PROFILE of the
OVERTURE ACCLAIM!
Variable Annuity Contract
June 1, 1998
THIS PROFILE SUMMARIZES IMPORTANT POINTS YOU SHOULD CONSIDER BEFORE PURCHASING
THIS POLICY.
THE POLICY IS MORE FULLY DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS
PROFILE.
PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE ANNUITY CONTRACT
The variable annuity policy offered by Ameritas Variable Life Insurance
Company (AVLIC) is a policy between you, the owner, and AVLIC, an insurance
company. The Policy provides a means for investing on a tax-deferred basis in 26
investment subaccounts and a Fixed Account of AVLIC. The Policy is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed income options.
This Policy offers 26 subaccounts which are listed below. These subaccounts
are designed to offer a better return than the Fixed Account, however, this is
NOT guaranteed. You can also lose your money.
The Fixed Account offers an interest rate guaranteed by the insurance
company, AVLIC. This interest rate is set as declared effective for the month of
issue, and is guaranteed for the remainder of the Policy Year. In subsequent
Policy Years, amounts in the Fixed Account earn interest at the rate declared in
the month of the last Policy Anniversary. While your money is in the Fixed
Account, your principal and all interest earned is guaranteed by AVLIC.
You can put money into any or all of the subaccounts and the Fixed Account.
You can transfer between subaccounts up to 15 times a year without charge. After
15 transfers, the charge is $10 for each additional transfer. There are
restrictions on the Fixed Account.
The Policy, like all deferred annuity policies, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your Policy.
The money you can accumulate during the accumulation phase will determine
the income payments during the income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
If you want to receive regular income from your annuity, you can choose one
of five options: (1) monthly payments of interest only; (2) monthly payments for
a fixed amount until depleted; (3) monthly payments for a certain period up to
20 years (as you select); (4) monthly payments for your life (assuming you are
the annuitant) that may include a guaranteed period; and (5) monthly payments
for your life and for the life of another person (usually your spouse). The
annuity options are fixed only. Once you begin receiving regular payments, you
cannot change your payment plan.
3. PURCHASE
You can buy this Policy with $25,000 or more under most circumstances. Your
registered representative can help you fill out the proper forms. You can add
$1,000 or more any time during the accumulation phase.
4. INVESTMENT OPTIONS
Besides the Fixed Account, you can put your money in any or all of these
subaccounts described in the fund prospectuses. Depending upon market
conditions, you can make or lose money in any of these subaccounts.
<TABLE>
<CAPTION>
MANAGED BY MANAGED BY
FIDELITY MANAGEMENT FRED ALGER
& RESEARCH COMPANY MANAGEMENT, INC.
------------------ ----------------
<S> <C>
VIP(1) Money Market Alger American:
VIP Equity-Income Growth
VIP Growth Income and Growth
VIP High Income Small Capitalization
VIP Overseas Balanced
VIP II(2) Asset Manager MidCap Growth
VIP II Investment Grade Bond Leveraged AllCap
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
(1) Variable Insurance Products Fund
(2) Variable Insurance Products Fund II
MANAGED BY MANAGED BY
MASSACHUSETTS MORGAN STANLEY
FINANCIAL SERVICES CO. ASSET MANAGEMENT INC.
---------------------- ---------------------
<C> <C>
Emerging Growth Emerging Markets Equity
Utilities Global Equity
World Governments International Magnum
Research Asian Equity
Growth With Income U.S. Real Estate
</TABLE>
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5. EXPENSES
The Policy has insurance features and investment features, and there are
costs related to each. AVLIC currently deducts a $36 policy fee each year from
your Policy (guaranteed to be no more than $40 per year).
AVLIC currently waives this charge if the accumulation value of your Policy
is at least $50,000. AVLIC also deducts insurance charges of an annualized 1.40%
of the daily value of your Policy. Investment charges range from .28% to 1.75%
of the average daily value of the subaccounts depending upon the subaccount.
If required by state law, AVLIC will assess a state premium tax charge at
the time of premium receipt or when you make a complete withdrawal or begin
receiving regular income payments. State premium tax ranges from 0% to 3.5%,
depending upon the state.
The following chart is to help you understand the charges in the Policy.
The column "Total Annual Charges" shows no policy fee, based on an assumed
average contract size of $60,000, the 1.40% insurance charges and the investment
charge for each subaccount. The next two columns show you examples of the
charges, in dollars, you would pay on a $1,000 investment in a Policy that earns
5% annually if you withdraw your money: (1) at the end of year 1, and (2) at the
end of year 10. For year 1, the Total Annual Charges are assessed. For year 10,
the example shows the aggregate of all the annual charges assessed for the first
10 years. There is no withdrawal charge.
<TABLE>
<CAPTION>
Policy Expenses
The premium tax is assumed to be 0% in both examples.
EXAMPLES:
---------
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL ANNUAL
INSURANCE PORTFOLIO ANNUAL EXPENSES AT END OF:
SUBACCOUNT MANAGED BY CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- --------------------- ------------- --------------- ------- ------ --------
Fidelity Management & Research Company
<S> <C> <C> <C> <C> <C>
VIP Money Market 1.40% 0.31% 1.71% $17 $199
VIP Equity-Income 1.40% 0.57% 1.97% $20 $226
VIP Growth 1.40% 0.67% 2.07% $21 $237
VIP High Income 1.40% 0.71% 2.11% $21 $241
VIP Overseas 1.40% 0.90% 2.30% $23 $260
VIP II Asset Manager 1.40% 0.64% 2.04% $20 $233
VIP II Investment Grade Bond 1.40% 0.58% 1.98% $20 $227
VIP II Asset Manager: Growth 1.40% 0.76% 2.16% $22 $246
VIP II Index 500 1.40% 0.28% 1.68% $17 $195
VIP II Contrafund 1.40% 0.68% 2.08% $21 $238
Fred Alger Management Inc.
Alger American:
Growth 1.40% 0.79% 2.19% $22 $249
Income and Growth 1.40% 0.74% 2.14% $21 $244
Small Capitalization 1.40% 0.89% 2.29% $23 $259
Balanced 1.40% 1.01% 2.41% $24 $271
MidCap Growth 1.40% 0.84% 2.24% $22 $254
Leveraged AllCap 1.40% 1.00% 2.40% $24 $270
Massachusetts Financial Services Company
Emerging Growth 1.40% .87% 2.27% $23 $257
Utilities 1.40% 1.00% 2.40% $24 $270
World Governments 1.40% 1.00% 2.40% $24 $270
Research 1.40% .88% 2.28% $23 $258
Growth With Income 1.40% 1.00% 2.40% $24 $270
Morgan Stanley Asset Management Inc.
Emerging Markets Equity 1.40% 1.75% 3.15% $32 $343
Global Equity 1.40% 1.15% 2.55% $26 $285
International Magnum 1.40% 1.15% 2.55% $26 $285
Asian Equity 1.40% 1.20% 2.60% $26 $290
U.S. Real Estate 1.40% 1.10% 2.50% $25 $280
</TABLE>
For the newly formed subaccounts the charges have been estimated. The charges
reflect any expense reimbursement or fee waiver. For more detailed information,
see the Fee Table in the Prospectus.
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<PAGE>
6. TAXES
Your earnings are not taxed until you take them out. If you take money out,
earnings come out first and are taxed as income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% federal tax penalty on the
earnings. Payments during the income phase are considered partly a return of
your original investment so that part of each payment is not taxable as income.
7. ACCESS TO YOUR MONEY
You can take money out anytime during the accumulation phase. There is no
withdrawal charge. Of course, you may have to pay income tax and a tax penalty
on any money you take out.
8. PERFORMANCE
The value of the Policy will vary up or down depending upon the investment
performance of the subaccounts you choose. The policy has been offered since
June 1, 1998. The following chart shows historical total returns for each
subaccount for the periods shown, as if the Policy had been in force since the
portfolio was added to the Separate Account. These numbers reflect the insurance
charges, the policy maintenance charge, the investment charges and all other
expenses of the subaccount. The chart is based upon an assumed average contract
size of $60,000. Past performance is not a guarantee of future results.
<TABLE>
<CAPTION>
HISTORICAL PERFORMANCE
SUBACCOUNT MANAGED BY: 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Fidelity Management & Research Company
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VIP Money Market 4.02% 3.95% 4.35% 2.83% 1.81% 2.44% 4.66% 6.58% 7.66% 5.90%
VIP Equity-Income 26.34% 12.68% 33.22% 5.58% 16.65% 15.25% 29.59% -16.50% 15.72% 21.01%
VIP Growth 21.77% 13.10% 33.49% -1.41% 17.71% 7.80% 43.49% -12.97% 29.65% 13.98%
VIP High Income 16.04% 12.44% 19.01% -3.00% 18.73% 21.45% 33.20% -3.61% -5.52% 10.07%
VIP Overseas 10.01% 11.63% 8.16% 0.31% 35.44% -11.97% 6.50% -3.04% 24.03% 6.63%
VIP II Asset Manager 18.98% 13.01% 15.34% -7.39% 19.55% 10.16% 20.86% 5.24% - -
VIP II Investment
Grade Bond 7.55% 1.75% 15.70% -5.09% 9.38% 5.17% - - - -
VIP II Asset Manager:
Growth 23.41% 19.13% - - - - - - - -
VIP II Index 500 30.87% 21.11% - - - - - - - -
VIP II Contrafund 22.43% 19.62% - - - - - - - -
Fred Alger Management, Inc.
Alger American:
Growth 24.00% 11.76% 34.48% 0.04% 20.76% - - - - -
Income and Growth 34.40% 18.01% 33.26% -9.55% 8.81% - - - - -
Small Capitalization 9.84% 2.72% 42.31% -5.70% 11.70% - - - - -
Balanced 18.16% 8.62% 26.84% -5.60% - - - - - -
MidCap Growth 13.41% 10.33% 42.45% -2.90% - - - - - -
Leveraged AllCap 18.02% 10.50% - - - - - - - -
Massachusetts Financial Services Company
Emerging Growth 20.22% 15.38% - - - - - - - -
Utilities 29.89% 16.87% - - - - - - - -
World Governments -2.50% 2.57% - - - - - - - -
Research - - - - - - - - - -
Growth With Income - - - - - - - - - -
Morgan Stanley Asset Management Inc.
Emerging Markets - - - - - - - - - -
Global Equity - - - - - - - - - -
International Magnum - - - - - - - - - -
Asian Equity - - - - - - - - - -
U.S. Real Estate - - - - - - - - - -
</TABLE>
iii
<PAGE>
9. DEATH BENEFIT
If you die before reaching the income phase, the person you have chosen as
your beneficiary will receive a death benefit. This death benefit will be the
greater of: (1) the money you have put in, less any money you have taken out, or
(2) the current value of your Policy. If available, the death benefit may be the
value of your Policy at the most recent 7th- year-anniversary, plus any money
you have added since that anniversary, minus any money you have taken out, with
adjustments, since that anniversary.
10. OTHER INFORMATION
FREE LOOK. You may cancel the policy within 10 days after receiving it (or
whatever period is required in your state). You will receive whatever your
Policy is worth on the day we receive your returned policy. This may be more or
less than your original payment. If law requires us to return your original
payment, we will put your money in the Money Market subaccount during the
free-look period and return your original payment.
NO PROBATE. Usually, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
WHO SHOULD PURCHASE THE POLICY? This Policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes. The tax-deferred feature is most attractive to people in
high federal and state tax brackets. You would not buy this Policy if you are
looking for a short-term investment or if you cannot take the risk of getting
back less money than you put in.
ADDITIONAL OPTIONAL FEATURES.
This Policy has additional features that might interest you. These include:
o You can arrange to have money automatically sent to you each month while
your Policy is still in the accumulation phase. Of course, you must pay taxes on
money you receive. We call this feature SYSTEMATIC WITHDRAWAL OPTION.
o You can arrange to have a regular amount of money automatically invested
in subaccounts each month, theoretically giving you a lower average cost per
unit over time than a single one time purchase. We call this feature DOLLAR COST
AVERAGING.
o You can arrange to have AVLIC automatically readjust the money between
subaccounts periodically to keep the blend you select. We call this feature
PORTFOLIO REBALANCING.
o You can arrange to have AVLIC periodically reallocate the earnings (not
the principal amount) among the subaccounts. We call this feature EARNINGS
SWEEP.
These features are not available in all states and may not be suitable for
your particular situation.
11. INQUIRIES
If you need more information, please contact us at:
AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO
----------------------------------------
Ameritas Variable Life Insurance Company
5900 O Street
Lincoln NE 68510
800-745-1112
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<PAGE>
PROSPECTUS Ameritas Variable Life Insurance Company Logo
OVERTURE ACCLAIM! 5900 "O" Street, P.O. Box 82550
FLEXIBLE PREMIUM VARIABLE ANNUITY Lincoln, NE 68501
- --------------------------------------------------------------------------------
This Prospectus describes a no sales load/no surrender charge flexible premium
variable annuity policy contract ("Policy") offered by Ameritas Variable Life
Insurance Company ("AVLIC"). The Policy provides a vehicle for individuals to
invest on a tax-deferred basis for retirement savings or other long-term
purposes.
You may purchase a Policy for $25,000 or more. Minimum additional subsequent
premiums may be $1,000 or more; smaller amounts may be accepted by automatic
bank draft or at the discretion of AVLIC.
You may direct that premiums accumulate on a variable basis in one or more of
the 26 Subaccounts of the Ameritas Variable Life Insurance Company Separate
Account VA-2 ("Separate Account") or on a fixed basis in the Fixed Account, or
on a combination variable and fixed basis. The Separate Account uses its assets
to purchase shares in one or more of the following Portfolios of mutual funds:
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND ("VIP ")* VARIABLE INSURANCE PRODUCTS FUNDS II ("VIP II")*
<S> <C>
Money Market Asset Manager
Equity-Income Investment Grade Bond
Growth Asset Manager: Growth
High Income Index 500
Overseas Contrafund
</TABLE>
* VIP and VIP II are collectively referred to as "Fidelity Funds"
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND MFS VARIABLE INSURANCE MORGAN STANLEY UNIVERSAL FUNDS, INC.
("ALGER AMERICAN FUND") TRUST ("MFS TRUST") ("MORGAN STANLEY FUND")
<S> <C> <C>
Alger American Growth Emerging Growth Emerging Markets Equity
Alger American Income and Growth Utilities Global Equity
Alger American Small Capitalization World Governments International Magnum
Alger American Balanced Research Asian Equity
Alger American MidCap Growth Growth With Income U.S. Real Estate
Alger American Leveraged AllCap
</TABLE>
The Owner bears the entire investment risk for monies placed in the Separate
Account under this Policy prior to the annuity date.
This prospectus contains information you should know before investing. A
Statement of Additional Information, which has the same date as this prospectus,
has been filed with the Securities and Exchange Commission; it is incorporated
herein by reference and is available free by writing AVLIC at the address above
or by calling a Client Service Representative at 1-800-745-1112. The table of
contents of the Statement of Additional Information appears at the end of this
prospectus.
Prospectuses for the mutual fund options identified above can be obtained
without charge by calling 1-800-745-1112.
Read the prospectuses carefully and retain them for future reference.
These securities are not deposits with, or obligations of, or guaranteed or
endorsed by, any financial institution; and the securities are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency. These securities involve investment risk, including the possible
loss of principal.
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES REGULATORY AUTHORITY, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date of This Prospectus is June 1, 1998.
ACCLAIM!
1
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
DEFINITIONS....................................................... 3
FEE TABLE......................................................... 5
CONDENSED FINANCIAL INFORMATION.................................... 7
PERFORMANCE DATA.................................................. 7
YEAR 2000......................................................... 8
AVLIC, THE SEPARATE ACCOUNT AND THE FUNDS......................... 8
Ameritas Variable Life Insurance Company..................... 8
The Separate Account......................................... 9
The Funds.................................................... 9
THE FIXED ACCOUNT................................................. 10
POLICY FEATURES................................................... 11
Control of the Policy........................................ 11
Policy Purchase and Premium Payment.......................... 11
Allocation of Premium........................................ 11
Accumulation Value........................................... 12
Transfers Among the Portfolios and the Fixed Account......... 12
Systematic Programs.......................................... 13
Withdrawals and Surrenders................................... 13
Free Look Privilege.......................................... 14
CHARGES AND DEDUCTIONS............................................ 14
Administrative Charges....................................... 14
Mortality and Expense Risk Charge............................ 14
Tax Charges.................................................. 15
Fund Investment Advisory Fees and Expenses................... 15
ANNUITY PERIOD.................................................... 15
Annuity Date................................................. 15
Annuity Income Options....................................... 16
FEDERAL TAX MATTERS............................................... 17
Taxation of Annuities in General............................. 17
Nonqualified Policies........................................ 17
Qualified Policies........................................... 17
GENERAL PROVISIONS................................................ 18
Annuitant's Beneficiary...................................... 18
Death of Annuitant........................................... 19
Guaranteed Minimum Death Benefit (GMDB) Rider................ 19
Death of Owner............................................... 19
Addition, Deletion or Substitution of Investments............ 20
Deferment of Payment......................................... 20
Contestability............................................... 20
Misstatement of Age or Sex................................... 20
Reports and Records.......................................... 21
DISTRIBUTION OF THE POLICIES...................................... 21
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS...................... 21
THIRD PARTY SERVICES.............................................. 21
VOTING RIGHTS..................................................... 21
LEGAL PROCEEDINGS................................................. 22
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.......... 22
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, SALESPERSON, OR OTHER PERSON
MAY MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON.
ACCLAIM!
2
<PAGE>
DEFINITIONS
-----------
ACCUMULATION UNIT. A unit used to measure the value of the Policy prior to the
Annuity Date. Analogous, though not identical, to a share owned in a mutual fund
account.
ACCUMULATION UNIT PRICE. The value of each Accumulation Unit is calculated each
Valuation Period. Analogous, though not identical, to the share price (net asset
value) of a mutual fund.
ACCUMULATION VALUE. The value of all amounts accumulated under the Policy prior
to the Annuity Date. On the Issue Date, the Accumulation Value is equal to the
initial premium, less any premium tax, plus any interest credited based on the
Money Market Portfolio value as of the Policy Date.
ANNUITANT. The person upon whose life expectancy the Policy is written. The
Annuitant may also be the Owner of the Policy.
ANNUITANT'S BENEFICIARY. The person to whom any benefits are paid upon the
Annuitant's death.
ANNUITY DATE. The date on which Annuity Payments begin.
ANNUITY INCOME OPTION. A method of receiving Annuity Payments.
ANNUITY PAYMENT. One of a series of payments paid to the Annuitant under an
Annuity Income Option.
AVLIC. ("We, Us, Our") Ameritas Variable Life Insurance Company, a Nebraska
stock life insurance company.
DEATH BENEFIT. The greater of the Accumulation Value or the premium payments
made, less withdrawals, or the Guaranteed Minimum Death Benefit, if applicable.
EFFECTIVE DATE. The Valuation Date on which premiums are applied to purchase a
Policy.
FIXED ACCOUNT. A part of AVLIC's general account to which all or a portion of
premiums may be allocated for accumulation at fixed rates of interest.
FUNDS. Fidelity Funds, Alger American Funds, MFS Trust, and Morgan Stanley Fund
are the Funds available for investment as of the date of this prospectus. The
Funds have one or more Portfolios; each Portfolio corresponds to one of the
Subaccounts of the Separate Account.
ISSUE DATE. The date all financial, contractual and administrative requirements
have been met to issue the Policy. The free look period begins on this date.
NET PREMIUM. The Premium Payment less 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. ("You") The person or entity in whose name the Policy is issued (or as
subsequently changed) who has the privileges stated in the Policy, including the
right to make allocations or change beneficiaries. If a Policy has been
absolutely assigned, the assignee is the Owner. A collateral assignee is not the
Owner.
OWNER'S DESIGNATED BENEFICIARY. The person designated by the Owner to whom
Policy ownership passes upon the Owner's death.
POLICY. The no sales load/no surrender charge variable annuity contract offered
by AVLIC and described in this prospectus.
POLICY DATE. This date is determined on the Issue Date. It is the date within
two days after AVLIC received the application and initial premium. The date is
used to determine Policy anniversary dates and Policy Years.
POLICY YEAR. The period from one Policy anniversary date until the next Policy
anniversary date.
PORTFOLIO. One of the separate investment Portfolios of the Funds in which the
Separate Account invests. Each Portfolio is a Subaccount of the Separate
Account. In this Separate Account, VIP offers the following portfolios: Money
Market, Equity-Income, Growth, High Income and Overseas Portfolios. VIP II
offers the following portfolios: Asset Manager, Investment Grade Bond, Asset
Manager: Growth, Index 500, and Contrafund Portfolios. The Alger American Fund
offers the following portfolios: Alger American Growth, Alger American Income
and Growth, Alger American Small Capitalization, Alger American Balanced, Alger
American MidCap Growth, and Alger American Leveraged AllCap Portfolios. The MFS
Trust offers the following portfolios
ACCLAIM!
3
<PAGE>
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. In this prospectus, Portfolio will also be used to
refer to the Subaccount that invests in the corresponding Portfolio.
PREMIUM PAYMENT. An amount paid to purchase a Policy or to increase the
investment in the Policy.
QUALIFIED POLICIES. Policies owned inside certain qualified plans as defined
under the Internal Revenue Code of 1986, as amended, such as IRAs and Pension
Trusts.
SATISFACTORY PROOF OF DEATH. All of the following must be submitted: (1) A
certified copy of the death certificate; (2) A Claimant Statement; (3) The
Policy; and (4) Any other information that AVLIC may require to establish the
validity of the claim.
SEPARATE ACCOUNT. Ameritas Variable Life Insurance Company Separate Account
VA-2, an account established by AVLIC to receive and invest premiums paid under
the Policy. Assets in the Separate Account are segregated from the general
assets of AVLIC.
SUBACCOUNT. A subdivision of the Separate Account which invests in shares of a
specified Portfolio of the Funds.
VALUATION DATE. Each day that the New York Stock Exchange (NYSE) is open for
trading.
VALUATION PERIOD. The period between two successive Valuation Dates, commencing
at the close of trading on the NYSE on one Valuation Date and ending at the
close of trading on the next Valuation Date.
FEE TABLE
---------
The following illustrates the expenses you will bear as Owner, excluding
possible state premium taxes. For a complete discussion of expenses, see
"Charges and Deductions" and the Funds' prospectuses.
OWNER TRANSACTION EXPENSES
Sales Load Imposed................................................None
Surrender Charge..................................................None
Withdrawal Charge.................................................None
Transfer Fee (after 15 free transfers per Policy year).............$10
ANNUAL POLICY FEE (maximum of $40, currently $36, may be
reduced or eliminated)..................................................$36
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Fees (M&E)........................... 1.25%
Daily Administrative Fee (as a percentage of average
account value).................................................. 0.15%
Total Separate Account Annual Expenses.......................... 1.40%
FUND EXPENSE SUMMARY
Fee information relating to the underlying Funds was provided to AVLIC by the
underlying Funds. AVLIC has not independently verified such information. The
amount of expenses borne by each portfolio for the fiscal year ended December
31, 1997, was as follows:
ACCLAIM!
4
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSES TOTAL
MANAGEMENT
FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED
EXPENSE REIMBURSEMENT EXPENSE REIMBURSEMENT MAY REFLECT EXPENSE
REIMBURSEMENT
FIDELITY
<S> <C> <C> <C>
VIP Money Market .21% .10% .31%
VIP Equity-Income .50% .07% .57%(1)
VIP Growth .60% .07% .67%(1)
VIP High Income .59% .12% .71%
VIP Overseas .75% .15% .90%(1)
VIP II Asset Manager .55% .09% .64%(1)
VIP II Investment Grade Bond .44% .14% .58%
VIP II Asset Manager: Growth .60% .16% .76%(1)
VIP II Index 500 .24% .04% .28%(2)
VIP II Contrafund .60% .08% .68%(1)
ALGER AMERICAN (3)
Growth .75% .04% .79%
Income and Growth .625% .115% .74%
Small Capitalization .85% .04% .89%
Balanced .75% .26% 1.01%
MidCap Growth .80% .04% .84%
Leveraged AllCap .85% .15% 1.00%
MFS
Emerging Growth .75% .12%(4) .87%(5)
Utilities .75% .25%(4) 1.00%(5)
World Governments .75% .25%(4) 1.00%(5)
Research .75% .13%(4) .88%(5)
Growth With Income .75% .25%(4) 1.00%(5)
MORGAN STANLEY
Emerging Markets Equity(6) 0% 1.75% 1.75%
Global Equity(7) 0% 1.15% 1.15%
International Magnum(7) 0% 1.15% 1.15%
Asian Equity(7) 0% 1.20% 1.20%
U.S. Real Estate(7) 0% 1.10% 1.10%
</TABLE>
(1) A portion of the brokerage commissions that certain funds pay was used
to reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Without these reductions, the total operating
expenses presented in the table would have been .58% for Equity-Income
Portfolio, .69% for Growth Portfolio, .92% for Overseas Portfolio, .65%
for Asset Manager Portfolio, .71% for Contrafund Portfolio, and .77%
for Asset Manager: Growth Portfolio.
(2) Fidelity agreed to reimburse a portion of Index 500 Portfolio's
expenses during the period. Without this reimbursement, the fund's
management fee, other expenses and total expenses would have been .27%,
.13% and .40% respectively, on an annualized basis.
(3) Fred Alger Management, Inc. ("Alger Management") has agreed to
reimburse the portfolios to the extent that the aggregate annual
expenses (excluding interest, taxes, fees for brokerage services and
extraordinary expenses) exceed respectively: Alger American Income and
Growth, and Alger American Balanced, 1.25%; Alger American Small
Capitalization, Alger American MidCap Growth, Alger American Leveraged
All Cap, and the Alger American Growth, 1.50%. As long as the expense
limitations continue for a portfolio, if a reimbursement occurs, it has
the effect of lowering the portfolio's expense ratio and increasing its
total return. Included in "Other Expenses" of Leveraged AllCap is .04%
of interest expense.
(4) MFS has agreed to bear expenses for each series, subject to
reimbursement by each series, such that each series "Other Expenses"
shall not exceed .25% of the average daily net assets of the series
during the current fiscal year. Absent this expense arrangement, "Other
Expenses" and "Total" expenses would be .45% and 1.20%, respectively,
for the Utilities Series; .40% and 1.15%, respectively, for the World
Governments Series; and .35% and 1.10%, respectively, for the Growth
With Income Series.
ACCLAIM!
5
<PAGE>
(5) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series
with its custodian and dividend disbursing agent, and may enter into
other such arrangements and directed brokerage arrangements (which
would also have the effect of reducing the series' expenses). Any such
fee reductions are not reflected under "Other Expenses."
(6) For the fiscal year ended December 31, 1997 fund's expenses were
voluntarily reduced by the fund's investment adviser. Absent
reimbursement the management fee, other expenses and total expenses
would have been 1.25%, 2.87% and 4.12%, respectively.
(7) The fund's expenses were voluntarily reduced by the fund's investment
adviser. Absent reimbursement the management fee, other expenses and
total expenses would have been as follows based on the annualized
period January 2, 1997 through December 31, 1997 for Global Equity and
International Magnum portfolios. The U.S. Real Estate and Asian Equity
portfolios were based on the annualized period March 3, 1997 through
December 31, 1997. Global Equity: .80%; 1.63%; and 2.43%. International
Magnum:.80%; 1.98%; and 2.78%. U.S. Real Estate:.80%; 1.52%; and 2.32%.
Asian Equity: .80%; 2.30%; and 3.10%.
Expense reimbursement agreements are expected to continue in future years but
may be terminated at any time. As long as the expense limitations continue for a
portfolio, if a reimbursement occurs, it has the effect of lowering the
portfolio's expense ratio and increasing its total return.
- ----------------
EXAMPLE: The following example illustrates expenses you would incur at the
end of a one and three year period on a hypothetical $1,000 allocation
to each Portfolio assuming a 5% annual return. The example reflects
expenses of the Separate Account and the Portfolio, but does not reflect
premium taxes which may apply. The information presented applies whether
or not the Policy is (1) surrendered; (2) annuitized; or (3) not
surrendered or annuitized.
1 YEAR 3 YEARS
Fidelity
VIP Money Market $17 $53
VIP Equity Income $20 $61
VIP Growth $21 $64
VIP High Income $21 $65
VIP Overseas $23 $71
VIP II Asset Manager $20 $63
VIP II Investment Grade Bond $20 $61
VIP II Asset Manager: Growth $22 $67
VIP II Index 500 $17 $52
VIP II Contrafund $21 $64
Alger American Growth $22 $68
Alger American Income and Growth $21 $66
Alger American Small-Cap $23 $71
Alger American Balanced $24 $74
Alger American MidCap $22 $69
Alger American Leveraged AllCap $24 $74
MFS Emerging Growth $23 $70
MFS Utilities $24 $74
MFS World Governments $24 $74
MFS Research $23 $70
MFS Growth With Income $24 $74
Morgan Stanley Emerging Markets Equity $32 $96
Morgan Stanley Global Equity $26 $78
Morgan Stanley International Magnum $26 $78
Morgan Stanley Asian Equity $26 $80
Morgan Stanley U.S. Real Estate $25 $77
The examples assume an average $60,000 annuity investment. These examples
should not be considered a representation of past or future expenses,
performance or return. Actual expenses and/or returns may be greater or
less than those shown.
ACCLAIM!
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
-------------------------------
The financial statements for AVLIC and Separate Account VA-2 (as well as
auditors' reports thereon) are in the Statement of Additional Information. The
Separate Account also funds variable annuity contracts not offered by this
prospectus which have unit values not applicable to the contracts offered by
this prospectus.
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, the daily administrative fee, the annual policy fee and the investment
charges borne by each portfolio.
YEAR 2000
---------
Like other insurance companies and their separate accounts, AVLIC and the
Separate Account could be adversely affected if the computer systems they rely
upon do not properly process date-related information and data involving the
years 2000 and after. AVLIC has taken steps it believes are reasonable to timely
address this issue in its own computer system, and to obtain assurances that its
major service providers are taking comparable steps. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on AVLIC and the Separate Account.
AVLIC, THE SEPARATE ACCOUNT AND THE FUNDS
-----------------------------------------
AMERITAS VARIABLE LIFE INSURANCE COMPANY
Ameritas Variable Life Insurance Company ("AVLIC") is a stock life insurance
company organized in the State of Nebraska. AVLIC was incorporated on June 22,
1983 and commenced business December 29, 1983. AVLIC is currently licensed to
sell life insurance in 46 states and the District of Columbia.
AVLIC is a wholly owned subsidiary of AMAL Corporation, a Nebraska stock
company. AMAL Corporation is a joint venture of Ameritas Life Insurance Corp.
(Ameritas Life), which owns a majority interest in AMAL Corporation; and AmerUs
Life Insurance Company ("AmerUs Life"), an Iowa stock life insurance company,
which owns a minority interest in AMAL Corporation. The Home Offices of both
AVLIC and Ameritas Life are at 5900 "O" Street, P.O. Box 82550, Lincoln,
Nebraska 68501. Owner Inquiries can be sent to this address, or may be made by
calling 1-800-745-1112. All inquiries should include the Policy number and the
Owner's name.
On April 1, 1996 Ameritas Life consummated an agreement with AmerUs Life whereby
AVLIC became a wholly owned subsidiary of a newly formed holding company, AMAL
Corporation. Under terms of the agreement the AMAL Corporation is 66% owned by
Ameritas Life and 34% owned by AmerUs Life. AmerUs Life has options to purchase
an additional interest in AMAL Corporation if certain conditions are met.
Ameritas Life and its subsidiaries had total assets at December 31, 1997 of over
$3.4 billion. AmerUs Life had total assets as of December 31, 1997 of over $10.3
billion.
AVLIC has a rating of A (Excellent) from A.M. Best Company, a firm that analyzes
insurance carriers, and a rating of AA ("Excellent") from Standard & Poor's for
claims-paying ability. Ameritas Life enjoys a long standing A+ (Superior) rating
from A.M. Best.
Ameritas Life, AmerUs Life and AMAL Corporation guarantee the obligations of
AVLIC. This guarantee will continue until AVLIC is recognized by a National
Rating Agency as having a financial rating equal to or greater than Ameritas
Life, or until AVLIC is acquired by another insurance company who has a
financial rating by a National Rating Agency equal to or greater than Ameritas
Life and who agrees to assume the guarantee; provided that if AmerUs Life sells
its interest in AMAL Corporation to another insurance company who has a
financial rating by a National Rating Agency equal to or greater than that of
AmerUs Life, and the purchaser assumes the guarantee, AmerUs Life will be
relieved of its obligations under the Guarantee.
AVLIC may publish in advertisements and reports to the Owners, the ratings and
other information assigned it by one or more independent rating services. The
purpose of the ratings is to reflect the financial strength and/or claims-paying
ability of AVLIC. The ratings do not relate to the performance of the separate
account. Further, AVLIC may publish charts and other information concerning
asset allocation, dollar cost averaging, portfolio rebalancing, earnings sweep,
diversification, tax deference, long term market trends,
ACCLAIM!
7
<PAGE>
index performance and other investment methods and programs. AVLIC may also
publish information concerning the objectives, policies, and risk level of the
Portfolios.
THE SEPARATE ACCOUNT
Ameritas Variable Life Insurance Company Separate Account VA-2 ("Separate
Account") was established under Nebraska law on May 28, 1987 to receive and
invest premiums paid under the Policy. Assets of the Separate Account are held
separately from all other assets of AVLIC and are not chargeable with
liabilities from any other business AVLIC may conduct. Income, gains, or losses
of the Separate Account are credited without regard to other income, gains, or
losses of AVLIC.
The Separate Account purchases and redeems shares from the Portfolios at the net
asset value. Shares are redeemed for AVLIC to pay withdrawals and surrenders,
collect charges, and transfer assets from one Portfolio to another, or to the
Fixed Account, as requested by the Owner. Any dividend or capital gain
distribution received is automatically reinvested in the corresponding
Subaccount.
All obligations arising under the Policies are liabilities of AVLIC. AVLIC will
always keep assets in the Separate Account with a total market value at least
equal to the reserve and other contract liabilities of the Separate Account. To
the extent that assets in the Separate Account exceed AVLIC's liabilities in the
Separate Account, AVLIC may withdraw excess assets to cover general account
obligations.
The Separate Account is a unit investment trust registered with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940
Act"). Such registration does not involve any SEC supervision of the management
or investment practices or policies of the Separate Account.
THE FUNDS
Each Fund is registered with the SEC under the 1940 Act as an open-ended
diversified management investment company or a series thereof. There are
currently 26 Subaccounts within the Separate Account, each investing only in a
corresponding Portfolio of the Funds.
The assets of each Portfolio of the Funds are held separate from the assets of
the other Portfolios. Thus, each Portfolio operates as a separate investment,
and the income or losses of one Portfolio generally do not affect the investment
performance of any other Portfolio.
There is no assurance that any Portfolio will achieve its investment objectives.
More detailed information, including a description of investment risks,
investment advisory services, total expenses and charges is in the prospectuses
of the Funds, which are available without charge by calling AVLIC. These
prospectuses should be read in conjunction with this Prospectus and retained.
All underlying Fund information, including Fund prospectuses, has been provided
to AVLIC by the Funds. AVLIC has not independently verified this information.
You should periodically reconsider your allocation among the Portfolios in light
of current market conditions and the investment risks attendant to investing in
the Portfolios.
The Separate 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 accumulation values, partial withdrawals, and make policy loans
or to transfer assets among Investment Options as requested by Owners. 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.
The Funds may be made available for variable annuity or variable life insurance
contracts of various insurance companies. Though unlikely, there is a
possibility that a material conflict could arise between the interests of the
Separate Account and one or 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 separate accounts from the Funds, to resolve the matter. See the
prospectuses of the Funds for more information.
The eligible Portfolios of the Funds, along with their investment advisers; are
listed in the following table:
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISERS ELIGIBLE PORTFOLIOS
---- ------------------- -------------------
<S> <C> <C>
Fidelity Funds Fidelity Management and VIP Money Market
Research Company VIP Equity-Income
VIP Growth
VIP High Income
VIP Overseas
VIP II Asset Manager
VIP II Investment Grade Bond
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
</TABLE>
ACCLAIM!
8
<PAGE>
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISERS ELIGIBLE PORTFOLIOS
---- ------------------- -------------------
<S> <C> <C>
Alger American Fund Fred Alger Management, Inc. Alger American Growth
Alger American Income and Growth
Alger American Small Capitalization
Alger American Balanced
Alger American MidCap Growth
Alger American Leveraged AllCap
MFS Trust Massachusetts Financial Services Emerging Growth
Company Utilities
World Governments
Research
Growth With Income
Morgan Stanley Fund Morgan Stanley Asset Emerging Markets Equity
Management Inc. Global Equity
International Magnum
Asian Equity
U.S. Real Estate
</TABLE>
THE FIXED ACCOUNT
-----------------
You may allocate all or a portion of your Premium Payments and make transfers to
the Fixed Account. Amounts in the Fixed Account earn a fixed rate of interest
guaranteed by AVLIC never to be less than 3%.
Amounts allocated to the Fixed Account receive an interest rate declared
effective for the month of issue. The declared interest rate is guaranteed for
the remainder of the Policy Year. During subsequent Policy Years, all amounts in
the Fixed Account will earn the interest rate that was declared in the month of
the last Policy anniversary. Declared interest rates may be lower or higher than
the previous period.
Amounts allocated to the Fixed Account or transferred from the Separate Account
to the Fixed Account are placed in the General Account of AVLIC, which supports
insurance and annuity obligations. The General Account includes all of AVLIC's
assets, except those assets segregated in the separate accounts. AVLIC has the
sole discretion to invest the assets of the General Account, subject to
applicable law. AVLIC bears an investment risk for all amounts allocated or
transferred to the Fixed Account and interest credited thereto, less any
deduction for charges and expenses, whereas the owner bears the investment risk
that the declared interest rate described above may fall to a lower rate after
the expiration of a declared rate period.
Because of exemptive and exclusionary provisions, interests in the General
Account have not been registered under the Securities Act of 1933 nor is the
General Account registered as an investment company under the Investment Company
Act of 1940. Accordingly neither the General Account nor any interest therein is
generally subject to the provisions of the 1933 or 1940 Act. We understand that
the Securities and Exchange Commission 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.
POLICY FEATURES
---------------
The Policy is a variable annuity contract issued by AVLIC. The rights and
benefits of the Policy are described below and in the Policy. The Policy
controls the rights and benefits you have. AVLIC reserves the right to make any
modification to conform the Policy to, or to give you the benefit of, any
changes in the law. If necessary, AVLIC will provide notice of such
modifications to, and receive approval from, the Securities and Exchange
Commission and/or state insurance authorities. You will be notified of any
material modification to the Policy.
CONTROL OF THE POLICY
The Owner is the person or entity named as such in the application or in
subsequent written changes shown in AVLIC's records. While living, the Owner has
the sole right to receive all benefits and exercise all rights granted by the
Policy or AVLIC. The Owner may name both primary and contingent beneficiaries.
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.
ACCLAIM!
9
<PAGE>
POLICY PURCHASE AND PREMIUM PAYMENT
Individuals wishing to purchase a Policy should send a complete application and
an initial premium to AVLIC's Home Office (5900 "O" Street, P.O. Box 82550,
Lincoln, NE 68501). Your initial premium must be equal to or greater than the
minimum $25,000 requirement. The named Annuitant must be 85 years of age or
less. Acceptance is subject to AVLIC's underwriting rules and complete
application. AVLIC reserves the right to reject any application.
If the application and initial Premium Payment can be accepted in the form
received, the initial premium will be applied to purchase the Policy within two
business days from the date the premium was received. The date the initial
premium is applied to purchase the Policy is the Effective Date.
If an incomplete application is received, we will request the necessary
information to complete the application. If after five business days from
receipt of the initial premium, the application remains incomplete, we will
return the initial premium unless we obtain your permission to retain the
premium pending completion of the application. Once the application is complete
and we have received the initial premium, the premium will be applied within two
business days.
Additional Premium Payments may be made at any time prior to the Annuity Date,
as long as the Annuitant is living. Additional payments must be made for at
least $1,000, however, smaller amounts may be accepted if made by automatic bank
draft or at AVLIC's discretion. Any additional premium is credited to the
Accumulation Value as of the date of receipt or the next Valuation Date if
received on a day when the NYSE is not open for trading.
Total premiums may not exceed $1,000,000 for either a single Policy or for
multiple AVLIC annuity Policies having the same Annuitant without prior approval
from AVLIC.
ALLOCATION OF PREMIUM
You may allocate premium to one or more of the Portfolios and to the Fixed
Account. Allocations must be whole number percentages and must total 100%.
On the Issue Date, the policy's Accumulation Value will be based on the Money
Market Portfolio value as if the Policy had been issued and the initial Net
Premium invested within two Valuation Dates of receipt by AVLIC of the
application and initial premium ("the two day date").
The Accumulation Value is allocated on the Issue Date of the Policy to one or
more Subaccounts of the Separate Account or to the Fixed Account. The
Accumulation Value will be used to purchase accumulation units of the
Subaccounts of the Separate Account or the Fixed Account at the price next
computed on the Issue Date.
If state or other applicable law or regulation requires return of at least your
premium payments should you return the Annuity pursuant to the Refund Privilege,
your Accumulation Value will be allocated to the Money Market Subaccount.
Thirteen days after the Issue Date, the accumulation value of the Policy will be
allocated among the Subaccounts, or to the Fixed Account, as selected by the
owner in the application.
The Accumulation Value will vary with the performance of the portfolios you
select. Results for the portfolios are not guaranteed. The Owner bears the
entire investment risk for the portion of the Accumulation Value allocated to
the Portfolios. This will affect the Policy's Accumulation Value which on the
Annuity Date affects the level of annuity payments payable. You should
periodically review your allocation in light of market conditions and your
financial objectives.
ACCUMULATION VALUE
On the Effective Date, the Accumulation Value of the Policy is equal to the
initial premium received, less any applicable premium taxes, plus any interest
credited based on the Money Market Portfolio value as of the Policy Date.
Thereafter, the Accumulation Value is determined on each Valuation Date by
multiplying the number of Accumulation Units of each Subaccount by the current
Accumulation Unit Price for that Subaccount and by adding each together with the
amount in the Fixed Account. The number of Accumulation Units credited to the
Policy is decreased by any annual policy fee, any withdrawals, and, upon
annuitization, any applicable premium taxes.
When a portion of the Accumulation Value is allocated to a Portfolio, a certain
number of Accumulation Units are credited to your Policy. The number of
Accumulation Units is determined by dividing the dollar amount allocated to the
Portfolio by the Accumulation Unit Price for that Portfolio as of the end of the
Valuation Period in which the allocation is made.
The Accumulation Units of each Portfolio are valued separately. The Accumulation
Unit Price may vary each Valuation Period according to the net investment
performance of the Portfolio, the daily charges under the Policy, and, any
applicable tax charges.
Therefore, the Accumulation Value of your Policy will vary from Valuation Period
to Valuation Period, reflecting the investment experience of the selected
Portfolios of the Funds, the interest earned in the Fixed Account, additional
Premium Payments, withdrawals and the deduction of any charges.
ACCLAIM!
10
<PAGE>
TRANSFERS AMONG PORTFOLIOS AND THE FIXED ACCOUNT
You may make transfers among the Portfolios and/or the Fixed Account 15 times
each Policy Year without charge. A transfer charge of $10 may be imposed for
each additional transfer. This charge will be deducted pro rata from each
Subaccount (and, if applicable, the Fixed Account) in which the Policyowner is
invested. Each transfer must be at least $250, or the balance of the Portfolio,
if less. You may make unlimited transfers from the Portfolios to the Fixed
Account. During the 30 day period following the Policy anniversary date, you may
also transfer from the Fixed Account to the various Portfolios amounts 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.
This provision is not available while dollar cost averaging from the Fixed
Account. The minimum amount that may remain in a Portfolio or the Fixed Account
after a transfer is $100.
You may initiate transactions by telephone. AVLIC will employ reasonable
procedures to confirm that telephone instructions are genuine. AVLIC procedures
for transactions initiated by telephone include, but are not limited to,
requiring the Owner to provide the policy number at the time of giving transfer
instructions; tape recording of all telephone transfer instructions; and the
provision, by AVLIC, of written confirmation of the telephone transactions.
AVLIC will effect transfers and determine all values in connection with
transfers at the end of the Valuation Period during which the transfer request
is received at the Home Office.
Transfers may be subject to additional limitations by the Funds. 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 within 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, may apply.
PORTFOLIO REBALANCING. Portfolio rebalancing is a method to maintain
your original allocation proportions among Portfolios. Under this program,
the Owner can instruct AVLIC to reallocate Accumulation Value among the
Portfolios, on a systematic basis, in accordance with allocation instructions
specified by the Owner. The Fixed Account can not be used in this program.
DOLLAR COST AVERAGING. Under the Dollar Cost Averaging program, the Owner
can instruct AVLIC to automatically transfer, on a systematic basis, a
predetermined amount or percentage specified by the Owner from the Fixed
Account or the Money Market Subaccount to any other Subaccount(s). Dollar
cost averaging is permitted from the Fixed Account, if no more than 1/36th of
the value of the Fixed Account at the time dollar cost averaging is
established is transferred each month.
EARNINGS SWEEP. Permits systematic redistribution of earnings among
portfolios. The Fixed Account may be used in this program.
The Owner can request participation in the available systematic 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.
WITHDRAWALS AND SURRENDERS
Any time prior to the Annuity Date and while the Annuitant is still living, you
may make withdrawals or surrender the Policy to receive part or all of the
Accumulation Value. You may request withdrawals or surrenders on a form approved
by AVLIC. No withdrawal or surrender may be made after the Annuity Date except
as permitted under a particular Annuity Income Option.
The amount available for withdrawal is the Accumulation Value at the end of the
Valuation Period during which the written request for withdrawal is received,
less any applicable premium taxes and in the case of a surrender, also less the
annual policy fee that would be due on the last Valuation Date of the Policy
Year.
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. The minimum
withdrawal amount is $250. Any withdrawal request that would reduce the
Accumulation Value to less than $1,000 will be considered a request for policy
surrender.
Since the Owner assumes the investment risk with respect to amounts allocated to
the Separate Account, the total amount paid upon withdrawal under the Policy
(taking into account any prior withdrawals) may be more or less than the total
Premium Payments made. The 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".)
ACCLAIM!
11
<PAGE>
Your proceeds will be paid within seven days of receipt of written request for
withdrawal or surrender, subject to postponement in certain circumstances. (See
"Deferment of Payment".) Payments under the Policy of any amounts derived from a
premium paid by check may be delayed until the check has cleared the payor's
bank.
If, at the time the Owner makes a 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 the withdrawal and
remit that amount to the federal government. Moreover, the Internal Revenue Code
provides that a 10% penalty tax may be imposed on certain early withdrawals.
(See "Federal Tax Matters.")
SYSTEMATIC WITHDRAWALS. A systematic withdrawal option is available. Automatic
withdrawals may be taken on a monthly, quarterly, semi-annual or annual mode.
FREE LOOK PRIVILEGE
A free look period is given to examine a Policy and return it for a refund. The
Owner may cancel the Policy within 10 days after receipt of the Policy, unless
state law requires a longer period of time. In states that permit it to do so,
AVLIC will refund the Accumulation Value calculated on the date AVLIC receives
the policy and refund request. The amount may be more or less than the premium
payments made. In other states, the refund is equal to the greater of the
premiums paid or the premiums adjusted by investment gains or losses. All
Individual Retirement Annuity or custodial IRA annuity refunds will be a return
of premium payment. To cancel the Policy, the Owner should return it to the
selling agent, or to AVLIC at the Home Office. A refund, if the premium was paid
by check, may be delayed until the check has cleared the Owner's bank.
CHARGES AND DEDUCTIONS
----------------------
There is no sales load, no withdrawal charge, and no surrender charge.
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; and (2) assuming certain risks in connection with 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 Separate Account or Fixed Account, unless taxes are imposed by state law
upon the receipt of a Premium Payment. In that case AVLIC will deduct the
premium tax due when the premiums are received.
ADMINISTRATIVE CHARGES
ANNUAL POLICY FEE. An annual policy fee of up to $40.00 (currently $36.00) is
deducted from the Accumulation Value on the last Valuation Date of each Policy
Year or upon a surrender. This charge reimburses AVLIC for part of the
administrative costs of maintaining the Policy on AVLIC's system and the cost of
reporting to Owners. AVLIC currently waives this charge if the accumulation
value of your policy is at least $50,000.
From time to time AVLIC may reduce the amount of the annual policy fee. AVLIC
may do so when annuities are sold to individuals or a group of individuals in a
manner that reduces the administrative costs of policy maintenance. AVLIC would
consider such factors as: (a) the size and type of group; (b) the number of
Annuities purchased by an Owner; (c) the amount of premium payments; and/or (d)
other transactions where maintenance and/or administrative expenses are likely
to be reduced.
Any elimination of the annual policy fee will not discriminate unfairly between
Annuity purchasers. AVLIC will not make any changes to this charge where
prohibited by law.
ADMINISTRATIVE FEE. AVLIC imposes a charge to reimburse it for administrative
expenses in connection with issuing, 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. The charge is assessed daily and
is equal to an annual rate of .15% of the average daily net assets of the
Separate Account. This charge is guaranteed not to be increased. No
administrative fee is imposed on the Fixed Account.
AVLIC does not expect to make a profit on the charges for the annual policy and
daily administrative fees.
TRANSFER CHARGE. Transfer charges may be levied. (See "Transfers Among
Portfolios and the Fixed Account.")
MORTALITY AND EXPENSE RISK CHARGE
AVLIC imposes a charge as compensation for bearing certain mortality and expense
(M&E) risks under the Policies. The charge is assessed daily and is equal to an
annual rate of 1.25% of the value of the average daily net assets of the
Separate Account. AVLIC
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guarantees that this charge will never exceed 1.25%. 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 M&E charge is imposed on the Fixed Account.
The mortality risk borne by AVLIC, 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 affect on the monthly annuity
payments the Annuitant will receive. It therefore relieves the Annuitant from
the risk of outliving the funds accumulated for retirement.
In addition, AVLIC bears a mortality risk under the Policies, regardless of the
Annuity Income Option selected, in that it guarantees the purchase rates for the
Annuity Income Options available under the Policy and it guarantees that the
death benefit payable upon death of the Annuitant prior to the Annuity Date will
be the greater of the Accumulation Value or the Premium Payments made.
The expense risk undertaken by AVLIC, with respect to the Separate Account, is
that the deductions for administrative costs under the Policies may be
insufficient to cover the actual future costs incurred by AVLIC for providing
administration services.
If the annual policy fee and daily administrative fee are insufficient to cover
the administration 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.
TAX CHARGES
The Owner will pay premium taxes that currently range from 0% to 3.5% of the
premium paid, where such taxes are imposed by the state law of the Owner's
residence. States impose premium taxes either upon receipt, by the company, of a
premium payment, or upon annuitization or withdrawals. AVLIC will charge and
deduct premium taxes as required by state law and in accordance with any
applicable company election. Applicable premium tax rates are subject to change.
The Owner will be notified of any applicable premium taxes. You 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 does not currently make a charge for these other
taxes. If they increase, however, AVLIC may charge for such taxes. Such charges
would be deducted from the Accumulation 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. Based upon these expectations, no charge is being made currently to
the Separate Account for corporate federal income taxes which may be
attributable to the Separate Account. AVLIC will periodically review the
question of a charge to the Separate Account for corporate federal income taxes
related to the Separate Account. Such a charge may be made in future years for
any federal income taxes incurred by AVLIC. This might become necessary if the
tax treatment of AVLIC is ultimately determined to be other than what we
currently believe 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 Price would be correspondingly
adjusted. See "Federal Tax Matters".
FUND INVESTMENT ADVISORY FEES AND EXPENSES
The value of the assets in the Separate Account will reflect investment advisory
fees and other expenses incurred by the Funds. Fund expenses are found in the
Funds' prospectuses, and Statements of Additional Information.
AVLIC may receive administrative fees from the investment advisers of certain
funds.
ANNUITY PERIOD
--------------
ANNUITY DATE
The Annuity Date is the date that Annuity Payments are scheduled to begin,
unless the Policy has been surrendered or the Annuitant is deceased and an
amount has been paid as proceeds prior to that date. The Annuity Date will be
the later of the fifth Policy anniversary date or the Policy anniversary which
is nearest the Annuitant's 85th birthday. However, the Owner may specify an
Annuity Date at the time of purchase which may be extended up to the Policy
anniversary nearest the Annuitant's 95th birthday, and may be extended further
with prior Home Office approval.
An Annuity Date may only be changed by written request during the Annuitant's
lifetime. Written request to change the Annuity Date must be received at the
AVLIC Home Office at least 30 days before the currently 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.
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ANNUITY INCOME OPTIONS
If the Annuitant is living on the Annuity Date and the Policy is in force,
Annuity Payments will be made to the Annuitant according to the terms of the
Policy and the Annuity Income Option selected.
The amounts of any Annuity Payments payable will be based on the Accumulation
Value as of the Annuity Date less any premium taxes, if applicable. Thereafter,
the monthly Annuity Payment will not change, except in the event the Interest
Payment Option is elected, in which case the payment will vary based on the rate
of interest determined by AVLIC. All or part of the Accumulation 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
Accumulation 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 as a Life
Annuity as shown below. Subject to AVLIC's approval, the Owner (or after the
Annuitant's death, the Annuitant's Beneficiary) may select any other Annuity
Income Option AVLIC then offers. Annuity Income Options are not available to:
(1) an assignee; or (2) any other than a natural person except with AVLIC's
consent.
If an Annuity Income Option selected does not generate monthly payments of at
least $100, AVLIC reserves the right to pay the Accumulation Value as a lump sum
payment or to change the frequency. If an Annuity Income Option is chosen which
depends on the continuation of life of the 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 may be greater. For Annuity
Income Options that do not involve life income, the length of the payment period
may affect the amount of each payment: the shorter the period, the greater the
amount of each Annuity Payment.
The following Annuity Income Options are currently available:
INTEREST PAYMENT. AVLIC will hold any amount applied under this option and
pay or credit interest on the unpaid balance each month at a rate determined
by AVLIC.
DESIGNATED AMOUNT ANNUITY. Monthly annuity payments will be for a fixed
amount. Payments continue until the amount AVLIC holds runs out.
DESIGNATED PERIOD ANNUITY. Monthly annuity payments are paid for a period
certain, as the Owner elects, up to 20 years.
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.
JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid based on
the lives of the two annuitants and thereafter on the life of the survivor,
ceasing with the last Annuity Payment due prior to the survivor's death.
The rate of interest payable under the Interest Payment, Designated Amount
Annuity or Designated Period Annuity Options will be guaranteed to be no less
than 3% compounded yearly. Payments under the Life Annuity and Joint and Last
Survivor Annuity Options will be based on the 1983 Table "a" Individual Annuity
Table, projected for seventeen years, at 3% interest. AVLIC may, at 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 the Interest Payment, Designated Amount Annuity, and
Designated Period Annuity Options to either the Life Annuity or Joint and Last
Survivor Annuity Option 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.
FEDERAL TAX MATTERS
-------------------
INTRODUCTION
The following discussion is general in nature and is not intended as tax advice.
It 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. You should consult a competent tax adviser before purchasing a
policy. 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 "Tax Charges".)
ACCLAIM!
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TAXATION OF ANNUITIES IN GENERAL
NONQUALIFIED POLICIES. Section 72 of the Internal Revenue Code (the Code)
governs taxation of annuities. In general, the Owner is not taxed on increases
in the value of a Policy until some form of distribution is made under the
Policy. The exception to this rule is the treatment afforded to Owners that are
not natural persons. Generally, an Owner that is not a natural person must
include in income any increase in 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. A transfer of ownership of the Policy without
full and adequate consideration will also be treated as a distribution under the
Internal Revenue Code, unless the transfer falls within an exception for
transfers between spouses. Generally, in the case of a withdrawal under a
Nonqualified Policy, amounts received which are allocable to "investment in the
policy" made after August 13, 1982 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.
If a withdrawal is allocable to "investment in the policy" made prior to August
14, 1982, it is taxed under the "cost recovery rule" so that withdrawals are
treated as a recovery of "investment in the policy" until such investment has
been fully recovered. Thereafter, withdrawals are fully taxable as ordinary
income. Where a policy contains "investment in the policy" both before and after
the above referenced dates, special ordering rules apply.
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 from a Nonqualified Policy, there may be imposed a
federal penalty tax equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on distributions: (1) made on or after
the date on which the Owner is actual age 59 1/2, (2) made as a result of death
or disability of the Owner, (3) received in substantially equal payments as a
life annuity subject to Internal Revenue Service requirements, including special
"recapture" rules, or (4) which are allocable to "investment in the policy" made
prior to August 14, 1982.
QUALIFIED POLICIES. The rules governing the tax treatment of distributions under
qualified plans vary according to the type of plan and the terms and conditions
of the plan itself. Generally, in the case of a distribution to a participant or
beneficiary under a Policy purchased in connection with these plans, only the
portion of the payment in excess of the "investment in the policy" allocated to
that payment is subject to tax. The "investment in the policy" equals the
portion of plan contributions invested in the Policy that was not excluded from
the participant's gross income (reduced by any amounts previously received under
the policy which were excluded from gross income), and may be zero. In general,
for allowed withdrawals from qualified policies other than Roth IRAs, a ratable
portion of the amount received is taxable, based on the ratio of the investment
in the Policy to the total Policy value. The amount excluded from a taxpayer's
income will be limited to an aggregate cap equal to the investment in the
Policy. The taxable portion of annuity payments with annuity starting dates on
or before November 18, 1996 is generally determined under rules similar to those
applicable to annuity distributions from Nonqualified Policies. However, for
annuity payments with annuity starting dates after November 18, 1996, annuitants
must use a simplified method for determining the tax-free portion of annuity
payments by dividing "investment in the policy" by the number of annuity
payments set by tables in the Internal Revenue Code based on the age of the
primary annuitant. This method does not apply if the annuitant is over age 75
and there are 5 or more years of guaranteed payments. Also, for annuity payments
based on the lives of more than one individual and that have annuity starting
dates after December 31, 1997, annuitants must use the simplified method based
on the combined ages of both individuals when calculating the excludable portion
of annuities based on the separate tables set forth in the Code for that
purpose. In the case of an annuity that does not depend in whole or in part on
the life expectancy of one or more individuals, the expected number of payments
is the number of monthly annuity payments under the policy. Special favorable
tax treatment may be available for certain distributions (including lump sum
distributions from plans other than IRAs made in tax years beginning before
January 1, 2000). Adverse tax consequences may result from excess contributions,
distributions made prior to age 59 1/2 (subject to certain exceptions),
distributions that do not conform to specified commencement and minimum
distribution rules, and in certain other circumstances.
Roth IRA contributions are not deductible and may be limited depending on your
adjusted gross income. Withdrawals of earnings from Roth IRAs may be tax free if
certain requirements are met. If earnings withdrawals do not meet those
requirements, they will be considered to be made first from contributions and
then from earnings. The earnings will be subject to income tax and an additional
10% penalty tax (or 20% under legislation pending before Congress) may apply.
Conversions from existing IRAs to Roth IRAs are permitted if certain
requirements are met, however, converted amounts not previously taxed will be
subject to income tax in the year of conversion (for 1998 only, the conversion
amount will be taxed on a pro rata basis over 4 years, beginning in 1998).
Legislation pending before Congress may significantly impact the tax treatment
of contributions to, conversions to, and distributions from Roth IRAs.
ACCLAIM!
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Distributions from qualified plans are subject to specific tax withholding
rules. "Eligible rollover distributions" from a qualified plan (other than IRAs
of any type and Section 457 plans) are subject to income tax withholding at a
rate of 20% unless the Owner elects to have the distribution paid directly by
AVLIC to an eligible retirement plan (another plan of the same type or a
rollover IRA) 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 Nonqualified Policies. However, Section 457 nonqualified
deferred compensation plan distributions are generally subject to withholding as
wages and are not eligible for rollover to an IRA.
GENERAL PROVISIONS
------------------
ANNUITANT'S BENEFICIARY
The Annuitant's Beneficiary(ies) receives the death benefit proceeds upon death
of the Annuitant. The Owner may name both primary and contingent Annuitant's
Beneficiaries. The Annuitant's Beneficiary(ies) is named in the application or
as subsequently changed and recorded in AVLIC's records.
Multiple beneficiaries may be named; however, unless otherwise indicated,
payments are made equally to those primary beneficiaries who are alive upon the
death of the Annuitant. Contingent beneficiaries are only eligible if no primary
beneficiary is alive at the time proceeds are payable. If none survive, the
final beneficiary will be the Owner or the Owner's estate.
The Owner may change the Annuitant's Beneficiary by written request on a Change
of Beneficiary form at any time during the Annuitant's lifetime. AVLIC, at its
option, may require that the Policy be returned to the Home Office for
endorsement of any change, or that other forms be completed. The change will
take effect as of the date the change is recorded at the Home Office. AVLIC will
not be liable for any payment made or action taken before the change is
recorded. No limit is placed on the number of changes that may be made.
DEATH OF ANNUITANT
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is payable upon
receipt of Satisfactory Proof of Death of the Annuitant as well as proof that
the Annuitant died prior to the Annuity Date. AVLIC guarantees the Death Benefit
will equal the greater of the Accumulation Value or total premiums paid less
withdrawals, on the date Satisfactory Proof of Death is received by AVLIC at its
Home Office. The Death Benefit is payable as a lump sum or under one of the
Annuity Income Options.
The Owner may elect an Annuity Income Option for the Annuitant's Beneficiary, or
if no such election was made by the Owner and a cash benefit has not been paid,
the Annuitant's Beneficiary may make this election after the Annuitant's Death.
Since Satisfactory Proof of Death includes a "Claimant's Statement", which
specifies how the beneficiary wishes to receive the benefit (unless the Owner
previously selected an option), the amount of the Death Benefit will continue to
reflect the investment performance of the Separate Account until that
information is supplied to AVLIC. Upon receipt of this proof, the Death Benefit
will be paid to the Annuitant's Beneficiary within seven days, or as soon
thereafter as AVLIC has sufficient information about the Annuitant's Beneficiary
to make the payment. In order to take advantage of the favorable tax treatment
accorded to receiving the Death Benefit as an annuity, the Annuitant's
Beneficiary must elect to receive the benefits under an Annuity Option within 60
days "after the day on which such lump sum became payable," as defined in the
Internal Revenue Code.
GUARANTEED MINIMUM DEATH BENEFIT (GMDB) RIDER
This rider provides for payment of the GMDB in lieu of the death benefit payable
prior to annuity date if the GMDB is greater than such death benefit. The GMDB
depends on the annuitant's issue age, and when the company receives satisfactory
proof of death. The GMDB is calculated based upon the 7 year period in which
satisfactory proof of death is received. Each 7 year period begins with a 7 year
policy anniversary, i.e. the 7th, 14th, 21st, etc. policy anniversary. The GMDB
applies only for annuitants who are issue ages 0-70.
If satisfactory proof of the annuitant's death is received prior to the 7th
policy anniversary, or after the policy anniversary nearest the annuitant's 85th
birthday, the GMDB is zero, and the death benefit payable will equal the greater
of the accumulation value, or total premiums paid less partial withdrawals, on
the date satisfactory proof of death is received.
If satisfactory proof of the annuitant's death is received on or after the 7th
policy anniversary and before the policy anniversary nearest the annuitant's
75th birthday, the GMDB is calculated based upon the greater of (i) and (ii),
where (i) is the accumulation value as of the most recent 7 year policy
anniversary and (ii) is the GMDB immediately preceding the most recent 7 year
policy anniversary. The GMDB is increased by premiums paid since the most recent
7 year policy anniversary, decreased by any partial withdrawals since the most
recent 7 year policy anniversary, and decreased by an additional adjustment for
each partial withdrawal made since the most recent 7 year policy anniversary.
However, if satisfactory proof of the annuitant's death is received on or after
the policy anniversary nearest the annuitant's 75th birthday and before the
policy anniversary nearest the annuitant's 85th birthday, the most recent 7 year
policy anniversary on or prior to the policy anniversary nearest the annuitant's
75th birthday will be used in determining the GMDB.
ACCLAIM!
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For annuitants Issue Age 68 to 70, the accumulation value as of the 7th policy
anniversary will be used in calculating the GMDB prior to the policy anniversary
nearest the annuitant's 85th birthday. For annuitants Issue Age 69 and 70, the
references to "75th birthday" in the preceding paragraph should be replaced by
"76th birthday" (when issue age is 69) and "77th birthday" (when issue age is
70).
There is no additional charge for this rider, and this rider may not be
available in all states.
DEATH OF OWNER
If the Owner dies on or after the Annuity Date, annuity benefits continue to be
paid to the Annuitant under the Annuity Income Option in effect on the Owner's
date of death.
If the Owner dies before the Annuity Date and before the entire interest in the
Policy is distributed, the Accumulation Value of the Policy must be distributed
to the Owner's Designated Beneficiary so that the Policy qualifies as an annuity
under the Internal Revenue Code. The entire interest must be distributed within
five years of the Owner's death. However, a distribution period exceeding five
years will be allowed if the Owner's Designated Beneficiary purchases an
immediate annuity under which payments will begin within one year of the Owner's
death and will be paid out over the lifetime of the Owner's Designated
Beneficiary or over a period not extending beyond his or her life expectancy.
If 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
treated as the Owner for purposes of applying the rules described above.
Finally, in situations where the Owner is not an individual, these distribution
rules are applicable upon the death or change of the Annuitant.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
AVLIC reserves the right, subject to applicable law, and if necessary, after
notice to and prior approval from the SEC and or state insurance authorities, to
make additional Portfolios available to you. We may also eliminate, combine or
substitute Subaccounts if, in our judgment, marketing needs, tax considerations,
or investment conditions warrant. This may happen due to a change in law or a
change in a Portfolio's investment objectives or restrictions, or for some other
reason. AVLIC may operate the Separate Account as a management company under the
1940 Act, it may be deregistered under that Act if registration is no longer
required, or it may be combined with other AVLIC separate accounts. AVLIC may
also transfer the assets of the Separate Account to another Separate Account.
If any of these substitutions or changes are made, AVLIC may by appropriate
endorsement change the policy to reflect the substitution or change. In
addition, AVLIC may, when permitted by law, restrict or eliminate any voting
rights of Owners or other persons who have voting rights as to the Separate
Account.
You will be notified of any material change in the investment Policy of any
Portfolio in which you have an interest.
DEFERMENT OF PAYMENT
Payment of any withdrawal, surrender or lump sum death benefit due from the
Separate Account will occur within seven days from the date the amount becomes
payable, except that AVLIC may be permitted to defer such payment if:
a) the New York Stock Exchange is closed other than customary weekends
or holidays or trading on the New York Stock Exchange is otherwise
restricted; or
b) the SEC permits the delay for the protection of Owners; or
c) an emergency exists as determined by the SEC.
In addition, surrenders or withdrawals from the Fixed Account may be deferred by
AVLIC for up to 6 months from the date of written request.
CONTESTABILITY
AVLIC cannot contest the validity of this Policy after the Policy Date, subject
to the "Misstatement of Age or Sex" provision.
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 AVLIC made any overpayments, interest at the rate of 6% per year compounded
yearly will be added and charged against future payments. 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.
ACCLAIM!
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REPORTS AND RECORDS
AVLIC will maintain all records relating to the Separate Account and will mail
the Owner, at the last known address of record, within 30 days after each Policy
anniversary, an annual report which shows the current Accumulation Value as
allocated among the Subaccounts or the Fixed Account, and charges made during
the Policy Year. Except for the annual report, AVLIC reserves the right to
charge a report fee for requested reports. The Owner will also be sent
confirmations of transactions, such as purchase payments, transfers and
withdrawals under the Policy. Quarterly statements are also mailed detailing
Policy activity during the calendar quarter. Instead of receiving an immediate
confirmation of transactions made pursuant to some types of periodic payment
plan (such as a dollar cost averaging program, or payment made by automatic bank
draft or salary reduction arrangement), the Owner may receive confirmation of
such transactions in their quarterly statements. The Owner should review the
information in these statements carefully. All errors or corrections must be
reported to AVLIC immediately to assure proper crediting to the Policy. AVLIC
will assume all transactions are accurately reported on quarterly statements
unless AVLIC is otherwise notified within 30 days after receipt of the
statement. A periodic report for the Fund and a list of the securities held in
each Portfolio of the Fund and any other information required by the 1940 Act
will also be provided.
DISTRIBUTION OF THE POLICIES
----------------------------
Ameritas Investment Corp. ("AIC"), located at 5900 O Street, 4th Floor, Lincoln,
Nebraska 68510, will act as the principal underwriter of the Policies pursuant
to an underwriting Agreement it has with AVLIC. AIC is a wholly owned subsidiary
of AMAL Corporation, and an affiliate of AVLIC. AIC is a broker/dealer
registered under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. The Policies are sold by
individuals who are registered representatives of AIC or other broker-dealers.
Commissions paid by AVLIC to broker-dealers may vary, but are not expected to
exceed 1% of premiums paid. Broker- dealers may also receive an asset based
administrative compensation of up to 1% (annualized). From time to time,
additional sales incentives may be provided to broker-dealers.
The gross variable annuity compensation received by AIC on AVLIC's variable
annuities was $11,961,951 for 1997; $10,067,075 for 1996; and $6,896,847 for
1995.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
--------------------------------------------
AVLIC holds the assets of the Separate Account. The assets are held separate and
apart from General Account assets. AVLIC maintains records of all purchases and
redemptions of the Funds' shares by each of the Subaccounts.
THIRD PARTY SERVICES
--------------------
AVLIC is aware that certain third parties are offering investment advisory,
asset allocation, money management and timing services in connection with the
contracts. AVLIC does not engage any such third parties to offer such services
of any type. In certain cases, AVLIC has agreed to honor transfer instructions
from such services where it has received powers of attorney, in a form
acceptable to it, from the contract owners participating in the service. Firms
or persons offering such services do so independently from any agency
relationship they may have with AVLIC for the sale of contracts. AVLIC takes no
responsibility for the investment allocations and transfers transacted on a
contract owner's behalf by such third parties or any investment allocation
recommendations made by such parties. Contract owners should be aware that fees
paid for such services are separate and in addition to fees paid under the
contracts.
VOTING RIGHTS
-------------
To the extent required by law, AVLIC will vote the Portfolio shares held in the
Separate Account at shareholder meetings 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.
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 available to
an Owner will be calculated separately for each Subaccount of the Separate
Account. The number of votes available to an Owner will be determined by
dividing the Accumulation Value attributable to a Subaccount by the net value
per share of the applicable Portfolio. In determining the number of votes,
fractional shares will be recognized.
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18
<PAGE>
The number of votes of the Portfolio which are available will be determined as
of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the Funds. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Funds.
Shares of Funds as to which no timely instructions are received, or shares held
by AVLIC as to which Owners have no beneficial interest will be voted in
proportion to the voting instructions which are received with respect to all
Policies participating in that Subaccount.
Each person having a voting interest in a Subaccount will receive proxy
material, reports and other materials relating to the appropriate Portfolio.
On and after the Annuity Date, there are no voting rights because amounts are no
longer held in the Separate Account.
LEGAL PROCEEDINGS
-----------------
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. AVLIC is not involved in
any litigation that is of material importance in relation to its ability to meet
its obligations under the policies, or that relates to the Separate Account. AIC
is not involved in any litigation that is of material importance in relation to
its ability to perform under its underwriting agreement.
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
A Statement of Additional Information is available that contains more details
concerning the subjects discussed in this Prospectus. This can be obtained by
writing to the address on the front page or by calling 1-800-745-1112.
The following is a Table of Contents for that Statement:
PAGE
GENERAL INFORMATION AND HISTORY............................... 2
THE POLICY.................................................... 2
GENERAL MATTERS............................................... 6
FEDERAL TAX MATTERS........................................... 7
DISTRIBUTION OF THE POLICY.................................... 7
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS........................ 8
STATE REGULATION.............................................. 8
LEGAL MATTERS................................................. 8
EXPERTS....................................................... 8
OTHER INFORMATION............................................. 8
FINANCIAL STATEMENTS.......................................... 8
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APPENDIX A
QUALIFIED DISCLOSURES
* Information Statement For:
408(b) IRA Plans
408(k) SEP IRA Plans
408(p) SIMPLE IRA Plans
408A Roth IRA Plans
* Information Statement For:
401(a) Pension/Profit Sharing Plans
If this annuity is being purchased as a qualified plan as defined under
specified sections of the Internal Revenue Code, as purchaser (owner) or
fiduciary of an Employee Benefit Plan purchasing the annuity, you should
carefully review the Information Statement for your specific plan.
Depending on the type of plan, we are required to provide this disclosure to you
to meet the requirements of the Internal Revenue Code ("Code") and/or the
Employee Retirement Income Security Act of 1974 (ERISA).
Acknowledgment of your receipt of the required disclosure is included within the
application language above your signature.
TABLE OF CONTENTS
Information Statement
408(b) Individual Retirement Annuity (IRA) Plans
408(k) Simplified Employee Pension (SEP IRA) Plans
408(p) Savings Incentive Match (SIMPLE IRA) Plans
408A Roth IRA Plans .............................................QD-1
Information Statement
401(a) Pension/Profit Sharing Plans...............................QD-9
AMERITAS VARIABLE LIFE INSURACE COMPANY LOGO
<PAGE>
Ameritas Variable Life INFORMATION STATEMENT
Insurance Company Logo 408(B)INDIVIDUAL RETIREMENT ANNUITY (IRA) PLANS
408(K) SIMPLIFIED EMPLOYEE PENSION (SEP IRA)PLANS
408(P) SAVINGS INCENTIVE MATCH (SIMPLE IRA)
408A ROTH IRA
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For purchasers of a 408(b) Individual Retirement Annuity (IRA) Plan, 408(k)
Simplified Employee Pension (SEP IRA) Plan, 408(p) Savings Incentive Match
(SIMPLE IRA) Plan or a 408A Roth IRA, 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 ACCLAIM! Variable Annuity (Form 4880), can be used for a
Regular IRA, a Rollover IRA, a Spousal IRA Arrangement, a Simplified Employee
Pension Plan (SEP IRA), a salary reduction Simplified Employee Pension Plan
(SARSEP) or a SIMPLE IRA. A separate policy must be purchased for each
individual under each plan. In addition, AVLIC's OVERTURE ACCLAIM!, at some
point after December 31, 1997, will be made available for use as a ROTH IRA.
BECAUSE THIS POLICY INCLUDES CERTAIN MINIMUM PREMIUM REQUIREMENTS, IT MAY NOT BE
AVAILABLE FOR USE WITH ALL OF THE ABOVE TYPES OF PLANS IN ALL CIRCUMSTANCES.
STATE INCOME TAX TREATMENT OF IRAS VARIES, SO THIS DISCLOSURE ONLY DISCUSSES THE
FEDERAL TAX TREATMENT OF IRAS. PLEASE DISCUSS STATE INCOME TAX TREATMENT OF AN
IRA WITH YOUR TAX ADVISOR.
While provisions of the IRA law are similar for all such plans, any major
differences are set forth under the appropriate topics below.
ELIGIBILITY:
REGULAR IRA PLAN: Any individual under age 70 1/2 and earning income from
personal services, is eligible to establish an IRA Plan, although deductibility
of the contributions is determined by adjusted gross income ("AGI") and whether
the individual(or the individual's spouse) is an "active participant" in an
employer sponsored retirement plan.
ROLLOVER IRA: This is an IRA plan purchased with your distributions from another
IRA (including a SEP IRA, SARSEP or SIMPLE IRA), a Section 401(a) Qualified
Retirement Plan, or a Section 403(b) Tax Sheltered Annuity (TSA).
Amounts transferred as Rollover Contributions are not taxable in the year of
distribution (provided the rules for Rollover treatment are satisfied) and may
or may not be subject to withholding. Rollover Contributions are not deductible.
SPOUSAL IRA ARRANGEMENT: A Spousal IRA, consisting of a separate contract for
each spouse, may be set up provided a joint return is filed, the "nonworking
spouse" has less taxable compensation, if any, for the tax year than the working
spouse, and is under age 70 1/2 at the end of the tax year.
Divorced spouses can continue a spousal IRA or start a Regular IRA based on the
standard IRA eligibility rules. All taxable alimony received by the divorced
spouse under a decree of divorce or separate maintenance is treated as
compensation for purposes of the IRA deduction limit.
ROTH IRAS: A Roth IRA must be designated as such when it is established.
1. A REGULAR ROTH IRA is a Roth IRA established to receive annual contributions
and/or rollover contributions from other Roth IRAs where no portion of the
rollover is attributable to an IRA other than a Roth IRA.
2. A CONVERSION ROTH IRA is a Roth IRA established to receive rollovers or
conversions from non-Roth IRAs and is limited to such contributions.
Roth IRAs are available beginning in 1998. Unlike Regular IRAs, contributions to
a Roth IRA are not deductible for tax purposes. However, any gain accumulated in
a Roth IRA may be nontaxable, depending upon how and when withdrawals are made.
Eligibility to contribute to a Roth IRA (Regular, Spousal or Conversion) is
subject to income and other limits. Unlike deductible IRAs, if eligible, you may
contribute to a Roth IRA even after age 70 1/2.
3. SPOUSAL ROTH IRA ARRANGEMENT: Beginning in 1998, a Spousal Roth IRA may be
set up for a "non-working" spouse that has less taxable compensation, if any,
for the tax year than the "working" spouse, regardless of age, provided the
spouses file a joint tax return and subject to the adjusted gross income ("AGI")
limits described in PART II, MAXIMUM CONTRIBUTIONS - SPOUSAL ROTH IRA
ARRANGEMENT. Divorced spouses can continue a Spousal Roth IRA or start a Regular
Roth IRA based on standard Roth IRA eligibility rules. Taxable alimony received
by the divorced spouse under a decree of divorce or separate maintenance is
treated as compensation for purposes of Roth IRA eligibility limits.
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SIMPLIFIED EMPLOYEE PENSION PLAN (SEP IRA): An employee is eligible to
participate in a SEP IRA Plan based on eligibility requirements set forth in
form 5305-SEP or other plan document provided by the employer.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SARSEP): An employee is
eligible to participate in a SARSEP plan based on eligibility requirements set
forth in form 5305A-SEP or the plan document provided by the employer. New
SARSEP plans may not be established after December 31, 1996. SARSEPs established
prior to January 1, 1997, may continue to receive contributions after 1996, and
new employees hired after 1996 are also permitted to participate in such plans.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES OF SMALL EMPLOYERS (SIMPLE IRA) ): An
employee is eligible to participate in a SIMPLE IRA Plan based on eligibility
requirements set forth in Form 5304-SIMPLE or other plan document provided by
the employer.
NONTRANSFERABILITY: You may not transfer, assign or sell your IRA Plan
(including a SIMPLE IRA, SEP IRA, SARSEP or Roth IRA) to anyone (except in the
case of transfer incident to divorce).
NONFORFEITABILITY: The value of your IRA Plan (all types included) belongs to
you at all times, without risk of forfeiture.
PREMIUM: The annual premium (if applicable) of your IRA Plan or Roth IRA may not
exceed the lesser of $2,000, or 100% of compensation for the year (or for
Spousal IRAs, or Spousal Roth IRAs, the combined compensation of the spouses
reduced by any Roth IRA or deductible IRA contribution made by the "working"
spouse). Any premium in excess of or in addition to $2,000 will be permitted
only as a "Rollover Contribution" (or "Conversion" contribution to a Roth IRA).
Your contribution must be made in cash. For IRAs established under SEP Plans
(SEP IRAs), premiums are limited to the lesser of $30,000 or 15% of the first
$150,000 of compensation (adjusted for cost of living increases). In addition,
if the IRA is under a SARSEP established prior to January 1, 1997, annual
premiums made by salary reduction are limited to $7,000 (adjusted for cost of
living increases). Premiums under a SIMPLE IRA will be limited to permissible
levels of annual employee elective contributions (up to $6,000 adjusted for cost
of living increases) plus the applicable percentage of employer matching
contributions (up to 3% of compensation but not in excess of $6,000, as
adjusted) or of employer nonelective contributions (2% of compensation (subject
to the cap under Code Section 401(a)(17) as indexed) for each eligible
employee).
MAXIMUM CONTRIBUTIONS:
REGULAR IRA PLAN: In any year that your annuity is maintained under the rules
for a Regular IRA Plan, your maximum contribution is limited to 100% of your
compensation or $2,000, whichever is less. Further, this is the maximum amount
you may contribute to ALL IRAs in a year (including Roth IRAs, but not SIMPLE
IRAs or Education IRAs). The amount of permissible contributions to your Regular
IRA may or may not be deductible. Whether IRA contributions (other than
Rollovers) are deductible depends on whether you (or your spouse, if married)
are an active participant in an employer-sponsored retirement plan and whether
your adjusted gross income ("AGI") is above the "phase-out level." Beginning for
tax years after 1997, you will only be deemed to be an active participant
because of your spouse's participation in an employer-sponsored plan, if your
combined adjusted gross income exceeds $150,000. SEE PART III. DEDUCTIBLE IRA
CONTRIBUTIONS.
ROLLOVER IRA: A Plan to Plan Rollover is a method for accomplishing continued
tax deferral on otherwise taxable distributions from certain plans. Rollover
contributions are not subject to the contribution limits on Regular IRA
contributions, but also are not tax deductible.
There are two ways to make a rollover to an IRA:
(1) PARTICIPANT ROLLOVERS are available to participants, surviving spouses or
former spouses who receive eligible rollover distributions from 401(a)
Qualified Retirement Plans, TSAs or IRAs (including SEPs, SARSEPs, and
SIMPLE IRAs). Participant Rollovers are accomplished by contributing part
or all of the eligible amounts (which includes amounts withheld for
federal income tax purposes) to your new IRA within 60 days following
receipt of the distribution. IRA to IRA Rollovers are limited to one per
distributing plan per 12 month period, while direct IRA to IRA transfers
(where you do not directly receive a distribution) are not subject to this
limitation. Distributions from a SIMPLE IRA may not be rolled over or
transferred to an IRA (which isn't a SIMPLE IRA) during the 2 year period
following the date you first participate in any SIMPLE Plan maintained by
your employer.
(2) DIRECT ROLLOVERS are available to participants, surviving spouses and
former spouses who receive eligible rollover distributions from 401(a)
Qualified Retirement Plans or TSAs. Direct Rollovers are made by
instructing the plan trustee, custodian or issuer to pay the eligible
portion of your distribution directly to the trustee, custodian or issuer
of the receiving IRA. Direct Rollover amounts are not subject to mandatory
federal income tax withholding.
FOR RULES APPLICABLE TO ROLLOVERS OR TRANSFERS TO ROTH IRAS, SEE THE PARAGRAPHS
ON REGULAR AND CONVERSION ROTH IRAS, BELOW.
Certain distributions are NOT considered to be eligible for Rollover and
include: (1) distributions which are part of a series of substantially equal
periodic payments (made at least annually) for 10 years or more; (2)
distributions attributable to after-tax employee contributions to a 401(a)
Qualified Retirement Plan or TSA; (3) required minimum distributions made during
or after the year you reach age 70 1/2 or, if later and applicable, the year in
which you retire; and (4) amounts in excess of the cash (except for certain loan
offset amounts) or in excess of the proceeds from the sale of property
distributed.
At the time of a Rollover, you must irrevocably designate in writing that the
transfer is to be treated as a Rollover Contribution. Eligible amounts which are
not rolled over are normally taxed as ordinary income in the year of
distribution. If a Rollover Contribution is made to an IRA from a Qualified
Retirement Plan, you may later be able to roll the value of the IRA into a new
employer's plan PROVIDED YOU MAKE NO CONTRIBUTIONS TO THE IRA FROM OTHER THAN
FROM THE FIRST EMPLOYER'S PLAN. THIS IS KNOWN AS "CONDUIT IRA," AND YOU SHOULD
DESIGNATE YOUR ANNUITY AS SUCH WHEN YOU COMPLETE YOUR APPLICATION.
SPOUSAL IRA ARRANGEMENT: In any year that your annuity is maintained under the
rules for a Spousal IRA, the maximum combined contribution to the Spousal IRA
and the "working" spouse's IRA for tax years after 1996, is the lesser of 100%
of the combined compensation of both spouses which is includable in gross income
(reduced by the amount of any contributions to a Roth IRA or the amount allowed
as a deduction to the "working" spouse for contribution to his or her own IRA)
or $4,000. No more than $2,000 may be contributed to either spouse's IRA.
Whether the contribution is deductible or non-deductible depends on whether
either spouse is an "active participant" in an employer-sponsored retirement
plan for the year, and whether the adjusted gross income of the couple is above
the applicable phase-out level. (SEE PART III, DEDUCTIBLE IRA CONTRIBUTIONS).
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<PAGE>
The contribution limit for divorced spouses is the lesser of $2,000 or the total
of the taxpayer's taxable compensation and alimony received for the year.
(Married individuals who live apart for the entire year and who file separate
tax returns are treated as if they are single when determining the maximum
deductible contribution limits).
REGULAR ROTH IRA: The maximum total annual contribution an individual can make
to all IRAs (including Roth IRAs, but not Education or SIMPLE IRAs) is the
lesser of $2,000 or 100% of compensation. (This limit does not apply to rollover
contributions). For Regular Roth IRAs (which are available beginning in the 1998
tax year) this $2,000 limitation is phased out for adjusted gross incomes
between $150,000 and $160,000 for joint filers; between $95,000 and $110,000 for
single taxpayers; and between $0 and $15,000 for married individuals who file a
separate return. AGI for this purpose includes any deductible contribution to a
Regular IRA, but does not include any amount included in income as a result of a
rollover or conversion from a non-Roth IRA to a Conversion Roth IRA. Rollovers
and transfers may also be made from one Regular Roth IRA to another. Such
rollovers or transfers are generally subject to the same timing and frequency
rules as apply to Participant Rollovers and transfers from one Regular or
Rollover IRA to another. (SEE PART II, MAXIMUM CONTRIBUTIONS: ROLLOVER IRA,
ABOVE).
CONVERSION ROTH IRA: Beginning in the 1998 tax year, rollovers or conversions
may be made from non-Roth IRAs to a Conversion Roth IRA. To be eligible to make
such a conversion or rollover from a non-Roth IRA, the taxpayer's adjusted gross
income ("AGI") for the taxable year cannot exceed $100,000 (joint or individual)
and he or she must not be married filing a separate tax return (unless the
taxpayer lives apart from his of her spouse at all times during the year). A
rollover from a non-Roth IRA to a Conversion Roth IRA does not count toward the
limit of one rollover per IRA in any 12-month period under the normal rollover
rules. Also, eligible rollover distributions received by you or your spouse from
a qualified plan other than an IRA, may not be directly rolled over to a Roth
IRA. However, you may be able to roll such a distribution over to a non-Roth
IRA, then convert that IRA to a Conversion Roth IRA. Also if you are eligible to
make a conversion, you may transfer amounts from most non-Roth IRAs (other than
SIMPLE IRAs and Education IRAs). AGI for the purpose of determining eligibility
to convert to a Roth IRA does not include any amount included in income as a
result of a rollover or conversion from a non-Roth IRA to a Conversion IRA, but
does include the amount of any deductible contribution made to a Regular IRA for
the tax year.
SPOUSAL ROTH IRA ARRANGEMENT: Beginning in the 1998 tax year, if the
"non-working" spouse's compensation is less than $2,000, the spouses file a
joint tax return, and their combined AGI (unreduced by any deductible IRA
contribution made for the year, but not including any amounts includible in
income as a result of a conversion to a Roth IRA) is $150,000 or below, a
contribution of up to $2,000 may be made to a separate Spousal Roth IRA in the
name of the "non-working" spouse. The $2,000 limit is phased out proportionately
between $150,000 and $160,000 of AGI (modified as described above). Spouses are
not required to make equal contributions to both Roth IRAs; however no more than
$2,000 may be contributed to the "working" or "non-working" spouse's Roth IRA
for any year, and the total amount contributed annually to all IRAs (including
both Roth and Regular IRAs, but not SIMPLE or Education IRAs) for both spouses
cannot exceed $4,000. If the combined compensation of both spouses (reduced by
any deductible IRA or Roth contributions made for the "working" spouse) is less
than $4,000, the total contribution for all IRAs is limited to the total amount
of the spouses' combined compensation. These limits do not apply to rollover
contributions.
For divorced spouses, the contribution limit to a Roth IRA is the lesser of
$2,000 or the total of the taxpayer's compensation and alimony received for the
year, subject to the applicable phase-out limits for eligibility to make
contributions to a Roth IRA. (Married individuals who live apart for the entire
year and who file separate tax returns are treated as if they are single when
determining the maximum contribution they are eligible to make in a Roth IRA).
SEP IRA PLAN: In any year that your annuity is maintained under the rules for a
SEP Plan, the employer's maximum contribution is the lesser of $30,000 or 15% of
your first $150,000 of compensation (adjusted for cost-of-living increases) or
as changed under Section 415 of the Code. You may also be able to make
contributions to your SEP IRA the same as you do to a Regular IRA; however, you
will be considered an "active participant" for purposes of determining your
deduction limit. In addition to the above limits, if your annuity is maintained
under the rules for a SARSEP, the maximum amount of employee pre-tax
contributions which can be made is $7,000 (adjusted for cost of living
increases). After December 31, 1996, new SARSEP plans may not be established.
Employees may, however, continue to make salary reductions to a SARSEP plan
established prior to January 1, 1997. In addition, employees hired after
December 31, 1996 may participate in SARSEP plans established by their employers
prior to 1997.
SIMPLE IRA: Contributions to a SIMPLE IRA may not exceed the permissible amounts
of employee elective contributions and required employer matching contributions
or non-elective contributions. Annual employee elective contributions must be
expressed as a percentage of compensation and may not exceed $6,000 (adjusted
for cost of living increases). If an employer elects a matching contribution
formula, it is generally required to match employee contributions dollar for
dollar up to 3% of the employee's compensation for the year (but not in excess
of $6,000 as adjusted for cost-of-living adjustments). An employer may elect a
lower percentage match (but not below 1%) for a year, provided certain notice
requirements are satisfied and the employer's election will not result in the
matching percentage being lower than 3% in more than 2 of the 5 years in the
5-year period ending with that calendar year. Alternatively, an employer may
elect to make non-elective contributions of 2% of compensation for all employees
eligible to participate in the plan and who have at least $5,000 in compensation
for the year. The employer must notify employees of this election within
specified timeframes in advance of the plan year or election period.
"Compensation" for purposes of the 2% non-elective contribution option may not
exceed the limit on compensation under Code Section 401(a)(17) ($150,000,
adjusted for cost of living increases).
DISTRIBUTIONS: Payments to you from your IRA Plan (other than a Roth IRA) must
begin no later than the April 1 following the close of the calendar year in
which you attain age 70 1/2, the Required Beginning Date (RBD). If you have not
already withdrawn your entire balance by this date, you may elect to receive the
entire value of your IRA Plan on or before the RBD in one lump sum; or arrange
for an income to be paid over your lifetime, your expected lifetime, or over the
lifetimes or expected lifetimes of you and your designated beneficiary. UNDER A
ROTH IRA, YOU ARE NOT REQUIRED TO TAKE DISTRIBUTIONS WHILE YOU ARE LIVING, EVEN
AFTER YOU REACH AGE 70 1/2.
RATE OF DISTRIBUTION: If you arrange for the value of your IRA Plan (other than
a Roth IRA) to be paid to you as retirement income rather than as one lump sum,
then you must abide by IRS rules governing how quickly the value of your IRA
plan must be paid out to you. Generally, it is acceptable to have an insurance
company annuity pay income to you for as long as you live, or for as long as you
and your beneficiary live.
MINIMUM DISTRIBUTION REQUIREMENTS FOR IRAS OTHER THAN ROTH IRAS: Once you reach
your RBD, you must withdraw a minimum amount each year or be subject to a 50%
non-deductible excise tax on the difference between the minimum required
distribution and the amount distributed. To determine the required minimum
distribution, divide your entire interest in your IRA (as of December 31 of your
age 70 1/2 year) by your life expectancy or the joint life expectancies of you
and your designated beneficiary. Your single or joint life expectancy is
determined by using IRS life expectancy tables. See IRS Publications 575 and
590.
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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 to determine
distributions at the time of your death. If you die before the RBD, your entire
interest must generally be distributed by the end of the calendar year which
contains the fifth anniversary of your death (the "five year payout rule").
However, if a beneficiary is designated, the beneficiary may elect to receive
distributions over the life expectancy of the beneficiary if the beneficiary so
elects by December 31 of the year following the year of your death. If the
beneficiary fails to make an election, the entire benefit will be paid to the
beneficiary under the "five year payout rule". Also, if the designated
beneficiary is your spouse, the life annuity distribution must begin by the
later of December 31 of the calendar year following the calendar year of your
death or December 31 of the year in which you would have attained age 70 1/2. If
your designated beneficiary is not your spouse, life annuity distributions must
begin by December 31 of the year following your death. A surviving spouse may in
the alternative elect to treat the policy as his or her own IRA. This election
may be expressly made or will be deemed made if the spouse makes a regular IRA
contribution to the policy, makes a rollover to or from the IRA, or fails to
elect minimum distributions as described above.
ROTH IRA MINIMUM DISTRIBUTION REQUIREMENTS WHILE YOU ARE LIVING. As long as you
are alive, you are not required to take distributions from a Roth IRA, even
after you reach age 70 1/2.
ROTH IRA MINIMUM DISTRIBUTION REQUIREMENTS AFTER YOUR DEATH. Minimum
distribution requirements apply to Roth IRAs only after you die. If you die
after you have reached your Annuity Date, and have begun to receive
distributions under an annuity option (not including an interest only option),
the remaining portion of your policy interests will continue to be distributed
to your designated beneficiary at least as rapidly as under the method being
used prior to your death (provided such method satisfies the requirements of
Code Section 408(b)(3), as modified by Code Section 408A(c)(5).
If you die before the Annuity Date or before distribution of your entire
interest in the policy has been made or begun, your entire interest in your Roth
IRA must be distributed by the end of the calendar year which contains the fifth
anniversary of your death (the "five year payout rule"). However, if there is a
designated beneficiary, he or she may elect to receive distributions over his or
her life expectancy provided the election is made and distributions commence by
December 31 of the year following the year of your death. If the beneficiary
does not make this election, the entire benefit will be paid to him or her under
the "five year payout rule". If your designated beneficiary is your surviving
spouse, he or she may elect to delay distributions until the later of the end of
the calendar year following the year in which you died or the end of the year in
which you would have reached age 70 1/2. If your sole designated beneficiary is
your surviving spouse, he or she may elect to treat the policy as his or her own
Roth IRA by making an express election to do so, by making a regular Roth IRA
contribution or rollover contribution (as applicable or as permissible) to the
policy, or by failing to elect minimum distributions under the "five year payout
rule" or the life annuity options discussed above.
Life expectancies will be determined by using IRS life expectancy tables. A
surviving spouse's life expectancy will be recalculated annually, unless he or
she irrevocably elects otherwise. Non-spousal beneficiary life expectancies will
be determined using the beneficiary's attained age in the calendar year
distributions are required to begin and reducing life expectancy by one for each
year thereafter.
TAKING REQUIRED MINIMUM DISTRIBUTIONS FROM ONE IRA: If you are required to take
minimum distributions from more than one IRA (either as owner of one or more
Regular IRAs and/or as a beneficiary of one or more decedent's Roth IRAs or
Regular IRAs), you may not have to take a minimum distribution from each IRA.
(Regular and Roth IRAs are treated as different types of IRAs, so minimum
distributions from a Roth IRA will not satisfy the minimum distributions
required from a Regular IRA). Instead, you may be able to calculate the minimum
distribution amount required for each IRA (considered to be of the same type)
separately, add the relevant amounts and take the total required amount from one
IRA or Roth IRA (as applicable). Because of this, AVLIC cannot monitor the
required distribution amounts from AVLIC IRAs. Please check with your tax
advisor to verify that you are receiving the proper amount from all of your
IRAs.
PART III. RESTRICTIONS AND TAX CONSIDERATIONS:
- -----------------------------------------------
TIMING OF CONTRIBUTIONS: Once you establish an IRA, (including a Regular Roth or
Spousal Roth IRA) contributions must be made by the due date, not including
extensions, for filing your tax return. (Participant Rollovers must be made
within 60 days of your receipt of the distribution.) A CONTRIBUTION MADE BETWEEN
JANUARY 1 AND THE FILING DUE DATE FOR YOUR RETURN, MUST BE SUBMITTED WITH
WRITTEN DIRECTION THAT IT IS BEING MADE FOR THE PRIOR PLAN YEAR OR IT WILL BE
TREATED AS MADE FOR THE CURRENT TAX YEAR. SEP IRA contributions must be made by
the due date of the Employer's tax return (including extensions). SIMPLE IRA
contributions, if permitted, must be made by the tax return due date for the
employer (including extensions) for the year for which the contribution is made.
Note, an employer is required to make SIMPLE plan contributions attributable to
employee elective contributions as soon as it is administratively feasible to
segregate these contributions from the employer's general assets, but in no
event later than the 30th day of the month following the month in which the
amounts would have otherwise been payable to the employee in cash.
TIMING OF ROTH IRA CONVERSIONS: Conversions from a non-Roth IRA to a Conversion
Roth IRA for a tax year, MUST BE MADE BY DECEMBER 31 OF THAT YEAR. You DO NOT
have until the due date of your tax return for a year to convert a Regular IRA
to a Conversion Roth IRA for that tax year. For example, if you wish to convert
a Regular IRA to a Conversion Roth IRA in 1998, the conversion must be completed
by December 31, 1998, even though your tax return for 1998 may not be due until
April 15, 1999.
DEDUCTIBLE IRA CONTRIBUTIONS: The amount of permissible contributions to your
Regular IRA may or may not be deductible. FOR TAX YEARS BEGINNING BEFORE JANUARY
1, 1998, if you or your spouse are not active participants in an employer
sponsored retirement plan, any permissible contribution you make to your IRA
will be deductible. If you or your spouse are an active participant in an
employer-sponsored retirement plan, the size of your deduction if any, will
depend on your combined adjusted gross income (AGI). If your combined AGI is
less than $40,000, and you file a joint tax return you can deduct your entire
contribution. If you are single and your AGI is less than $25,000, you may also
take a full deduction. For married couples filing joint returns, the deduction
is phased out between $40,000 and $50,000. For single individuals, the deduction
is phased out between $25,000 and $35,000. If you are married and covered by an
employer plan, but file a separate tax return from your spouse, your deduction
is phased out between $0 and $10,000 of AGI. If your AGI is not above the
applicable phase out level, a minimum contribution of $200 is permitted
regardless of whether the phase out rules provide for a lesser amount.
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FOR TAX YEARS BEGINNING ON AND AFTER JANUARY 1, 1998, if you or your spouse are
not an active participant in an employer sponsored retirement plan, any
permissible contribution you make to your IRA (other than a Roth IRA) will be
deductible. If you are not an active participant in an employer sponsored plan,
but your spouse is an active participant, you may take a full deduction for your
IRA contribution (other than to a Roth IRA) if your AGI is below $150,000; if
you are not an active participant but your spouse is, the maximum deductible
contribution for you is phased out at AGIs between $150,000 and $160,000. If you
are an active participant in an employer sponsored retirement plan you may make
deductible contributions if your AGI is below a threshold level of income. For
single taxpayers and married taxpayers filing jointly the available deduction is
reduced proportionately over a phaseout range.
Active participants with income above the phaseout range are not entitled to an
IRA deduction. Due to changes made by the Taxpayer Relief Act of 1997, the
phaseout limits are scheduled to increase as follows:
MARRIED FILING SINGLE/HEAD
YEAR JOINTLY OF HOUSEHOLD
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AGI AGI
1998 ....................$50,000 - $60,000 ............$30,000 - $40,000
1999 ....................$51,000 - $61,000 ............$31,000 - $41,000
2000 ....................$52,000 - $62,000 ............$32,000 - $42,000
2001 ....................$53,000 - $63,000 ............$33,000 - $43,000
2002 ....................$54,000 - $64,000 ............$34,000 - $44,000
2003 ....................$60,000 - $70,000 ............$40,000 - $50,000
2004 ....................$65,000 - $75,000 ............$45,000 - $55,000
2005 ....................$70,000 - $80,000 ............$50,000 - $60,000
2006 ....................$75,000 - $85,000 ............$50,000 - $60,000
2007 and thereafter .....$80,000 - $100,000 ............$50,000 - $60,000
You can elect to treat deductible contributions as non-deductible. SEP IRA,
SARSEP SIMPLE IRA and Roth IRA contributions are not deductible by you.
Remember, except for rollovers, conversions or transfers, the maximum amount you
may contribute to all IRAs (including Roth and Regular IRAs, but not SIMPLE IRAs
or Education IRAs) for a calendar year is $2,000 or 100% of compensation,
whichever is less.
NON-DEDUCTIBLE REGULAR IRA CONTRIBUTIONS: It is possible for you to make
non-deductible contributions to your Regular IRA (not including SIMPLE IRAs)
even if you are not eligible to make deductible contributions to a Regular IRA
or non-deductible contributions to a Roth IRA for the year. The amount of
non-deductible contributions you can make depends on the amount of deductible
contributions you make. The sum of your non-deductible and deductible
contributions for a year may not exceed the lesser of (1) $2,000 ($4,000
combined when a Spousal IRA is also involved), or (2) 100% of your compensation
(or, if a Spousal IRA is involved, 100% of you and your spouse's combined
compensation, reduced by the amount of any deductible IRA contribution and
non-deductible Roth IRA contribution made by the "working" spouse). For plan
years beginning on and after January 1, 1998, the sum of your annual
non-deductible (including Roth IRA) and deductible contributions, other than
when combined with a Spousal IRA or Spousal Roth IRA, may not exceed $2,000. IF
YOU WISH TO MAKE A NON-DEDUCTIBLE CONTRIBUTION, YOU MUST REPORT THIS ON YOUR TAX
RETURN BY FILING FORM 8606 (NON-DEDUCTIBLE IRA). REMEMBER, YOU ARE REQUIRED TO
KEEP TRACK OF YOUR NON-DEDUCTIBLE CONTRIBUTIONS AS AVLIC DOES NOT KEEP A RECORD
OF THESE FOR YOU. THIS INFORMATION WILL BE NECESSARY TO DOCUMENT THAT THE
CONTRIBUTIONS WERE MADE ON A NON-DEDUCTIBLE BASIS AND THEREFORE, ARE NOT TAXABLE
UPON DISTRIBUTION.
EFFECTS OF CONVERSION OF REGULAR IRA TO ROTH IRA: If you convert all or part of
a non-Roth IRA to a Conversion Roth IRA, the amount taken out of the non-Roth
IRA will be taxable as if it had been distributed to you in the year of
conversion. If you made non-deductible contributions to any Regular IRA, part of
the amount taken out of a Regular IRA for conversion will be taxable and part
will be non-taxable. (Use IRS Form 8606 to determine how much of the withdrawal
from your Regular IRA is taxable and how much is non-taxable). The taxable
portion of the amount converted is includable in your income for the year of
conversion. However, if the conversion takes place in 1998, one quarter of the
taxable amount will be includable in your income in 1998 and in each of the next
three years.
Amounts properly converted from a non-Roth IRA to a Roth IRA are not subject to
the 10% early withdrawal penalty. However, if you make a conversion to a Roth
IRA, but keep part of the money for any reason, that amount will be taxable in
the year distributed from the non-Roth IRA and the taxable portion may be
subject to the 10% early withdrawal penalty.
Roth IRAs are new and a number of ambiguities exist in the law. Also, at the
time of drafting of this Information Statement, there is pending legislation
which could dramatically change the tax treatment of conversions to and
distributions from Roth IRAs retroactive to January 1, 1998. This Information
Statement is based on AVLIC's interpretation of the law as it exists at the time
of drafting. You should consult with your tax advisor to ensure that you receive
the tax benefits you desire before you contribute to a Roth IRA, convert a
non-Roth IRA to a Conversion Roth IRA or take distributions from a Roth IRA.
EXCESS CONTRIBUTIONS: There is a 6% IRS penalty tax on IRA contributions made in
excess of permissible contributions. However, excess contributions made in one
year may be applied against the contribution limits in a later year if the
contributions in the later year are less than the limit. This penalty tax can be
avoided if the excess amount, together with any earnings on it, is returned to
you before the due date of your tax return for the year for which the excess
amount was contributed. Any earnings so distributed will be taxable in the year
for which the contribution was made and may be subject to the 10% premature
distribution penalty tax (SEE PART III, PREMATURE IRA DISTRIBUTIONS). The 6%
excess contribution penalty tax will apply to each year the excess amount
remains in the IRA Plan, until it is removed either by having it returned to you
or by making a reduced contribution in a subsequent year. To the extent an
excess contribution is absorbed in a subsequent year by contributing less than
the maximum deduction allowable for that year, the amount absorbed will be
deductible in the year applied (provided you are eligible to take a deduction).
If a taxpayer transfers amounts contributed for a tax year to a Regular IRA (and
any earnings allocated to such amounts) to a Roth IRA by the due date for filing
the return for such tax year (not including extensions), the amounts are not
included in the taxpayer's gross income to the extent that no deduction was
allowed for the contribution.
EXCESS CONTRIBUTIONS TO A CONVERSION ROTH IRA: If you are ineligible and convert
a Regular IRA to a Conversion Roth IRA, all or a part of the amount you convert
may be an excess contribution. (Examples may include conversions made when your
Roth AGI exceeds $100,000 or because you fail to timely make the rollover
contribution from the Regular IRA to the Conversion Roth IRA). You will have an
excess contribution if the ineligible amounts you convert and the contributions
you make to all your IRAs for the tax year exceed your IRA contribution limits
for the year. To avoid the 6%
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excise tax on excess contributions, you must withdraw the excess contributions
plus earnings before the due date of your tax return. In addition, an ineligible
conversion may have other significant tax consequences to the extent conversion
amounts are treated as excess contributions. First, distributions from the
Regular IRA will not be eligible for the special tax treatment which applies to
conversions. For example, if an ineligible conversion is made in 1998, the
amounts ineligible for conversion will not be eligible to be spread over four
years for income tax purposes and to the extent taxable, may be subject to the
10% premature distribution penalty. Second, even though you must remove the
excess contributions from the Roth Conversion IRA, you may not be able to return
these amounts to your Regular IRA. Therefore, you may lose future tax-deferred
growth on amounts you incorrectly convert.
LOANS AND PROHIBITED TRANSACTIONS: You may not borrow from your IRA Plan
(including Roth IRAs) or pledge it as security for a loan. This would disqualify
your entire IRA Plan, and its full value (or taxable portions of your Roth IRA
or non-deductible Regular IRA) would be includable in your taxable income in the
year of violation. This amount would also be subject to the 10% penalty tax on
premature distributions. Your IRA Plan will similarly be disqualified if you or
your beneficiary engage in any transaction prohibited by Section 4975 of the
Internal Revenue Code.
TAXABILITY OF REGULAR IRA DISTRIBUTIONS: Any cash distribution from your IRA
Plan, other than a Roth IRA, is normally taxable as ordinary income. All IRAs of
an individual are treated as one contract. All distributions during a taxable
year are treated as one distribution; and the value of the contract, income on
the contract, and investment in the contract is computed as of the close of the
calendar year with or within which the taxable year ends. If an individual
withdraws an amount from an IRA during a taxable year and the individual has
previously made both deductible and non-deductible IRA contributions, the amount
excludable from income for the taxable year is the portion of the amount
withdrawn which bears the same ratio to the amount withdrawn for the taxable
year as the individual's aggregate non-deductible IRA contributions bear to the
balance of all IRAs of the individual.
TAXABILITY OF ROTH IRA DISTRIBUTIONS: "Qualified distributions" from a Roth IRA
are not included in the taxpayer's gross income and are not subject to the
additional ten percent (10%) early withdrawal penalty tax. To be a "qualified
distribution," the distribution must satisfy a five-year holding period and meet
one of the following four requirements: (1) be made on or after the date on
which the individual attains age 59 1/2; (2) be made to a beneficiary or the
individual's estate on or after the individual's death; (3) be attributable to
the individual being disabled; or (4) be a distribution to pay for a "qualified"
first-time home purchase (up to a lifetime limit of $10,000). In the case of a
rollover or conversion from a Regular IRA to a Conversion Roth IRA, the
five-year holding period for escaping inclusion in income begins with the first
day of the tax year in which the most recent rollover or conversion contribution
is made to the Conversion Roth IRA. For a Regular Roth IRA, the five-year
holding period begins with the first day of the year you made any contributions
to a Regular Roth IRA.
If a distribution from a Roth IRA is not a qualified distribution and it
includes earnings, the earnings distributed are includable in taxable income and
may be subject to the 10% premature distribution penalty. (SEE PART III,
PREMATURE IRA DISTRIBUTIONS).
Unlike Regular IRAs, distributions from Roth IRAs come first from contributions
and converted amounts and last from earnings. Generally, all Roth IRAs (both
Regular Roth IRAs and Conversion Roth IRAs) must be treated as one for purposes
of determining the taxation of distributions. However, in some circumstances,
one or more Roth IRAs may have to be treated separately.
You should be aware that Congress has before it legislation that would
substantially revise these rules. To ensure that you receive the tax result you
desire, you should consult with your tax advisor before taking a distribution
from a Roth IRA.
LUMP SUM DISTRIBUTION: If you decide to receive the entire value of your IRA
Plan in one lump sum, the full amount is taxable when received (except as to
non-deductible contributions or "qualified distributions" from a Roth IRA), and
is not eligible for the special tax rules on lump sum distributions which are
used with other types of Qualified Retirement Plans.
PREMATURE IRA DISTRIBUTIONS: There is a 10% penalty tax on taxable amounts
distributed from your IRA (including the taxable portion of any non-qualified
distributions from a Roth IRA) prior to the attainment of age 59 1/2, except
for: (1) distributions made to a beneficiary on or after the owner's death; (2)
distributions attributable to the owner's being disabled as defined in Code
Section 72(m)(7): (3) distributions that are part of a series of substantially
equal periodic payments (made at least annually) for the life of the annuitant
or the joint lives of the annuitant and his or her beneficiary; (4)
distributions made on or after January 1, 1997 for medical expenses which exceed
7.5% of the annuitant's adjusted gross income; (5) distributions made on or
after January 1, 1997, to purchase health insurance for the individual and/or
his or her spouse and dependents if he or she: (a) has received unemployment
compensation for 12 consecutive weeks or more; (b) the distributions are made
during the tax year that the unemployment compensation is paid or the following
tax year; and (c) the individual has not been re-employed for 60 days or more;
(6) distributions made on or after January 1, 1998 for certain qualified higher
education expenses of the taxpayer, the taxpayer's spouse, or any child or
grandchild of the taxpayer or the taxpayer's spouse; or (7) qualified first-time
home buyer distributions made on or after January 1, 1998 (up to a lifetime
maximum of $10,000) used within 120 days of withdrawal to buy, build or rebuild
a first home that is the principal residence of the individual, his or her
spouse, or any child, grandchild, or ancestor of the individual or spouse. The
part of a distribution attributable to non-deductible contributions is not
includable in income and is not subject to the 10% penalty. In addition,
distributions from a SIMPLE Plan during the two-year period beginning on the
date the employee first participated in the employer's SIMPLE Plan will be
subject to a 25% (rather than 10%) premature distribution penalty tax.
Distributions from a Roth IRA made before the expiration of the applicable 5
year holding period (SEE TAXABILITY OF ROTH IRA DISTRIBUTIONS) are not treated
as qualified distributions and are subject to the 10% penalty tax to the extent
they are includable in taxable income.
MINIMUM REQUIRED DISTRIBUTIONS: SEE PART II, MINIMUM DISTRIBUTIONS FOR IRAS
OTHER THAN ROTH IRAS and ROTH IRA MINIMUM DISTRIBUTION REQUIREMENTS. If a
minimum distribution is not made from your IRA (including a Roth IRA) for a tax
year in which it is required, the excess, in any taxable year, of the amount
that should have been distributed over the amount that was actually distributed
is subject to an excise tax of 50%.
GIFT AND ESTATE TAX CONSEQUENCES: The designation of a beneficiary to receive
funds from a Regular or a Roth IRA is not considered a transfer subject to
federal gift taxes. However, funds remaining in your IRA (Regular or Roth) at
the time of your death are includable in your federal gross estate for tax
purposes.
MAXIMUM DISTRIBUTIONS: The Taxpayer Relief Act of 1997 repealed both the 15%
excess accumulation estate tax and excess distribution excise tax which
previously applied to excess retirement plan accumulations at death and excess
lifetime retirement plan distributions. These rules are repealed for plan
distributions made and decedents who die after December 31, 1996.
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TAX FILING-REGULAR IRAS: You are not required to file a special IRA tax form for
any taxable year (1) for which no penalty tax is imposed with respect to the IRA
Plan, and (2) in which the only activities engaged in, with respect to the IRA
Plan, are making deductible contributions and receiving permissible
distributions. Information regarding such contributions or distributions will be
included on your regular Form 1040. In some years, you may be required to file
Form 5329 and/or Form 8606 in connection with your Regular IRA. Form 5329 is
filed as an attachment to Form 1040 or 1040A for any tax year that special
penalty taxes apply to your IRA. If you make non-deductible contributions to a
regular IRA, you must designate those contributions as non-deductible on Form
8606 and attach it to your Form 1040 or 1040A. There is a $100 penalty each time
you overstate the amount of your non-deductible contributions unless you can
prove the overstatement was due to reasonable cause. Additional information is
required on Form 8606 in years you receive a distribution from a Regular IRA.
There is a $50 penalty for each failure to file a required Form 8606 unless you
can prove the failure was due to reasonable cause. For further information,
consult the instructions for Form 5329 (Additional Taxes Attributable to
Qualified Retirement Plans (including IRAs), Annuities, and Modified Endowment
Contracts), Form 8606 and IRS Publication 590.
TAX FILING-ROTH IRA: It is your responsibility to keep records of your
contributions to a Roth IRA and to file any income tax forms the Internal
Revenue Service may require of you as a Roth IRA owner. You may need this
information to calculate your taxable income when distributions from the Roth
IRA begin.
TAX ADVICE: AVLIC is providing this general information as required by
regulations issued under the Internal Revenue Code and assumes no responsibility
for its application to your particular tax situation. Please consult your
personal tax advisor regarding specific questions you may have.
With respect to ROTH IRAS, you should be aware that Congress has before it
legislation that would substantially revise the rules relating to distributions
from and conversions to Roth IRAs which may apply retroactive to January 1,
1998. Because of this, you should consult with a tax advisor prior to
establishing, making contributions to, or taking distributions from a Roth IRA,
to ensure that you receive the tax result you anticipate.
ADDITIONAL INFORMATION: You may obtain more information about IRA Plans from any
district office of the IRS and IRS Publication 590.
PART IV. STATUS OF AMERITAS IRA PLAN:
- --------------------------------------
INTERNAL REVENUE SERVICE APPROVAL LETTER: AVLIC will apply for approval from the
Internal Revenue Service as to the form of (Form 4880), for use in funding
Regular IRA, SIMPLE IRA and Roth IRA plans. You may be required to accept a
revised IRA endorsement if the IRS requires changes to your issued IRA
endorsement during the IRS approval process. Such approval, when received, is a
determination only as to the form of the Annuity Contract, and does not
represent a determination of the merits of the annuity.
PART V. FINANCIAL DISCLOSURE:
- ------------------------------
The following is a general description and required financial disclosure
information for the variable annuity product, OVERTURE ACCLAIM! Variable Annuity
(Form 4880) offered by AVLIC, hereafter referred to as the policy.
In order for you to achieve your retirement objectives, you should be prepared
to make your IRA Plan a long term savings program. An IRA is not suited to
short-term savings, nor was it intended to be by Congress, as indicated by the
general rule that penalties apply to withdrawals before age 59 1/2, subject to
certain exceptions (see PART III; PREMATURE IRA DISTRIBUTIONS). However, you
should be aware of the values in your IRA Plan during the early years as well as
at retirement.
Prior to the annuity date, the policy allows you to accumulate funds based on
the investment experience of the assets underlying the policy in the Separate
Account or the Fixed Account. Currently, the assets which underlie the Separate
Account are invested exclusively in shares of mutual funds, the "Funds", managed
or administered by several fund managers. Each of the Subaccounts of the
Separate Account invest solely in the corresponding portfolio of the Funds. The
assets of each portfolio are held separately from the other portfolios and each
has distinct investment objectives which are described in the accompanying
prospectus for the Funds which you would have received when making 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 (3.0%) or at higher rates declared by AVLIC.
ACCUMULATION VALUE: On the effective date, the accumulation value of the policy
is equal to the premium received, reduced by any applicable premium taxes.
Thereafter, the accumulation value of the policy is determined as of the close
of trading on the New York Stock Exchange on each valuation date by multiplying
the number of accumulation units for each Subaccount credited to the policy by
the current value of an accumulation unit for each Subaccount, and by adding the
amount deposited in the Fixed Account, plus interest. The current value of an
accumulation unit reflects the increase or decrease in value due to investment
results of the Subaccount and certain charges, as described below. The number of
accumulation units credited to the policy is decreased by any annual policy fee,
any withdrawals and any charges upon withdrawal and, upon annuitization, any
applicable premium taxes and charges.
A valuation period is the period between successive valuation dates. It begins
at the close of trading on the New York Stock Exchange on each valuation date
and ends at the close of trading on the next succeeding valuation date. A
valuation date is each day that the New York Stock Exchange is open for
business.
The accumulation value is expected to change from valuation period to valuation
period, reflecting the net investment experience of the selected portfolios of
the Funds, interest earned in the Fixed Account, additional premium payments,
partial withdrawals, as well as the deduction of any applicable charges under
the policy. GROWTH IN THE ACCUMULATION VALUE BASED ON INVESTMENTS IN THE
SEPARATE ACCOUNT IS NEITHER GUARANTEED NOR PROJECTED.
VALUE OF ACCUMULATION UNITS: The accumulation units of each Subaccount are
valued separately. The value of an accumulation unit may change each valuation
period according to the net investment performance of the shares purchased by
each Subaccount and the daily charge under the policy for mortality and expense
risks, any daily administrative fee, and if applicable, any federal and state
income tax charges.
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CASH SURRENDER VALUE: The amount available for full or partial withdrawal, which
is the accumulation value less any contingent deferred sales charge, any
applicable premium taxes, and, in the case of a full withdrawal, the annual
policy fee.
ANNUAL POLICY FEE: An annual policy fee of $36, $30 in North Dakota, is deducted
from the accumulation value on the last valuation date of each policy year and
on a full withdrawal if between policy anniversaries. This charge reimburses
AVLIC for the administrative costs of maintaining the policy on AVLIC's system.
This charge may be increased to a maximum of $40 and may be reduced or
eliminated. AVLIC currently waives this charge if the accumulation value of your
policy is at least $50,000.
DAILY ADMINISTRATIVE FEE: A daily charge at an annual rate of .15% of the
accumulation value. This charge is subtracted when determining the daily
accumulation unit value. This charge, which is guaranteed not to be increased,
is designed to reimburse AVLIC for administrative expenses incurred in
connection with issuing the policy and ongoing administrative expenses incurred
in connection with servicing and maintaining the policies. These expenses
include the cost of processing the application and premium payment, establishing
policy records, processing and servicing owner transactions and policy changes,
recordkeeping, preparing and mailing reports, processing death benefit claims,
and overhead costs.
MORTALITY AND EXPENSE RISK CHARGE: AVLIC imposes a charge to compensate it for
bearing certain mortality and expense risks under the policies. For assuming
these risks, AVLIC makes a daily charge equal to an annual rate of 1.25% of the
value of the average daily net assets of the Account. This charge is subtracted
when determining the daily accumulation unit value. AVLIC guarantees that this
charge will never increase. If this charge is insufficient to cover assumed
risks, the loss will fall on AVLIC. Conversely, if the charge proves more than
sufficient, any excess will be added to AVLIC's surplus. No mortality and
expense risk charge is imposed on the Fixed Account.
TAXES: AVLIC will, where such taxes are imposed by state law upon the receipt of
a premium payment, deduct premium taxes. If premium taxes are imposed upon
annuitization, AVLIC will deduct applicable premium taxes at that time.
Applicable premium tax rates depend upon such factors as the policyowner's
current state of residency, and the insurance laws and the status of AVLIC in
states where premium taxes are incurred. Currently, premium taxes range from 0%
to 3.5% of the premium paid. Applicable premium tax rates are subject to change
by legislation, administrative interpretations, or judicial acts. The owner will
be notified of any applicable premium taxes.
PARTIAL AND FULL WITHDRAWALS: The owner may make a partial or a full withdrawal
of the policy to receive part or all of the accumulation value (less any
applicable charges), at any time before the annuity date and while the annuitant
is living, by sending a written request to AVLIC. Partial withdrawals may be
either systematic or elective. Systematic withdrawals provide for an automatic
withdrawal, whereas, each elective withdrawal must be elected by the owner.
Systematic partial withdrawals are available on a monthly, quarterly,
semi-annual or annual mode. This withdrawal right may be restricted by Section
403(b)(11) of the Internal Revenue Code if the annuity is used in connection
with a Section 403(b) retirement plan. No partial or full withdrawals may be
made after the annuity date except as permitted under the particular annuity
option. The amount available for a full or partial withdrawal (cash surrender
value) is the accumulation value at the end of the valuation period during which
the written request for withdrawal is received, less any applicable premium
taxes, and in the case of a full withdrawal, less the annual policy fee that
would be due on the last valuation date of the policy year. The cash surrender
value may be paid in a lump sum to the owner, or, if elected, all or any part
may be paid out under an annuity income option.
SALES COMMISSIONS: No deductions are made from the premium payments for sales
charges. Commissions paid by AVLIC to broker-dealers may vary, but are not
expected to exceed 1% of premiums paid. Broker-dealers may also receive asset
based administrative compensation of up to 1% (annualized). From time to time,
additional sales incentives may be provided to broker-dealers.
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Ameritas Variable Life EMPLOYEE BENEFIT PLAN
Insurance Company Logo INFORMATION STATEMENT
401(A) PENSION/PROFIT SHARING PLANS
- --------------------------------------------------------------------------------
For purchasers of a 401(a) Pension/Profit Sharing 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 ACCLAIM! variable annuity 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 ACCLAIM! variable annuity.
COMMISSIONS, FEES AND CHARGES
The following commissions, fees and charges apply to OVERTURE ACCLAIM! variable
annuity (policy):
SALES COMMISSION: No deductions are made from the premium payments for sales
charges. Commissions paid by AVLIC to broker-dealers may vary, but are not
expected to exceed 1% of premiums paid. Broker-dealers may also receive an asset
based administrative compensation of up to 1% (annualized). From time to time,
additional sales incentives may be provided to broker-dealers.
ANNUAL POLICY FEE: An annual policy fee of $36, $30 in North Dakota, is deducted
from the accumulation value in the policy on the last valuation date of each
policy year or on a full withdrawal if between policy anniversaries. This charge
reimburses AVLIC for the administrative costs of maintaining the policy on
AVLIC's system. This charge may be increased to a maximum of $40 and may be
reduced or eliminated. AVLIC currently waives this charge if the accumulation
value of your policy is at least $50,000.
DAILY ADMINISTRATIVE FEE: The administrative fee is a daily charge at an annual
rate of .15% of the accumulation value. This charge is subtracted when
determining the daily accumulation unit value. This charge is guaranteed not to
increase and is designed to reimburse AVLIC for administrative expenses of
issuing, servicing and maintaining the policies. AVLIC does not expect to make a
profit on either of these fees.
MORTALITY AND EXPENSE RISK CHARGE: AVLIC imposes a charge to compensate it for
bearing certain mortality and expense risks under the policies. AVLIC makes a
daily charge equal to an annual rate of 1.25% of the value of the average daily
net assets of the Account under the policies. This charge is subtracted when
determining the daily accumulation unit value. AVLIC guarantees that this charge
will never increase. If this charge is insufficient to cover assumed risks, the
loss will fall on AVLIC. Conversely, if the charge proves more than sufficient,
any excess will be added to AVLIC's surplus.
No mortality and expense risk charge is imposed on the Fixed Account.
PARTIAL AND FULL WITHDRAWALS: The policyowner may make a partial or a full
withdrawal of the policy to receive part or all of the accumulation value (less
any applicable charges), at any time before the annuity date and while the
annuitant is living by sending a written request to AVLIC. Partial withdrawals
may be either systematic or elective. Systematic withdrawals provide for an
automatic withdrawal, whereas, each elective withdrawal must be elected by the
owner. Systematic partial withdrawals are available on a monthly, quarterly,
semi-annual or annual mode. No partial or full withdrawals may be made after the
annuity date except as permitted under the particular annuity option. The amount
available for partial or full withdrawal (cash surrender value) is the
accumulation value at the end of the valuation period during which the written
request for withdrawal is received, less any applicable premium taxes, and in
the case of a full withdrawal, the annual policy fee that would be due on the
last valuation date of the policy year. The cash surrender value may be paid in
a lump sum to the owner, or if elected, all or any part may be paid out under an
annuity income option.
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.
QD-9
Pension
<PAGE>
Part B Registration No. 333-36507
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF ADDITIONAL INFORMATION
FOR
FLEXIBLE PREMIUM VARIABLE ANNUITY POLICY
Offered by
Ameritas Variable Life Insurance Company
(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 Flexible Premium Variable Annuity Policy
("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC"). You
may obtain a copy of the Prospectus dated June 1, 1998, by writing Ameritas
Variable Life Insurance Company, 5900 "O" Street, Lincoln, Nebraska 68510, or
calling, 1-800-745-1112. Terms used in the current Prospectus for the Policy are
incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated: June 1, 1998
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY ........................................ 2
- -------------------------------
THE POLICY ............................................................. 2
- ----------
Accumulation Value............................................ 2
------------------
Value of Accumulation Units .................................. 2
---------------------------
Calculation of Performance Data .............................. 2
-------------------------------
GENERAL MATTERS......................................................... 6
- ---------------
The Policy ................................................... 6
----------
Non-Participating ............................................ 6
-----------------
Assignment ................................................... 6
----------
Annuity Data ................................................. 6
------------
Ownership .................................................... 6
---------
Joint Annuitant .............................................. 6
---------------
IRS Required Distributions ................................... 6
--------------------------
FEDERAL TAX MATTERS .................................................... 7
- -------------------
Taxation of AVLIC ............................................ 7
-----------------
Tax Status of the Policies ................................... 7
--------------------------
Qualified Policies ........................................... 7
------------------
DISTRIBUTION OF THE POLICY ............................................. 7
- --------------------------
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS ................................. 8
- --------------------------------------
AVLIC................................................................... 8
- -----
STATE REGULATION ....................................................... 8
- ----------------
LEGAL MATTERS ......................................................... 8
- -------------
EXPERTS ................................................................ 8
- -------
OTHER INFORMATION ...................................................... 8
- -----------------
FINANCIAL STATEMENTS ................................................... 8
- --------------------
- 1 -
<PAGE>
GENERAL INFORMATION AND HISTORY:
- -------------------------------
In order to supplement the description in the Prospectus, the following
provides additional information concerning the company and its history.
As of April 1, 1996, AVLIC is a wholly owned subsidiary of AMAL
Corporation, a Nebraska stock company. AMAL Corporation is a joint
venture of Ameritas Life Insurance Corp. (Ameritas Life), which owns
a majority interest in AMAL Corporation; and AmerUs Life Insurance
Company (AmerUs Life), an Iowa stock life insurance company, which
owns a minority interest in AMAL Corporation.
AVLIC may publish in advertisements and reports to policyowners, the
ratings and other information assigned it by one or more independent
rating services. The purpose of the ratings are to reflect the
financial strength and/or claims-paying ability of AVLIC.
THE POLICY
- ----------
In order to supplement the description in the Prospectus, the following
provides additional information about the Policy which may be of interest to the
owners.
Accumulation Value
- ------------------
The Accumulation Value of a Policy on each valuation date is equal to:
(1) the aggregate of the values attributable to the Policy in each
Subaccount on the valuation date, determined for each Subaccount by
multiplying the Subaccount's accumulation unit value by the number
of the Subaccount accumulation units allocated to the Policy and/or
the net allocation plus interest in the Fixed Account; plus;
(2) the amount deposited in the Fixed Account, plus interest; less
(3) any partial withdrawal, and its charge, made on the valuation date;
less
(4) any annual policy fee deducted on that valuation date. In computing
the accumulation value, the number of Subaccount accumulation units
allocated to the Policy is determined after any transfer among the
Subaccounts.
Value of Accumulation Units
- ---------------------------
The value of each Subaccount's accumulation units reflects the investment
performance of that Subaccount. The accumulation unit value of each Subaccount
shall be calculated by:
(1) multiplying the per share net asset value of the corresponding Fund
portfolio on the valuation date by the number of shares held by the
Subaccount, before the purchase or redemption of any shares on that
date; minus
(2) a daily charge of .003415% (equivalent to an annual rate of 1.25% of
the average daily net assets) for mortality and expense risks; minus
(3) a daily charge of .0004098% (equivalent to an annual rate of .15% of
the average daily net assets) as daily administrative fee; minus
(4) any applicable charge for federal and state income taxes, if any;
and
(5) dividing the result by the total number of accumulation units held
in the Subaccount on the valuation date, before the purchase or
redemption of any units on that date.
Calculation of Performance Data
- -------------------------------
As disclosed in the prospectus, premium payments will be allocated to 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 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
-2-
<PAGE>
(measure for inflation) to assess the real rate of return from an investment in
a contract. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for annuity charges and investment
management costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including (i) the ranking of any
subaccount derived from rankings of variable annuity separate accounts or other
investment products tracked by Lipper Analytical Series or by rating services,
companies, publications or other persons who rank separate accounts or other
investment products on overall performance or other criteria, and (ii) the
effect of tax deferred compounding on a subaccount's investment returns, or
returns in general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points in time, of the return
from an investment in a contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Standardized average annual total returns will be provided for the period
since the Subaccounts have been offered in the Separate Account. Total return
data may be advertised based on the period of time that the underlying
portfolios have been in existence. The results for any period prior to the
Contract being offered will be calculated as if the Contracts had been offered
during that period of time, with all charges assumed to be those applicable to
the Contracts. The tables below are established to demonstrate performance
results for each underlying portfolio with charges deducted at the Separate
Account level as if the policy had been in force from the commencement of the
portfolio. The performance information is based on the historical investment
experience of the underlying portfolios and does not indicate or represent
future performance.
Total Return
- ------------
Total returns quoted in advertising reflect all aspects of a subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18% which is the steady rate
that would equal 100% grown on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the subaccount's performance is not constant over
time, but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
The subaccounts will quote average annual returns for the period since
offered in the Separate Account, after deducting charges at the Separate Account
level. The average annual total returns will be computed by finding the average
annual compounded rates of return over a period of one, five, and ten years (or,
if less, up to the life of the portfolio), that would equate the initial amount
invested to the withdrawal value, in accordance with the following formula: P(1
+ T)n = ERV where P is a hypothical investment payment of $1,000, T is the
average annual total return, n is the number of years, and ERV is the withdrawal
value at the end of the periods shown. This formula is used to obtain
standardized average annual total return. The returns will reflect the mortality
and expense risk charge (1.25% on an annual basis), daily administrative fee at
an annual rate of .15% and the annual policy fee. The following table shows the
average annual total return on a hypothetical investment in the subaccounts for
the last year, five years, and ten years if applicable (or from the date that
the subaccount began operations if less), for the period ending December 31,
1997. There is no surrender charge, so the average annual total return will be
the same for the relevant time periods if the contract is continued.
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/97
<TABLE>
<CAPTION>
Ten Year or
Subaccount Since Offered in
Inception Date One Year Five Year Separate Account
--------------------------------------------------------------------
Portfolios
- ----------
Fidelity VIP
- ------------
<S> <C> <C> <C> <C>
Equity-Income 10/23/87 22.74% 15.58% 11.24%*
Growth 10/23/87 18.17% 13.37% 11.81%*
High Income 10/23/87 12.44% 9.21% 6.86%*
Overseas 10/23/87 6.41% 9.71% 4.83%*
Fidelity VIP II
- ---------------
Asset Manager 12/01/89 15.39% 8.19% 8.33%
Inv. Grade Bond 06/01/91 3.95% 2.14% 2.35%
Asset Manager: Growth 08/01/95 19.81% NA 13.96%
Index 500 08/01/95 27.27% NA 9.94%
Contrafund 08/01/95 18.83% NA 12.79%
</TABLE>
-3-
<PAGE>
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/97
<TABLE>
<CAPTION>
Ten Year or
Subaccount Since Offered in
Inception Date One Year Five Year Separate Account
------------------------------------------------------------
Portfolios
- -------------
Alger American Fund
- -------------------
<S> <C> <C> <C> <C>
Growth 05/01/92 20.40% 14.72% 9.92%
Income and Growth 05/01/92 30.80% 12.40% 7.75%
Small Capitalization 05/01/92 6.25% 7.90% 6.60%
Balanced 05/01/93 14.56% NA 4.95%
MidCap Growth 05/01/93 9.81% NA 18.07%
Leveraged AllCap 08/01/95 14.42% NA 10.51%
MFS Variable Ins. Trust
- -----------------------
Emerging Growth 08/01/95 16.62% NA 19.19%
Utilities 08/01/95 26.29% NA 17.89%
World Governments 08/01/95 -6.10% NA -1.45%
Research 05/01/97 NA NA 6.43%
Growth With Income 05/01/97 NA NA 8.87%
Morgan Stanley Universal Funds, Inc.
- ------------------------------------
Emerging Markets Equity 05/01/97 NA NA 8.38%
Global Equity 05/01/97 NA NA 15.32%
International Magnum 05/01/97 NA NA 1.45%
Asian Equity 05/01/97 NA NA -48.89%
U.S. Real Estate 05/01/97 NA NA 28.06%
</TABLE>
* 10 Year Figure
Performance
- -----------
Quotations of average annual total return may also be shown for a
subaccount for periods prior to the date the portfolio was offered through the
Separate Account, based upon the actual historical performance of the mutual
fund portfolio in which that subaccount invests. This information reflects all
actual charges and deductions of the mutual fund portfolio and all Separate
Account charges and deductions, with respect to the Contracts, that
hypothetically would have been made had the Separate Account, with respect to
the Contracts, been invested in these portfolios for all the periods indicated.
This is calculated in a manner similar to standardized average annual total
return except the total return is based on an initial investment of $60,000. The
following table shows the historical average annual total return on an
investment in the subaccounts for the last year, five years, and ten years (or,
if less, up to the life of the portfolio) for the period ending December 31,
1997.
HISTORICAL AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/97
<TABLE>
<CAPTION>
10 Years or
Portfolios Inception One Year Five Year Life of Fund
- ------------------ --------- -------- --------- ------------
Fidelity VIP
- ------------
<S> <C> <C> <C> <C>
Equity-Income 10/9/86 26.34% 18.49% 15.08%*
Growth 10/9/86 21.77% 16.37% 15.54%*
High Income 9/19/85 16.04% 12.33% 11.22%*
Overseas 1/28/87 10.01% 12.53% 8.05%*
Fidelity VIP II
- ---------------
Asset Manager 9/6/89 18.98% 11.42% 11.17%
Inv. Grade Bond 12/5/88 7.55% 5.62% 6.77%
Asset Manager: Growth 1/3/95 23.41% N/A 21.36%
Index 500 8/27/92 30.87% 18.24% 18.20%
Contrafund 1/3/95 22.43% N/A 26.40%
Alger American Fund
- -------------------
Growth 1/9/89 24.00% 17.62% 17.82%
Income and Growth 11/15/88 34.40% 15.78% 12.22%
Small Capitalization 9/21/88 9.84% 11.08% 17.57%
Balanced 9/5/89 18.16% 10.31% 8.36%
MidCap Growth 5/3/93 13.41% N/A 20.39%
Leveraged AllCap 1/25/95 18.02% N/A 31.70%
MFS Variable Ins. Trust
- -----------------------
Emerging Growth 7/24/95 20.22% N/A 21.82%
Utilities 1/3/95 29.89% N/A 26.17%
World Governments 6/14/94 -2.50% N/A 3.46%
Research 7/26/95 18.59% N/A 20.45%
Growth With Income 10/9/95 28.00% N/A 25.85%
Morgan Stanley Universal Funds, Inc.
- ------------------------------------
Emerging Markets Equity 10/1/96 -1.10% N/A -2.89 %
Global Equity 1/2/97 N/A N/A 18.50 %
International Magnum 1/2/97 N/A N/A 5.87 %
Asian Equity 3/3/97 N/A N/A -50.48 %
U.S. Real Estate 3/3/97 N/A N/A 20.37 %
* 10 Year Figure
</TABLE>
-4-
<PAGE>
In addition to average annual returns, the subaccounts may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. The cumulative total return on an investment in
the subaccounts will be shown for the period of one, five, and ten years (or, if
less, up to the life of the portfolio). The returns will reflect the mortality
and expense risk charge (1.25% on an annual basis), daily administration fee at
an annual rate of .15%, and the annual policy fee. There is no surrender charge,
so the cumulative total return will be the same for the relevant time periods if
the contract is continued.
The following table shows the historical cumulative total return on an
investment of $60,000 in the subaccounts for the last year, five years, ten
years (or, if less, up to the life of the portfolio) for the period ending
December 31, 1997.
<TABLE>
<CAPTION>
HISTORICAL CUMULATIVE TOTAL RETURN FOR PERIOD ENDING ON 12/31/97
10 Years or
Portfolios Inception One Year Five Year Life of Fund
- ------------------ --------- -------- --------- ------------
Fidelity VIP
- ------------
<S> <C> <C> <C> <C>
Equity-Income 10/9/86 26.34% 133.58% 307.91%*
Growth 10/9/86 21.77% 113.37% 324.48%*
High Income 9/19/85 16.04% 78.82% 189.97%*
Overseas 1/28/87 10.01% 80.47% 116.96%*
Fidelity VIP II
- ---------------
Asset Manager 9/6/89 18.98% 71.69% 141.46%
Inv. Grade Bond 12/5/88 7.55% 31.44% 81.24%
Asset Manager: Growth 1/3/95 23.41% N/A 78.57%
Index 500 8/27/92 30.87% 131.10% 144.51%
Contrafund 1/3/95 22.43% N/A 101.69%
Alger American Fund
- -------------------
Growth 1/9/89 24.00% 125.16% 336.04%
Income and Growth 11/15/88 34.40% 108.01% 186.49%
Small Capitalization 9/21/88 9.84% 69.13% 349.23%
Balanced 9/5/89 18.16% 63.36% 95.13%
MidCap Growth 5/3/93 13.41% N/A 137.68%
Leveraged AllCap 1/25/95 18.02% N/A 124.35%
MFS Variable Ins. Trust
- -----------------------
Emerging Growth 7/24/95 20.22% N/A 61.90%
Utilities 1/3/95 29.89% N/A 100.57%
World Governments 6/14/94 -2.50% N/A 12.85%
Research 7/26/95 18.59% N/A 57.32%
Growth With Income 10/9/95 28.00% N/A 67.00%
Morgan Stanley Universal Funds, Inc.
- ------------------------------------
Emerging Markets Equity 10/1/96 -1.10% N/A -3.60%
Global Equity 1/2/97 N/A N/A 18.39%
International Magnum 1/2/97 N/A N/A 5.83%
Asian Equity 3/3/97 N/A N/A -44.20%
U.S. Real Estate 3/3/97 N/A N/A 16.64%
* 10 Year Figure
</TABLE>
The historical net average yield for the 7-day period ended December 31,
1997 for the Money Market Fund was 3.74% and the historical effective yield for
the 7-day period ended December 31, 1997 for the Money Market Fund was 3.81%.
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 subaccount
at the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The resulting yield figure is
carried to the nearest hundredth of a percent. Effective yield for the Money
Market subaccount is calculated in a similar manner to current yield except that
investment income is assumed to be reinvested throughout the year at the 7 day
rate. Effective yield is obtained by taking the base period returns as computed
above, and then compounding the base period return by adding 1, raising the sum
to a power equal to (365/7) and subtracting one from the result, according to
the formula:
Effective Yield = [(Base Period Return + 1) SUP 365/7] - 1.
Since the reinvestment of income is assumed in the calculation of effective
yield, it will generally be higher than current yield.
-5-
<PAGE>
Current yield for subaccounts other than the Money Market subaccount
reflects the income generated by a subaccount over a 30-day period. Current
yield is calculated by dividing the net investment income per accumulation unit
earned during the period by the maximum offering price per unit on the last day
of the period, according to the formula:
YIELD =2[( FUNC{a-b} OVER cd; +1) SUP 6 -1]
Where a = net investment income earned during the period by the portfolio
company attributable to shares owned by the subaccount, b = expenses accrued for
the period (net of reimbursements), c = the average daily number of accumulation
units outstanding during the period, and d = the maximum offering price per
accumulation unit on the last day of the period. The yield reflects the
mortality and expense risk charge and the annual policy fee.
GENERAL MATTERS
- ---------------
The Policy
- ----------
The Policy, the application, any supplemental applications, and any
amendments or endorsements make up the entire contract. All statements made in
the application, in the absence of fraud, are considered representations and not
warranties. Only statements in the application that is attached to the Policy
and any supplemental applications made a part of the Policy when a change went
into effect can be used to contest a claim or the validity of the Policy. Only
the President, Vice President, Secretary or Assistant Secretary can modify the
Policy. Any changes must be made in writing, and approved by AVLIC. No agent has
the authority to alter or modify any of the terms, conditions or agreements of
the Policy or to waive any of its provisions.
Non-Participating
- -----------------
The Policies are non-participating. No dividends are payable and the Policies
will not share in the profits or surplus earnings of AVLIC.
Assignment
- ----------
Any policy, if permitted by the plan or by law relevant to the plan
applicable to a qualified policy, may be assigned by the owner prior to the
annuity date and during the annuitant's lifetime. AVLIC is not responsible for
the validity of any assignment. No assignment will be recognized until AVLIC
receives written notice thereof. The interest of any beneficiary which the
assignor has the right to change shall be subordinate to the interest of an
assignee. Any amount paid to the assignee shall be paid in one sum, not
withstanding any settlement agreement in effect at the time the assignment was
executed. AVLIC shall not be liable as to any payment or other settlement made
by AVLIC before receipt of written notice.
Annuity Data
- ------------
AVLIC will not be liable for obligations which depend on receiving
information from a payee until such information is received in a form
satisfactory to AVLIC.
Ownership
- ---------
The owner of the Policy on the policy date is the annuitant, unless
otherwise specified in the application. During the annuitant's lifetime, all
rights and privileges under this Policy may be exercised solely by the owner.
Ownership passes to the owner's designated beneficiary upon the death of the
owner(s). If the owner has not named an owner's designated beneficiary, or if no
such beneficiary is living, the ownership passes to the owner's estate. From
time to time AVLIC may require proof that the owner is still living.
In order to change the owner of the Policy or assign Policy rights, an
assignment of the Policy must be made in writing and filed with AVLIC at its
Home Office. The change will take effect as of the date the change is recorded
at the Home Office, and AVLIC will not be liable for any payment made or action
taken before the change is recorded. The payment of proceeds is subject to the
rights of any assignee of record. A change in the owner will be valid only upon
absolute and complete assignment of the Policy. A collateral assignment is not a
change of ownership.
Joint Annuitant
- ---------------
The owner may, by written request at least 30 days prior to the annuity
date, name a joint annuitant. Such joint annuitant must meet AVLIC's
underwriting requirements. An annuitant may not be replaced. The annuity date
shall be determined based on the date of birth of the annuitant.
IRS Required Distributions
- --------------------------
If the owner dies before the entire interest in the Policy is distributed,
the value of the Policy must be distributed to the owner's designated
beneficiary as described in this section so that the Policy qualifies as an
annuity under the Code.
-6-
<PAGE>
If the death occurs on or after the annuity date, the remaining portion of
such interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of death.
If the death occurs before the annuity date, the entire interest in the
Policy will be distributed within five years after date of death or be used to
purchase an immediate annuity under which payments will begin within one year of
the owner's death and will be made for the life of the owner's designated
beneficiary or for a period not extending beyond the life expectancy of that
beneficiary.
The owner's designated beneficiary is the person to whom ownership of the
Policy passes by reason of death and must be a natural person. AVLIC reserves
the right to require proof of death.
If any portion of the owner's interest is payable to (or for the benefit
of) the surviving spouse of the owner, the Policy may be continued with the
surviving spouse as the new owner.
FEDERAL TAX MATTERS
- -------------------
Taxation of AVLIC
- -----------------
AVLIC is taxed as a life insurance company under Part I of Subchapter L of
the Code. Since the Separate Account is not an entity separate from AVLIC and
its operations form a part of AVLIC, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment income
and realized net capital gains on the assets of the Separate Account are
reinvested and are taken into account in determining the Policy values. As a
result, such investment income and realized net capital gains are automatically
retained as part of the reserves under the Policy. Under existing federal income
tax law, AVLIC believes that Separate Account investment income and realized net
capital gains should not be taxed to the extent that such income and gains are
retained as part of the reserves under the Policy.
Tax Status of the Policies
- --------------------------
Section 817(h) of the Code provides in substance that Section 72 of the
Code will not apply and AVLIC will not be treated as the owner of the assets of
the Separate Account unless the investments made by the Separate Account are
"adequately diversified" in accordance with regulations prescribed by the
Secretary of Treasury (the "Treasury"). If the segregated account is not
"adequately diversified" any increase in the value of a variable annuity
contract will be taxed to the owner currently. The Separate Account, through the
fund, intends to comply with the diversification requirements prescribed by
Treasury regulations which affect how the Fund's assets may be invested.
Although AVLIC does not control the Fund, it has entered into an agreement
regarding participation in the Fund, which requires the Fund to be operated in
compliance with the requirements prescribed by the Treasury.
Qualified Policies
- ------------------
The Policies are designed for use with several types of qualified plans.
The following are brief descriptions of qualified plans with which the policies
may be used:
a. H.R. 10 Plans - Section 401 of the Code permits self-employed
individuals to establish qualified plans for themselves and their
employees. Such plans commonly are referred to as "H.R. 10" or
"Keogh" plans. Taxation of plan participants depends on the
specified plan.
The Code governs such plans with respect to maximum contributions,
distribution dates, non-forfeitability of interests, and tax rates
applicable to distributions. In order to establish such a plan, a
plan document, usually in prototype form preapproved by the
Internal Revenue Service, is adopted and implemented by the
employer. When issued in connection with H.R. 10 plans, a Policy
may be subject to special requirements to conform to the
requirements under such plans. Purchasers of a Policy for such
purposes will be provided with supplemental information required
by the Internal Revenue Service or other appropriate agency.
b. Individual Retirement Annuities - Section 408 of the Code permits
certain individuals to contribute to an individual retirement
program known as an "Individual Retirement Annuity" or an "IRA."
IRA's are subject to limitations on eligibility, maximum
contributions, and time of distribution. Distributions from
certain other types of qualified plans may be "rolled over" on a
tax-deferred basis into an IRA. Sales of a Policy for use with an
IRA may be subject to special requirements of the Internal Revenue
Service. Purchasers of a Policy for such purposes will be provided
with supplemental information required by the Internal Revenue
Service or other appropriate agency.
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.
DISTRIBUTION OF THE POLICY
- --------------------------
Ameritas Investment Corp., the principal underwriter of the Policies, is
registered with the Securities and Exchange Commission under the Securities and
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Ameritas Investment Corp. is wholly
owned by AMAL Corporation, which also owns AVLIC.
-7-
<PAGE>
The Policies are offered to the public through brokers, licensed under the
federal securities laws and state insurance laws, and properly licensed banking
institutes that have entered into agreements with Ameritas Investment Corp. The
offering of the Policies is continuous and Ameritas Investment Corp. does not
anticipate discontinuing the offering of this policy. However, Ameritas
Investment Corp. does reserve the right to discontinue the offering of the
policies.
Compensation for the Policies and for all other variable annuity policies
issued by AVLIC totaled $11,961,951 for 1997; $10,067,075 for 1996; and
$6,896,847 for 1995.
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
- --------------------------------------
Title to assets of the Separate Account is held by AVLIC. The assets are
kept physically segregated and held separate and apart from AVLIC's general
account assets. Accumulation values deposited or transferred to the Fixed
Account are held in the General Account of AVLIC. Records are maintained of all
purchases and redemptions of eligible portfolio shares held by each of the
Subaccounts.
AVLIC
- -----
All the stock of AVLIC is owned by AMAL Corporation located in the state
of Nebraska. AVLIC has entered into a Management and Administrative Service
Agreement with Ameritas Life and AmerUs Life, to provide certain services at
estimated cost to AVLIC to assist with the administration of the Policies and
the Separate Account.
STATE REGULATION
- ----------------
AVLIC is a stock life insurance company organized under the laws of
Nebraska, and is subject to regulation by the Nebraska State Department of
Insurance. An annual statement is filed with the Nebraska Commissioner of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of AVLIC as of December 31 of the preceding
calendar year. Periodically, the Nebraska Commissioner of Insurance examines the
financial condition of AVLIC, including the liabilities and reserves of the
Separate Account.
In addition, AVLIC is subject to the insurance laws and regulations of all
the states where it is licensed to operate. The availability of certain policy
rights and provisions depends on state approval and/or filing and review
process. Where required by state law or regulation, the Policy will be modified
accordingly.
LEGAL MATTERS
- -------------
All matters of Nebraska law pertaining to the validity of the Policy and
AVLIC's right to issue such Policies under Nebraska law have been passed upon by
Norman M. Krivosha, Secretary and General Counsel of AVLIC.
EXPERTS
- -------
The financial statements of AVLIC as of December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, and the
financial statements of Separate Account VA-2 as of December 31, 1997, and for
each of the two years in the period then ended, included in this Statement of
Additional Information have been audited by Deloitte & Touche LLP, 1040 NBC
Center, Lincoln, Nebraska 68508, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
OTHER INFORMATION
- -----------------
A registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information or in the
Prospectus. Statements contained in this Statement of Additional Information and
the Prospectus concerning the content of the policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
- --------------------
The financial statements of AVLIC, which are included in this Statement of
Additional Information, should be considered only as bearing on the ability of
AVLIC to meet its obligations under the Policies. They should not be considered
as bearing on the investment performance of the assets held in the Separate
Account.
-8-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ameritas Variable Life Insurance Company
Lincoln, Nebraska
We have audited the accompanying statement of net assets of Ameritas
Variable Life Insurance Company Separate Account VA-2 as of December 31, 1997,
and the related statements of operations and changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company
Separate Account VA-2 as of December 31, 1997, and the results of its operations
and changes in its net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
February 2, 1998
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENT OF NET ASSETS
-----------------------
DECEMBER 31, 1997
-----------------
ASSETS
INVESTMENTS AT NET ASSET VALUE:
VARIABLE INSURANCE PRODUCTS FUND:
---------------------------------
<S> <C>
Money Market Portfolio - 58,077,286.870 shares at
$1.00 per share (cost $58,077,287)
$ 58,077,287
Equity-Income Portfolio - 7,361,912.916 shares at
$24.28 per share (cost $119,682.351) 178,747,246
Growth Portfolio - 3,384,599.320 shares at
$37.10 per share (cost $72,572,355) 125,568,635
High Income Portfolio - 4,439,239.772 shares at
$13.58 per share (cost $47,744,396) 60,284,876
Overseas Portfolio - 2,871,975.918 shares at
$19.20 per share (cost $41,276,587) 55,141,938
VARIABLE INSURANCE PRODUCTS FUND II:
------------------------------------
Asset Manager Portfolio - 8,067,994.337 shares at
$18.01 per share (cost $110,214,804) 145,304,578
Investment Grade Bond Portfolio - 2,680,009.791 shares at
$12.56 per share (cost $31,289,066) 33,660,923
Contrafund Portfolio - 2,467,467.035 shares at
$19.94 per share (cost $38,418,603) 49,201,293
Index 500 Portfolio - 551,209.193 shares at
$114.39 per share (cost $50,487,012) 63,052,819
Asset Manager: Growth Portfolio - 876,715.624 shares at
$16.36 per share (cost $11,982,484) 14,343,068
ALGER AMERICAN FUND:
--------------------
Small Capitalization Portfolio - 1,594,180.984 shares at
$43.75 per share (cost $51,737,582) 69,745,418
Growth Portfolio - 1,291,695.359 shares at
$42.76 per share (cost $36,800,554) 55,232,893
Income and Growth Portfolio - 2,269,279.878 shares at
$10.99 per share (cost $22,858,940) 24,939,386
Midcap Growth Portfolio - 1,379,829.066 shares at
$24.18 per share (cost $25,840,414) 33,364,267
Balanced Portfolio - 760,580.036 shares at
$10.76 per share (cost $8,025,728) 8,183,841
Leveraged Allcap Portfolio - 357,163.335 shares at
$23.17 per share (cost $6,723,044) 8,275,474
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENT OF NET ASSETS
-----------------------
DECEMBER 31, 1997
-----------------
ASSETS, CONTINUED
MFS VARIABLE INSURANCE TRUST:
-----------------------------
<S> <C>
Emerging Growth Series Portfolio - 2,257,625.308 shares at
$16.14 per share (cost $30,505,051) 36,438,072
World Governments Series Portfolio - 208,268.140 shares at
$10.21 per share (cost $2,129,546) 2,126,418
Utilities Series Portfolio - 831,927.658 shares at
$17.99 per share (cost $12,048,853) 14,966,378
Research Series Portfolio - 289,420.764 shares at
$15.79 per share (cost $4,440,676) 4,569,954
Growth with Income Series Portfolio - 820,397.016 shares at
$16.44 per share (cost $12,813,533) 13,487,327
MORGAN STANLEY UNIVERSAL FUNDS:
-------------------------------
Asian Equity Portfolio - 182,876.009 shares at
$5.64 per share (cost $1,312,097) 1,031,421
Emerging Markets Equity Portfolio - 322,394.901 shares at
$9.43 per share (cost $3,701,150) 3,040,184
Global Equity Portfolio - 248,631.218 shares at
$11.74 per share (cost $2,888,847) 2,918,930
International Magnum Portfolio - 280,286.412 shares at
$10.38 per share (cost $3,188,025) 2,909,373
U.S. Real Estate Portfolio - 263,567.027 shares at
$11.41 per share (cost $2,865,683) 3,007,300
-------------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 1,067,619,299
==================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND
---------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- ------------ --------------
1997
----
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Dividend distributions received $ 18,333,107 $ 3,951,302 $ 2,247,348 $ 833,612
Mortality and expense risk charge (12,015,158) (951,568) (1,978,672) (1,491,200)
--------------- -------------- ------------ --------------
NET INVESTMENT INCOME(LOSS) 6,317,949 2,999,734 268,676 (657,588)
--------------- -------------- ------------ --------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments 34,973,424 ---- 11,299,164 3,731,404
Net change in unrealized appreciation(depreciation) 118,096,018 ---- 24,959,276 19,009,272
--------------- -------------- ------------ --------------
NET GAIN(LOSS) ON INVESTMENTS 153,069,442 ---- 36,258,440 22,740,676
--------------- -------------- ------------ --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 159,387,391 $ 2,999,734 $ 36,527,116 $ 22,083,088
=============== ============== ============ ==============
1996
----
INVESTMENT INCOME:
Dividend distributions received $ 13,564,184 $ 3,799,567 $ 166,964 $ 290,515
Mortality and expense risk charge (8,898,318) (915,893) (1,517,611) (1,328,474)
--------------- -------------- ------------ --------------
NET INVESTMENT INCOME(LOSS) 4,665,866 2,883,674 (1,350,647) (1,037,959)
--------------- -------------- ------------ --------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments 25,240,462 ---- 4,786,292 7,335,502
Net change in unrealized appreciation(depreciation) 40,926,181 ---- 10,895,466 5,069,624
--------------- -------------- ------------ --------------
NET GAIN(LOSS) ON INVESTMENTS 66,166,643 ---- 15,681,758 12,405,126
--------------- -------------- ------------ --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 70,832,509 $ 2,883,674 $ 14,331,111 $ 11,367,167
=============== ============== ============ ==============
(1) Commenced business 08/25/95.
(2) Commenced business 09/21/95.
(3) Commenced business 09/15/95.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND VARIABLE INSURANCE PRODUCTS FUND II
- ---------------------------------------- ----------------------------------------------------------------------------------------
ASSET INVESTMENT ASSET MANAGER
HIGH INCOME OVERSEAS MANAGER GRADE BOND CONTRAFUND INDEX 500 GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,454,785 $ 920,980 $ 4,269,843 $ 1,567,477 $ 238,666 $ 238,743 $ ----
(640,776) (738,232) (1,677,072) (353,893) (505,870) (585,714) (127,412)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
2,814,009 182,748 2,592,771 1,213,584 (267,204) (346,971) (127,412)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
426,996 3,656,013 10,710,793 ---- 630,759 484,440 7,452
4,550,641 3,210,442 10,040,817 877,219 7,170,889 11,124,629 2,228,379
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
4,977,637 6,866,455 20,751,610 877,219 7,801,648 11,609,069 2,235,831
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
$ 7,791,646 $ 7,049,203 $ 23,344,381 $ 2,090,803 $ 7,534,444 $ 11,262,098 $ 2,108,419
================== ================= ================ ================ ================ =============== ==================
$ 2,675,076 $ 609,688 $ 4,137,329 $ 1,152,156 $ ---- $ 11,145 $ 41,977
(502,495) (667,514) (1,484,230) (312,284) (190,299) (84,732) (14,233)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
2,172,581 (57,826) 2,653,099 839,872 (190,299) (73,587) 27,744
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
523,384 670,657 3,411,482 ---- 36,378 28,660 76,905
2,214,664 5,099,697 8,603,434 (301,584) 3,604,329 1,418,021 135,704
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
2,738,048 5,770,354 12,014,916 (301,584) 3,640,707 1,446,681 212,609
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
$ 4,910,629 $ 5,712,528 $ 14,668,015 $ 538,288 $ 3,450,408 $ 1,373,094 $ 240,353
================== ================= ================ ================ ================ =============== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
ALGER AMERICAN FUND
---------------------------------------------------------------
SMALL INCOME AND MIDCAP
CAPITALIZATION GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- -------------- --------------
1997
----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend distributions received $ ---- $ 156,764 $ 77,900 $ 17,621
Mortality and expense risk charge (763,410) (650,590) (236,367) (416,023)
--------------- -------------- -------------- --------------
NET INVESTMENT INCOME(LOSS) (763,410) (493,826) (158,467) (398,402)
--------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments 2,112,658 283,904 644,447 429,680
Net change in unrealized appreciation(depreciation) 5,974,644 10,340,154 4,535,877 3,558,421
--------------- -------------- -------------- --------------
NET GAIN(LOSS) ON INVESTMENTS 8,087,302 10,624,058 5,180,324 3,988,101
--------------- -------------- -------------- --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,323,892 $ 10,130,232 $ 5,021,857 $ 3,589,699
=============== ============== ============== ==============
1996
----
INVESTMENT INCOME:
Dividend distributions received $ ---- $ 21,310 $ 144,960 $ ----
Mortality and expense risk charge (658,360) (432,284) (114,917) (290,924)
--------------- -------------- -------------- --------------
NET INVESTMENT INCOME(LOSS) (658,360) (410,974) 30,043 (290,924)
--------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments 228,276 900,815 4,845,801 441,180
Net change in unrealized appreciation(depreciation) 1,332,624 3,162,174 (3,244,881) 1,684,242
--------------- -------------- -------------- --------------
NET GAIN(LOSS) ON INVESTMENTS 1,560,900 4,062,989 1,600,920 2,125,422
--------------- -------------- -------------- --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 902,540 $ 3,652,015 $ 1,630,963 $ 1,834,498
=============== ============== ============== ==============
(1) Commenced business 08/30/95. (4) Commenced business 09/18/95.
(2) Commenced business 08/25/95. (5) Commenced business 05/01/97.
(3) Commenced business 08/24/95. (6) Commenced business 05/01/97.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST
- ------------------------------------- --------------------------------------------------------------------------------------------
LEVERAGED EMERGING WORLD UTILITIES RESEARCH GROWTH WITH
BALANCED ALLCAP GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES
PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO(6)
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 72,040 $ ---- $ ---- $ 23,328 $ ---- $ ---- $ 55,234
(83,767) (107,315) (383,765) (23,313) (123,508) (21,546) (65,442)
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
(11,727) (107,315) (383,765) 15 (123,508) (21,546) (10,208)
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
97,681 ---- ---- 10,575 ---- ---- 258,379
937,442 1,319,217 5,563,031 (36,397) 2,737,314 129,278 673,794
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
1,035,123 1,319,217 5,563,031 (25,822) 2,737,314 129,278 932,173
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
$ 1,023,396 $ 1,211,902 $ 5,179,266 $ (25,807)$ 2,613,806 $ 107,732 $ 921,965
================ ================ ================ ===================== ================ ================ ================
$ 192,764 $ ---- $ ---- $ ---- $ 122,707 $ ---- $ ----
(52,447) (44,009) (123,685) (10,173) (32,684) ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
140,317 (44,009) (123,685) (10,173) 90,023 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
1,290,283 21,457 162,364 ---- 318,381 ---- ----
(1,099,570) 216,090 378,565 44,953 194,795 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
190,713 237,547 540,929 44,953 513,176 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
$ 331,030 $ 193,538 $ 417,244 $ 34,780 $ 603,199 $ ---- $ ----
================ ================ ================ ===================== ================ ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS
-----------------------------------------------------
ASIAN EMERGING GLOBAL
EQUITY MARKETS EQUITY EQUITY
PORTFOLIO (1) PORTFOLIO(2) PORTFOLIO (3)
---------------- ------------------ ----------------
1997
----
INVESTMENT INCOME:
<S> <C> <C> <C>
Dividend distributions received $ 1,300 $ 20,729 $ 18,981
Mortality and expense risk charge (3,852) (17,436) (12,407)
---------------- ------------------ ----------------
NET INVESTMENT INCOME(LOSS) (2,552) 3,293 6,574
---------------- ------------------ ----------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments ---- 91,711 40,539
Net change in unrealized appreciation(depreciation) (280,675) (660,966) 30,082
---------------- ------------------ ----------------
NET GAIN(LOSS) ON INVESTMENTS (280,675) (569,255) 70,621
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (283,227)$ (565,962)$ 77,195
================ ================== ================
1996
----
INVESTMENT INCOME:
Dividend distributions received $ ---- $ ---- $ ----
Mortality and expense risk charge ---- ---- ----
---------------- ------------------ ----------------
NET INVESTMENT INCOME(LOSS) ---- ---- ----
---------------- ------------------ ----------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments ---- ---- ----
Net change in unrealized appreciation(depreciation) ---- ---- ----
---------------- ------------------ ----------------
NET GAIN(LOSS) ON INVESTMENTS ---- ---- ----
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ ---- $ ---- $ ----
================ ================== ================
(1) Commenced business 05/12/97. (4) Commenced business 05/01/97.
(2) Commenced business 05/01/97. (5) Commenced business 05/01/97.
(3) Commenced business 05/02/97.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
------------------------------------- -----------------
INTERNATIONAL US REAL
MAGNUM ESTATE STOCK INDEX
PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO
------------------ ----------------- -----------------
<S> <C> <C>
$ 86,248 $ 42,620 $ 37,586
(14,166) (12,020) (29,822)
------------------ ----------------- -----------------
72,082 30,600 7,764
------------------ ----------------- -----------------
5,746 51,083 ----
(278,652) 141,617 240,273
------------------ ----------------- -----------------
(272,906) 192,700 240,273
------------------ ----------------- -----------------
$ (200,824)$ 223,300 $ 248,037
================== ================= =================
$ ---- $ ---- $ 198,026
---- ---- (121,070)
------------------ ----------------- -----------------
---- ---- 76,956
------------------ ----------------- -----------------
---- ---- 162,645
---- ---- 1,517,834
------------------ ----------------- -----------------
---- ---- 1,680,479
------------------ ----------------- -----------------
$ ---- $ ---- $ 1,757,435
================== ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND
----------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- ------------------------------
1997
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income(loss) $ 6,317,949 $ 2,999,734 $ 268,676 $ (657,588)
Net realized gain(loss) on investments 34,973,424 ---- 11,299,164 3,731,404
Net change in unrealized appreciation(depreciation) 118,096,018 ---- 24,959,276 19,009,272
--------------- -------------- -------------- --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 159,387,391 2,999,734 36,527,116 22,083,088
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 96,731,159 (16,426,180) 8,142,445 (7,707,236)
--------------- -------------- -------------- --------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 256,118,550 (13,426,446) 44,669,561 14,375,852
NET ASSETS AT JANUARY 1, 1997 811,500,749 71,503,733 134,077,685 111,192,783
--------------- -------------- ------------------------------
NET ASSETS AT DECEMBER 31, 1997 $ 1,067,619,299 $ 58,077,287 $ 178,747,246 $ 125,568,635
=============== ============== ============== ==============
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ 4,665,866 $ 2,883,674 $ (1,350,647)$ (1,037,959)
Net realized gain(loss) on investments 25,240,462 ---- 4,786,292 7,335,502
Net change in unrealized appreciation(depreciation) 40,926,181 ---- 10,895,466 5,069,624
--------------- -------------- -------------- --------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 70,832,509 2,883,674 14,331,111 11,367,167
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 151,795,930 11,293,782 2,027,569 13,044,680
--------------- -------------- -------------- --------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 222,628,439 14,177,456 16,358,680 24,411,847
NET ASSETS AT JANUARY 1, 1996 588,872,310 57,326,277 117,719,005 86,780,936
--------------- -------------- -------------- --------------
NET ASSETS AT DECEMBER 31, 1996 $ 811,500,749 $ 71,503,733 $ 134,077,685 $ 111,192,783
=============== ============== ============== ==============
(1) Commenced business 08/25/95.
(2) Commenced business 09/21/95.
(3) Commenced business 09/15/95.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND VARIABLE INSURANCE PRODUCTS FUND II
- ---------------------------------------- ----------------------------------------------------------------------------------------
HIGH ASSET INVESTMENT ASSET MANAGER
INCOME OVERSEAS MANAGER GRADE BOND CONTRAFUND INDEX 500 GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,814,009 $ 182,748 $ 2,592,771 $ 1,213,584 $ (267,204)$ (346,971)$ (127,412)
426,996 3,656,013 10,710,793 ---- 630,759 484,440 7,452
4,550,641 3,210,442 10,040,817 877,219 7,170,889 11,124,629 2,228,379
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
7,791,646 7,049,203 23,344,381 2,090,803 7,534,444 11,262,098 2,108,419
(140,776) (5,891,139) (1,349,261) 4,978,214 11,522,809 33,633,958 9,152,452
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
7,650,870 1,158,064 21,995,120 7,069,017 19,057,253 44,896,056 11,260,871
52,634,006 53,983,874 123,309,458 26,591,906 30,144,040 18,156,763 3,082,197
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
$ 60,284,876 $ 55,141,938 $ 145,304,578 $ 33,660,923 $ 49,201,293 $ 63,052,819 $ 14,343,068
================== ================= ================ ================ ================ =============== ==================
$ 2,172,581 $ (57,826)$ 2,653,099 $ 839,872 $ (190,299)$ (73,587)$ 27,744
523,384 670,657 3,411,482 ---- 36,378 28,660 76,905
2,214,664 5,099,697 8,603,434 (301,584) 3,604,329 1,418,021 135,704
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
4,910,629 5,712,528 14,668,015 538,288 3,450,408 1,373,094 240,353
11,840,393 2,586,833 (6,478,331) 2,966,839 24,201,634 16,120,440 2,618,298
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
16,751,022 8,299,361 8,189,684 3,505,127 27,652,042 17,493,534 2,858,651
35,882,984 45,684,513 115,119,774 23,086,779 2,491,998 663,229 223,546
------------------ ----------------- ---------------- ---------------- ---------------- --------------- ------------------
$ 52,634,006 $ 53,983,874 $ 123,309,458 $ 26,591,906 $ 30,144,040 $ 18,156,763 $ 3,082,197
================== ================= ================ ================ ================ =============== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
ALGER AMERICAN FUND
---------------------------------------------------------------
SMALL INCOME AND MIDCAP
CAPITALIZATION GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- -------------- -------------- ------------
1997
----
<S> <C> <C> <C> <C>
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (763,410) $ (493,826) $ (158,467) $ (398,402)
Net realized gain(loss) on investments 2,112,658 283,904 644,447 429,680
Net change in unrealized appreciation(depreciation) 5,974,644 10,340,154 4,535,877 3,558,421
---------------- -------------- -------------- ------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 7,323,892 10,130,232 5,021,857 3,589,699
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 5,835,385 2,936,361 8,178,488 516,814
---------------- -------------- -------------- ------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 13,159,277 13,066,593 13,200,345 4,106,513
NET ASSETS AT JANUARY 1, 1997 56,586,141 42,166,300 11,739,041 29,257,754
---------------- -------------- -------------- ------------
NET ASSETS AT DECEMBER 31, 1997 $ 69,745,418 $ 55,232,893 $ 24,939,386 $ 33,364,267
================ ============== ============== ============
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (658,360) $ (410,974) $ 30,043 $ (290,924)
Net realized gain(loss) on investments 228,276 900,815 4,845,801 441,180
Net change in unrealized appreciation(depreciation) 1,332,624 3,162,174 (3,244,881) 1,684,242
---------------- -------------- -------------- ------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 902,540 3,652,015 1,630,963 1,834,498
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 11,456,192 14,224,655 3,431,654 12,496,160
---------------- -------------- -------------- ------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 12,358,732 17,876,670 5,062,617 14,330,658
NET ASSETS AT JANUARY 1, 1996 44,227,409 24,289,630 6,676,424 14,927,096
---------------- -------------- -------------- ------------
NET ASSETS AT DECEMBER 31, 1996 $ 56,586,141 $ 42,166,300 $ 11,739,041 $ 29,257,754
================ ============== ============== ============
(1) Commenced business 08/30/95. (4) Commenced business 09/18/95.
(2) Commenced business 08/25/95. (5) Commenced business 05/01/97.
(3) Commenced business 08/24/95. (6) Commenced business 05/01/97.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST
- ------------------------------------- --------------------------------------------------------------------------------------------
LEVERAGED EMERGING WORLD UTILITIES RESEARCH GROWTH WITH
BALANCED ALLCAP GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES
PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO (6)
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ (11,727) $ (107,315)$ (383,765)$ 15 $ (123,508)$ (21,546)$ (10,208)
97,681 ---- ---- 10,575 ---- ---- 258,379
937,442 1,319,217 5,563,031 (36,397) 2,737,314 129,278 673,794
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
1,023,396 1,211,902 5,179,266 (25,807) 2,613,806 107,732 921,965
1,897,757 826,499 11,676,622 887,245 6,961,486 4,462,222 12,565,362
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
2,921,153 2,038,401 16,855,888 861,438 9,575,292 4,569,954 13,487,327
5,262,688 6,237,073 19,582,184 1,264,980 5,391,086 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
$ 8,183,841 $ 8,275,474 $ 36,438,072 $ 2,126,418 $ 14,966,378 $ 4,569,954 $ 13,487,327
================ ================ ================ ===================== ================ ================ ================
$ 140,317 $ (44,009)$ (123,685)$ (10,173)$ 90,023 $ ---- $ ----
1,290,283 21,457 162,364 ---- 318,381 ---- ----
(1,099,570) 216,090 378,565 44,953 194,795 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
331,030 193,538 417,244 34,780 603,199 ---- ----
2,405,382 5,013,074 18,219,221 1,053,724 4,246,629 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
2,736,412 5,206,612 18,636,465 1,088,504 4,849,828 ---- ----
2,526,276 1,030,461 945,719 176,476 541,258 ---- ----
---------------- ---------------- ---------------- --------------------- ---------------- ---------------- ----------------
$ 5,262,688 $ 6,237,073 $ 19,582,184 $ 1,264,980 $ 5,391,086 $ ---- $ ----
================ ================ ================ ===================== ================ ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS
-----------------------------------------------------
ASIAN EMERGING GLOBAL
EQUITY MARKETS EQUITY EQUITY
PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
---------------- ------------------ ----------------
1997
----
<S> <C> <C> <C>
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (2,552) $ 3,293 $ 6,574
Net realized gain(loss) on investments ---- 91,711 40,539
Net change in unrealized appreciation(depreciation) (280,675) (660,966) 30,082
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (283,227) (565,962) 77,195
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 1,314,648 3,606,146 2,841,735
---------------- ------------------ ----------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 1,031,421 3,040,184 2,918,930
NET ASSETS AT JANUARY 1, 1997 ---- ---- ----
---------------- ------------------ ----------------
NET ASSETS AT DECEMBER 31, 1997 $ 1,031,421 $ 3,040,184 $ 2,918,930
================ ================== ================
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ ---- $ ---- $ ----
Net realized gain(loss) on investments ---- ---- ----
Net change in unrealized appreciation(depreciation) ---- ---- ----
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ---- ---- ----
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS ---- ---- ----
---------------- ------------------ ----------------
TOTAL INCREASE(DECREASE) IN NET ASSETS ---- ---- ----
NET ASSETS AT JANUARY 1, 1996 ---- ---- ----
---------------- ------------------ ----------------
NET ASSETS AT DECEMBER 31, 1996 $ ---- $ ---- $ ----
================ ================== ================
(1) Commenced business 05/12/97. (4) Commenced business 05/01/97.
(2) Commenced business 05/01/97. (5) Commenced business 05/01/97.
(3) Commenced business 05/02/97.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
- ----------------------------------------------- ----------------
INTERNATIONAL US REAL
MAGNUM ESTATE STOCK INDEX
PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO
----------------------- ------------------- ----------------
<S> <C> <C>
$ 72,082 $ 30,600 $ 7,764
5,746 51,083 ----
(278,652) 141,617 240,273
----------------------- ------------------- ----------------
(200,824) 223,300 248,037
3,110,197 2,784,000 (9,585,094)
----------------------- ------------------- ----------------
2,909,373 3,007,300 (9,337,057)
---- ---- 9,337,057
----------------------- ------------------- ----------------
$ 2,909,373 $ 3,007,300 $ ----
======================= =================== ================
$ ---- $ ---- $ 76,956
---- ---- 162,645
---- ---- 1,517,834
----------------------- ------------------- ----------------
---- ---- 1,757,435
---- ---- (972,898)
----------------------- ------------------- ----------------
---- ---- 784,537
---- ---- 8,552,520
----------------------- ------------------- ----------------
$ ---- $ ---- $ 9,337,057
======================= =================== ================
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES
- -------------------------------------------
Ameritas Variable Life Insurance Company Separate Account VA-2 (the
Account) was established on May 28, 1987 under Nebraska law by Ameritas
Variable Life Insurance Company (AVLIC), a wholly-owned subsidiary of
AMAL Corporation, a holding company 66% owned by Ameritas Life Insurance
Corp (ALIC) and 34% owned by AmerUs Life Insurance Company (AmerUs). The
assets of the Account are segregated from AVLIC's other assets and are
used only to support variable annuity products issued by AVLIC.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. At December 31, 1997, there are
twenty-six subaccounts within the Account. Five of the subaccounts invest
only in a corresponding Portfolio of Variable Insurance Products Fund and
five invest only in a corresponding Portfolio of Variable Insurance
Products Fund II. Both funds are diversified open-end management
investment companies and are managed by Fidelity Management and Research
Company. Six of the subaccounts invest only in a corresponding Portfolio
of Alger American Fund which is a diversified open-end management
investment company managed by Fred Alger Management, Inc. Five of the
subaccounts invest only in a corresponding Portfolio of MFS Variable
Insurance Trust which is a diversified open-end management investment
company managed by Massachusetts Financial Services Company. Five of the
subaccounts invest only in a corresponding Portfolio of Morgan Stanley
Universal Funds, Inc. which is a diversified open-end management
investment company managed by Morgan Stanley Asset Management, Inc. All
five funds are registered under the Investment Company Act of 1940, as
amended. Each Portfolio is registered under the Investment Company Act of
1940, as amended. Each Portfolio pays the manager a monthly fee for
managing its investments and business affairs. The assets of the Account
are carried at the net asset value of the underlying Portfolios of the
Funds.
Pursuant to an order of the SEC allowing for the substitution, all
policyholder funds invested in a Portfolio of Dreyfus Stock Index Fund
were transferred to the Index 500 subaccount of the Fidelity Variable
Insurance Products Fund II as of March 31, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
VALUATION OF INVESTMENTS
The assets of the Account are carried at the net asset value of the
underlying Portfolios of the Funds. The value of the policyowners' units
corresponds to the Account's investment in the underlying subaccounts.
The availability of investment portfolio and subaccount options may vary
between products. Share transactions and security transactions are
accounted for on a trade date basis.
FEDERAL AND STATE TAXES
The operations of the Account are included in the federal income tax
return of AVLIC, which is taxed as a life insurance company under the
Internal Revenue Code. AVLIC has the right to charge the Account any
federal income taxes, or provision for federal income taxes, attributable
to the operations of the Account or to the policies funded in the
Account. Currently, AVLIC does not make a charge for income or other
taxes. Charges for state and local taxes, if any, attributable to the
Account may also be made.
2. POLICYOWNER CHARGES
- ---------------------------
AVLIC charges the Account for mortality and expense risks assumed. A
daily charge is made on the average daily value of the net assets
representing equity of policyowners held in each subaccount per each
product's current policy provisions. Additional charges are made at
intervals and in amounts per each product's current policy provisions.
These charges are prorated against the balance in each investment option
of the policyowner, including the Fixed Account option which is not
reflected in this separate account.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED
- ----------------
The Account invests in shares of mutual funds. Share activity and total shares owned were as follows:
VARIABLE INSURANCE PRODUCTS FUND
--------------------------------------------------------------------------------------
MONEY EQUITY HIGH
MARKET INCOME GROWTH INCOME OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Shares owned at January 1, 1997 71,503,732.540 6,375,543.739 3,570,738.040 4,203,994.114 2,865,386.075
Shares acquired 853,215,634.620 6,785,276.757 9,039,036.135 12,090,797.257 6,633,173.353
Shares disposed of (866,642,080.290) (5,798,907.580) (9,225,174.855) (11,855,551.599) (6,626,583.510)
---------------- ---------------- ---------------- --------------- ----------------
Shares owned at December 31, 1997 58,077,286.870 7,361,912.916 3,384,599.320 4,439,239.772 2,871,975.918
================ ================ ================ =============== ================
Shares owned at January 1, 1996 57,326,276.820 6,108,926.067 2,971,949.855 2,977,840.998 2,679,443.568
Shares acquired 952,580,461.010 4,533,341.253 20,102,201.432 10,915,589.970 4,863,839.985
Shares disposed of (938,403,005.290) (4,266,723.581) (19,503,413.247) (9,689,436.854) (4,677,897.478)
---------------- ---------------- ---------------- --------------- ----------------
Shares owned at December 31, 1996 71,503,732.540 6,375,543.739 3,570,738.040 4,203,994.114 2,865,386.075
================ ================ ================ =============== ================
(1) Commenced business 08/25/95.
(2) Commenced business 09/21/95.
(3) Commenced business 09/15/95.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND II ALGER AMERICAN FUND
- ----------------------------------------------------------------------------------------- -------------------------------------
ASSET INVESTMENT ASSET MANAGER SMALL
MANAGER GRADE BOND CONTRAFUND INDEX 500 GROWTH CAPITALIZATION GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3) PORTFOLIO PORTFOLIO
- ----------------- ---------------- --------------- ---------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
7,283,488.356 2,172,541.324 1,820,292.255 203,711.023 235,282.226 1,383,186.051 1,228,263.919
2,847,323.335 1,694,137.840 2,201,624.166 1,006,210.576 1,122,271.776 4,468,000.589 1,800,274.339
(2,062,817.354) (1,186,669.373) (1,554,449.386) (658,712.406) (480,838.378) (4,257,005.656) (1,736,842.899)
- ----------------- ---------------- --------------- ---------------- ----------------- ------------------- ----------------
8,067,994.337 2,680,009.791 2,467,467.035 551,209.193 876,715.624 1,594,180.984 1,291,695.359
================= ================ =============== ================ ================= =================== ================
7,290,675.998 1,849,902.201 180,841.664 8,760.127 18,976.724 1,122,238.230 779,513.143
1,781,334.161 1,534,023.132 2,922,203.640 377,062.682 327,941.500 1,905,469.668 1,332,399.847
(1,788,521.803) (1,211,384.009) (1,282,753.049) (182,111.786) (111,635.998) (1,644,521.847) (883,649.071)
- ----------------- ---------------- --------------- ---------------- ----------------- ------------------- ----------------
7,283,488.356 2,172,541.324 1,820,292.255 203,711.023 235,282.226 1,383,186.051 1,228,263.919
================= ================ =============== ================ ================= =================== ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED, CONTINUED
- ------------------------------
The Account invests in shares of mutual funds. Share activity and total shares owned were as follows:
ALGER AMERICAN FUND
--------------------------------------------------------------------
INCOME AND MIDCAP LEVERAGED
GROWTH GROWTH BALANCED ALLCAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (1)
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares owned at January 1, 1997 1,394,185.376 1,370,386.612 569,554.981 322,162.842
Shares acquired 2,269,264.497 1,673,797.476 422,401.028 415,875.563
Shares disposed of (1,394,169.995) (1,664,355.022) (231,375.973) (380,875.070)
--------------- ---------------- ---------------- ----------------
Shares owned at December 31, 1997 2,269,279.878 1,379,829.066 760,580.036 357,163.335
=============== ================ ================ ================
Shares owned at January 1, 1996 375,290.867 767,854.736 185,210.868 59,119.959
Shares acquired 1,439,623.568 1,365,941.530 534,194.021 379,180.932
Shares disposed of (420,729.059) (763,409.654) (149,849.908) (116,138.049)
--------------- ---------------- ---------------- ----------------
Shares owned at December 31, 1996 1,394,185.376 1,370,386.612 569,554.981 322,162.842
=============== ================ ================ ================
(1) Commenced business 08/30/95. (5) Commenced business 05/01/97.
(2) Commenced business 08/25/95. (6) Commenced business 05/01/97.
(3) Commenced business 08/24/95. (7) Commenced business 05/12/97.
(4) Commenced business 09/18/95. (8) Commenced business 05/01/97.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MFS VARIABLE INSURANCE TRUST MORGAN STANLEY UNIVERSAL FUNDS
- ----------------------------------------------------------------------------------------------- ------------------------------------
EMERGING WORLD UTILITIES RESEARCH GROWTH WITH ASIAN EMERGING
GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES EQUITY MARKETS EQUITY
PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO (6) PORTFOLIO (7) PORTFOLIO (8)
- ----------------- ----------------------- --------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1,479,016.961 119,563.323 394,662.255 ---- ---- ---- ----
2,976,120.153 298,925.691 898,208.994 337,744.371 905,870.017 190,839.842 443,006.443
(2,197,511.806) (210,220.874) (460,943.591) (48,323.607) (85,473.001) (7,963.833) (120,611.542)
- ----------------- ----------------------- --------------- ---------------- ---------------- ---------------- -----------------
2,257,625.308 208,268.140 831,927.658 289,420.764 820,397.016 182,876.009 322,394.901
================= ======================= =============== ================ ================ ================ =================
82,885.087 17,352.610 43,059.498 ---- ---- ---- ----
2,018,133.694 308,218.693 578,050.865 ---- ---- ---- ----
(622,001.820) (206,007.980) (226,448.108) ---- ---- ---- ----
- ----------------- ----------------------- --------------- ---------------- ---------------- ---------------- -----------------
1,479,016.961 119,563.323 394,662.255 ---- ---- ---- ----
================= ======================= =============== ================ ================ ================ =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT VA-2
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED, CONTINUED
- ------------------------------
The Account invests in shares of mutual funds. Share activity and total shares owned were as follows:
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
-------------------------------------------------------- -----------------
GLOBAL INTERNATIONAL US REAL
EQUITY MAGNUM ESTATE STOCK INDEX
PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3) FUND PORTFOLIO
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Shares owned at January 1, 1997 ---- ---- ---- 460,407.134
Shares acquired 350,250.974 359,431.599 443,135.897 3,213.612
Shares disposed of (101,619.756) (79,145.187) (179,568.870) (463,620.746)
----------------- ------------------ ------------------ -----------------
Shares owned at December 31, 1997 248,631.218 280,286.412 263,567.027 (0.000)
================= ================== ================== =================
Shares owned at January 1, 1996 ---- ---- ---- 497,239.510
Shares acquired ---- ---- ---- 286,490.226
Shares disposed of ---- ---- ---- (323,322.602)
----------------- ------------------ ------------------ -----------------
Shares owned at December 31, 1996 ---- ---- ---- 460,407.134
================= ================== ================== =================
(1) Commenced business 05/02/97.
(2) Commenced business 05/01/97.
(3) Commenced business 05/01/97.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ameritas Variable Life Insurance Company
Lincoln, Nebraska
We have audited the accompanying balance sheets of Ameritas Variable Life
Insurance Company as of December 31, 1997 and 1996, and the related statements
of operations, changes in stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
February 2, 1998
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
BALANCE SHEETS
--------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
DECEMBER 31,
---------------------------------------------
1997 1996
--------------------- ------------------
ASSETS
------
<S> <C> <C>
Investments:
Fixed maturity securities, available for sale (amortized cost
$113,158 - 1997 and $62,048 - 1996) $ 115,955 $ 62,621
Equity securities, available for sale (amortized cost
$4,061 - 1997) 4,135 -
Loans on insurance policies 7,482 4,309
Other invested assets 2,206 -
---------------------- --------------------
Total investments 129,778 66,930
Cash and cash equivalents 13,711 10,684
Accrued investment income 1,801 1,096
Reinsurance recoverable-affiliates 514 9
Prepaid reinsurance premium-affiliates 2,298 2,156
Deferred policy acquisition costs 98,746 79,272
Other 199 483
Separate Accounts 1,265,348 947,580
---------------------- -------------------
$ 1,512,395 $ 1,108,210
====================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Policy and contract reserves $ 941 $ 749
Policy and contract claims 925 106
Accumulated contract values 154,281 77,560
Unearned policy charges 1,498 1,243
Unearned reinsurance ceded allowance 3,268 3,139
Federal income taxes--
Current 1,466 875
Deferred 9,326 9,921
Other 10,200 8,028
Separate Accounts 1,265,348 947,580
---------------------- -------------------
Total Liabilities 1,447,253 1,049,201
---------------------- -------------------
STOCKHOLDER'S EQUITY:
Common stock, par value $100 per share;
authorized 50,000 shares, issued and
outstanding 40,000 shares 4,000 4,000
Additional paid-in capital 40,370 40,370
Retained earnings 20,180 14,510
Net unrealized investment gain 592 129
---------------------- -----------------
Total Stockholder's Equity 65,142 59,009
---------------------- -----------------
$ 1,512,395 $ 1,108,210
====================== =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF OPERATIONS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
--------------------- ------------------- ---------------
INCOME:
Insurance revenues:
<S> <C> <C> <C>
Contract charges $ 33,717 $ 26,345 $ 18,350
Premium-reinsurance ceded (6,840) (5,895) (4,289)
Reinsurance ceded allowance 2,752 2,235 1,859
Investment revenues:
Investment income, net 8,277 3,603 3,492
Realized gains, net 368 19 28
Other 980 567 261
------------------- -------------------- ---------------
39,254 26,874 19,701
BENEFITS AND EXPENSES: ------------------- -------------------- ---------------
Policy benefits:
Death benefits 1,356 716 268
Interest credited 7,258 2,736 1,995
Increase in policy and contract reserves 192 140 183
Other 92 52 32
Sales and operating expenses 11,641 10,041 6,815
Amortization of deferred policy acquisition costs 9,584 5,531 3,057
------------------- -------------------- ---------------
30,123 19,216 12,350
------------------- -------------------- ---------------
INCOME BEFORE FEDERAL INCOME TAXES 9,131 7,658 7,351
------------------- -------------------- ---------------
Income taxes - current 4,305 3,819 1,685
Income taxes - deferred (844) (811) 902
------------------- -------------------- ---------------
Total income taxes 3,461 3,008 2,587
------------------- -------------------- ---------------
NET INCOME $ 5,670 $ 4,650 $ 4,764
=================== ==================== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
---------------------------------------------------
(IN THOUSANDS, EXCEPT SHARES)
-----------------------------
NET
COMMON STOCK ADDITIONAL UNREALIZED
-------------------- PAID - IN RETAINED INVESTMENT
SHARES AMOUNT CAPITAL EARNINGS GAIN (LOSS) TOTAL
------- --------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 40,000 $ 4,000 $ 29,700 $ 5,096 $ (173) $ 38,623
Net unrealized investment gain, net - - - - 609 609
Net income - - - 4,764 - 4,764
------- ---------- ------------- ------------ ------------ -----------
BALANCE, December 31, 1995 40,000 4,000 29,700 9,860 436 43,996
Return of capital - - (15,000) - - (15,000)
Capital contribution from
AMAL Corporation - - 25,670 - - 25,670
Net unrealized investment loss, net - - - - (307) (307)
Net income - - - 4,650 - 4,650
-------- ------------ -------------- ------------ ------------- -----------
BALANCE, December 31, 1996 40,000 4,000 40,370 14,510 129 59,009
Net unrealized investment gain, net - - - - 463 463
Net income - - - 5,670 - 5,670
-------- ------------ -------------- ----------- ------------- -----------
BALANCE, December 31, 1997 40,000 $ 4,000 $ 40,370 $ 20,180 $ 592 $ 65,142
======== ============ ============== =========== ============= ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------- ----------- -------
OPERATING ACTIVITIES
--------------------
<S> <C> <C> <C>
Net Income $ 5,670 $ 4,650 $ 4,764
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs 9,584 5,531 3,057
Policy acquisition costs deferred (30,642) (26,596) (16,020)
Interest credited to contract values 7,258 2,736 1,995
Amortization of discounts or premiums (40) (83) (70)
Change in fair value of other invested assets (631) - -
Net realized gains on investment transactions (368) (19) (28)
Deferred income taxes (844) (811) 902
Change in assets and liabilities:
Accrued investment income (705) (306) (15)
Reinsurance recoverable-affiliates (505) 48 412
Prepaid reinsurance premium-affiliates (142) (650) (487)
Other assets 284 (377) (18)
Policy and contract reserves 192 140 183
Policy and contract claims 819 106 (57)
Unearned policy charges 255 279 234
Federal income tax payable-current 591 (310) 698
Unearned reinsurance ceded allowance 129 860 610
Other liabilities 2,172 3,762 1,996
------------ ----------------- ------------
Net cash used in operating activities (6,923) (11,040) (1,844)
------------ ----------------- -----------
INVESTING ACTIVITIES
--------------------
Purchase of fixed maturity securities available for sale (92,291) (31,514) (7,760)
Purchase of equity securities available for sale (4,311) - -
Purchase of other invested assets (1,611) - -
Proceeds from maturities or repayment of fixed maturity securities
available for sale 25,168 5,307 3,738
Proceeds from sales of fixed maturity securities available for sale 16,419 3,014 -
Proceeds from the sale of equity securities available for sale 252 - -
Proceeds from the sale of other invested assets 35 - -
Net change in loans on insurance policies (3,173) (1,670) (1,042)
----------- ---------------- -----------
Net cash used in investing activities (59,512) (24,863) (5,064)
----------- ---------------- -----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- --------------
FINANCING ACTIVITIES
--------------------
<S> <C> <C> <C>
Return of capital - (15,000) -
Capital contribution - 25,670 -
Net change in accumulated contract values 69,462 30,257 4,448
------------- ------------- -------------
Net cash from financing activities 69,462 40,927 4,448
------------- ------------- -------------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 3,027 5,024 (2,460)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,684 5,660 8,120
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,711 $ 10,684 $ 5,660
============= ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
Cash paid for income taxes $ 3,714 $ 4,129 $ 987
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------------------------
Ameritas Variable Life Insurance Company (the Company), a stock life
insurance company domiciled in the State of Nebraska, was a wholly-owned
subsidiary of Ameritas Life Insurance Corp. (ALIC), until April of 1996 when
it became a wholly-owned subsidiary of AMAL Corporation, a holding company
66% owned by ALIC and 34% owned by AmerUs Life Insurance Company (AmerUs).
The company began issuing variable life insurance and variable annuity
policies in 1987, fixed premium annuities in 1996 and equity indexed
annuities in 1997. The variable life, variable annuity, fixed premium
annuity and equity indexed annuity policies are not participating with
respect to dividends.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The principal accounting and reporting practices followed are:
INVESTMENTS
The Company classifies its securities into categories based upon the
Company's intent relative to the eventual disposition of the securities. The
first category, held to maturity securities, is comprised of fixed maturity
securities which the Company has the positive intent and ability to hold to
maturity. These securities are carried at amortized cost. The second
category, available for sale securities, may be sold to address the
liquidity and other needs of the Company. Securities classified as available
for sale are carried at fair value on the balance sheet with unrealized
gains and losses excluded from income and reported as a separate component
of stockholder's equity, net of related deferred acquisition costs and
income tax effects. The third category, trading securities, is for debt and
equity securities acquired for the purpose of selling them in the near
term. The Company has classified all of its securities as available for
sale. Realized investment gains and losses on sales of securities are
determined on the specific identification method.
Other Invested Assets consist of exchange and privately traded options tied
to the Standard and Poor's Index and are valued at fair value with changes
in the fair value of these investments included in net investment income.
The Company records write-offs or allowances for its investments based upon
a evaluation of specific problem investments. The Company reviews, on a
continual basis, all invested assets to identify investments where the
Company may have credit concerns. Investments with credit concerns include
those the Company has identified as experiencing a deterioration in
financial condition. The Company has no write-offs or allowances recorded as
of December 31, 1997, 1996 and 1995.
CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with
remaining maturity of less than three months to be cash equivalents.
SEPARATE ACCOUNTS
The Company operates separate accounts on which the earnings or losses
accrue exclusively to contractholders. The assets (mutual fund investments)
and liabilities of each account are clearly identifiable and distinguishable
from other assets and liabilities of the Company. Assets are reported at
fair value.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------
(CONTINUED)
-----------
PREMIUM REVENUE AND BENEFITS TO POLICYOWNERS
RECOGNITION OF UNIVERSAL LIFE-TYPE CONTRACTS REVENUE AND BENEFITS TO
POLICYOWNERS
Universal life-type policies are insurance contracts with terms that are
not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyowner, premiums paid by the
policyowner or interest accrued to policyowners balances. Amounts received
as payments for such contracts are reflected as deposits and are not
reported as premium revenues.
Revenues for universal life-type policies consist of charges assessed
against policy account values for deferred policy loading, mortality risk
expense, the cost of insurance and policy administration. Policy benefits
and claims that are charged to expense include interest credited to
contracts under the fixed account investment option and benefit claims
incurred in the period in excess of related policy account balances.
RECOGNITION OF INVESTMENT CONTRACT REVENUE AND BENEFITS TO POLICYOWNERS
Contracts that do not subject the Company to risks arising from policyowner
mortality or morbidity are referred to as investment contracts. Certain
deferred annuities are considered investment contracts. Amounts received as
payments for such contracts are reflected as deposits and are not reported
as premium revenues.
Revenues for investment products consist of investment income and policy
administration charges. Contract benefits that are charged to expense
include benefit claims incurred in the period in excess of related contract
balances, and interest credited to contract balances.
POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are directly
related to the production of new business, have been deferred to the extent
that such costs are deemed recoverable from future premiums. Such costs
include commissions, certain costs of policy issuance and underwriting, and
certain variable distribution expenses.
Costs deferred related to universal life-type policies and investment-type
contracts are amortized generally over the lives of the policies, in
relation to the present value of estimated gross profits from mortality,
investment and expense margins. The estimated gross profits are reviewed
periodically based on actual experience and changes in assumptions.
A roll-forward of the amounts reflected in the balance sheets as deferred
acquisition costs is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 79,272 $ 57,664 $ 45,940
Acquisition costs deferred 30,642 26,596 16,020
Amortization of deferred policy acquisition costs (9,584) (5,531) (3,057)
Adjustment for unrealized investment (gain)/loss (1,584) 543 (1,239)
-------------------------------------------------------------------------------------------------------------------------
Ending balance $ 98,746 $ 79,272 $ 57,664
-------------------------------------------------------------------------------------------------------------------------
To the extent that unrealized gains or losses on available for sale
securities would result in an adjustment of deferred policy acquisition
costs had those gains or losses actually been realized, the related
unamortized deferred policy acquisition costs are recorded as an adjustment
of the unrealized investment gains or losses included in stockholder's
equity.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
--------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------
(CONTINUED)
-----------
FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy and contract benefits left with the Company
on variable universal life and annuity-type contracts are based on the
policy account balance, and are shown as accumulated contract values. In
addition the Company carries as future policy benefits a liability for
additional coverages offered under policy riders.
INCOME TAXES
The provision for income taxes includes amounts currently payable and
deferred income taxes resulting from the cumulative differences in assets
and liabilities determined on a tax return and financial statement basis at
the current enacted tax rates.
RECLASSIFICATIONS
Certain items on the prior year financial statements have been restated to
conform to current year presentation.
2. INVESTMENTS
---------------
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 6,622 $ 3,308 $ 2,819
Equity Securities available for sale 156 - -
Loans on insurance policies 370 214 128
Cash equivalents 643 618 597
Other invested assets 630 - -
------------------------------------------------------------------------------------------------------------------------
Gross investment income 8,421 4,140 3,544
Investment expenses 144 537 52
------------------------------------------------------------------------------------------------------------------------
Net investment income $ 8,277 $ 3,603 $ 3,492
------------------------------------------------------------------------------------------------------------------------
Net pretax realized investment gains (losses) were as follows:
YEARS ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
Net gains on disposals of fixed maturity securities
available for sale $ 365 $ 19 $ 28
Net gains on disposal of equity securities available for sale 3 - -
------------------------------------------------------------------------------------------------------------------------
Net gains on disposal of securities available for sale $ 368 $ 19 $ 28
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
2. INVESTMENTS (CONTINUED)
---------------------------
Proceeds from sales of securities available for sale and gross gains and
losses realized on those sales were as follows:
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------
PROCEEDS GAINS LOSSES
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 16,419 $ 161 $ 8
Equity securities available for sale 252 2 -
-----------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 16,671 $ 163 $ 8
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
PROCEEDS GAINS LOSSES
-----------------------------------------------------------------------------------------------------------------------------
Fixed maturity securities available for sale $ 3,014 $ 30 $ -
-----------------------------------------------------------------------------------------------------------------------------
There were no disposals of fixed maturity securities available for sale
during 1995 other than calls or maturities.
The amortized cost and fair value of investments in securities by type of
investment were as follows:
DECEMBER 31, 1997
----------------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
----------------
COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------------------
U. S. Corporate $ 75,705 $ 2,024 $ 16 $ 77,713
Mortgage-backed 25,518 592 - 26,110
U.S. Treasury securities and obligations of
U.S. government agencies 11,935 221 24 12,132
---------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale 113,158 2,837 40 115,955
---------------------------------------------------------------------------------------------------------------------
Equity securities available for sale 4,061 74 - 4,135
---------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 117,219 $ 2,911 $ 40 $ 120,090
---------------------------------------------------------------------------------------------------------------------
The December 31, 1997 balance of stockholder's equity was increased by $463
(comprised of an increase in the carrying value of the securities of $2,298,
reduced by $1,584 of related adjustments to deferred acquisition costs and
$251 in deferred income taxes) to reflect the net unrealized gain on
securities classified as available for sale.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
2. INVESTMENTS (CONTINUED)
---------------------------
DECEMBER 31, 1996
-----------------------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Corporate $ 33,690 $ 437 $ 114 $ 34,013
Mortgage-backed 13,407 209 22 13,594
U.S. Treasury securities and obligations of
U.S. government agencies 14,951 158 95 15,014
----------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale $ 62,048 $ 804 $ 231 $ 62,621
----------------------------------------------------------------------------------------------------------------------
The December 31, 1996 balance of stockholder's equity was decreased by $307
(comprised of a decrease in the carrying value of the securities of $1,017,
reduced by $545 of related adjustments to deferred acquisition costs and
$165 in deferred income taxes) to reflect the net unrealized gain on
securities classified as available for sale.
The amortized cost and fair value of fixed maturity securities available for
sale by contractual maturity at December 31, 1997 are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
AMORTIZED FAIR
COST VALUE
-------------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 7,376 $ 7,427
Due after one year through five years 21,509 21,841
Due after five years through ten years 42,116 43,252
Due after ten years 16,639 17,325
Mortgage-backed securities 25,518 26,110
-------------------------------------------------------------------------------------------------------------------------
Total $ 113,158 $ 115,955
-------------------------------------------------------------------------------------------------------------------------
The Company purchases exchange and privately traded options to support
certain equity index annuity policyowner liabilities. These derivatives,
reflected as other invested assets, are used to manage fluctuations in the
equity market risk granted to the policyowners of the equity advantage
annuities. These derivatives involve, to varying degrees, elements of credit
risk and market risk. Credit risk is the risk of loss from a private party
failing to perform according to the terms of the contract. Market risk is the
possibility that future changes in market prices may make the derivative
less valuable, which offset guarantees granted to policyowners.
The options value on the balance sheet reflects the risk of potential loss to the
entity.
The Company's outstanding positions, which expire over various terms ranging
from 1 to 7 years, shown in notional or contract amounts, along with their
cost and estimated fair values, are summarized as follows:
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------------------------------
NOTIONAL FAIR
AMOUNT COST VALUE
--------------------------------------------------------------------------------------------------------------------------
Options $ 1,340 $ 1,544 $ 2,206
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
3. INCOME TAXES
----------------
The items that give rise to deferred tax assets and liabilities relate
to the following:
YEARS ENDED DECEMBER 31
---------------------------
1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized investment gains on securites available for sale $ 1,080 $ 277
Deferred policy acquisition costs 29,271 23,727
Prepaid expenses 804 172
-----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 31,155 24,176
-----------------------------------------------------------------------------------------------------------------------------
Future policy and contract benefits 20,014 12,620
Deferred future revenues 1,668 1,534
Other 147 101
-----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 21,829 14,255
-----------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 9,326 $ 9,921
-----------------------------------------------------------------------------------------------------------------------------
The difference between the U.S. federal income tax rate and the consolidated tax provision rate is summarized as
follows:
YEARS ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
Federal statutory tax rate 35.0 % 35.0 % 35.0 %
Other 2.9 4.3 0.2
-----------------------------------------------------------------------------------------------------------------------------
Effective tax rate 37.9 % 39.3 % 35.2 %
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
------------------------------
Affiliates provide technical, financial and legal support to the Company
under administrative service agreements. The cost of these services to the
Company for years ended December 3l, 1997, 1996 and l995 was $9,810, $8,907
and $4,858, respectively. The Company also leased office space and furniture
and equipment from affiliates during 1995. The cost of these leases to the
Company for the year ended December 31, 1995 was $37. Under the terms of
investment advisory agreements, the Company paid $144, $73, and $44 for the
years ended December 1997, 1996 and 1995, respectively to Ameritas
Investment Advisors Inc., an indirect wholly-owned subsidiary of Ameritas
Life Insurance Corp.
The Company entered into reinsurance agreements (yearly renewable term)
with affiliates. Under this agreement,these affiliates assume life
insurance risk in excess of the Company's retenton limit. These reinsurance
contracts do not relieve the Company of its obligations to its
policyowners. The Company paid $3,810, $3,301 and $2,280 of net reinsurance
premiums to affiliates for the years ended December 3l, 1997, 1996 and l995
respectively. The Company has received reinsurance recoveries from
affiliates of $2,260, $659 and $1,472 for the years ended December 3l,1997,
1996 and 1995 respectively.
The Company has entered into guarantee agreements with ALIC, AmerUs and
AMAL Corporation whereby, they guarantee the full, complete and absolute
performance of all duties and obligations of the Company.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
------------------------------------------
The Company's variable life and annuity products are distributed through
Ameritas Investment Corp., a wholly-owned subsidiary of AMAL Corporation.
The Company received $93, $54 and $192 for the years ended December 31,
1997, 1996 and 1995 respectively, from this affiliate to partially defray
the costs of materials and prospectuses. Policies placed by this affiliate
generated commission expense of $23,232, $20,373 and $14,028 for the years
ended December 31, 1997, 1996 and 1995 respectively.
Transactions with related parties are not necessarily indicative of revenues
and expenses which would have occurred had the parties not been related.
5. BENEFIT PLANS
-----------------
The Company provides retirement and postretirement medical benefits to
qualifying employees. Prior to August l, 1997 these benefits were provided
under plans which covered substantially all employees of Ameritas Life
Insurance Corp. and its subsidiaries. Concurrent with the transfer of a
significant number of employees to the Company, effective August 1, 1997,
AMAL Corporation assumed the benefit obligations associated with these
plans.
The Company is included in a multi-employer noncontributory defined benefit
plan that covers substantially all full-time employees of Ameritas Life
Insurance Corp. and its subsidiaries and AMAL Corporation and it's
subsidiaries. Pension costs include current service costs, which are accrued
and funded on a current basis, and post service costs, which are amortized
over the average remaining service life of all employees on the adoption
date. Total Company contributions for the year ended December 31, 1997 were
$29. The Company had no full time employees during 1996 or 1995.
The Company's employees also participate in a defined contribution thrift
plan that covers substantially all full time employees of Ameritas Life
Insurance Corp. and its subsidiaries. Company matching contributions under
the plan range from 1% to 3% of the participant's compensation. Total
Company contributions for the year ended December 31, 1997 were $24. The
Company had no full time employees during 1996 or 1995.
The Company is also included in the postretirement benefit plan providing
group medical coverage to retired employees of AMAL Corporation and it's
subsidiaries. Prior to August 1, 1997 these benefits were provided under a
plan with Ameritas Life Insurance Corp. These benefits are a specified
percentage of premium until age 65 and a flat dollar amount thereafter.
Employees become eligible for these benefits upon the attainment of age 55,
15 years of service and participation in the plan for the immediately
preceding 5 years. Benefit costs include the expected cost of
postretirement benefits for newly eligible employees, interest cost, and
gains and losses arising from differences between actuarial assumptions and
actual experience. Total Company contributions for the year ended December
31, 1997 were $5. The Company had no full time employees during 1996 or
1995.
Expenses for the defined benefit plan and postretirement group medical plan
are allocated to the Company based on the number of associates in AMAL
Corporation and its subsidiaries.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
6. STOCKHOLDER'S EQUITY
------------------------
Net income (loss), as determined in accordance with statutory accounting
practices, was $2,048, $855 and $(19) for 1997, 1996 and 1995 respectively.
The Company's statutory surplus was $45,265, $44,100 and $13,800 at
December 31, 1997, 1996 and 1995 respectively. Effective January 1, 1996
the Company changed reserving methods used for most existing products
resulting in an increase in statutory surplus of approximately $20,60l.
The Company is required to maintain a certain level of surplus to be in
compliance with state laws and regulations. Company surplus is monitored
by state regulators to ensure compliance with risk based capital
requirements.
Under statutes of the Insurance Department of the State of Nebraska, the
Company is limited in the amount of dividends it can pay to its stockholder.
On February 28, 1996 the Board of Directors declared a return of
paid-in-capital of $15,000 payable by way of a note due on or before August
15, 1996. The note was retired on August 15, 1996. This action was approved
by the State of Nebraska Insurance Department and any additional
distributions of capital or surplus will require approval of the Insurance
Department.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------
The following disclosures are made regarding fair value information about
certain financial instruments for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates, in many cases, may not be realized
in immediate settlement of the instrument. All nonfinancial instruments are
excluded from disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997 and 1996. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date;
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for each class of financial instrument for which
it is practicable to estimate a value:
FIXED MATURITY SECURITIES AVAILABLE FOR SALE -- For publicly traded
securities, fair value is determined using an independent pricing
source. For securities without a readily ascertainable fair value,
the value has been determined using an interest rate spread matrix
based upon quality, weighted average maturity and Treasury yields.
EQUITY SECURITIES AVAILABLE FOR SALE -- Fair value is determined
using an independent pricing source.
LOANS ON INSURANCE POLICIES -- Fair values for loans on insurance
policies are estimated using a discounted cash flow analysis at
interest rates currently offered for similar loans with similar
remaining terms. Loans on insurance policies with similar
characteristics are aggregated for purposes of the calculations.
OTHER INVESTED ASSETS -- Fair value is determined using an
independent pricing source.
CASH AND CASH EQUIVALENTS, ACCRUED INVESTMENT INCOME AND
REINSURANCE RECOVERABLE -- The carrying amounts equal fair value.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
--------------------------------------------------
ACCUMULATED CONTRACT VALUES -- Funds on deposit which do not have
fixed maturities are carried at the amount payable on demand at the
reporting date, which approximates fair value.
DECEMBER 31
----------------------------------------------------------------
1997 1996
---------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturity securities,
available for sale $115,955 $115,955 $ 62,621 $ 62,621
Equity securities, available for sale 4,135 4,135 - -
Loans on insurance policies 7,482 6,657 4,309 3,843
Other invested assets 2,206 2,206 - -
Cash and cash equivalents 13,711 13,711 10,684 10,684
Accrued investment income 1,801 1,801 1,096 1,096
Reinsurance recoverable - affiliates 514 514 9 9
Financial liabilities:
Accumulated contract values excluding amounts
held under insurance contracts 144,109 144,109 70,640 70,640
8. SEPARATE ACCOUNTS
--------------------
The Company is currently marketing variable life and variable annuity
products which have separate accounts as an investment option. Separate
Account V (Account V) was formed to receive and invest premium receipts
from variable life insurance policies issued by the Company. Separate
Account VA-2 (Account VA-2) was formed to receive and invest premium
receipts from variable annuity policies issued by the Company. Both
Separate Accounts are registered under the Investment Company Act of l940,
as amended, as unit investment trusts. Account V and VA-2's assets and
liabilities are segregated from the other assets and liabilities of the
Company.
Amounts in the Separate Accounts are:
DECEMBER 31
-------------------------------
1997 1996
-------------------------------------------------------------------------------------------------------------------------------
Separate Account V $ 197,729 $ 136,079
Separate Account VA-2 1,067,619 811,501
-------------------------------------------------------------------------------------------------------------------------------
$1,265,348 $ 947,580
-------------------------------------------------------------------------------------------------------------------------------
The assets of Account V are invested in shares of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, Alger American
Fund, Morgan Stanley Universal Funds and MFS Variable Insurance Trust.
Each fund is registered with the SEC under the Investment Company Act of
1940, as amended, as an open-end diversified management investment company.
The Variable Insurance Products Fund and the Variable Insurance Products
Fund II are managed by Fidelity Management and Research Company. The
Variable Insurance Products Fund has five portfolios: the Money Market
Portfolio, the High Income Portfolio, the Equity Income Portfolio, the
Growth Portfolio and the Overseas Portfolio. The Variable Insurance
Fund II has five portfolios: the Investment Grade Bond Portfolio,
Asset Manager Portfolio,
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
8. SEPARATE ACCOUNTS (CONTINUED)
--------------------------------
Contrafund Portfolio (effective August 25, 1995), Asset Manager Growth
Portfolio (effective September 15, 1995) and the Index 500 Portfolio
(effective September 21, 1995). The Alger American Fund is managed by Fred
Alger Management, Inc. and has six portfolios: Income and Growth Portfolio,
Small Capitalization Portfolio, Growth Portfolio, MidCap Growth Portfolio,
Balanced Portfolio and the Leveraged Allcap Portfolio (effective August 30,
1995). The Dreyfus Stock Index Fund is managed by Wells Fargo Nikko
Investment Advisors and has the Stock Index Fund Portfolio. The MFS Variable
Insurance Trust is managed by Massachusetts Financial Services Company. The
MFS Variable Insurance Trust has five portfolios: the Emerging Growth
Portfolio (effective August 25, 1995), World Governments Portfolio
(effective August 24, 1995), Utilities Portfolio (effective September 18,
1995), Growth with Income Portfolio (effective October 9, 1995) and the
Research Portfolio (effective July 26, 1995). The Morgan Stanley Universal
Funds managed by Morgan Stanley Asset Management Inc. and has five
portfolios: the Asian Equity Portfolio (effective March 3, 1997), Global
Equity Portfolio (effective January 2, 1997), International Magnum
Portfolio (effective January 21, 1997), Emerging Markets Portfolio
(effective October 1, 1996) and the U.S. Real Estate Portfolio (effective
March 3, 1997).
Pursuant to an order of the SEC allowing for the substitution, all
policyowner funds invested in a Portfolio of Dreyfus Stock Index Fund were
transferred to the Index 500 Portfolio of the Fidelity Variable Insurance
Products Fund II as of March 31, 1997. The Dreyfus Stock Index Portfolio
was an investment alternative through the date of transfer for policyowners
of Separate Account V and VA-2.
Separate Account VA-2 allows investment in the Variable Insurance Products
Fund, Variable Insurance Products Fund II, Alger American Fund, MFS
Variable Insurance Trust and the Morgan Stanley Universal Funds with the
same portfolios as described above.
