delivered to you, the contract should accompany your
notice of revocation. Your notice of revocation will be considered mailed on the
date of the postmark (or certification or registration, if applicable), if sent
by United States mail, properly addressed and by first class postage prepaid.
To obtain further information about the revocation procedure, contact your AVLIC
Representative or call 1-800-745-1112.
PART II. PROVISIONS OF THE IRA LAW:
AVLIC's OVERTURE ANNUITY III (Form 4784), can be used for a Regular IRA, a
Rollover IRA, a Spousal IRA Arrangement, a Simplified Employee Pension Plan
(SEP) or for a salary reduction Simplified Employee Pension Plan (SARSEP)
established prior to January 1, 1997. A separate policy must be purchased for
each individual under each plan. In addition, AVLIC's OVERTURE Annuity III, at
some point after December 31 1996, may be made available for use as a SIMPLE
IRA, if AVLIC determines such use is appropriate under applicable law.
While provisions of the IRA law are similar for all such plans, any major
differences are set forth under the appropriate topics below.
ELIGIBILITY:
REGULAR IRA PLAN: Any employee under age 70 1/2 and earning income from
personal services, is eligible to establish an IRA Plan although deductibility
of the contributions is determined by adjusted gross income and whether the
employee (or employee's spouse) participates in a qualified employer-sponsored
retirement plan.
ROLLOVER IRA: This is an IRA plan purchased with your distributions from
another IRA (including a SEP, SARSEP or SIMPLE IRA), a Section 401(a)
Qualified Retirement Plan, or a Section 403(b) Tax Sheltered Annuity (TSA).
Amounts transferred as Rollover Contributions are not taxable in the year of
distribution provided the rules for Rollover treatment are satisfied and may
or may not be subject to withholding. Rollover Contributions are not
deductible.
SPOUSAL IRA ARRANGEMENT: A Spousal IRA, consisting of a contract for each
spouse, may be set up provided a joint return is filed, the "nonworking
spouse" has less taxable compensation, if any, for the tax year than the
working spouse, and is under age 70 1/2 at the end of the tax year.
Divorced spouses can continue a spousal IRA or start a Regular IRA based on
the standard IRA eligibility rules. All taxable alimony received by the
divorced spouse under a decree of divorce or separate maintenance is treated
as compensation for purposes of the IRA deduction limit.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP): An employee is eligible to participate
in a SEP Plan based on eligibility requirements set forth in form 5305-SEP or
the plan document provided by the employer.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SARSEP): An employee is
eligible to participate in a SARSEP plan based on eligibility requirements set
forth in form 5305A-SEP or the plan document provided by the employer. New
SARSEP plans may not be established after December 31, 1996. SARSEP's
established prior to January 1, 1997, may continue to receive contributions
after 1996, and new employees hired after 1996 are also permitted to
participate in such plan if it was established prior to 1997.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES OF SMALL EMPLOYERS (SIMPLE PLAN)
(IF AVAILABLE): An employee is eligible to participate in a SIMPLE Plan based
on eligibility requirements set forth in Form 5305-SIMPLE or the plan document
provided by the employer.
NONTRANSFERABILITY: You may not transfer, assign or sell your IRA Plan to
anyone (except in the case of transfer incident to divorce).
NONFORFEITABILITY: The value of your IRA Plan belongs to you at all times,
without risk of forfeiture.
PREMIUM: The annual premium (if applicable) of your IRA Plan may not exceed
the lesser of $2,000, or 100% of compensation for the year (or for Spousal
IRA's, the combined compensation of the spouses reduced by any deductible IRA
contribution made by the working spouse). Any premium in excess of or in
addition to $2,000 will be permitted only as a "Rollover Contribution." Your
contribution must be made in cash. For IRA's established under Simplified
Employee Pension Plans (SEP's), premiums are limited to the lesser of $30,000
or 15% of the first $150,000 of compensation (adjusted for cost of living
increases). In addition, if the IRA is under a salary reduction Simplified
Employee Pension (SARSEP) established prior to January 1, 1997, premiums made
by salary reduction are limited to $7,000 (adjusted for cost of living
increases). Also, if the Company determines that the contract can be used as a
SIMPLE IRA under applicable law, premiums under such plan will be limited to
permissible levels of annual employee elective contributions ($6,000 adjusted
for cost of living increases) plus the applicable percentage of employer
matching contributions (up to 3% of compensation) or employer non-elective
contributions (2% of compensation for each eligible employee subject to the
cap under Section 401(a)(17) as adjusted for cost of living increases).
QD-1 IRA/SEP
ANNUITY III:12/96
<PAGE>
MAXIMUM CONTRIBUTIONS:
REGULAR IRA PLAN: In any year that your annuity is maintained under the rules
for a Regular IRA Plan, your maximum contribution is limited to 100% of your
compensation or $2,000, whichever is less. The amount of permissible
contributions to your IRA may or may not be deductible. Whether IRA
contributions (other than Rollovers) are deductible depends on whether you (or
your spouse, if married) are an active participant in an employer-sponsored
plan and whether your adjusted gross income is above the "phase-out level."
SEE DEDUCTIBLE CONTRIBUTIONS, PART III.
ROLLOVER IRA: A Plan to Plan Rollover is a method for accomplishing continued
tax deferral on otherwise taxable distributions from certain plans. Rollover
contributions are not subject to the contribution limits on regular IRA
contributions, but also are not tax deductible.
There are two ways to make a rollover to an IRA:
(1) PARTICIPANT ROLLOVERS are available to participants, surviving spouses
or former spouses who receive eligible rollover distributions from
401(a) Qualified Retirement Plans, TSAs or IRAs (including SEP's,
SARSEP's, and SIMPLE IRA's). Participant Rollovers are accomplished by
contributing part or all of the eligible amounts (which includes amounts
withheld for federal income tax purposes) to your new IRA within 60 days
following receipt of the distribution. IRA to IRA Rollovers are limited
to one per distributing plan per 12 month period, while direct IRA to
IRA Transfers are not subject to this limitation. Distributions from a
SIMPLE IRA may not be rolled over to an IRA (which isn't a SIMPLE IRA)
during the 2 year period following the date you first participate in any
qualified salary reduction arrangement under a SIMPLE Plan maintained by
your employer.
(2) DIRECT ROLLOVERS are available to participants, surviving spouses and
former spouses who receive eligible rollover distributions from 401(a)
Qualified Retirement Plans or TSAs. Direct Rollovers are made by
instructing the plan trustee, custodian or issuer to pay the eligible
portion of your distribution directly to the trustee, custodian or
issuer of the receiving IRA. Direct Rollover amounts are not subject to
mandatory federal income tax withholding.
Certain distributions are NOT considered to be eligible for Rollover and
include: (1) distributions which are part of a series of substantially equal
periodic payments (made at least annually) for 10 years or more; (2)
distributions attributable to after-tax employee contributions to a 401(a)
Qualified Retirement Plan or TSA, or attributable to non-deductible IRA
contributions; (3) required minimum distributions made during or after the year
you reach age 70 1/2 or, if later and applicable, the year in which you retire;
(4) amounts in excess of the cash (except for certain loan offset amounts) or in
excess of the proceeds from the sale of property distributed.
At the time of a Rollover, you must irrevocably designate in writing that the
transfer is to be treated as a Rollover Contribution. Eligible amounts which are
not rolled over are normally taxed as ordinary income in the year of
distribution. If a Rollover Contribution is made to an IRA from a Qualified
Retirement Plan, you may later be able to roll the value of the IRA into a new
employer's plan provided you made no contributions to the IRA from other than
the first employer's plan. This is known as "Conduit IRA," and you should
designate your annuity as such when you complete your application.
SPOUSAL IRA ARRANGEMENT: In any year that your annuity is maintained under the
rules for a Spousal IRA, the maximum combined contribution to the Spousal IRA
and "working spouse's" IRA for tax years after 1996, is the lesser of 100% of
the combined compensation of both spouses which is includable in gross income,
reduced by the amount allowed as a deduction to the "working" spouse for
contribution to his or her own IRA or $4,000. No more than $2,000 may be
contributed to either spouse's IRA. Whether the contribution is deductible or
non-deductible depends on whether either spouse is an active participant in an
employer-sponsored plan for the year, and whether the adjusted gross income of
the couple is above the phase out level.
The contribution limit for divorced spouses is the lesser of $2,000 or the total
of the taxpayer's taxable compensation and alimony received for the year.
SEP PLAN: In any year that your annuity is maintained under the rules for a
Simplified Employee Pension Plan, the employer's maximum contribution is the
lesser of $30,000 or 15% of your first $150,000 of compensation (adjusted for
cost-of-living increases) or as changed under Section 415 of the Code. You may
also be able to make contributions to your SEP-IRA the same as you do to a
Regular IRA, however, you will be considered an active participant for purposes
of determining your deduction limit. In addition to the above limits, if your
annuity is maintained under the rules for a salary reduction Simplified Employee
Pension Plan (SARSEP), the maximum amount of employee pre-tax contributions
which can be made is $7,000, adjusted for cost of living increases. After
December 31, 1996, new SARSEP plans may not be established. Employees may,
however, continue to make salary reductions to a SARSEP plan established prior
to January 1, 1997. In addition, employees hired after December 31, 1996 may
participate in SARSEP plans established by their employers prior to 1997.
SIMPLE IRA: Contributions to a SIMPLE IRA (if available) may not exceed the
permissible amounts of employee elective contributions and required employer
matching contributions or non-elective contributions. Annual employee elective
contributions must be expressed as a percentage of compensation and may not
exceed $6,000 (adjusted for cost of living increases). If an employer elects a
matching contribution formula, employers are generally required to match
employee contributions dollar for dollar up to 3% of the employee's compensation
for the year. An employer may elect a lower percentage match (not below 1%) for
a year, provided certain notice requirements are satisfied and the employer's
election will not result in the matching percentage being lower than 3% in more
than 2 of the 5 years in the 5-year period ending with that calendar year.
Alternatively, an employer may elect to make non-elective contributions of 2% of
compensation for all employees eligible to participate in the plan and who have
at least $5,000 in compensation for the year. The employer must notify employees
of this election within specified timeframes. "Compensation" for purposes of the
2% non-elective contribution option may not exceed the limit on compensation
under Code Section 401(a)(17) ($150,000, adjusted for cost of living increases).
DISTRIBUTIONS: Payment to you from your IRA Plan must begin no later than the
April 1 following the close of the calendar year in which you attain age 70 1/2,
the Required Beginning Date (RBD). If you have not already withdrawn your entire
balance by this date, you may elect to receive the entire value of your IRA Plan
on or before the RBD in one lump sum; arrange for an income to be paid over your
lifetime, your expected lifetime, or over the lifetimes or expected lifetimes of
you and your beneficiary.
RATE OF DISTRIBUTION: If you arrange for the value of your IRA Plan to be paid
to you as retirement income rather than as one lump sum, then you must abide by
IRS rules governing how quickly the value of your IRA plan must be paid out to
you. Generally, it is acceptable to have an insurance company annuity pay income
to you for as long as you live, or for as long as you and your beneficiary live.
IRA/SEP QD-2
ANNUITY III; 12/96
<PAGE>
MINIMUM DISTRIBUTION REQUIREMENTS: Once you reach your RBD, you must withdraw a
minimum amount each year or be subject to a 50% non-deductible excise tax on the
difference between the minimum required distribution and the amount distributed.
To determine the required minimum distribution, divide your entire interest in
your IRA (as of December 31 of your age 70 1/2 year) by your life expectancy or
the joint life expectancies of you and your beneficiary. Your single or joint
life expectancy is determined by using IRS life expectancy tables. See IRS
Publications 575 and 590.
Your life expectancy (and that of your spousal beneficiary, if applicable) will
be recalculated annually, unless you irrevocably elect otherwise by the time
distributions are required to begin. With the recalculation method, if a person
whose life expectancy is recalculated dies, his or her life expectancy will be
zero in all subsequent years. The life expectancy of a non-spouse beneficiary
cannot be recalculated. Where life expectancy is not recalculated, it is reduced
by one year for each year after your 70 1/2 year to determine the applicable
remaining life expectancy. Also, if your benefit is payable in the form of a
joint and survivor annuity, a larger minimum distribution amount may be required
under IRS regulations, unless your spouse is the designated beneficiary.
If you die after the RBD, amounts undistributed at your death must be
distributed at least as rapidly as under the method being used at the time of
your death. If you die before the RBD, your entire interest must be distributed
within 5 years of your death if no beneficiary is designated; or if a
beneficiary is designated, over the life expectancy of the beneficiary if the
beneficiary so elects by December 31 of the year following the year of your
death. If the beneficiary fails to make an election, the entire benefit will be
paid to the beneficiary no later than December 31, of the calendar year
containing the fifth anniversary of the Annuitant's death. Also, if a designated
beneficiary is the spouse, the life annuity distribution must begin by the later
of December 31 of the calendar year following the calendar year of the
Annuitant's death or December 31 of the year in which you would have attained
age 70 1/2. If your designated beneficiary is not your spouse, life annuity
distributions must begin by December 31 of the year following your death.
PART III. RESTRICTIONS AND TAX CONSIDERATIONS:
TIMING OF CONTRIBUTIONS: Once you establish an IRA, contributions (deductible or
non-deductible) must be made by the due date, not including extensions, for
filing your tax return. (Participant Rollovers must be made within 60 days of
your receipt of the distribution.) A CONTRIBUTION MADE BETWEEN JANUARY 1 AND THE
FILING DUE DATE FOR YOUR RETURN, MUST BE SUBMITTED WITH WRITTEN DIRECTION THAT
IT IS BEING MADE FOR THE PRIOR PLAN YEAR OR IT WILL BE TREATED AS MADE FOR THE
CURRENT YEAR. SEP contributions must be made by the due date of the Employer's
tax return (including extensions). SIMPLE IRA contributions, if permitted, must
be made by the tax return due date for the employer (including extensions) for
the year for which the contribution is made. Note, an employer is required to
make SIMPLE plan contributions attributable to employee elective contributions
as soon as it is administratively feasible to segregate these contributions from
the employer's general assets, but in no event later than the 30th day of the
month following the month in which the amounts would have otherwise been payable
to the employee in cash.
DEDUCTIBLE IRA CONTRIBUTIONS: The amount of permissible contributions to your
IRA may or may not be deductible. If you or your spouse are not active
participants in an employer sponsored retirement plan, any permissible
contribution you make to your IRA will be deductible. If you or your spouse are
an active participant in an employer-sponsored retirement plan, the size of your
deduction if any, will depend on your combined adjusted gross income (AGI). If
your combined AGI is less than $40,000, you can deduct your entire contribution.
If you are single and your AGI is less than $25,000, you may also take a full
deduction. For married couples filing joint returns, the deduction is phased out
between $40,000 and $50,000. For single individuals, the deduction is phased out
between $25,000 and $35,000. If you are married and covered by an employer plan,
but file a separate tax return from your spouse, your deduction is phased out
between $0 and $10,000 of AGI. If your AGI is not above the applicable phase out
level, a minimum contribution of $200 is permitted regardless of whether the
phase out rules provide for a lesser amount. You can elect to treat deductible
contributions as non-deductible. SEP, SARSEP and SIMPLE plan contributions are
not deductible by you.
NON-DEDUCTIBLE IRA CONTRIBUTIONS: It is possible for you to make non-deductible
contributions to your IRA (not including SIMPLE IRA's) even if you are not
eligible to make deductible contributions for the year. The amount of
non-deductible contributions you can make depends on the amount of deductible
contributions you make. The sum of your non-deductible and deductible
contributions for a year may not exceed the lesser of (1) $2,000 ($4,000
combined when a spousal IRA is also involved), or (2) 100% of your compensation
(or, if a Spousal IRA is involved, 100% of you and your spouse's combined
compensation, reduced by the amount of any deductible IRA contribution made by
the "working" spouse). IF YOU WISH TO MAKE A NON-DEDUCTIBLE CONTRIBUTION, YOU
MUST REPORT THIS ON YOUR TAX RETURN BY FILING FORM 8606 (NON-DEDUCTIBLE IRA).
REMEMBER, YOU ARE REQUIRED TO KEEP TRACK OF YOUR NON-DEDUCTIBLE CONTRIBUTIONS AS
AVLIC DOES NOT KEEP A RECORD OF THESE FOR YOU. THIS INFORMATION WILL BE
NECESSARY TO DOCUMENT THAT THE CONTRIBUTIONS WERE MADE ON A NON-DEDUCTIBLE BASIS
AND THEREFORE, ARE NOT TAXABLE UPON DISTRIBUTION.
EXCESS CONTRIBUTIONS: There is a 6% IRS penalty tax on IRA contributions in
excess of permissible contributions. However, excess contributions made in one
year may be applied against the contribution limits in a later year if the
contributions in the later year are less than the limit. This penalty tax can be
avoided if the excess amount, together with any earnings on it, is returned to
you before the due date of your tax return for the year for which the excess
amount was contributed. The penalty tax will apply to each year the excess
amount remains in the IRA Plan, until it is removed either by having it returned
to you or by making a reduced contribution in a subsequent year. To the extent
an excess contribution is absorbed in a subsequent year by contributing less
than the maximum deduction allowable for that year, the amount absorbed will be
deductible in the year applied (provided you are eligible to take a deduction).
LOANS AND PROHIBITED TRANSACTIONS: You may not borrow from your IRA Plan or
pledge it as security for a loan. This would disqualify your entire IRA Plan,
and its full value would be includable in your taxable income in the year of
violation. This amount would also be subject to the 10% penalty tax on premature
distributions. Your IRA Plan will similarly be disqualified if you or your
beneficiary engage in any transaction prohibited by Section 4975 of the Internal
Revenue Code.
TAXABILITY OF DISTRIBUTIONS: Any cash distribution from your IRA Plan is
normally taxable as ordinary income. All IRAs of an individual are treated as
one contract. All distributions during a taxable year are treated as one
distribution; and the value of the contract, income on the contract, and
investment on the contract is computed as of the close of the calendar year with
or within which the taxable year ends. If an individual withdraws an amount from
an IRA during a taxable year and the individual has previously made both
deductible and non-deductible IRA contributions, the amount excludable from
income for the taxable year is the portion of the amount withdrawn which bears
the same ratio to the amount withdrawn for the taxable year as the individual's
aggregate non-deductible IRA contributions bear to the balance of all IRAs of
the individual.
LUMP SUM DISTRIBUTION: If you decide to receive the entire value of your IRA
Plan in one lump sum, the full amount is taxable when received (except as to
non-deductible contributions), and is not eligible for the special tax rules on
lump sum distributions which are used with other types of Qualified Retirement
Plans.
QD-3 IRA/SEP
ANNUITY III; 12/96
<PAGE>
PREMATURE IRA DISTRIBUTIONS: There is a 10% penalty tax on amounts distributed
prior to the attainment of age 59 1/2, except for: (1) distributions made to a
beneficiary on or after the owner's death; (2) distributions attributable to the
owner's being disabled: (3) distributions that are part of a series of
substantially equal periodic payments (made at least annually) for the life of
the annuitant or the joint lives of the annuitant and his beneficiary; (4)
distributions made on or after January 1, 1997 for medical expenses which exceed
7.5% of the annuitant's adjusted gross income; or (5) distributions made on or
after January 1, 1997, to purchase health insurance for the individual and/or
his or her spouse and dependents if he or she: has received unemployment
compensation for 12 consecutive weeks or more; the distributions are made during
the tax year that the unemployment compensation is paid or the following tax
year; and the individual has not been re-employed for 60 days or more. The part
of a distribution attributable to non-deductible contributions is not includable
in income and is not subject to the 10% penalty. In addition, distributions from
a SIMPLE Plan during the two-year period beginning on the date the employee
first participated in the employer's SIMPLE Plan will be subject to a 25%
(rather than 10%) premature distribution penalty tax.
MINIMUM REQUIRED DISTRIBUTION: SEE PART II, MINIMUM DISTRIBUTION REQUIREMENTS.
An IRA Plan which is not totally distributed to you by April 1 of the year
following the year in which you attain age 70 1/2, must be distributed over one
of the following periods: 1) the entire life of the annuitant; 2) the lives of
the annuitant and his beneficiary; or 3) a period certain not extending beyond
the life expectancy of the annuitant or the joint life and last survivor
expectancy of the annuitant and his beneficiary. Payments must be made in
intervals which do not exceed one year. Payments must be non-increasing or may
increase only as provided in Q & A F-3 of Section 1.401(a)(9)-1 of the Proposed
Income Tax Regulations. If the minimum distribution is not made, the excess, in
any taxable year, of the amount that should have been distributed over the
amount that was actually distributed is subject to an excise tax of 50%.
MAXIMUM DISTRIBUTION: Generally, an excess distribution is an annual
distribution in excess of the annual indexed ceiling ($160,000 in 1997). Excess
distributions are subject to a 15% excise tax. The tax is reduced by any payment
of the 10% excise tax on early withdrawals. Among the items excluded from the
excise tax are distributions after the death of the participant, distributions
payable (and taxable) to an alternate payee under a qualified domestic relations
order (if taxable to the alternate payee), distributions attributable to
after-tax employee contributions, and distributions not includable in income by
reason of a Rollover Contribution. Also, a 15% excise tax is imposed on your
excess retirement accumulation at the time of your death. This amount is the
excess of the value of all accrued benefits under all your IRAs, Qualified
Retirement Plans, and TSAs, over the present value of a single life annuity with
payments equal to the annual ceiling ($160,000 in 1997), payable over your life
expectancy prior to death.
UNDER FEDERAL LEGISLATION SIGNED INTO LAW IN 1996, THE EXCESS DISTRIBUTION
PENALTY TAX DESCRIBED ABOVE IS SUSPENDED FOR DISTRIBUTIONS MADE IN 1997, 1998
AND 1999. DISTRIBUTIONS DURING THIS 3-YEAR "HOLIDAY" WILL BE TREATED AS MADE
FIRST FROM "NON-GRANDFATHERED" AMOUNTS. THIS SUSPENSION DOES NOT APPLY TO THE
EXCESS ACCUMULATION PENALTY TAX WHICH MAY APPLY AT YOUR DEATH.
TAX FILING: You are not required to file a special IRA tax form for any taxable
year (1) for which no penalty tax is imposed with respect to the IRA Plan, and
(2) in which the only activities engaged in, with respect to the IRA Plan, are
making deductible contributions and receiving permissible distributions.
Information regarding such contributions or distributions will be included on
your regular Form 1040. For further information, consult the instructions for
Form 5329 (Additional Taxes Attributable to Qualified Retirement Plans
(including IRA's), Annuities, and Modified Endowment Contracts), Form 8606 and
IRS Publication 590.
TAX ADVICE: AVLIC is providing this general information as required by
regulations issued under the Internal Revenue Code and assumes no responsibility
for its application to your particular tax situation. Please consult your
personal tax advisor regarding specific questions you may have.
ADDITIONAL INFORMATION: You may obtain more information about IRA Plans from any
district office of the IRS and IRS Publication 590.
PART IV. STATUS OF AMERITAS IRA PLAN:
INTERNAL REVENUE SERVICE APPROVAL LETTER: AVLIC will re-apply, due to changes in
the law effective January 1, 1997, for approval from the Internal Revenue
Service as to the form of OVERTURE ANNUITY III (Form 4784), for use in funding
IRA plans. Such approval, when received, is a determination only as to the form
of the Annuity Contract, and does not represent a determination of the merits of
the annuity.
PART V. FINANCIAL DISCLOSURE:
The following is a general description and required financial disclosure
information for the variable annuity product, OVERTURE ANNUITY III (Form 4784)
offered by AVLIC, hereafter referred to as the policy.
In order for you to achieve your retirement objectives, you should be prepared
to make your IRA Plan a long term savings program. An IRA is not suited to
short-term savings, nor was it intended to be by Congress, as indicated by the
penalties on withdrawal before age 59 1/2 (except for death or disability).
However, you should be aware of the values in your IRA Plan during the early
years as well as at retirement.
Prior to the annuity date, the policy allows you to accumulate funds based on
the investment experience of the assets underlying the policy in the Separate
Account or the Fixed Account. Currently, the assets which underlie the Separate
Account are invested exclusively in shares of mutual funds, the "Funds", managed
or administered by several fund managers. Each of the Subaccounts of the
Separate Account invest solely in the corresponding portfolio of the Funds. The
assets of each portfolio are held separately from the other portfolios and each
has distinct investment objectives which are described in the accompanying
prospectus for the Funds which you would have received when making an
application for your annuity. The accumulation value of your IRA Plan allocated
to the Separate Account will vary in accordance with the investment performance
of the Subaccounts you selected. Therefore, for assets in the Separate Account,
you bear the entire investment risk prior to the annuity date.
Premium payments and subsequent allocations to the Fixed Account are placed in
the general account of AVLIC which supports insurance and annuity obligations.
Policyowners are paid interest on the amounts placed in the Fixed Account at
guaranteed rates (3.5%) or at higher rates declared by AVLIC.
ACCUMULATION VALUE: On the effective date, the accumulation value of the policy
is equal to the premium received, reduced by any applicable premium taxes.
Thereafter, the accumulation value of the policy is determined as of the close
of trading on the New York Stock Exchange on each valuation date by multiplying
the number of accumulation units for each Subaccount credited to the policy by
the current value of an accumulation unit for each Subaccount, and by adding the
amount deposited in the Fixed Account, plus interest. The current value of an
accumulation unit reflects
IRA/SEP QD-4
ANNUITY III; 12/96
<PAGE>
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.
A valuation period is the period between successive valuation dates. It begins
at the close of trading on the New York Stock Exchange on each valuation date
and ends at the close of trading on the next succeeding valuation date. A
valuation date is each day that the New York Stock Exchange is open for
business.
The accumulation value is expected to change from valuation period to valuation
period, reflecting the net investment experience of the selected portfolios of
the Funds, interest earned in the Fixed Account, additional premium payments,
partial withdrawals, as well as the deduction of any applicable charges under
the policy. GROWTH IN THE ACCUMULATION VALUE BASED ON INVESTMENTS IN THE ACCOUNT
IS NEITHER GUARANTEED NOR PROJECTED.
VALUE OF ACCUMULATION UNITS: The accumulation units of each Subaccount are
valued separately. The value of an accumulation unit may change each valuation
period according to the net investment performance of the shares purchased by
each Subaccount and the daily charge under the policy for mortality and expense
risks, and if applicable, any federal and state income tax charges.
CASH SURRENDER VALUE: The amount available for full or partial withdrawal, which
is the accumulation value less any contingent deferred sales charge, any
applicable premium taxes, and, in the case of a full withdrawal, the annual
policy and administrative fees.
ANNUAL POLICY FEE: An annual policy fee of $36, $30 in North Dakota is deducted
from the accumulation value on the last valuation date of each policy year and
on a full withdrawal if between policy anniversaries. This charge reimburses
AVLIC for the administrative costs of maintaining the policy on AVLIC's system.
This charge may be increased to a maximum of $50, and may be reduced or
eliminated.
ANNUAL ADMINISTRATIVE 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 or on a full withdrawal if between policy anniversaries.
This charge, which is guaranteed not to be increased, is designed to reimburse
AVLIC for administrative expenses incurred in connection with issuing the policy
and ongoing administrative expenses incurred in connection with servicing and
maintaining the policies. These expenses include the cost of processing the
application and premium payment, establishing policy records, processing and
servicing owner transactions and policy changes, recordkeeping, preparing and
mailing reports, processing death benefit claims, and overhead costs.
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
expense risk charge is imposed on the Fixed Account.
TAXES: AVLIC will, where such taxes are imposed by state law upon the receipt of
a premium payment, deduct premium taxes. If premium taxes are imposed upon
annuitization, AVLIC will deduct applicable premium taxes at that time.
Applicable premium tax rates depend upon such factors as the policyowner's
current state of residency, and the insurance laws and the status of AVLIC in
states where premium taxes are incurred. Currently, premium taxes range from 0%
to 3.5% of the premium paid. Applicable premium tax rates are subject to change
by legislation, administrative interpretations, or judicial acts. The owner will
be notified of any applicable premium taxes.
PARTIAL AND FULL WITHDRAWALS: The owner may make a partial or a full withdrawal
of the policy to receive part or all of the accumulation value (less any
applicable charges), at any time before the annuity date and while the annuitant
is living, by sending a written request to AVLIC. Partial withdrawals may be
either systematic or elective. Systematic withdrawals provide for an automatic
withdrawal, whereas, each elective withdrawal must be elected by the owner.
Systematic partial withdrawals are available on a monthly, quarterly,
semi-annual or annual mode. This withdrawal right may be restricted by Section
403(b)(11) of the Internal Revenue Code if the annuity is used in connection
with a Section 403(b) retirement plan. No partial or full withdrawals may be
made after the annuity date except as permitted under the particular annuity
option. The amount available for a full or partial withdrawal (cash surrender
value) is the accumulation value at the end of the valuation period during which
the written request for withdrawal is received, less any contingent deferred
sales charge, any applicable premium taxes, and in the case of a full
withdrawal, less the annual policy and administrative fees that would be due on
the last valuation date of the policy year. The cash surrender value may be paid
in a lump sum to the owner, or, if elected, all or any part may be paid out
under an annuity income option.
CONTINGENT DEFERRED SALES CHARGE: Since no deduction for a sales charge is made
from the premium payment, a contingent deferred sales charge is imposed on
certain partial and full withdrawals, and upon certain annuitizations to cover
certain expenses relating to the distribution of the policies, including
commissions to registered representatives and other promotional expenses.
Total withdrawals in a policy year which exceed the greater of: 1) 10% of the
accumulation value at the time of the withdrawal, or 2) any portion of the
accumulation value which exceeds the total premium deposit will be subject to a
contingent deferred sales charge (withdrawal charge). Contingent deferred sales
charges are assessed only on premiums paid based upon the number of years since
the policy year in which the premiums withdrawn were paid, on a first-paid,
first-withdrawn basis.
Where a partial or full withdrawal is taken or amounts are applied under an
annuity option, the amount withdrawn or annuitized (less any amount entitled to
the free withdrawal) will be subject to a contingent deferred sales charge
expressed in the following manner:
The charge will be a percentage of the premium payments withdrawn or annuitized.
CHARGE AS A % OF EACH YEARS SINCE RECEIPT OF
PREMIUM PAYMENT EACH PREMIUM PAYMENT
6 1
6 2
6 3
5 4
4 5
3 6
2 7
0 8+
QD-5 IRA/SEP
ANNUITY III; 12/96
<PAGE>
In the case of a partial withdrawal or annuitization, the contingent deferred
sales charge will be deducted from the amounts remaining under the policy. The
charge will be allocated pro rata among the Subaccounts or the Fixed Account
based on the accumulation value in each prior to the withdrawal or annuitization
unless an owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account, in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. In the case of a full withdrawal or annuitization, the contingent
deferred sales charge is deducted from the amount paid to the owner. Contingent
deferred sales charges will not be imposed on certain withdrawals if the amounts
withdrawn are applied under annuity income option c or d.
SALES COMMISSIONS: No deductions are made from the premium payments for sales
charges. Compensation to the sales force is a maximum 6.5% based on premiums
paid. To offset the costs of compensation and distribution expenses, a
contingent deferred sales charge as described above is imposed on certain
partial and full withdrawals.
IRA/SEP QD-6
ANNUITY III; 12/96
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO
EMPLOYEE BENEFIT PLAN
INFORMATION STATEMENT
401(A) PENSION/PROFIT SHARING PLANS
403(B) ERISA PLANS
- --------------------------------------------------------------------------------
For purchasers of a 401(a) Pension/Profit Sharing Plan, or 403(b) ERISA Plan,
the purpose of this statement is to inform you as an independent Fiduciary of
the Employee Benefit Plan, of the Sales Representative's relationship to and
compensation from Ameritas Variable Life Insurance Company (AVLIC), as well as
to describe certain fees and charges under the OVERTURE ANNUITY III Policy being
purchased from the Sales Representative.
The Sales Representative is appointed with AVLIC as its Sales Representative and
is a Securities Registered Representative. In this position, the Sales
Representative is employed to procure and submit to AVLIC applications for
contracts, including applications for OVERTURE ANNUITY III.
COMMISSIONS, FEES AND CHARGES
The following commissions, fees and charges apply to OVERTURE ANNUITY III
(policy):
SALES COMMISSION: No deductions are made from the premium payments for sales
charges. Compensation to the Sales Representative's Broker/Dealer is a maximum
of up to 6.5% based on premiums paid. To offset the costs of compensation and
distribution expenses, a contingent deferred sales charge as described below is
imposed on certain partial and full withdrawals.
ANNUAL POLICY AND ADMINISTRATIVE FEES: An annual policy fee of $36, $30 in North
Dakota, is deducted from the accumulation value in the policy on the last
valuation date of each policy year or on a full withdrawal if between policy
anniversaries. This charge reimburses AVLIC for the administrative costs of
maintaining the policy on AVLIC's system. This charge may be increased to a
maximum of $50 and may be reduced or eliminated. The annual administrative fee
is a charge of .20% of the accumulation value calculated and deducted from the
accumulation value on the last valuation date of each policy year or on a full
withdrawal if between policy anniversaries. This charge is guaranteed not to
increase and is designed to reimburse AVLIC for administrative expenses of
issuing, servicing and maintaining the policies. AVLIC does not expect to make a
profit on either of these fees.
MORTALITY AND EXPENSE RISK CHARGE: AVLIC imposes a charge to compensate it for
bearing certain mortality and expense risks under the policies. AVLIC makes a
daily charge equal to an annual rate of 1.25% of the value of the average daily
net assets of the Account under the policies. 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 expense risk charge is
imposed on the Fixed Account.
PARTIAL AND FULL WITHDRAWALS: The policyowner may make a partial or a full
withdrawal of the policy to receive part or all of the accumulation value (less
any applicable charges), at any time before the annuity date and while the
annuitant is living by sending a written request to AVLIC. Partial withdrawals
may be either systematic or elective. Systematic withdrawals provide for an
automatic withdrawal, whereas, each elective withdrawal must be elected by the
owner. Systematic partial withdrawals are available on a monthly, quarterly,
semi-annual or annual mode. No partial or full withdrawals may be made after the
annuity date except as permitted under the particular annuity option. The amount
available for partial or full withdrawal (cash surrender value) is the
accumulation value at the end of the valuation period during which the written
request for withdrawal is received, less any contingent deferred sales charge,
any applicable premium taxes, and in the case of a full withdrawal, the annual
policy and administrative fees that would be due on the last valuation date of
the policy year. The cash surrender value may be paid in a lump sum to the
owner, or if elected, all or any part may be paid out under an annuity income
option.
CONTINGENT DEFERRED SALES CHARGE: Since no deduction for a sales charge is made
from the premium payment(s), a contingent deferred sales charge is imposed
unless waived on certain partial and full withdrawals, and upon certain
annuitizations to cover expenses relating to Registered Representatives and
promotional expenses.
Total withdrawals in a policy year which exceed the greater of: (1) 10% of the
accumulation value at the time of the withdrawal, or (2) any portion of the
accumulation value which exceeds the total premium deposit will be subject to a
contingent deferred sales charge. Contingent deferred sales charges are assessed
only on premiums paid based upon the number of years since the policy year in
which the premiums withdrawn were paid, on a first-paid, first-withdrawn basis.
Where a partial or full withdrawal is taken or amounts are applied under an
annuity option, the amount withdrawn or annuitized (less any amount entitled to
the free withdrawal) will be subject to a contingent deferred sales charge
expressed as a percentage of the premium payments withdrawn or annuitized as
follows:
CHARGE AS A % OF EACH YEARS SINCE RECEIPT OF
PREMIUM PAYMENT EACH PREMIUM PAYMENT
6 1
6 2
6 3
5 4
4 5
3 6
2 7
0 8 +
QD-7 Pension
<PAGE>
In the case of a partial withdrawal or annuitization, the contingent deferred
sales charge will be deducted from the amounts remaining under the policy. The
charge will be allocated pro rata among the Subaccounts or the Fixed Account
based on the accumulation value in each prior to the withdrawal or annuitization
unless an owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account, in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. In the case of a full withdrawal or annuitization, the contingent
deferred sales charge is deducted from the amount paid to the owner. Contingent
deferred sales charges will not be imposed on certain withdrawals if the amounts
withdrawn are applied under annuity income option c or d.
TAXES: AVLIC will deduct premium taxes upon receipt of a premium payment or upon
annuitization depending upon the requirements of the law of the state of the
policyowner's residence. Currently, premium taxes range from 0% to 3.5% of the
premium paid, but are subject to change by legislation, administrative
interpretations, or judicial act.
FUND INVESTMENT ADVISORY FEES AND EXPENSES: At the direction of the policyowner,
the Separate Account VA-2 purchases shares of Funds which are available for
investment under this policy. The net assets of the Separate Account VA-2 will
reflect the value of the Fund shares and therefore, investment advisory fees and
other expenses of the Funds. A complete description of these fees and expenses
is contained in the Funds' Prospectuses.
403(B) TAX SHELTERED ANNUITY (TSA) PLANS-WITHDRAWAL RESTRICTIONS
- --------------------------------------------------------------------------------
For purchasers of a 403(b) Tax Sheltered Annuity (TSA) Plan, the purpose of this
statement is to inform you, as the purchaser of the annuity or as the Fiduciary
of an Employee Benefit Plan purchasing the annuity, of the following
distribution limitations, notwithstanding policy language to the contrary. If
this policy is purchased by the policyowner or his/her employer as part of a
retirement plan under Internal Revenue Code (IRC)Section 403(b), distributions
under the policy are limited as follows:
1. Distributions attributable to contributions made and interest accruing after
December 3l, 1988, pursuant to a salary reduction agreement within the
meaning of IRC Section 402(g)(3)(c) may be paid only:
(A) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled within the meaning of IRC Section 72(m)(7); or
(B) in the case of hardship. (Hardship distributions may not be made from
any income earned after December 31, 1988, which is attributable to
salary reduction contributions regardless of when the salary reduction
contributions were made).
2. Distributions attributable to funds transferred from IRC Section 403(b)(7)
custodial account may be paid or made available only:
(A) When the employee attains age 59 1/2, separates from service, dies or
becomes disabled within the meaning of IRC Section 72(m)(7); or
(B) in the case of financial hardship. Distributions on account of
financial hardship will be permitted only with respect to the following
amounts:
(i) benefits accrued as of December 31, 1988, but not earnings on those
amounts subsequent to that date.
(ii) contributions made pursuant to a salary reduction agreement within
the meaning of IRC Section 3121(a)(1)(D) after December 31, 1988,
but not as to earnings on those contributions.
QD-8 TSA
<PAGE>
Part B Registration No. 33-58642
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 .......................................... 2
- -------------------------------
GENERAL MATTERS........................................................... 5
- ---------------
The Policy ..................................................... 5
----------
Non-Participating .............................................. 6
-----------------
Assignment ..................................................... 6
----------
Annuity Data ................................................... 6
------------
Ownership ...................................................... 6
---------
Joint Annuitant ................................................ 6
----------------
IRS Required Distributions ..................................... 6
--------------------------
FEDERAL TAX MATTERS ...................................................... 6
- -------------------
Taxation of AVLIC .............................................. 6
-----------------
Tax Status of the Policies ..................................... 7
--------------------------
Qualified Policies ............................................. 7
------------------
DISTRIBUTION OF THE POLICY ............................................... 7
- --------------------------
SAFEKEEPING OF ACCOUNT ASSETS ............................................ 7
- -----------------------------
AVLIC .................................................................... 8
- -----
STATE REGULATION ......................................................... 8
- ----------------
LEGAL MATTERS ........................................................... 8
- -------------
EXPERTS .................................................................. 8
- -------
OTHER INFORMATION ........................................................ 8
- -----------------
FINANCIAL STATEMENTS ..................................................... 8
- --------------------
</TABLE>
<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.
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 managed by 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
<PAGE>
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.
<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 3.06% 9.06% 13.34% 13.82% 9.39% 9.39%
Growth 3.48% 9.48% 10.26% 10.80% 10.96% 10.96%
High Income 2.82% 8.82% 10.04% 10.58% 7.84% 7.84%
Overseas 2.01% 8.01% 3.52% 4.20% 2.70% 2.70%
Fidelity VIP II
- ----------------------------------
Asset Manager 3.38% 9.38% 5.91% 6.54% 7.11% 7.11%
Inv. Grade Bond -7.90% -1.90% 0.62% 1.39% 3.07% 3.07%
Asset Manager: Growth 8.67% 14.67% N/A N/A 13.76% 16.33%
Index 500 11.49% 17.49% N/A N/A 11.86% 12.47%
Contrafund 10.01% 16.01% N/A N/A 22.54% 24.93%
</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.
<PAGE>
<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 2.14% 8.14% 11.87% 12.38% 14.85% 14.85%
Income and Growth 8.40% 14.40% 6.97% 7.58% 6.74% 6.74%
Small Captalization -6.91% -0.91% 5.64% 6.28% 16.55% 16.55%
Balanced -1.00% 5.00% 4.34% 5.01% 3.56% 3.56%
Mid-Cap Growth 0.69% 6.69% N/A N/A 18.67% 19.51%
Leveraged All-Cap 0.85% 6.85% N/A N/A 33.57% 35.87%
MFS Variable Ins. Trust
- ----------------------------------
Emerging Growth 5.77% 11.77% N/A N/A 15.35% 19.18%
Utilities 7.25% 13.25% N/A N/A 18.32% 20.79%
World Governments -7.08% -1.08% N/A N/A -0.16% 2.13%
Research 10.96% 16.96% N/A N/A 6.45% 10.43%
Growth with Income 13.06% 19.06% N/A N/A 10.35% 15.02%
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.
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, 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 3.06% 9.06% 87.03% 91.03% 153.89% 153.89%
Growth 3.48% 9.48% 62.99% 66.99% 194.34% 194.34%
High Income 2.82% 8.82% 61.34% 65.34% 137.20% 137.20%
Overseas 2.01% 8.01% 18.86% 22.86% 30.76% 30.76%
Fidelity VIP II
- ----------------------------------
Asset Manager 3.38% 9.38% 33.28% 37.28% 66.53% 66.53%
Inv. Grade Bond -7.90% -1.90% 3.13% 7.13% 28.09% 28.09%
Asset Manager: Growth 8.67% 14.67% N/A N/A 29.79% 35.79%
Index 500 11.49% 17.49% N/A N/A 63.90% 67.90%
Contrafund 10.01% 16.01% N/A N/A 50.84% 56.84%
</TABLE>
<PAGE>
<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 2.14% 8.14% 75.23% 79.23% 206.53% 206.53%
Income and Growth 8.40% 14.40% 40.07% 44.07% 71.19% 71.19%
Small Captalization -6.91% -0.91% 31.58% 35.58% 261.77% 261.77%
Balanced -1.00% 5.00% 23.66% 27.66% 29.71% 29.71%
Mid-Cap Growth 0.69% 6.69% N/A N/A 88.95% 93.95%
Leveraged All-Cap 0.85% 6.85% N/A N/A 76.42% 82.42%
MFS Variable Ins. Trust
- ---------------------------------
Emerging Growth 5.77% 11.77% N/A N/A 23.16% 29.16%
Utilities 7.25% 13.25% N/A N/A 40.52% 46.52%
World Governments -7.08% -1.08% N/A N/A -0.40% 5.60%
Research 10.96% 16.96% N/A N/A 9.53% 15.53%
Growth with Income 13.06% 19.06% N/A N/A 13.07% 19.07%
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.
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 3.69% and the effective yield for the 7-day period ended
December 31, 1996 or the Money Market Fund was 3.78%.
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
<PAGE>
AVLIC. No agent has the authority to alter or modify any of the terms,
conditions or agreements of the Policy or to waive any of its provisions.
Non-Participating
- -----------------
The Policies are non-participating. No dividends are payable and the Policies
will not share in the profits or surplus earnings of AVLIC.
Assignment
- ----------
Any non-qualified policy and any qualified policy, if permitted by the plan
or by law relevant to the plan applicable to the qualified policy, may be
assigned by the owner prior to the annuity date and during the annuitant's
lifetime. AVLIC is not responsible for the validity of any assignment. No
assignment will be recognized until AVLIC receives written notice thereof. The
interest of any beneficiary which the assignor has the right to change shall be
subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum, not withstanding any settlement agreement in effect at
the time the assignment was executed. AVLIC shall not be liable as to any
payment or other settlement made by AVLIC before receipt of written notice.
Annuity Data
- -------------
AVLIC will not be liable for obligations which depend on receiving
information from a payee until such information is received in a form
satisfactory to AVLIC.
Ownership
- ---------
The owner of the Policy on the policy date is the annuitant, unless otherwise
specified in the application. During the annuitant's lifetime, all rights and
privileges under this Policy may be exercised solely by the owner. Ownership
passes to the 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.
<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 a wholly-
owned subsidiary of AMAL Corporation, which is also owns AVLIC.
The Policies are offered to the public through brokers, licensed under the
federal securities laws and state insurance laws, and properly licensed banking
institutes that have entered into agreements with Ameritas Investment Corp. The
offering of the Policies is continuous and Ameritas Investment Corp. has
discontinued the offering of this policy in certain states and continues to
offer it in other states.
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.
<PAGE>
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, Secretary and General Counsel of AVLIC.
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.
<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.
