AMERITAS VARAIBLE LIFE INSURANCE COMPANY LOGO
PROSPECTUS
FLEXIBLE PREMIUM 5900 "O" Street, P.O. Box 82550
VARIABLE ANNUITY POLICY Lincoln, NE 68501
This prospectus describes a flexible premium variable annuity Policy contract
("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC"). The
Policy is a deferred annuity; it provides a vehicle for individuals to invest on
a tax-deferred basis for retirement savings or other long-term purposes. You may
purchase the Policy on either a tax qualified or non-tax qualified basis.
You may purchase a non-tax qualified Policy for $2,000 or more. Minimum
additional subsequent premiums may be $500 or more; smaller amounts may be
accepted by automatic bank draft or at the discretion of AVLIC. The minimum
initial and subsequent premium for a tax qualified Policy purchased in a
periodic payment plan is $50 per month.
You may direct that premiums accumulate on a variable basis in one or more of
the 27 Subaccounts of the Ameritas Variable Life Insurance Company Separate
Account VA-2 ("Separate Account VA-2") or on a fixed basis in the Fixed Account,
or on a combination variable and fixed basis. Separate Account VA-2 uses its
assets to purchase shares in one or more of the following Portfolios of mutual
Funds:
<TABLE>
<CAPTION>
CALVERT VARIABLE SERIES, INC. VARIABLE INSURANCE PRODUCTS VARIABLE INSURANCE PRODUCTS
AMERITAS PORTFOLIOS FUND ("VIP")* FUNDS II ("VIP II")*
("AMERITAS PORTFOLIOS")
<S> <C> <C>
Ameritas Money Market Equity-Income Asset Manager
Ameritas Index 500 Growth Investment Grade Bond
Ameritas Growth High Income Asset Manager: Growth
Ameritas Income & Growth Overseas Contrafund(R)
Ameritas Small Capitalization
Ameritas MidCap Growth
Ameritas Emerging Growth * VIP and VIP II are collectively referred to as "Fidelity Funds"
Ameritas Research
Ameritas Growth With Income
THE ALGER AMERICAN FUND MFS VARIABLE INSURANCE MORGAN STANLEY DEAN WITTER
("ALGER AMERICAN FUND") TRUST ("MFS TRUST") UNIVERSAL FUNDS, INC. ("MSDW
Alger American Balanced Utilities UNIVERSAL FUNDS" OR "MSDW")
Alger American Leveraged AllCap Global Governments Emerging Markets Equity
New Discovery Global Equity
International Magnum
Asian Equity
U.S. Real Estate
</TABLE>
The Owner bears the entire investment risk for monies placed in Separate Account
VA-2 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; nor are they 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.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORY AUTHORITY HAS APPROVED THESE SECURITIES, OR DETERMINED THAT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
November 1, 1999
ANNUITY III
1
<PAGE>
TABLE OF CONTENTS
PAGE
DEFINITIONS............................................................... 3
FEE TABLE................................................................. 5
FUND EXPENSE SUMMARY...................................................... 6
QUESTIONS AND ANSWERS ABOUT THE POLICY.................................... 11
CONDENSED FINANCIAL INFORMATION........................................... 14
PERFORMANCE DATA.......................................................... 17
YEAR 2000................................................................. 17
AVLIC, THE SEPARATE ACCOUNT AND THE FUNDS................................. 18
Ameritas Variable Life Insurance Company................................ 18
The Separate Account.................................................... 18
The Funds............................................................... 19
Addition, Deletion, or Substitution of Investments...................... 20
THE FIXED ACCOUNT......................................................... 20
THE POLICY................................................................ 21
Control of Policy....................................................... 21
Policy Application and Premium Payment.................................. 21
Allocation of Premium................................................... 22
Accumulation Value...................................................... 22
Transfers............................................................... 22
Systematic Programs..................................................... 23
DISTRIBUTIONS UNDER THE POLICY............................................ 23
Full and Partial Withdrawals............................................ 24
Critical Needs Withdrawals.............................................. 24
Refund Privilege........................................................ 24
Policy Loans............................................................ 24
CHARGES AND DEDUCTIONS.................................................... 25
Administrative Charges.................................................. 25
Mortality and Expense Risk Charge....................................... 25
Contingent Deferred Sales Charge........................................ 26
Taxes .................................................................. 26
Fund Investment Advisory Fees and Expenses.............................. 27
ANNUITY PERIOD............................................................ 27
Annuity Date............................................................ 27
Annuity Income Options.................................................. 27
FEDERAL TAX MATTERS....................................................... 28
Introduction............................................................ 28
Taxation of Annuities in General........................................ 29
GENERAL PROVISIONS........................................................ 30
Annuitant's Beneficiary................................................. 30
Change of Beneficiary................................................... 30
Death of Annuitant Prior to Annuity Date................................ 31
Death of Owner.......................................................... 31
Deferment of Payment.................................................... 31
Contestability.......................................................... 31
Misstatement of Age or Sex.............................................. 31
Reports and Records..................................................... 32
DISTRIBUTION OF THE POLICIES.............................................. 32
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS.............................. 32
THIRD PARTY SERVICES...................................................... 32
VOTING RIGHTS............................................................. 32
LEGAL PROCEEDINGS......................................................... 33
STATEMENT OF ADDITIONAL INFORMATION....................................... 33
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
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
ANNUITY III
2
<PAGE>
DEFINITIONS
ACCUMULATION UNIT - A unit used to measure the value of the Policy prior to the
Annuity Date.
ACCUMULATION VALUE - The value of all amounts accumulated under the Policy prior
to the Annuity Date. On the Issue Date, the Accumulation Value is equal to the
initial premium, less any premium tax.
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 who will receive any benefits paid upon the
death of the Annuitant. The Annuitant's Beneficiary is designated by the Owner
in the application. If changed, the Annuitant's Beneficiary is as shown in the
latest change filed and recorded with AVLIC. If no Annuitant's Beneficiary
survives the Annuitant, the Owner or the Owner's estate will be the beneficiary.
The interest of any Annuitant's Beneficiary is subject to that of any assignee.
ANNUITY DATE - The date on which Annuity Payments begin.
ANNUITY INCOME OPTION - One of several ways in which Annuity Payments may be
made.
ANNUITY PAYMENT - One of a series of payments made under an Annuity Income
Option.
AVLIC ("we, us, our") - Ameritas Variable Life Insurance Company, a Nebraska
stock life insurance company.
CASH SURRENDER VALUE - The amount available for full or partial withdrawal,
which is the Accumulation Value less any withdrawal charge, and applicable
premium taxes and, in the case of a full withdrawal, less the annual Policy fee.
CONTINGENT DEFERRED SALES CHARGE - The charge we assess upon certain withdrawals
and annuitizations to cover certain expenses relating to the sale of the
Policies.
DEATH BENEFIT - The greater of the Accumulation Value or the premium payments
made, less withdrawals, or the guaranteed minimum death benefit, if applicable.
DUE PROOF OF DEATH - All of the following must be submitted: (1) a certified
copy of the death certificate; (2) a Claimant Statement; (3) the Policy; and (4)
any other information that AVLIC may require to establish the validity of the
claim.
EFFECTIVE DATE - The 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
premium payments may be allocated for accumulation at fixed rates of interest.
FUNDS - Ameritas Portfolios, Fidelity Funds, Alger American Fund, MFS Trust and
MSDW Universal Funds 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 Separate Account VA-2.
ISSUE DATE - The date all financial, contractual and administrative requirements
have been met to issue the Policy. The free look period begins on this date.
JOINT ANNUITANT - Applicable in the context of Annuity Income Options only, the
person other than the Annuitant who may be designated by the Owner and on whose
life Annuity Payments may also be based.
NET CASH SURRENDER VALUE - The Cash Surrender Value less premium tax, if any,
and less any outstanding Policy loan.
NET PREMIUM - The Premium Payment less 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, your") - The person or entity in whose name the Policy is issued,
as designated in the application or as subsequently changed. If a Policy has
been absolutely assigned, the assignee is the Owner. A collateral assignee is
not the Owner.
ANNUITY III
3
<PAGE>
OWNER'S DESIGNATED BENEFICIARY - The person designated by the Owner to whom
Policy ownership passes upon the Owner's death.
POLICY - The variable annuity contract offered by AVLIC and described in this
Prospectus.
POLICY DATE - The date set forth in the Policy that is the date used to
determine Policy anniversary dates and Policy Years. This date is determined on
the Issue Date. It is the date within two days after AVLIC received the
application and initial premium. If the Policy Date would fall on the 29th,
30th, or 31st of a month, the Policy Date will be set at the 28th day of that
month.
POLICY YEAR - The period from one Policy anniversary date until the next Policy
anniversary date.
PORTFOLIO - One of the separate investment Portfolios of the Funds in which
Separate Account VA-2 invests. Each Portfolio is a Subaccount of Separate
Account VA-2. In this Separate Account VA-2, Ameritas Portfolios offer the
following Portfolios: Ameritas Money Market, Ameritas Index 500, Ameritas
Growth, Ameritas Income & Growth, Ameritas Small Capitalization, Ameritas MidCap
Growth, Ameritas Emerging Growth, Ameritas Research, and Ameritas Growth With
Income. VIP offers the following Portfolios: Equity-Income, Growth, High Income,
and Overseas. VIP II offers the following Portfolios: Asset Manager, Investment
Grade Bond, Asset Manager: Growth, and Contrafund. The Alger American Fund
offers the following Portfolios: Alger American Balanced and Alger American
Leveraged AllCap. The MFS Trust offers the following Portfolios or series in
connection with this Policy: MFS Utilities, MFS Global Governments, and MFS New
Discovery. The MSDW Universal Funds offers the following Portfolios in
connection with the Policy: Emerging Markets Equity, Global Equity,
International Magnum, Asian Equity, and U.S. Real Estate. 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 applicable tax laws, such as IRAs and Pension Trusts.
SEPARATE ACCOUNT VA-2 - 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 Separate Account VA-2 are segregated from the
general assets of AVLIC.
SUBACCOUNT - A subdivision of Separate Account VA-2 which invests in the shares
of a specified Portfolio of the Funds.
VALUATION DATE - Any day on which the New York Stock Exchange is open for
trading.
VALUATION PERIOD - The period between two successive Valuation Dates, commencing
at the close of trading on the New York Stock Exchange ("NYSE") on one Valuation
Date and ending at the close of trading on the NYSE on the next succeeding
Valuation Date.
ANNUITY III
4
<PAGE>
FEE TABLE
The following illustrates the expenses you will bear as Owner, excluding
possible state premium taxes. For a complete discussion of expenses, see the
section on Charges and Deductions, and the Funds' prospectuses.
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases...............................................0%
Contingent Deferred Sales Charge - on premiums paid only (Maximum)..........6.0%
YEAR % YEAR %
1 6 5 4
2 6 6 3
3 6 7 2
4 5 8+ 0
Surrender Fees........................................................0%
Exchange Fee..........................................................0%
Transfer Fee (after 15 free transfers per policy year)...............$10
ANNUAL POLICY FEE (up to $50, currently $36, $30 in North Dakota,
may be reduced or eliminated)........................................$36
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Fees....................................1.25%
Daily Administrative Fee (as a percentage of average account
value).............................................................0.20%
(See the section on Charges and Deductions.)
Total Separate Account Annual Expenses.............................1.45%
ANNUITY III
5
<PAGE>
FUND EXPENSE SUMMARY
Fee information about the Funds was provided to AVLIC by the Funds. AVLIC has
not independently verified such information.
Unless noted otherwise, the amount of expenses borne by each Portfolio for the
fiscal year ended December 31, 1998, was as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OTHER TOTAL WAIVERS TOTAL
ADVISORY & EXPENSES AND/OR (REFLECTING
MANAGEMENT REIMBURSEMENTS WAIVERS AND/OR
REIMBURSEMENTS,
IF ANY)
<S> <C> <C> <C> <C> <C>
AMERITAS PORTFOLIOS(1)
Ameritas Money Market .21% .14% .35% .05% .30%
Ameritas Index 500 .24% .17% .41% .13% .28%
Ameritas Growth .75% .14% .89% .10% .79%
Ameritas Income & Growth .63% .19% .82% .12% .70%
Ameritas Small Capitalization .85% .15% 1.00% .11% .89%
Ameritas MidCap Growth .80% .17% .97% .13% .84%
Ameritas Emerging Growth .75% .16% .91% .06% .85%
Ameritas Research .75% .40% 1.15% .29% .86%
Ameritas Growth With Income .75% .25% 1.00% .12% .88%
FIDELITY PORTFOLIOS - INITIAL CLASS
VIP Equity-Income .49% .09% .58% - .58%(2)
VIP Growth .59% .09% .68% - .68%(2)
VIP High Income .58% .12% .70% - .70%
VIP Overseas .74% .17% .91% - .91%(2)
VIP II Asset Manager .54% .10% .64% - .64%(2)
VIP II Investment Grade Bond .43% .14% .57% - .57%
VIP II Asset Manager: Growth .59% .14% .73% - .73%(2)
VIP II Contrafund .59% .11% .70% - .70%(2)
ALGER AMERICAN FUND(3)
Balanced .75% .17% .92% - .92%
Leveraged AllCap .85% .11% .96% - .96%
MFS TRUST
Utilities .75% .26%(4) 1.01% - 1.01%
Global Governments .75% .36%(4) 1.11% .11% 1.00% (5)
New Discovery .90% 4.32%(4) 5.22% 4.07% 1.15% (5)
MSDW UNIVERSAL FUNDS
Emerging Markets Equity 1.25% 2.20% 3.45% 1.50% 1.95% (6)
Global Equity .80% .83% 1.63% .48% 1.15% (6)
International Magnum .80% 1.00% 1.80% .65% 1.15% (6)
Asian Equity .80% 2.00% 2.80% 1.59% 1.21% (6)
U.S. Real Estate .80% .93% 1.73% .63% 1.10% (6)
</TABLE>
(1) This is a new Fund. Total expenses are estimated. Each portfolio's
aggregate expenses are limited to the advisory and administrative fees
disclosed in the table under the column "Total (reflecting waivers and/or
reimbursements, if any)" for a period of one year following the
substitution which occurred on October 29, 1999. Following this one year
period, expenses of the Ameritas Portfolios will not be permitted to
exceed an expense ratio which is .10% greater than the prior expense ratio
of the corresponding replaced fund, unless an amendment to the investment
advisory contract is approved modifying or eliminating the expense
guarantee.
ANNUITY III
6
<PAGE>
(2) A portion of the brokerage commissions that certain Funds pay was used to
reduce Fund expenses. In addition, certain Funds, or Fidelity on behalf of
certain Funds, have entered into arrangements with their custodian
whereby credits realized as a result of uninvested cash balances were used
to reduce custodian expenses. Including these reductions, the total
operating expenses presented in the table would have been:
VIP Equity-Income .57%
VIP Growth .66%
VIP Overseas .89%
VIP II Asset Manager .63%
VIP II Asset Manager: Growth .72%
VIP II Contrafund .66%
(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 Balanced, 1.25%, and Alger American
Leveraged AllCap, 1.50%. Included in "Other Expenses" of Leveraged AllCap
is .03% of interest expense.
(4) Each MFS Trust 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. Each series may
enter into other such arrangements and directed brokerage arrangements
(which would also have the effect of reducing the series' expenses).
Expenses do not take into account these expense reductions and are
therefore higher than the actual expenses of the series.
(5) MFS has agreed to bear expenses for the Global Governments Series and New
Discovery Series, subject to reimbursement by the 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. Utilities Series has
no such limitation. The payments made by MFS on behalf of the Global
Governments Series and New Discovery Series under this arrangement are
subject to reimbursement by the series to MFS, which will be accomplished
by the payment of an expense reimbursement fee by the series to MFS
computed and paid monthly at a percentage of the series average daily net
assets for its then current fiscal year, with a limitation that immediately
after such payment the series "Other Expenses" will not exceed the
percentage set forth above for that series. The obligation of MFS to bear a
series "Other Expenses" pursuant to this arrangement and the series'
obligation to pay the reimbursement fee to MFS, terminates on the earlier
of the date on which payments made by the series equal the prior payment of
such reimbursement expenses by MFS, or December 31, 2004.
(6) The Portfolios' investment adviser has voluntarily agreed to reduce its
management fee and/or reimburse each Portfolio so that total annual
operating expenses will not exceed 1.75% for the MSDW Universal Funds
("MSDWUF") Emerging Markets Equity Portfolio, 1.15% for each of the MSDWUF
Global Equity Portfolio and MSDWUF International Magnum Portfolio, 1.20%
for the MSDWUF Asian Equity Portfolio and 1.10% for the MSDWUF U.S. Real
Estate Portfolio. The investment adviser reserves the right to terminate
any waiver and/or reimbursement at any time and without notice.
In determining the actual amount of voluntary management fee waiver and/or
expense reimbursement for a Portfolio, if any, certain investment related
expenses, such as foreign coutnry tax expense and interest expense on
borrowing are excluded from annual operating expenses. If these expenses
were incurred, the Portfolios' total expenses after voluntary fee waivers
and/or expense reimbursements could exceed the expense ratios shown above.
For the year ended December 31, 1998, after giving effect to the above
voluntary management fee waiver and/or expense reimbursement, the total
expenses for each Portfolio, excluding certain investment related expenses,
were as stated in the table.
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.
ANNUITY III
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<PAGE>
EXAMPLE: If you surrender your contract at the end of the applicable time period
you would pay the following expenses on a hypothetical $1,000 allocation to each
Portfolio, assuming 5% annual return.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Ameritas Money Market $77 $112 $129 $192
Ameritas Index 500 $77 $111 $128 $190
Ameritas Growth $82 $127 $154 $244
Ameritas Income & Growth $81 $124 $149 $235
Ameritas Small Capitalization $83 $130 $159 $255
Ameritas MidCap Growth $82 $128 $157 $249
Ameritas Emerging Growth $82 $128 $157 $250
Ameritas Research $82 $129 $158 $251
Ameritas Growth With Income $83 $129 $159 $253
VIP Equity-Income $79 $120 $143 $221
VIP Growth $80 $123 $147 $231
VIP High Income $81 $124 $149 $235
VIP Overseas $83 $130 $159 $255
VIP II Asset Manager $80 $122 $146 $228
VIP II Investment Grade Bond $79 $120 $143 $221
VIP II Asset Manager: Growth $81 $124 $150 $237
VIP II Contrafund $80 $123 $147 $231
Alger American Balanced $83 $130 $161 $258
Alger American Leveraged AllCap $83 $132 $163 $262
MFS Utilities $84 $133 $165 $267
MFS Global Governments $84 $133 $165 $266
MFS New Discovery $85 $137 $172 $281
MSDW Emerging Markets Equity $93 $161 $211 $357
MSDW Global Equity $85 $137 $172 $281
MSDW International Magnum $85 $137 $172 $281
MSDW Asian Equity $86 $139 $175 $287
MSDW U.S. Real Estate $85 $136 $170 $276
ANNUITY III
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<PAGE>
EXAMPLE: If you annuitize your contract at the end of the applicable time period
you would pay the following expenses on a hypothetical $1,000 allocation to each
Portfolio, assuming 5% annual return.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Ameritas Money Market $77 $52 $89 $192
Ameritas Index 500 $77 $51 $88 $190
Ameritas Growth $82 $67 $114 $244
Ameritas Income & Growth $81 $64 $109 $235
Ameritas Small Capitalization $83 $70 $119 $255
Ameritas MidCap Growth $82 $68 $117 $249
Ameritas Emerging Growth $82 $68 $117 $250
Ameritas Research $82 $69 $118 $251
Ameritas Growth With Income $83 $69 $119 $253
VIP Equity-Income $79 $60 $103 $221
VIP Growth $80 $63 $107 $231
VIP High Income $81 $64 $109 $235
VIP Overseas $83 $70 $119 $255
VIP II Asset Manager $80 $62 $106 $228
VIP II Investment Grade Bond $79 $60 $103 $221
VIP II Asset Manager: Growth $81 $64 $110 $237
VIP II Contrafund $80 $63 $107 $231
Alger American Balanced $83 $70 $121 $258
Alger American Leveraged AllCap $83 $72 $123 $262
MFS Utilities $84 $73 $125 $267
MFS Global Governments $84 $73 $125 $266
MFS New Discovery $85 $77 $132 $281
MSDW Emerging Markets Equity $93 $101 $171 $357
MSDW Global Equity $85 $77 $132 $281
MSDW International Magnum $85 $77 $132 $281
MSDW Asian Equity $86 $79 $135 $287
MSDW U.S. Real Estate $85 $76 $130 $276
ANNUITY III
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<PAGE>
EXAMPLE: If you do not surrender your contract at the end of the applicable time
period you would pay the following expenses on a hypothetical $1,000 allocation
to each Portfolio, assuming 5% annual return.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Ameritas Money Market $17 $52 $89 $192
Ameritas Index 500 $17 $51 $88 $190
Ameritas Growth $22 $67 $114 $244
Ameritas Income & Growth $21 $64 $109 $235
Ameritas Small Capitalization $23 $70 $119 $255
Ameritas MidCap Growth $22 $68 $117 $249
Ameritas Emerging Growth $22 $68 $117 $250
Ameritas Research $22 $69 $118 $251
Ameritas Growth With Income $23 $69 $119 $253
VIP Equity-income $19 $60 $103 $221
VIP Growth $20 $63 $107 $231
VIP High Income $21 $64 $109 $235
VIP Overseas $23 $70 $119 $255
VIP II Asset Manager $20 $62 $106 $228
VIP II Investment Grade Bond $19 $60 $103 $221
VIP II Asset Manager: Growth $21 $64 $110 $237
VIP II Contrafund $20 $63 $107 $231
Alger American Balanced $23 $70 $121 $258
Alger American Leveraged AllCap $23 $72 $123 $262
MFS Utilities $24 $73 $125 $267
MFS Global Governments $24 $73 $125 $266
MFS New Discovery $25 $77 $132 $281
MSDW Emerging Markets Equity $33 $101 $171 $357
MSDW Global Equity $25 $77 $132 $281
MSDW International Magnum $25 $77 $132 $281
MSDW Asian Equity $26 $79 $135 $287
MSDW U.S. Real Estate $25 $76 $130 $276
The examples assume an average $30,000 annuity investment. They illustrate the
expenses you would incur at the end of a one, three, five or ten year period on
a hypothetical $1,000 allocation to each Portfolio, assuming a 5% annual return.
The examples reflect expenses of Separate Account VA-2 and the Portfolio, but do
not reflect premium taxes which may apply. The 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. Please refer to
the Funds' prospectuses for more information.
ANNUITY III
10
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE POLICY
NOTE: This section contains brief questions and answers about the Policy. Please
refer to the body of the prospectus for more detailed information. This
prospectus does not describe any limits, restrictions, or penalties the Internal
Revenue Code may impose on premiums, withdrawals, distributions, benefits, or
other provisions of the Policy when it is a Qualified Policy. It also does not
address the requirements of a particular retirement plan or endorsement of the
Policy. (See the section on "Federal Tax Matters.)
1. WHAT IS THE PURPOSE OF THE POLICY?
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 27 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 27 Subaccounts at item 3., 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. If you have money in the Calvert Variable Series,
Inc. Ameritas Portfolios ("Ameritas Portfolios") as a result of the
substitution which occurred at the close of business on October 29, 1999
("Substitution Date"), the following procedure is applicable until
December 1, 1999: you may transfer money out of the Ameritas Portfolios
to any other Subaccount available under the Policy without any
administrative charge and without the transfer counting as one of your
"free transfers." 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. WHAT IS AN ANNUITY AND WHAT ANNUITY OPTIONS ARE AVAILABLE?
An annuity provides for a series of periodic payments beginning on the
Annuity Date. Annuity payments are based on the Net Cash Surrender Value
on the Annuity Date. If you want to receive regular income from your
annuity, you can choose one of five options: (1) monthly payment of
interest only; (2) monthly payment for a fixed amount until depleted;
(3) monthly payments for a certain period up to 20 years (as you
select); (4) monthly payments for your life (assuming you are the
Annuitant) that may include a guaranteed period; and (5) monthly
payments for your life and for the life of another person (usually your
spouse). The Annuity Income Options are fixed only. Once you begin
receiving regular payments, you cannot change your payment plan.
You also have some flexibility in choosing the Annuity Date. However,
without AVLIC's prior approval, payments must begin no later than the
Policy anniversary nearest the Annuitant's 85th birthday (90th in
Oregon). (See the sections on Annuity Date and Annuity Income Options.)
3. WHAT TYPES OF INVESTMENTS UNDERLIE SEPARATE ACCOUNT VA-2?
You can put your money in any or all of these Subaccounts which invest
in Portfolios described in the Fund prospectuses. Depending upon market
conditions, you can make or lose money in any of these Subaccounts.
ANNUITY III
11
<PAGE>
MANAGED BY AMERITAS MANAGED BY
INVESTMENT CORP. FIDELITY MANAGEMENT
- ---------------- & RESEARCH COMPANY
Ameritas Money Market ------------------
Ameritas Index 500 VIP(1) Equity-Income
Ameritas Growth VIP Growth
Ameritas Income & Growth VIP High Income
Ameritas Small Capitalization VIP Overseas
Ameritas MidCap Growth VIP II(2) Asset Manager
Ameritas Emerging Growth VIP II Investment Grade Bond
Ameritas Research VIP II Asset Manager: Growth
Ameritas Growth With Income VIP II Contrafund
(1) Variable Insurance Products Fund
(2) Variable Insurance Products Fund II
MANAGED BY MANAGED BY
FRED ALGER MASSACHUSETTS FINANCIAL
MANAGEMENT, INC. SERVICES CO.
- --------------- ---------------------
Alger American: Utilities
Balanced Global Governments
Leveraged AllCap New Discovery
MANAGED BY
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
- -----------------------------
Emerging Markets Equity
Global Equity
International Magnum
Asian Equity
U.S. Real Estate
(See the section on The Funds.)
4. HOW ARE INVESTMENTS MADE IN THE FIXED ACCOUNT?
Net premium payments allocated to the Fixed Account are placed in the
general account of AVLIC which supports insurance and annuity
obligations. Policy Owners are paid interest on the amounts placed in
the Fixed Account at guaranteed rates (3.5%) or at higher "declared
rates". (See the section on Fixed Account.)
5. HOW MAY I ALLOCATE THE PREMIUM PAYMENT?
On the Effective Date of the Policy, the net premium paid is allocated
to the Money Market Subaccount. Thirteen days after the Effective Date,
the Accumulation Value is allocated among the Subaccounts or Fixed
Account according to the allocation instructions you designated in the
application. (See the section on Allocation of Premium.)
6. CAN I TRANSFER AMOUNTS?
You may make 15 transfers of the Accumulation Value among the
Subaccounts and/or the Fixed Account each Policy Year without charge. We
may impose a transfer charge each additional time amounts are
transferred between the Subaccounts and/or the Fixed Account. This
charge will be deducted pro rata from each Subaccount (and, if
applicable, the Fixed Account) in which you are invested. The maximum
transfer charge is $10.00 per transfer. Transfers must be at least $250,
or, if less, the entire value of the Subaccount or the Fixed Account
from which the transfer is made. The minimum amount which can remain in
a Subaccount or the Fixed Account as a result of a transfer is $100.00.
Any amount below this minimum must be included in the amount
transferred. Transfers of up to the greater of: (1) 25% of the
accumulation value of the Fixed Account; (2) the amount of any transfer
from the Fixed Account during the prior thirteen months; or (3) $1,000
may be made out of the Fixed Account during the 30 day period following
each Policy anniversary date. (See the section on Transfers.)
7. CAN I GET TO MY MONEY IF I NEED IT?
You can take money out anytime during the accumulation phase. You can
take the greater of up to 10% of your earnings each year without a
charge. Withdrawals more than that may be charged up to 6% of each
withdrawal. After AVLIC has had a payment for 7 years, there is no
charge for withdrawal of that payment. Of course, you may also have to
pay income tax and a tax penalty on any money you take out. Each payment
you add to your Policy has its own 7 year withdrawal charge period.
ANNUITY III
12
<PAGE>
8. WHAT ARE THE CHARGES UNDER MY POLICY?
The Policy has insurance features and investment features, and there are
costs related to each.
AVLIC currently deducts a $36 Policy fee each year from your Policy.
This charge is guaranteed to be no more than $50 per year. AVLIC also
deducts insurance charges of 1.45% of the average daily value of your
Policy. Investment charges range from .28% to 1.95% of the average daily
value of the Subaccounts depending upon the Subaccount.
If you take your money out, AVLIC may assess a withdrawal charge of up
to 6% of the amount you withdraw. If required by state law, AVLIC will
assess a state premium tax charge at the time of premium receipt or when
you make a complete withdrawal or begin receiving regular income
payments. State premium tax ranges from 0% to 3.5%, depending upon the
state. (See the sections on Charges and Deductions.)
9. WHAT TAXES ARE ASSOCIATED WITH MY POLICY?
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.
10. WHAT HAPPENS IF THE ANNUITANT DIES BEFORE THE ANNUITY DATE?
If the Annuitant dies before the Annuity Date, upon Due Proof of Death,
the Death Benefit will be paid. The Death Benefit may be paid as either
a lump sum cash benefit or under an Annuity Income Option. (See the
section on Death of Annuitant Prior to Annuity Date.)
11. WHAT HAPPENS IF THE OWNER DIES BEFORE THE ANNUITY DATE?
If the Owner (or joint owner) dies before the Annuity Date, your entire
interest in the Policy will be distributed within five years after the
date of death. The Owner's Designated Beneficiary may choose to take his
or her interest as an annuity. Under certain circumstances, the annuity
is treated as distributed on the date distributions begin. Special rules
apply where the Owner's Designated Beneficiary is the surviving spouse
of the deceased Owner. (These provisions are described in greater detail
in the Statement of Additional Information - IRS Required
Distributions.)
12. WHO DO I CALL IF I HAVE QUESTIONS ABOUT MY ANNUITY?
If you need more information, please contact us at Ameritas Variable
Life Insurance Company, 5900 "O" Street, P.O. Box 82550, Lincoln,
Nebraska, 68501, or by calling 1-800-745-1112. All inquiries should
include the Policy number and the Owner's name. In addition, we will
mail confirmations to you for any transactions that take place, and an
annual report will be sent once each Policy Year showing the
Accumulation Value in each Subaccount, and any charges, transfers or
withdrawals during the year.
ANNUITY III
13
<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.
Separate Account VA-2 also funds variable annuity contracts not offered by this
prospectus which have unit values not applicable to the contracts offered by
this prospectus.
ACCUMULATION UNIT VALUES
Following are the accumulation unit values for the Subaccounts for the past ten
years, or since the year the Subaccount was first offered in Separate Account
VA-2, if less than ten years. The number of outstanding Accumulation Units in
each Subaccount are also shown for each year.
<TABLE>
<CAPTION>
ACCUMULATION NUMBER OF
UNIT VALUE ACCUMULATION
AS OF UNITS AS OF
SUBACCOUNT DECEMBER 31 DECEMBER 31 YEAR
---------- ----------- ----------- ----
<S> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Money Market 1.564 28,938,755.129 1998
1.502 24,152,433.573 1997
1.442 38,305,988.303 1996
1.385 41,390,848.004 1995
1.325 48,755,227.272 1994
1.286 24,394,597.763 1993
1.262 23,516,860.733 1992
1.000 15,150,911.120 1991
1.173 11,911,544.496 1990
1.099 208,280.871 1989
1.020 157,416.729 1988
Ameritas Index 500 152.023 324,430.114 1998
119.950 305,482.509 1997
91.522 136,170.960 1996
75.455 8,789.710 1995
Ameritas Growth 66.442 966,582.156 1998
45.429 898,455.708 1997
36.580 999,195.999 1996
32.678 743,312.674 1995
24.259 641,126.689 1994
24.209 166.606.094 1993
20.017 61,910.658 1992
Ameritas Income & Growth 37.914 458,454.823 1998
28.997 550,158.540 1997
21.541 453,812.266 1996
18.224 366,345.060 1995
13.654 172,001.664 1994
15.073 98,620.982 1993
13.831 33,407.531 1992
Ameritas Small Capitalization 52.652 943,846.319 1998
46.147 1,205,615.388 1997
41.950 1,182,697.070 1996
40.773 1,084,733.736 1995
28.603 671,144.393 1994
30.286 539,880.302 1993
27.043 222,600.706 1992
ANNUITY III
14
<PAGE>
Ameritas MidCap Growth 30.395 783,105.026 1998
23.619 918,967.102 1997
20.796 1,089,363.623 1996
18.820 793,128.739 1995
13.190 268,394.026 1994
13.563 91,504.219 1993
Ameritas Emerging Growth 21.560 990,308.607 1998
16.270 1,005,467.778 1997
13.514 874,037.108 1996
11.693 80,881.596 1995
Ameritas Research 19.083 216,719.549 1998
15.660 96,620.140 1997
Ameritas Growth With Income 20.186 603,496.609 1998
16.709 524,597.467 1997
FIDELITY FUNDS
VIP Equity-Income 42.680 3,080,099.156 1998
38.71 63,708,458.398 1997
30.599 4,005,999.533 1996
27.112 4,341,950.825 1995
20.322 2,332,200.380 1994
19.217 1,692,367.958 1993
16.460 1,090,217.227 1992
11.850 873,089.237 1991
10.971 536,146.361 1990
13.118 79,609.928 1989
11.315 15,337.513 1988
VIP Growth 61.617 2,120,046.256 1998
(As of October 23, 1987, the inception date of 44.724 2,415,265.185 1997
Separate Account VA-2, the accumulation unit 36.673 2,841,801.470 1996
value of this Subaccount was 9.840.) 32.375 2,680,503.815 1995
24.207 2,448,226.330 1994
24.517 1,930,905.248 1993
20.795 1,058,120.400 1992
18.510 832,635.695 1991
13.399 344,241.440 1990
15.380 4,476.273 1989
11.853 3,944.769 1988
VIP High Income 27.076 1,413,793.801 1998
(As of October 23, 1987, the inception date of 28.657 1,704,372.425 1997
Separate Account VA-2, the accumulation unit 24.658 1,983,835.169 1996
value of this Subaccount was 9.500.) 21.896 1,638,820.985 1995
18.414 1,076,076.694 1994
18.938 780,485.192 1993
15.910 404,678.129 1992
9.550 429,942.219 1991
9.797 75,439.485 1990
10.167 52,878.092 1989
10.750 15,646.599 1988
ANNUITY III
15
<PAGE>
VIP Overseas 23.268 1,988,829.223 1998
(As of October 23, 1987, the inception date of 20.895 2,281,006.985 1997
Separate Account VA-2, the accumulation unit 18.967 2,676,510.350 1996
value of this Subaccount was 9.240.) 16.964 2,693,065.371 1995
15.674 2,050,429.513 1994
15.601 1,680,013.325 1993
11.507 452,257.534 1992
13.100 261,859.646 1991
12.216 214,204.062 1990
12.597 72,009.171 1989
10.099 2,271.707 1988
VIP II Asset Manager 27.631 4,582,164.895 1998
24.317 5,404,447.980 1997
20.407 5,829,761.845 1996
18.030 6,384,770.138 1995
15.609 7,758,786.284 1994
16.830 5,540,619.649 1993
14.076 2,461,567.482 1992
12.550 1,037,390.785 1991
10.523 187,701.160 1990
VIP II Investment Grade Bond 17.196 2,222,621.962 1998
15.996 1,667,451.370 1997
14.851 1,649,736.501 1996
14.574 1,584,105.144 1995
12.577 1,185,301.883 1994
13.232 1,220,611.462 1993
12.074 799,187.033 1992
11.080 151,044.569 1991
VIP II Asset Manager: Growth 20.849 249,811.632 1998
17.955 494,527.646 1997
14.536 131,061.318 1996
12.270 18,219.455 1995
VIP II Contrafund 26.218 1,222,511.772 1998
20.423 1,204,532.869 1997
16.657 1,297,694.248 1996
13.903 179,239.249 1995
ALGER AMERICAN FUND
Balanced 23.099 294,670.124 1998
17.783 249,403.260 1997
15.028 268,181.328 1996
13.813 182,890.799 1995
10.872 94,786.818 1994
11.499 34,686.690 1993
Leveraged AllCap 35.389 189,593.807 1998
22.702 152,025.879 1997
19.207 188,702.059 1996
17.358 59,364.752 1995
MFS TRUST
Utilities 23.693 317,248.737 1998
20.319 284,050.993 1997
15.620 191,935.241 1996
13.345 40,557.341 1995
ANNUITY III
16
<PAGE>
Global Governments 11.955 116,776.015 1998
11.218 79,452.845 1997
11.489 68,811.144 1996
11.184 15,779.622 1995
New Discovery -- --- 1998
MSDW UNIVERSAL FUNDS
Emerging Markets Equity 7.283 109,949.389 1998
9.728 122,626.860 1997
Global Equity 13.342 137,877.141 1998
11.905 67,151.328 1997
International Magnum 11.454 190,548.651 1998
10.642 162,449.870 1997
Asian Equity 5.175 101,176.869 1998
5.602 118,538.172 1997
U.S. Real Estate 10.302 66,675.453 1998
11.702 134,736.719 1997
</TABLE>
PERFORMANCE DATA
Separate Account VA-2 may advertise certain information regarding the
performance of the Subaccounts. Performance data may be advertised as average
annual total return and/or cumulative total return. The Money Market Subaccount
may advertise yield and/or effective yield. The yield figures are based on
historical earnings and are not intended to indicate future performance. Other
Subaccounts may advertise current yield. Details on how performance measures are
calculated for the Subaccounts are found in the Statement of Additional
Information. Performance advertising will reflect the mortality and expense risk
charge, the daily administrative fee, the annual Policy fee and Fund expense
charges.
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. This issue arose because both mainframe and PC-based
computer hardware and software have traditionally used two digits to identify
the year. For example, the year 1998 is input, stored and calculated as "98."
Similarly, the year 2000 would be input, stored and calculated as "00." If
computers assume this means 1900, it could cause errors in calculations,
comparisons, and other computing functions.
Like all insurance companies, AVLIC makes extensive use of dates and date
calculations. We began a corporate-wide Year 2000 (Y2K) project in mid-1996. Our
goal is to ensure that our computer systems continue to operate smoothly with no
service disruptions before, during or after the year 2000.
As of December 31, 1998, all of our computer application and operating systems
had been updated for the year 2000. Continuous testing and monitoring throughout
1999 will help AVLIC continue to meet our contractual and service obligations to
our customers. In addition to our internal efforts, AVLIC is working closely
with vendors and other business partners to confirm that they too are addressing
Y2K issues on a timely basis. We believe that we are Y2K - compliant; however,
in the event we or our service providers, vendors, financial institutions or
others with which we conduct business, fail to be Y2K - compliant, there would
be a materially adverse effect on us. Certain vendors and/or business partners,
due to their exposure to foreign markets, may face additional Y2K issues. Please
see the Funds' prospectuses for information on the Funds' preparedness for Y2K.
ANNUITY III
17
<PAGE>
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), a Nebraska stock life insurance company, 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, 1998 of over
$4.1 billion. AmerUs Life had total assets as of December 31, 1998 of over $10.4
billion.
AVLIC has a rating of A (Excellent) for financial strength and operating
performance from A.M. Best Company, a firm that analyzes insurance carriers.
This is the third highest of Best's 15 categories. AVLIC is rated AA (Very
Strong) for insurer financial strength from Standard & Poor's. This is the third
highest of Standard & Poor's 21 ratings. Ameritas Life enjoys a long standing A+
(Superior) rating from A.M. Best, the second highest of Best's ratings.
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 which has a
financial rating by a national rating agency equal to or greater than Ameritas
Life and which agrees to assume the guarantee. AmerUs Life will be relieved of
its obligations under the guarantee if it sells its interest in AMAL Corporation
to another insurance company which has a financial rating by a national rating
agency equal to or greater than that of AmerUs Life, and the purchaser assumes
the guarantee.
Ameritas Investment Corp., the principal underwriter of the Policies, may
publish in advertisements and reports to the Owners, the ratings and other
information assigned to Ameritas Life and AVLIC 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 Separate Account VA-2. Published material may also include charts
and other information concerning asset allocation, dollar cost averaging,
Portfolio rebalancing, diversification, earnings sweep, tax deference, long term
market trends, index performance and other investment methods and programs.
AVLIC may also publish information concerning the objectives, policies, and risk
level of the Portfolios.
THE SEPARATE ACCOUNT
Ameritas Variable Life Insurance Company Separate Account VA-2 ("Separate
Account VA-2") was established under Nebraska law on May 28, 1987 to receive and
invest premiums paid under the Policy. Assets of Separate Account VA-2 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 Separate Account VA-2 are credited without regard to other income, gains, or
losses of AVLIC.
Separate Account VA-2 purchases and redeems shares from the Portfolios at the
net asset value. Shares are redeemed for AVLIC to pay withdrawals and
surrenders, collect charges, and make Policy loans or transfer assets from one
Portfolio to another, or to the Fixed Account, as requested by the Owner. Any
dividend or capital gain distribution is automatically reinvested in the
corresponding Subaccount.
ANNUITY III
18
<PAGE>
All obligations arising under the Policies are liabilities of AVLIC. AVLIC will
always keep assets in Separate Account VA-2 with a total market value at least
equal to the reserve and other contract liabilities of Separate Account VA-2. To
the extent assets in Separate Account VA-2 exceed AVLIC's liabilities in
Separate Account VA-2, AVLIC may withdraw excess assets to cover general account
obligations.
Separate Account VA-2 is a unit investment trust registered with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940
Act"). This does not involve any SEC supervision of the management or investment
policies or practices of Separate Account VA-2.
THE FUNDS
Each Fund is registered with the SEC under the 1940 Act as an open-ended
management investment company or a series thereof. There are currently 27
Subaccounts within Separate Account VA-2, each investing only in a corresponding
Portfolio of the Funds.
The assets of each Portfolio of the Funds are held separate from the assets of
the other Portfolios. Thus, each Portfolio operates as a separate investment
Portfolio, and the income or losses of one Portfolio generally 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.
The investments in the Portfolios may be managed by Portfolio managers which
manage one or more other mutual funds that have similar names, investment
objectives, and investment styles as the Portfolios. You should be aware that
the Portfolios are likely to differ from the other mutual funds in size, cash
flow pattern, and tax matters. Thus, the holdings and performance of the
Portfolios can be expected to vary from those of the other mutual funds.
You should periodically reconsider your allocation among the Portfolios in light
of current market conditions and the investment risks attendant to investing in
the Portfolios.
The Funds may be available for variable annuity or variable life insurance
contracts of various insurance companies. Though unlikely, there is a
possibility that a material conflict could arise between the interests of
Separate Account VA-2 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>
Ameritas Portfolios Ameritas Investment Corp. Ameritas Money Market
Ameritas Index 500
Ameritas Growth
Ameritas Income & Growth
Ameritas Small Capitalization
Ameritas MidCap Growth
Ameritas Emerging Growth
Ameritas Research
Ameritas Growth With Income
Fidelity Funds Fidelity Management and 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 Contrafund
ANNUITY III
19
<PAGE>
Alger American Fund Fred Alger Management, Inc. Alger American Balanced
Alger American Leveraged AllCap
MFS Trust Massachusetts Financial Services Company Utilities
Global Governments
New Discovery
MSDW Universal Morgan Stanley Dean Witter Emerging Markets Equity
Funds Investment Management Inc. Global Equity
International Magnum
Asian Equity
U.S. Real Estate
</TABLE>
Each of the funds, other than the Ameritas Portfolios, is managed by an
investment advisory organization that is not affiliated with AVLIC. The Ameritas
Portfolios are managed by AIC, an AVLIC affiliate, and subadvised as follows:
Ameritas Money Market Calvert Asset Management Company, Inc.
Ameritas Index 500 State Street Global Advisors
Ameritas Growth Fred Alger Management, Inc. ("Alger Management")
Ameritas Income & Growth Alger Management
Ameritas Small Capitalization Alger Management
Ameritas MidCap Growth Alger Management
Ameritas Emerging Growth Massachusetts Financial Services Company
("MFS Co.")
Ameritas Research MFS Co.
Ameritas Growth With Income MFS Co.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
AVLIC reserves the right, subject to applicable law, to add, delete, combine, or
substitute investments in Separate Account VA-2 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 objectives or restrictions, or
for some other reason. AVLIC may operate Separate Account VA-2 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 Separate Account VA-2
to another separate account. If necessary, we will notify the SEC and/or state
insurance authorities and will obtain any required approvals before making these
changes.
If any changes are made, AVLIC may, by appropriate endorsement, change the
Policy to reflect the changes. 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 Separate Account VA-2. AVLIC will determine the basis for
making any new Subaccounts available to existing Owners.
You will be notified of any material change in the investment policy of any
Portfolio in which you have an interest.
THE FIXED ACCOUNT
You may allocate all or a portion of your Premium Payments and make transfers to
the Fixed Account. Amounts in the Fixed Account earn a fixed rate of interest
guaranteed by AVLIC never to be less than 3.5%. AVLIC may, at its discretion,
set a higher interest rate. The Fixed Account is not available to Oregon Policy
Owners.
Each month AVLIC will establish the declared rate for the Policies with a Policy
Date or Policy anniversary date in that month. Interest will be credited on the
amounts transferred or allocated to the Fixed Accounts at the declared rate
effective for the month of issue. The declared rate is guaranteed for the
remainder of the Policy Year. During later Policy Years, all amounts in the
Fixed Account will earn interest at the declared rate in effect in the month of
the last Policy anniversary. Declared interest rates may increase or decrease
from previous periods.
Amounts allocated to the Fixed Account or transferred from Separate Account VA-2
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
ANNUITY III
20
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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 SEC has not reviewed the disclosures in this prospectus relating to the
Fixed Account portion of the contract; however, disclosures regarding the Fixed
Account portion of the contract may be subject to generally applicable
provisions of the federal securities laws regarding the accuracy and
completeness of statements made.
THE POLICY
The Policy is a variable annuity 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.
The Policy may be purchased on a non-tax qualified basis ("Nonqualified
Policy"). The Policy may also be purchased in connection with certain plans
qualifying for favorable federal income tax treatment ("Qualified Policy").
CONTROL OF POLICY
The Owner is the person or entity named as such in the application or 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 the
Owner's Designated Beneficiary, if living; otherwise to the estate of the last
Owner to die.
POLICY APPLICATION AND PREMIUM PAYMENT
Individuals wishing to purchase a Policy should send a complete application and
initial premium to AVLIC's Home Office (5900 "O" Street, P.O. Box 82550,
Lincoln, Nebraska 68501). The application to purchase a Nonqualified Policy must
be submitted with an initial Premium Payment of not less than $2,000 unless
other provisions for payment of the $2,000 premium are made. An application to
purchase an annuity in a qualified plan may be submitted with initial monthly
premiums of as little as $50 in periodic payment plans providing for $600 in
premiums per year. Acceptance is subject to AVLIC's underwriting rules, and
AVLIC reserves the right to reject any application for any reason.
After the Policy is issued, an Owner of a Policy in a non-qualified plan may
make additional Premium Payments of $500 or more. Smaller Premium Payments may
be accepted on Bank-O-Matic in tax-qualified plans or at AVLIC's discretion.
Total premiums may not exceed $1,000,000 for either a single Policy or for
multiple AVLIC annuity policies having the same Annuitant.
If the application and initial Premium Payment can be accepted in the form
received, the initial Premium Payment 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, AVLIC will request the information
necessary to complete the application. Once the application is complete and we
have received the initial premium, the premium will be applied within two
business days. 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.
The Policy Date is used to determine Policy anniversary dates and Policy Years.
On the Issue Date, the Policy Date will be the date two days after AVLIC
received the application and initial premium. If the Policy Date would fall on
the 29th, 30th, or 31st of a month, the Policy Date will be set at the 28th day
of that month.
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ALLOCATION OF PREMIUM
You may allocate the net premium to one or more 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 Accumulation Value is allocated on the Issue Date of the Policy to one or
more Subaccounts of Separate Account VA-2 or to the Fixed Account. The
Accumulation Value will be used to purchase Accumulation Units of the
Subaccounts of Separate Account VA-2 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 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 Cash Surrender Value which on the
Annuity Date affects the level of Annuity Payments payable. You should
periodically review your allocations 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. Thereafter, the
Accumulation Value of the Policy is determined on each Valuation Date by
multiplying the number of Accumulation Units of each Subaccount by the current
value of an Accumulation Unit for each 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 administrative fee and the annual
Policy fee, any withdrawals, and any charges upon withdrawal and, upon
annuitization, any applicable premium taxes and charges.
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 the Portfolio as of the end of the
Valuation Period in which the allocation is made. The Accumulation Units of each
Subaccount are valued separately. The Accumulation Unit value 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, interest earned in the Fixed Account, additional
Premium Payments, withdrawals, as well as the deduction of any applicable
charges under the Policy.
VALUATION DATE AND VALUATION PERIOD. A Valuation Date is each day on which the
New York Stock Exchange ("NYSE") is open for trading. The net asset value for
each Fund portfolio is determined as of the close of regular trading on the
NYSE. The net investment return for each Subaccount and all transactions and
calculations with respect to the Policies as of any Valuation Date are
determined as of that time. A Valuation Period is the period between two
successive Valuation Dates, commencing on the close of the NYSE on each
Valuation Date and ending at the close of the NYSE on the next succeeding
Valuation Date.
TRANSFERS
You may make transfers among the Subaccounts and/or the Fixed Account 15 times
each Policy Year without charge. A transfer charge of $10.00 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 Owner is
invested. Each transfer must be at least $250, or the balance of the Subaccount,
if less. You may make unlimited transfers from the Subaccounts 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 Subaccounts 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 Subaccount or the Fixed
Account after a transfer is $100.
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If you have money in the Ameritas Portfolios as a result of the substitution
which occurred at the close of business on the Substitution Date, the following
procedure is applicable until December 1, 1999: you may transfer money out the
Ameritas Portfolios to any other Subaccount available under the Policy without
any administrative charge and without the transfer counting as one of your "free
transfers."
You may initiate transactions by telephone. AVLIC will employ reasonable
procedures to confirm that telephone instructions are genuine, and if it does
not, AVLIC may be liable for any losses due to unauthorized or fraudulent
instructions. 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 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. We will count your
transfers in these programs when determining whether the transfer fee applies.
Lower minimum amounts may be allowed to transfer as part of a systematic
program. All other normal transfer restrictions, as described above, apply.
There is no separate charge for participation in these programs at this time.
PORTFOLIO REBALANCING. Portfolio rebalancing is a method to maintain your
original allocation proportions among Portfolios. Under this program, you can
instruct AVLIC to reallocate Accumulation Value among the Portfolios, on a
systematic basis, in accordance with allocation instructions you specify. The
Fixed Account can not be used in this program.
DOLLAR COST AVERAGING. Under the dollar cost averaging program, you can instruct
AVLIC to automatically transfer, on a systematic basis, a predetermined amount
or percentage you specify from the Fixed Account or the Money Market Subaccount
to any other Subaccount(s). Dollar cost averaging is permitted from the Fixed
Account, if no more than 1/36th of the value of the Fixed Account at the time
dollar cost averaging is established is transferred each month.
EARNINGS SWEEP. Permits systematic redistribution of earnings among Subaccounts.
You can request participation in the available programs when purchasing the
Policy or at a later date. You 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. Participation in any
systematic program will automatically terminate upon the death of the Annuitant.
Use of systematic programs may not be advantageous, and does not guarantee
success.
DISTRIBUTIONS UNDER THE POLICY
In the absence of specific direction from the Owner, amounts will be withdrawn
from the Subaccounts and the Fixed Account on a pro rata basis. Any partial
withdrawal that would reduce the Cash Surrender Value to less than $1000 will be
considered a request for full withdrawal. Any partial annuitization will be
allocated first to earnings and then to principal.
All withdrawals of amounts held in Separate Account VA-2 will be paid within
seven days of receipt of written request, subject to postponement in certain
circumstances. (See the section on Deferment of Payment.) Payments under the
Policy of any amounts derived from a premium paid by check may be delayed until
such time as the check has cleared the payor's bank. If, at the time you make a
partial or full withdrawal request, you have not provided AVLIC with a written
election not to have federal income taxes withheld, We must by law withhold such
taxes from the taxable portion of any full or partial withdrawal and remit that
amount to the federal government. At your request, We will provide a form to
request a withdrawal and to notify Us of your election whether to have federal
income taxes withheld. Moreover, the Internal Revenue Code provides that a 10%
penalty tax may be imposed on certain early withdrawals. (See the section on
Federal Tax Matters--Taxation of Annuities in General.)
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Since you have the entire investment risk for amounts held in Separate Account
VA-2 and because certain withdrawals are subject to a Contingent Deferred Sales
Charge, the total amount paid upon withdrawals under the Policy (taking into
account any prior withdrawals) may be more or less than the Premium Payments
made.
FULL AND PARTIAL WITHDRAWALS
Any time prior to the Annuity Date and while the Annuitant is still living, you
may make partial withdrawals or a full withdrawal of the Policy to receive all
or part of the Accumulation Value (less any applicable charges). You may request
partial withdrawals or a full withdrawal on a form approved by AVLIC. No partial
or full withdrawals may be made after the Annuity Date except as permitted under
a particular Annuity Income Option. The withdrawal right may be restricted by
Section 403(b)(11) of the IRS Code and, should the withdrawal be an eligible
rollover distribution from a qualified plan or an annuity in a 403(b) plan, it
will be subject to a mandatory 20% withholding under the IRS Code unless the
distribution is paid directly by AVLIC into an eligible retirement plan in a
direct rollover. (See the section on Federal Tax Matters.)
The amount available for full or partial withdrawal ("Cash Surrender Value") is
the Accumulation Value at the end of the Valuation Period during which the
written request for withdrawal is received, less any Contingent Deferred Sales
Charge, any applicable premium taxes, and in the case of a full withdrawal, less
the annual Policy fee that would be due on the last Valuation Date of the Policy
Year. The Cash Surrender Value may be paid in a lump sum to the Owner, or, if
elected, all or any part may be paid out under an Annuity Income Option. (See
the section on Annuity Income Options.)
CRITICAL NEEDS WITHDRAWALS
Annuitants whose Policies have been in force for at least one year may, under
certain conditions, make withdrawals without surrender charges. These conditions
include: the Annuitant must be 65 or younger when the Policy was issued; the
Policy Accumulation Value must exceed $5,000; the Annuitant must provide a
medical doctor's verification of diagnosis of terminal illness with less than 12
months to live; or verification of 90 consecutive days of confinement in a
medical facility for an approved medical reason; and no additional Premium
Payments are made during the waiver period. The waiver of withdrawal charges
during medical confinement will continue for 90 days after release. This waiver
of withdrawal charges is not available in all states.
REFUND PRIVILEGE
You have a period of time to examine a Policy and return it for a refund. You
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. This amount may be more or less than the Premium
Payments made. In other states, the refund is equal to the greater of the
premiums paid or the premiums adjusted by investment gains and losses. All
Individual Retirement Annuity (IRA) or custodial IRA annuity refunds will be a
return of Premium Payment. To cancel the Policy, the Owner should return it to
the selling agent, or to AVLIC at the Home Office. A refund, if the premium was
paid by check, may be delayed until the check has cleared the Owner's bank.
POLICY LOANS
After the first Policy anniversary the Owner of a Policy purchased in a 403(b)
qualified plan may borrow up to the lesser of: $50,000 (including all loans
outstanding during the preceding year); or 50% of the Cash Surrender Value of
the Policy; or 50% of the present value of the non-forfeitable accrued benefits
of the Owner under the Policy. One loan may be taken each year and the minimum
initial loan amount is $1,000. The loans usually are funded within 7 days of the
receipt of a written request. Any outstanding loan balance will be deducted from
Policy proceeds payable due to death, surrender, or upon annuitization.
All loans must be repaid within five years with substantially level amortized
payments made at least quarterly. Repayment for loans to purchase a dwelling to
be used, within a reasonable time, as a residence may be made over a longer
period. If any repayment due under the loan is unpaid for ninety (90) days, the
balance will become due without notice. The loan will be repaid by deducting the
balance and any applicable charges and taxes from the Accumulation Value.
The current loan interest rate will be 7.5% and is guaranteed not to exceed 8%
per year. When a loan is made, Accumulation Values equal to the amount of the
loan will be transferred from Separate Account VA-2 and/or the Fixed Account to
AVLIC's general account as security for the debt. The Owner is currently earning
4.5% and is guaranteed to earn 3.5% on the amount securing the debt. The
Accumulation Values transferred out of Separate Account VA-2 will be allocated
among the Subaccounts or Fixed Account as instructed by the Owner when the loan
is requested. If no
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instructions are given, the amounts will be withdrawn in proportion to the
various Accumulation Values in the Subaccounts or the Fixed Account. Upon
repayment of the loan, the transfers back into Separate Account VA-2 or Fixed
Account will be allocated in accordance with the allocation instructions in
effect when the payments are made.
The loans to Owners of a Policy purchased in 403(b) qualified plans will be
considered distributions from the Policy and subject to taxation unless the
requirements of IRS Code Section 72(p), including repayment, are met. In
addition Policies purchased in plans subject to ERISA may be subject to ERISA
requirements. AVLIC may refuse to make a loan which violates these requirements.
AVLIC may be required to report the loan as income to the Owner if the loan
violates the IRS requirements or is not repaid according to the IRS requirements
and the loan terms. This provision is not available in all states.
CHARGES AND DEDUCTIONS
Charges will be deducted periodically from the Accumulation Value of the Policy
to compensate AVLIC for, among other things: (1) issuing and administering the
Policy; (2) assuming certain risks in connection with the Policy; and (3)
incurring expenses in distributing the Policy. The nature and amount of these
charges are described more fully below.
No deductions are made from the Premium Payments before they are allocated to
Separate Account VA-2 or the Fixed Account, unless taxes are imposed by state
law upon the receipt of a Premium Payment. In that case, AVLIC will deduct the
premium tax due when the premiums are received. Other charges, such as transfer
and Contingent Deferred Sales Charges, may be made upon transfers, withdrawals
or, in some cases, upon annuitization, as described more fully below.
ADMINISTRATIVE CHARGES
ANNUAL POLICY FEE. An annual Policy fee of up to $50.00 (currently $36.00,
$30.00 in North Dakota) is deducted from the Accumulation Value on the last
Valuation Date of each Policy Year or upon a full withdrawal. This charge
reimburses AVLIC for the administrative costs of maintaining the Policy on
AVLIC's system.
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: (1) the size and type of group; (2) the number of
annuities purchased by an Owner; (3) the amount of Premium Payments; and/or (4)
other transactions where maintenance and/or administrative expenses are likely
to be reduced.
Any elimination of the annual Policy fee will not discriminate unfairly between
annuity purchasers. AVLIC will not make any changes to this charge where
prohibited by law.
ANNUAL ADMINISTRATION FEE. 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, record keeping, preparing and mailing reports,
processing Death Benefit claims and overhead. This charge of .20% of the
Accumulation Value is guaranteed not to be increased. It is calculated and
deducted from the Accumulation Value on the last Valuation Date of each Policy
Year.
AVLIC does not expect to make a profit on the charges for the annual Policy and
administration fees.
TRANSFER CHARGE. Transfer charges may be levied. (See the section on Transfers.)
MORTALITY AND EXPENSE RISK CHARGE
AVLIC imposes a charge to compensate it for bearing certain mortality and
expense 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 Separate
Account VA-2. 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.
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,
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nor an improvement in life expectancy greater than expected, will have any
adverse effect 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 in two important
aspects. First, regardless of the Annuity Income Option selected, it guarantees
the purchase rates for the Annuity Income Options available under the Policy.
Second, AVLIC 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, less withdrawals, and periodic charges.
The expense risk undertaken by AVLIC, with respect to Separate Account VA-2, is
that the deductions for administrative costs under the Policies may be
insufficient to cover the actual future costs incurred by AVLIC for providing
Policy administration services.
If the Contingent Deferred Sales Charge on withdrawals is insufficient to cover
the distribution expenses, the deficiency will be met from AVLIC's general
account funds, including the amount derived from the charge levied for mortality
and expense risks.
CONTINGENT DEFERRED SALES CHARGE
Since no deduction for a sales charge is made from the Premium Payment, unless
waived, a Contingent Deferred Sales Charge is imposed on certain partial and
full withdrawals and upon certain annuitizations to cover certain expenses
relating to the distribution of the Policy, including commissions to registered
representatives and other promotional expenses. In a Policy Year, you may
withdraw up to the greater of 10% of the Policy Accumulation Value or the
earnings at that time and we will not assess a Contingent Deferred Sales Charge.
We consider earnings to be that portion of the Accumulation Value that exceeds
the total premiums we have received after any previous withdrawals. The
Contingent Deferred Sales Charge is assessed only on premiums paid based upon
the number of years since premiums withdrawn were paid, on a first paid, first
withdrawn basis. The Contingent Deferred Sales Charge is a maximum of 6% of the
Premium Payment withdrawn and grades to 0% after the seventh year after the
withdrawn premiums were deposited. Those Annuitants whose Policies have been in
force for at least one year and meet certain conditions may make withdrawals
without surrender charges. (See the section on Critical Needs Withdrawals.)
Where a partial or full withdrawal is taken or amounts are applied under an
annuity option, which are subject to a Contingent Deferred Sales Charge, the
Contingent Deferred Sales Charge will be expressed as a percentage of the
Premium Payments withdrawn or annuitized as follows:
YEAR % YEAR %
---- - ---- -
1 6 5 4
2 6 6 3
3 6 7 2
4 5 8+ 0
In the case of a partial withdrawal or annuitization, the Contingent Deferred
Sales Charge will be deducted from the amounts remaining under the Policy. The
charge will be allocated pro rata among the Subaccounts (or the Fixed Account)
based on the Accumulation Value in each prior to the withdrawal or annuitization
unless an Owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. A Contingent Deferred Sales Charge will not be assessed on Premium
Payments withdrawn at least two years after deposit, if withdrawn and applied
under the Life Annuity or Joint and Last Survivor Annuity options. (See the
section on Annuity Income Options.) Further, the sum of all Contingent Deferred
Sales Charges will never exceed 6% of the Premium Payment for each payment
period.
Full or partial withdrawals from the Fixed Account may be deferred for up to 6
months from the date of written request.
TAXES
The Owner will pay premium taxes that currently range from 0% to 3.5% of the
premium paid, where such taxes are imposed by 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
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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. Owners are responsible for informing AVLIC in writing
of changes of residence.
Under present laws, AVLIC will incur state or local taxes (in addition to the
premium taxes described above) in several states. At present, these taxes are
not significant; thus, AVLIC 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 Unit value.
AVLIC does not expect to incur any federal income tax liability attributable to
investment income or capital gains retained as part of the reserves under the
Policies. (See the section on Federal Tax Matters.) Based upon these
expectations, no charge is being made currently to Separate Account VA-2 for
corporate federal income taxes which may be attributable to Separate Account
VA-2.
AVLIC will periodically review the question of a charge to Separate Account VA-2
for corporate federal income taxes related to Separate Account VA-2. Such a
charge may be made in future years for any federal income taxes incurred by
AVLIC. This might become necessary if the tax treatment of AVLIC is ultimately
determined to be other than what AVLIC currently believes it to be, if there are
changes made in the federal income tax treatment of annuities at the corporate
level, or if there is a change in AVLIC's tax status. In the event that AVLIC
should incur federal income taxes attributable to investment income or capital
gains retained as part of the reserves under the Policy, the Accumulation Unit
value would be correspondingly adjusted.
FUND INVESTMENT ADVISORY FEES AND EXPENSES
The value of assets in Separate Account VA-2 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 (seventh Policy anniversary in
Oregon) 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 (90th birthday in Oregon), and may be extended further with Home Office
approval. The 29th, 30th, or 31st day of any month may not be selected as the
Annuity Date.
In selecting an Annuity Date, the Owner may wish to consider the applicability
of a Contingent Deferred Sales Charge, which is imposed upon an annuitization
prior to the third Policy Year following the Premium Payment where a life
annuity is selected, and prior to the eighth Policy Year if any other Annuity
Income Option is selected.
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 AVLIC's
Home Office at least 30 days before the currently scheduled Annuity Date. The
Annuity Date and Annuity Income Options available for Qualified Policies may
also be controlled by endorsements, the plan or applicable law.
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 net Cash
Surrender Value as of the Annuity Date, and the Annuity Income Option. The net
Cash Surrender Value is equal to the Cash Surrender Value less any premium
taxes, if applicable. Thereafter, the monthly Annuity Payment will not change,
except in the event you choose the Interest Payment Option, in which case the
payment will vary based on the rate of interest determined by AVLIC. All or part
of the net Cash Surrender Value may be placed under one or more Annuity Income
Option. If Annuity Payments are to be paid under more than one option, AVLIC
must be told what part of the net Cash Surrender Value is to be paid under each
option.
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The Annuity Income Options are shown below. You must choose an Annuity Income
Option by written request to AVLIC at least thirty (30) days in advance of the
Annuity Date. If you do not, 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 $20, AVLIC
reserves the right to pay the net Cash Surrender Value as a lump sum payment.
If you choose an Annuity Income Option which depends on the continuation of life
of the Annuitant or of a joint Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Income Options involving life income,
the actual age of the Annuitant or joint Annuitant will affect the amount of
each payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment shall be greater. For Annuity Income
Options that do not involve life income, the length of the payment period will
affect the amount of each payment, with the shorter the period, the greater the
amount of each Annuity Payment.
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 for the life
of the survivor, ceasing with the last Annuity Payment due prior to
the survivor's death.
The rate of interest payable under the Interest Payment, Designated Amount
Annuity, or Designated Period Annuity options will be guaranteed at 3%
compounded yearly. Payments under the Life Annuity and Joint and Last Survivor
Annuity options will be based on the 1983 Table "a" Annuity Table at 3.5%
interest. AVLIC may, at any time of election of an Annuity Income Option, offer
more favorable rates in lieu of the guaranteed rates specified in the annuity
tables. These rates may be based on Annuity Tables which distinguish between
males and females.
Under current administrative practice, AVLIC allows the beneficiary to transfer
amounts applied under 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. If you are concerned about any of the tax implications
discussed, 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 the section on Tax Charges.)
The following discussion assumes that the Policy will qualify as an annuity
policy for federal income tax purposes. The Statement of Additional Information
discusses such qualifications.
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TAXATION OF ANNUITIES IN GENERAL
NONQUALIFIED POLICIES. Section 72 of 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 generally applied to owners that are not natural persons. Generally,
an owner of a policy who is not a natural person must include in income any
increase in the excess of the owner's cash value over the owner's "investment in
the policy" during the taxable year, even if no distribution occurs. There are,
however, exceptions to this rule which you may wish to discuss with your tax
counsel. The following discussion applies to Policies owned by natural persons.
The taxable portion of a distribution (in the form of an annuity or lump sum
payment) is taxed as ordinary income, subject to any income averaging rules
applicable to taxpayers generally. For this purpose, a gift of the policy, the
assignment, pledge, indirect loan, or agreement to assign or pledge or
indirectly loan any portion of the accumulation value generally will be treated
as a distribution.
Generally, in the case of a withdrawal under a nonqualified policy, amounts
received 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.
Tax treatment of amounts received as an annuity under the Policy, is different
from taxation of distributions or withdrawals that are not in annuity form.
Although the tax consequences may vary depending on the annuity income option
elected under the policy, in general, only the portion of an annuity payment
that represents the amount of the payment which exceeds the payment's
proportionate share of "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.
A federal penalty equal to 10% of the amount treated as taxable income may also
be imposed on distributions from non-qualified annuity policies. 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 on or after the death of the
owner, (3) attributable to the taxpayer's becoming disabled within the meaning
of Internal Revenue Code Section 72 (m)(7), (4) received in substantially equal
payments (not less frequently than annually) made for the life or life
expectancy of the taxpayer or the joint lives (or joint life expectancies) of
the taxpayer and his or her designated beneficiary, subject to Internal Revenue
Service requirements, including special "recapture" rules or (5) which are
allocable to "investment in the policy" made prior to August 14, 1982.
QUALIFIED POLICIES. Qualified policies are used by individuals in connection
with retirement plans which are intended to qualify as plans that receive
special income tax treatment under Sections 401, 403(a), 403(b), 408 or 457 of
the Internal Revenue Code (the "Code"). The ultimate effect of federal income
taxes on the contributions, on the accumulation value, on annuity payments and
on the economic benefit to the owner, the annuitant or the beneficiary depends
on the type of retirement plan, on the tax and employment status of the
individual concerned and on AVLIC's tax status. In addition, certain
requirements must be satisfied in purchasing a qualified policy in connection
with a tax qualified plan in order to receive favorable tax treatment. With
respect to qualified policies an endorsement of the policy and/or limitations or
penalties imposed by the Code may impose limits on premiums, withdrawals,
distributions or benefits, or on other provisions of the policies. Therefore,
purchasers of Qualified Policies should seek competent legal and tax advice
regarding the suitability of the Policy for their situation, the applicable
requirements and the tax treatment of the rights and benefits of a Policy.
Section 403(b)(11) of the Code requires that no distribution attributable to
salary deferred contributions may be made from a plan under Section 403(b)
except after age 59 1/2, separation from service, death or disability, or in the
case of hardship, except in a tax free exchange to another qualified contract.
The following discussion assumes that qualified policies are purchased in
connection with retirement plans that qualify for the special federal income tax
treatment described above.
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
ANNUITY III
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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 prior to the annuity starting date from qualified policies
other than IRAs prior to the annuity starting date, a ratable portion of the
amount received is taxable, based on the ratio of the "investment in the policy"
to the total Policy value. The amount excluded from a taxpayer's income will be
limited to an aggregate cap equal to the "investment in the policy." The taxable
portion of annuity payments with annuity starting dates on or before November
18, 1996, is generally determined under rules similar to those applicable to
annuity distributions from nonqualified policies. However, for annuity payments
with annuity starting dates after November 18, 1996, annuitants must use a
simplified method for determining the tax-free portion of annuity payments by
dividing "investments in the policy" by the number of annuity payments set by
tables in the Internal Revenue Code based on the age of the primary annuitant.
This method does not apply if the annuitant is over age 75 and there are 5 or
more years of guaranteed payments. For annuity payments based on the lives of
more than one individual and that have annuity starting dates after December 31,
1997, annuitants must use the simplified method based on the combined ages of
both individuals when calculating the excludable portion of annuities based on
the separate tables set forth in the Code for that purpose. In the case of an
annuity that does not depend in whole or in part on the life expectancy of one
or more individuals, the expected number of payments is the number of monthly
annuity payments under the policy. However, special favorable tax treatment may
be available for certain distributions (including lump sum distributions from
plans other than IRAs or TSAs made in tax years beginning before January 1,
2000). Adverse tax consequences may result from excess contributions,
distributions prior to age 59 1/2 (subject to certain exceptions), distributions
that do not conform to specified commencement and minimum distribution rules,
and in certain other circumstances.
Roth IRA contributions are not deductible and may be limited or unavailable
depending on your adjusted gross income. Withdrawals of earnings from Roth IRAs
may be tax free if certain requirements are met. If withdrawals do not meet
those requirements, they will be considered to be made first from contributions,
then from "conversion" amounts (on a first-in, first-out basis), and then from
earnings. The earnings will be subject to income tax and an additional 10%
penalty tax may apply to distributions made prior to age 59 1/2. 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, taxpayers can elect to include the full
taxable conversion amount in income for 1998 or to have the tax spread over 4
years on a pro rata basis, beginning in 1998). Conversion amounts will not
generally be subject to the 10% penalty tax that applies to premature
distributions, unless a distribution of the conversion amount from the Roth IRA
occurs within the 5 taxable year period beginning with the year of conversion.
Also, income inclusion may be accelerated if a distribution is made of 1998
conversion amounts which are subject to the 4 year spread rule.
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) or annuities used in 403(b) plans are subject
to income tax withholding at a rate of 20% unless the Owner elects to have the
distribution paid directly by AVLIC to an eligible retirement plan (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 non-qualified policies. However, Section
457 non-qualified 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) generally receives the Death Benefit proceeds
following death of the Annuitant. The Owner may name both primary and contingent
Annuitant's Beneficiaries. The Annuitant's Beneficiary(ies) and their designated
class are specified in the application.
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.
CHANGE OF BENEFICIARY
The Owner may change the Annuitant's Beneficiary and Owner's Designated
Beneficiary by written request on a Change of Beneficiary form at any time
during the Annuitant's lifetime unless otherwise provided in the previous
designation of beneficiary. AVLIC, at its option, may require that the Policy be
returned to the Home Office for endorsement of any change, or that other forms
be completed. The change will take effect as of the date the change is recorded
at the Home
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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 PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is payable upon
receipt of Due Proof of Death of the Annuitant, as well as proof that the
Annuitant died prior to the Annuity Date. AVLIC guarantees to pay the Death
Benefit established on the date Due Proof of Death is received by AVLIC at its
Home Office. The Death Benefit is payable as a lump sum cash benefit or under
one of the Annuity Income Options.
The Owner may elect an Annuity Income Option for the 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 Due Proof of Death includes a "Claimant's Statement," which specifies how
the Annuitant's Beneficiary wishes to receive the benefit (unless the Owner
previously selected an Annuity Income Option), the amount of the Death Benefit
will continue to reflect the investment performance of Separate Account VA-2
until that information is supplied to AVLIC. In order to take advantage of the
favorable tax treatment accorded to receiving the Death Benefit as an annuity,
the Annuitant's Beneficiary must elect to receive the benefits under an Annuity
Income Option within 60 days "after the day on which such lump sum became
payable," as defined in the Internal Revenue Code. The Death Benefit will be
paid to the Annuitant's Beneficiary within seven days of when it becomes
payable.
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 Cash Surrender 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.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from Separate
Account VA-2 will occur within seven days from the date the amount becomes
payable, except that AVLIC may be permitted to defer such payment if:
(1) the New York Stock Exchange is closed other than customary weekends and
holidays or trading on the New York Stock Exchange is otherwise restricted; or
(2) the SEC permits the delay for the protection of Owners; or
(3) an emergency exists as determined by the SEC.
In addition, surrenders or partial 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 and/or joint Annuitant (if any) has been misstated,
we will adjust the benefits and amounts payable under this Policy.
ANNUITY III
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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.
REPORTS AND RECORDS
AVLIC will maintain all records relating to Separate Account VA-2 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 fee for requested reports. The Owner will also be sent confirmations of
transactions, such as Premium 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 is affiliated with 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.
AIC offers clients a wide variety of financial products and services and has the
ability to execute stock and bond transactions on a number of national
exchanges. AIC is an AVLIC affiliate. AIC also serves as principal underwriter
for AVLIC's variable universal life policies, and for Ameritas Life's variable
life and variable annuity. AIC is the underwriter for the Ameritas Portfolios,
and also serves as its investment advisor. It also has executed selling
agreements with a variety of mutual funds, unit investment trusts, and direct
participation programs.
Commissions paid by AVLIC to broker-dealers may vary, but will equal, at most,
6.5% of premiums paid. From time to time, additional sales incentives may be
provided to broker-dealers. Managers may receive override commissions with
respect to the Policies.
The gross variable annuity compensation received by AIC on AVLIC's variable
annuities was $16,527,487 for 1998; $11,961,951 for 1997; and $10,067,075 for
1996.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
AVLIC holds the assets of Separate Account VA-2. 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
Policies. 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 Policy 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 Policies. AVLIC takes no responsibility for the
investment allocations and transfers transacted on a Policy Owner's behalf by
such third parties or any investment allocation recommendations made by such
parties. Policy Owners should be aware that fees paid for such services are
separate and in addition to fees paid under the Policies.
VOTING RIGHTS
To the extent required by law, AVLIC will vote the Portfolio shares held in
Separate Account VA-2 at shareholder meetings of the Funds in accordance with
instructions received from persons having voting interests in the
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corresponding Subaccount. The 1940 Act currently requires shareholder voting on
matters such as the election of the Board of Trustees of the Funds, the approval
of the investment advisory contract, changes in the fundamental investment
policies of the Funds, and approval of the independent accountants. If, however,
the 1940 Act or any regulation thereunder should be amended, or if the present
interpretation thereof should change, and, as a result, AVLIC determines that it
is allowed to vote the Portfolio shares in its own right, AVLIC may elect to do
so.
The number of votes which are available to an Owner will be calculated
separately for each Subaccount of Separate Account VA-2.
Prior to the Annuity Date, the Owner holds a voting interest in each Subaccount
to which the Accumulation Value is allocated. The number of votes which are
available to an Owner will be determined by dividing the Accumulation Value
attributable to a Subaccount by the net asset value per share of the applicable
Portfolio. In determining the number of votes, fractional shares will be
recognized.
The number of votes will be determined as of the record date established by the
Portfolio. Voting instructions will be solicited by written communication prior
to the 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 Separate Account VA-2.
LEGAL PROCEEDINGS
There are no legal proceedings to which Separate Account VA-2 is a party or to
which the assets of Separate Account VA-2 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 Separate Account VA-2.
AIC is not involved in any litigation that is of material importance in relation
to its ability to perform under its underwriting agreement.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available that contains more details
concerning the subjects discussed in this prospectus. This can be obtained by
writing to the address on the front or by calling 1-800-745-1112. The following
is the Table of Contents for that Statement:
GENERAL INFORMATION AND HISTORY....................................... 2
THE POLICY............................................................ 2
GENERAL MATTERS....................................................... 7
FEDERAL TAX MATTERS................................................... 8
DISTRIBUTION OF THE POLICY............................................10
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS................................10
AVLIC.................................................................10
STATE REGULATION......................................................10
LEGAL MATTERS.........................................................10
EXPERTS...............................................................10
OTHER INFORMATION.....................................................10
FINANCIAL STATEMENTS..................................................11
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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
403(b) ERISA Plans
403(b) Tax Sheltered Annuity (TSA) Plans-Withdrawal
Restrictions
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 type of 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-16
403(b) ERISA Plans
403(b) Tax Sheltered Annuity (TSA) Plans-Withdrawal
Restrictions
AMERITAS VARAIBLE LIFE INSURANCE COMPANY LOGO
<PAGE>
AMERITAS VARAIBLE LIFE INSURANCE COMPANY LOGO
INFORMATION STATEMENT
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
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
(the Company), 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 the Company.
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
Company Representative or call 1-800-745-1112.
PART II. PROVISIONS OF THE IRA LAW:
The Company's OVERTURE ANNUITY III (Form 4784), can be used for a Regular IRA, a
Rollover IRA, a Spousal IRA Arrangement, a Simplified Employee Pension Plan (SEP
IRA), or 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, the Company's Overture Annuity III is available for use as a
ROTH IRA. State income tax treatment of IRAs varies, so this disclosure only
discusses the federal tax treatment of IRAs. Please discuss state income tax
treatment of an IRA with your tax advisor.
While provisions of the IRA law are similar for all such plans, the major
differences are set forth under the appropriate topics below.
A. 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.
QD-1
IRA/SEP/SIMPLE/ROTH
ANNUITY III; 8/99
<PAGE>
ROTH IRAS: A Roth IRA must be designated as such when it is established.
Eligibility to contribute or convert to a Roth IRA is subject to income
and other limits. Unlike Regular IRAs, if eligible, you may contribute
to a Roth IRA even after age 70 1/2.
1. A REGULAR ROTH IRA IS A ROTH IRA ESTABLISHED TO RECEIVE ANNUAL
CONTRIBUTIONS AND/OR QUALIFIED ROLLOVER CONTRIBUTIONS (INCLUDING IRA
CONVERSION CONTRIBUTIONS) FROM OTHER ROTH IRAS OR FROM OTHER IRAS IF
PERMITTED BY THE POLICY AND ENDORSEMENT.
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.
2. A Roth Conversion IRA is a Roth IRA established to receive only
rollovers or conversions from non-Roth IRAs made in the same tax
year and is limited to such contributions.
3. Spousal Roth IRA Arrangement: Beginning in 1998, a Spousal Roth IRA
may be set up for a "non-working" spouse who has less taxable
compensation, if any, for the tax year than the "working" spouse,
regardless of age, provided the spouses file a joint tax return and
subject to the adjusted gross income ("AGI") limits described in
PART II, MAXIMUM CONTRIBUTIONS--SPOUSAL ROTH IRA ARRANGEMENT.
Divorced spouses can continue a Spousal Roth IRA or start a regular
Roth IRA based on standard Roth IRA eligibility rules. Taxable
alimony received by the divorced spouse under a decree of divorce or
separate maintenance is treated as compensation for purposes of Roth
IRA eligibility limits.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP IRA): An employee is eligible
to participate in a SEP IRA Plan based on eligibility requirements
set forth in form 5305-SEP or other plan document provided by the
employer.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN (SARSEP): An
employee is eligible to participate in a SARSEP plan based on
eligibility requirements set forth in form 5305A-SEP or the plan
document provided by the employer. New SARSEP plans may not be
established after December 31, 1996. SARSEPs established prior to
January 1, 1997, may continue to receive contributions after 1996,
and new employees hired after 1996 are also permitted to participate
in such plans.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES OF SMALL EMPLOYERS
(SIMPLE IRA):An employee is eligible to participate in a SIMPLE IRA
Plan based on eligibility requirements set forth in Form 5304-SIMPLE
or other plan document provided by the employer. A SIMPLE IRA must
be established as such, thus some policies may not be available for
use with a SIMPLE IRA Plan.
B. 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).
C. NONFORFEITABILITY: The value of your IRA Plan (all types included) belongs
to you at all times, without risk of forfeiture.
D. 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
Plan 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 are 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 non-elective contributions (2% of compensation
(subject to the cap under Code Section 401(a)(17) as indexed) for each
eligible employee).
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E. 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 to Education IRAs or employer contributions or salary
deferrals to SEP or SIMPLE 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 and your deductions for contributions
subject to phase-out because of your spouse's participation in an employer-
sponsored retirement plan, if your combined adjusted gross income exceeds
$150,000. SEE PART III. C., 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 ROTH AND ROTH CONVERSION IRAS, THAT FOLLOW.
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. Also, under the Internal Revenue Service Restructuring and Reform
Act of 1998 (IRSRRA"98), hardship distributions made from 401(k) or 403(b) plans
on or after January 1, 1999, are no longer considered eligible rollover
distributions. However, the Internal Revenue Service has announced transition
relief from this rule for 1999. Under this relief, if a distribution made during
1999 would have been considered an eligible rollover distribution immediately
before that Code definition was amended by IRSRRA"98, the distribution may be
rolled over to an eligible retirement plan. In other words, hardship
distributions from a 401(k) or 403(b) plan may still be eligible for rollover in
1999, except as otherwise permitted by the Internal Revenue Service.
At the time of a Rollover, you must irrevocably designate in writing that the
transfer is to be treated as a Rollover Contribution. Eligible amounts which are
not rolled over are normally taxed as ordinary income in the year of
distribution. If a Rollover Contribution is made to an IRA from a Qualified
Retirement Plan, you may later be able to roll the value of the IRA into a new
employer's plan PROVIDED YOU MAKE NO CONTRIBUTIONS TO THE IRA OTHER THAN FROM
THE FIRST EMPLOYER'S PLAN. THIS IS KNOWN AS "CONDUIT IRA," AND YOU SHOULD
DESIGNATE YOUR ANNUITY AS SUCH WHEN YOU COMPLETE YOUR APPLICATION.
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<PAGE>
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. C., DEDUCTIBLE IRA
CONTRIBUTIONS).
The contribution limit for divorced spouses is the lesser of $2,000 or the total
of the taxpayer's taxable compensation and alimony received for the year.
(Married individuals who live apart for the entire year and who file separate
tax returns are treated as if they are single when determining the maximum
deductible contribution limits).
ROTH IRA: The maximum total annual contribution an individual can make to all
IRAs (including Roth IRAs, but not Education, SARSEP or SIMPLE IRAs) is the
lesser of $2,000 or 100% of compensation. (This limit does not apply to rollover
contributions, which includes amounts converted from a Regular IRA to a Roth
IRA). If an individual contributes to both a Regular IRA and Roth IRA for the
same tax year, contributions are treated as first made to the Regular IRA. For
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 $10,000 for married individuals who file separate tax
returns. AGI for this purpose includes any deductible contribution to a Regular
IRA, (i.e., the deduction is disregarded) but does not include any amount
included in income as a result of a rollover or conversion from a non-Roth IRA
to a Roth IRA.
Rollovers and transfers may also be made from one 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).
Also, beginning in the 1998 tax year, rollovers or conversions may be made from
non-Roth IRAs to a Roth IRA. These contributions can be commingled with regular
Roth contributions if your policy permits. 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 Roth IRA does not count toward the limit of one
rollover per IRA in any 12-month period under the normal IRA 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 Roth IRA. Also if you are eligible to make a
conversion, you may transfer amounts from most non-Roth IRAs (other than
Education IRAs). Conversion of an individual's SIMPLE IRA is only permitted
after expiration of the 2-year period which begins on the date the individual
first participated in any SIMPLE IRA Plan of the employer. Once an amount in a
SIMPLE IRA or SEP has been converted to a Roth IRA, it is treated as a Roth IRA
contribution for all purposes. Future contributions under the SEP or SIMPLE Plan
may not be made to the Roth IRA. 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 Roth IRA, but does
include the amount of any deductible contribution made to a Regular IRA for the
tax year. In addition, for tax years beginning before January 1, 2005, required
minimum distributions from an IRA are included in AGI for purposes of
determining eligibility for conversion to a Roth IRA. However, for tax years
beginning after December 31, 2004, required minimum distributions from an IRA
will not be included in AGI (solely for purposes of determining the $100,000 AGI
limit on conversions).
ROTH CONVERSION IRA: A Roth Conversion IRA is a Roth IRA that only accepts IRA
conversion contributions made during the same tax year. You should not designate
your policy as a Roth Conversion IRA if you wish to make both regular Roth and
Conversion contributions to the policy.
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 includable 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"
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<PAGE>
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 Education IRAs) for both spouses cannot exceed $4,000. If
the combined compensation of both spouses (reduced by any deductible IRA or
non-deductible 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 who have at least $5,000 in compensation for
the year. The employer must notify employees of this election within specified
time frames 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).
F. DISTRIBUTIONS:
1. NON-ROTH IRA MINIMUM DISTRIBUTION REQUIREMENTS:
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.
Once you reach your RBD, you must withdraw at least 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 for your first "required
distribution year" (assuming an annuity payout has not been elected) divide
your entire interest (subject to certain adjustments) in your IRA (generally
as
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of December 31 of the calendar year immediately preceding your age 70 1/2
year) by your life expectancy or the joint life expectancies of you and your
designated beneficiary. For subsequent required distribution calendar years,
the applicable life expectancy(ies) will be applied to your IRA account
balance as of December 31 of the calendar year immediately preceding the
distribution calendar year (subject to adjustments). Your single or joint
life expectancy is determined by using IRS life expectancy tables. See IRS
Publications 575 and 590.
Your life expectancy (and that of your spousal beneficiary, if applicable)
will be recalculated annually, unless you irrevocably elect otherwise by the
time distributions are required to begin. With the recalculation method, if
a person whose life expectancy is being 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 during your lifetime under IRS
regulations, unless your spouse is the designated beneficiary. If your
designated beneficiary is not your spouse, the designated beneficiary's age
will be deemed to be no more than ten (10) years younger than you when
determining life expectancy for required payouts. However, under current
I.R.S. proposed regulations, this rule only applies while you are living and
life expectancy of your beneficiary after your death can be determined
without regard to this rule.
NON-ROTH IRA MINIMUM DISTRIBUTION REQUIREMENTS AFTER DEATH. 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 his or her life expectancy 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.
2. ROTH IRA DISTRIBUTION REQUIREMENTS:
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 according to the terms of the
elected options, (provided that method satisfies the requirements of Code
Section 408(b)(3), as modified by Code Section 408A(c)(5)).
If you die before you have elected an annuity option or before distribution
of your entire interest in the policy has been made or begun, your entire
interest in your Roth IRA generally 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 a period not longer than his or her
life expectancy provided the election is made and distributions commence by
December 31 of the calendar year following the calendar year of your death.
If the beneficiary does not make this election, the entire benefit will be
paid to him or her under the "five year payout rule". If your designated
beneficiary is your surviving spouse, he or she may elect to delay
distributions until the later of the end of the calendar year following the
year in which you died or the end of the year in which you would have reach
age 70 1/2. If your sole designated beneficiary is your surviving spouse, he
or she may elect to treat the policy as his or her own Roth IRA by making an
express election to do so, by making a regular Roth IRA contribution or
rollover contribution (as applicable or as permissible) to the policy, or by
failing to elect minimum distributions under the "five year payout rule" or
the life annuity options discussed above.
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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.
3. TAKING REQUIRED MINIMUM DISTRIBUTIONS FROM ONE IRA:
AGGREGATING MINIMUM DISTRIBUTIONS: 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). However, an individual
required to receive minimum distributions as a beneficiary under a Roth IRA
can only satisfy the minimum distributions for one Roth IRA by receiving
distributions from another Roth IRA if the Roth IRAs were inherited from the
same decedent. Because of these requirements, the Company cannot monitor the
required distribution amounts from the Company's 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:
A. TIMING OF CONTRIBUTIONS: Once you establish an IRA, (including a 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 TAX
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.
B. TIMING OF ROTH IRA CONVERSIONS: Conversions from a non-Roth IRA to a Roth
IRA for a particular tax year, MUST BE INITIATED SO THAT THE DISTRIBUTION
OR TRANSFER FROM THE NON-ROTH IRA IS 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 ROTH IRA FOR THAT TAX YEAR. For example, if you wish to
convert a Regular IRA to a Roth IRA in 1998, the conversion and transfer
must be made by December 31, 1998, even though your tax return for 1998 may
not be due until April 15, 1999.
C. DEDUCTIBLE IRA CONTRIBUTIONS: The amount of permissible contributions to
your Regular IRA may or may not be deductible. If you or your spouse are
not active participants in an employer sponsored retirement plan, any
permissible contribution you make to your IRA will be deductible. If you or
your spouse are an active participant in an employer-sponsored retirement
plan, the size of your deduction if any, will depend on your combined
adjusted gross income (AGI).
If you are not an active participant in an employer sponsored plan, but
your spouse is an active participant, you may take a full deduction for
your IRA contribution (other than to a Roth IRA) if your AGI is below
$150,000; if you are not an active participant but your spouse is, the
maximum deductible contribution for you is phased out at AGIs between
$150,000 and $160,000.
If you are an active participant in an employer sponsored requirement plan
you may make deductible contributions if your AGI is below a threshold
level of income. For single taxpayers and married taxpayers (who are filing
jointly and are both active participants) the available deduction is
reduced proportionately over a phaseout range. If you are married and an
active participant in an employer retirement plan, but file a separate tax
return from your spouse, your deduction is phased out between $0 and
$10,000 of AGI.
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If your AGI is not above the maximum applicable phase out level, a minimum
contribution of $200 is permitted regardless of whether the phase out rules
provide for a lesser amount.
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 JOINTLY SINGLE/HEAD OF HOUSEHOLD
---------------------- ------------------------
YEAR 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 Education IRAs) for a calendar year is $2,000 or 100% of compensation,
whichever is less.
D. 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 or 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 THE COMPANY 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.
E. EFFECTS OF CONVERSION OF REGULAR IRA TO ROTH IRA: If you convert all or
part of a non-Roth IRA to a Roth IRA, the amount converted from the
non-Roth IRA will be taxable as if it had been distributed to you in the
year of distribution or transfer from the non-Roth IRA. 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, or if the
conversion amount is distributed in 1998 and contributed to a Roth IRA
within 60 days of your receipt of the distribution, one quarter of the
taxable amount will be includable in your income in 1998 and in each of the
next three tax years. However, an individual who makes a conversion prior
to January 1, 1999, can elect to include the full taxable conversion amount
in income for 1998. This election is made on IRS Form 8606 by the
individual and cannot be made or changed after the due date (including
extensions) for filing the 1998 Federal income tax return. If a taxpayer
dies before the end of the 4-year spread, the taxable portion of the
conversion amount which has not been included in income will generally be
taxable in the year of the taxpayer's
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death. However, if the sole beneficiary of the Roth IRA is the surviving
spouse, he or she can elect to continue the 4-year spread. In addition, if
the 4-year spread rule is utilized for 1998 conversions, any distributions
of amounts subject to the 4-year spread occurring before 2001, will require
acceleration of income inclusion as explained in the section which follows
on TAXABILITY OF ROTH IRA DISTRIBUTIONS. (SEE PART III. J.)
Amounts properly converted from a non-Roth IRA to a Roth IRA are generally
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. In
addition, under 1998 technical corrections, if an amount allocable to a
conversion contribution is distributed from the Roth IRA during the 5-year
period (beginning with the first day of the individual's taxable year in
which the conversion contribution was made), it will be subject to a
10-percent premature distribution penalty tax (but only to the extent the
conversion amount distributed was includable in gross income as a result of
the conversion).
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 to a Roth
IRA or take distributions from a Roth IRA. IT WILL ALSO BE IMPORTANT FOR
YOU TO KEEP TRACK OF AND REPORT ANY REGULAR OR CONVERSION CONTRIBUTIONS YOU
MAKE TO YOUR ROTH IRAS AS REQUIRED BY THE IRS. CONVERSION CONTRIBUTIONS
MUST BE REPORTED ON IRS FORM 8606.
F. RECHARACTERIZATION OF IRA AND ROTH IRA CONTRIBUTIONS: IRA owners are
permitted, beginning in 1998, to treat a contribution made to one type of
IRA as made to a different type of IRA for a taxable year in a process
known as "recharacterization". A recharacterization is accomplished by an
individual who has made a contribution to an IRA of one type for a taxable
year, electing to treat the contribution as having been made to a second
IRA of a different type for the taxable year. To accomplish the
recharacterization, a trustee-to-trustee transfer from the first IRA to the
second IRA must be made on or before the due date (including extensions)
for filing the individual's Federal income tax return for the taxable year
for which the contribution was made to the first IRA. HOWEVER, IN
ANNOUNCEMENT 99-57, THE IRS HAS INDICATED THAT A CALENDAR YEAR TAXPAYER
THAT HAS TIMELY FILED HIS 1998 FEDERAL INCOME TAX RETURN, CAN ELECT TO
RECHARACTERIZE A 1998 IRA CONTRIBUTION, INCLUDING A ROTH IRA CONVERSION,
PROVIDED APPROPRIATE CORRECTIVE ACTION IS TAKEN BY OCTOBER 15, 1999.
APPROPRIATE CORRECTIVE ACTION MAY INCLUDE NOTIFYING THE TRUSTEE OR ISSUER;
HAVING THE TRUSTEE OR ISSUER ACTUALLY MAKING THE TRANSFER OR ACCOUNT
REDESIGNATION; AND FILING AN AMENDED 1998 FEDERAL INCOME TAX RETURN TO
REFLECT THE RECHARACTERIZATION. Any net income attributable to the
recharacterized contribution must also be transferred to the second IRA.
Once the transfer is made, the election is irrevocable. The effect of
recharacterizing a contribution is that it is treated as having been
originally contributed to the second IRA on the same date and (in the case
of a regular contribution) for the same taxable year that the contribution
was made to the first IRA. If you elect to recharacterize a contribution,
you must report the recharacterization and treat the contribution as having
been made to the second IRA, instead of the first, on your Federal income
tax return.
Examples of where a recharacterization election might be useful or desired
include: where an individual discovers he was ineligible to convert a
regular IRA to a Roth IRA because his adjusted gross income exceeded
$100,000; amounts were erroneously rolled over from a traditional IRA to a
SIMPLE IRA; or an individual decides after he has made a contribution to a
regular IRA for a tax year that he is eligible for and prefers to
contribute to a Roth IRA, or vice versa. Recharacterizations are not
permitted where a deduction has been taken for the contribution to the
first IRA; the contribution to the first IRA was the result of a tax-free
transfer or; the original contribution was an employer contribution to a
SIMPLE or SEP IRA.
RECONVERSION RULES:
Also, the IRS has issued guidance that indicates amounts recharacterized
from a conversion Roth IRA to a Regular IRA, may be "reconverted" to a Roth
IRA one time in 1998 after November 1, 1998; and one time in 1999. For
purposes of the rule applicable in 1998 and 1999, the IRA owner is not
treated as having previously converted an amount if the conversion failed
because he or she was ineligible to convert because of his or her AGI or
tax filing status. Also, under the 1998-1999 rule, any reconversion that
violates the "one reconversion" rule, is treated as an "excess
reconversion" rather than a "failed conversion". In other words, with an
"excess reconversion" the Roth IRA owner is still treated as having made a
conversion to a Roth IRA, but the "excess reconversion" and the last
preceding recharacterization are disregarded in determining the owner's
taxable conversion amount (which is based on the last reconversion that was
not an "excess reconversion").
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For taxable years after 1999, if you convert a non-Roth IRA to a Roth IRA
and then recharacterize it back to a non-Roth IRA, you are not permitted by
IRS rules to reconvert the amount from the non-Roth IRA back to a Roth IRA
before the beginning of the taxable year following the taxable year in
which the amount was converted to a Roth IRA or, if later, the end of the
30-day period beginning on the day on which you recharacterized the Roth
IRA to a non-Roth IRA. This rule will apply even if you were not eligible
to make the original conversion because of your AGI or tax filing status.
If you attempt a reconversion prior to the time permitted, it will be
treated as a "failed conversion". The remedy for a failed conversion is
recharacterization to a non-Roth IRA. If the failed conversion is not
corrected, it will be treated as a regular contribution to a Roth IRA and
thus, may be an excess contribution subject to a 6% excise tax for each tax
year it remains in the Roth IRA to the extent it exceeds the maximum
regular Roth IRA contribution permitted for the tax year. (SEE PART III.
G., EXCESS CONTRIBUTIONS, BELOW). Also, the failed conversion will be
subject to the 10% premature distribution penalty tax, unless corrected or
an exception to that tax applies. CONSULT WITH YOUR TAX ADVISOR BEFORE
ATTEMPTING A "RECONVERSION".
G. EXCESS CONTRIBUTIONS: There is a 6% IRS penalty tax on IRA contributions
made in excess of permissible contribution limits. 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 (including
extensions), the amounts are not included in the taxpayer's gross income to
the extent that no deduction was allowed for the contribution (SEE PART
III. F. RECHARACTERIZATION OF IRA AND ROTH IRA CONTRIBUTIONS ABOVE).
EXCESS CONTRIBUTIONS TO A ROTH IRA: If you are ineligible and convert a
Regular IRA to a 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 Roth IRA). In tax years after
1999, you may also have an excess contribution if your conversion is a
"failed conversion" that is not timely corrected. You will have an excess
contribution if the ineligible amounts you convert and the contributions
you make to all your IRAs for the tax year exceed your IRA contribution
limits for the year. To avoid the 6% excise tax on excess contributions,
you must withdraw the excess contributions plus earnings before the due
date of your tax return (plus extensions) or recharacterize the
contribution, if permitted (SEE PART III. F. RECHARACTERIZATION OF IRA AND
ROTH IRA CONTRIBUTIONS ABOVE).
H. LOANS AND PROHIBITED TRANSACTIONS: You may not borrow from your IRA Plan
(including Roth IRAs) or pledge it as security for a loan. A loan 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. A
pledge of your IRA as security for a loan will cause a constructive
distribution of the portion pledged and also be subject to the 10% penalty
tax.
I. 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.
J. 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
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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). The five-year holding period for escaping
inclusion in income begins with the first day of the tax year in which any
contribution (including a conversion from a Regular IRA) is made to a Roth
IRA of the taxpayer. If the Roth IRA owner dies, this 5-taxable-year period
is not redetermined for the Roth IRA while it is held in the name of a
beneficiary or a surviving spouse who treats the decedent's Roth IRA as his
or her own. However, a surviving spouse who treats the Roth IRA as his or
her own, must receive any distributions as coming from the surviving
spouse's own Roth IRA, thus it cannot be treated as being received by a
beneficiary on or after the owner's death for purposes of determining
whether the distribution is a "qualified distribution".
If a distribution from a Roth IRA is not a "qualified distribution" and it
includes amounts allocable to earnings, the earnings distributed are
includable in taxable income and may be subject to the 10% premature
distribution penalty if the taxpayer is under age 59 1/2. Also, the 10%
premature distribution penalty tax may apply to conversion amounts
distributed even though they are not includable in income, if the
distribution is made within the 5-taxable-year period beginning on the
first day of the individual's taxable year in which the conversion
contribution was made. Only the portion of the conversion includable in
income as a result of the conversion would be subject to the penalty tax
under this rule. The 5-taxable-year period for this purpose is determined
separately for each conversion contribution and may not be the same as the
5-taxable-year period used to determine whether a distribution from a Roth
IRA is a "qualified distribution" or not. FOR THIS REASON IT IS IMPORTANT
THAT YOU KEEP TRACK OF WHEN YOUR CONVERSION CONTRIBUTIONS ARE MADE TO YOUR
ROTH IRA. (SEE PART III. L., PREMATURE IRA DISTRIBUTIONS).
Unlike Regular IRAs, distributions from Roth IRAs come first from regular
contributions, then converted amounts on a first-in first-out basis, and
last from earnings. Any distributions made before 2001 which are
attributable to 1998 conversion contributions for which the 4-year
income-tax spread is being utilized, will result in an acceleration of
taxable income in the year of distribution up to the amount of the
distribution allocable to the 1998 conversion. This amount is in addition
to the amount otherwise includable in gross income for that taxable year as
a result of the conversion, but not in excess of the amount required to be
included over the 4-year period. This tax treatment would likewise apply in
the case of distributions made by a surviving spouse who elects to continue
the 4-year spread on death of the original owner of the Roth IRA.
Generally, all Roth IRAs (both regular Roth IRAs and Roth Conversion IRAs)
must be treated as one for purposes of determining the taxation of
distributions. However, if a Roth IRA is held by an individual as
beneficiary of a deceased Roth IRA owner, the 5-taxable-year period used to
determine whether distributions are qualified or not is determined
independently of the 5-year-taxable period for the beneficiary's own Roth
IRAs. However, if a surviving spouse elects to treat the Roth IRA as his or
her own, the 5-year-taxable period for all of the surviving spouse's Roth
IRAs is the earlier of the end of either the 5-taxable-year period for the
decedent or that applicable to the surviving spouse's own Roth IRAs.
THE RULES FOR TAXING NON-QUALIFIED DISTRIBUTIONS AND PREMATURE
DISTRIBUTIONS OF CONVERSION AMOUNTS FROM A ROTH IRA ARE COMPLEX. 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.
K. 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 to a Regular IRA or to a Roth IRA, or
"qualified distributions" from a Roth IRA), and is not eligible for the
special 5 or 10 year averaging tax rules under Code Section 402 on lump sum
distributions which may be available for other types of Qualified
Retirement Plans.
L. 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, or if you receive a
distribution of conversion amounts within the five-year period beginning
with the year of the conversion, any amounts distributed that were
originally taxable as a result of the conversion) prior to the attainment
of age 591/2, 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
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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.
Generally, the part of a distribution attributable to non-deductible
contributions is not includable in income and is not subject to the 10%
penalty. (BUT SEE ROTH IRA EXCEPTIONS BELOW). Also, beginning January 1,
2000, distributions to satisfy a levy issued by the IRS will also be exempt
from the 10% penalty tax.
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. In addition, any
conversion amounts distributed within the five-year period beginning with
the year in which the conversion occurred, are subject to the 10% penalty
tax even if the distribution is not currently taxable as income, unless one
of the above mentioned exceptions to the penalty tax applies. The penalty
tax will only apply to the amount of the conversion that was includable in
income as a result of the conversion (i.e., it will not apply to
non-deductible contributions that were converted from the Regular IRA).
M. MINIMUM REQUIRED DISTRIBUTIONS: SEE PART II. F.1. AND F.2., NON-ROTH IRA
MINIMUM DISTRIBUTION REQUIREMENTS 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%.
N. 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. In addition, if the owner of an IRA or Roth
IRA transfers his or her IRA or Roth IRA to another individual by gift, the
gift will be considered an assignment and cause the assets of the IRA or
Roth IRA to be deemed distributed to the owner, and will no longer be
treated as held in the IRA. The IRS has indicated that for gifts of a Roth
IRA made prior to October 1, 1998, if the entire interest in the Roth IRA
is reconveyed to the original Roth IRA owner prior to January 1, 1999, the
IRS will disregard the gift and reconveyance for most tax purposes.
O. 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.
P. 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.
Q. TAX FILING-ROTH IRA: It is your responsibility to keep records of your
regular and conversion 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 will need this information to calculate your taxable income if
any, when distributions from the Roth IRA begin. For example, conversion
contributions must be reported to the Service on Form 8606. Form 5329 is
required to be
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filed to the Service by you to report and remit any penalty or excise
taxes. Consult the instructions to your tax return or your tax advisor for
additional reporting requirements that may apply.
R. TAX ADVICE: The Company 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 with your personal tax advisor regarding specific questions you may
have.
With respect to ROTH IRAS, you should be aware that Congress has recently
enacted legislation that substantially revises the rules relating to
distributions from and conversions to Roth IRAs which applies retroactive
to January 1, 1998. Because of this, and because guidance regarding these
changes has just recently been finalized by the Internal Revenue Service,
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.
S. 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 THE COMPANY'S IRA PLAN:
INTERNAL REVENUE SERVICE APPROVAL LETTER: The Company has received approval from
the Internal Revenue Service as to the form of OVERTURE ANNUITY III (Form 4784),
for use in funding Regular IRA plans. It has also been approved as to form for
use in funding a SIMPLE IRA. The Company uses an IRS model Roth IRA endorsement
which is "deemed approved: by the IRS. Such approval, when received, is a
determination only as to the form of the Annuity Contract, and does not
represent a determination of the merits of the annuity.
PART V. FINANCIAL DISCLOSURE:
The following is a general description and required financial disclosure
information for the variable annuity product, OVERTURE ANNUITY III (Form 4784)
offered by the Company, hereafter referred to as the policy.
In order for you to achieve your retirement objectives, you should be prepared
to make your IRA Plan a long term savings program. An IRA is not suited to
short-term savings, nor was it intended to be by Congress, as indicated by the
general rule that penalties apply to withdrawals before age 59 1/2, subject to
certain exceptioNS (SEE PART III; PREMATURE IRA DISTRIBUTIONS). However, you
should be aware of the values in your IRA Plan during the early years as well as
at retirement.
Prior to the annuity date, the policy allows you to accumulate funds based on
the investment experience of the assets underlying the policy in the Separate
Account or the Fixed Account. Currently, the assets which underlie the Separate
Account are invested exclusively in shares of mutual funds, the "Funds", managed
or administered by several fund managers. Each of the Subaccounts of the
Separate Account invest solely in the corresponding portfolio of the Funds. The
assets of each portfolio are held separately from the other portfolios and each
has distinct investment objectives which are described in the accompanying
prospectus for the Funds which you would have received when making the purchase
of your annuity. The accumulation value of your IRA Plan allocated to the
Separate Account will vary in accordance with the investment performance of the
Subaccounts you selected. Therefore, for assets in the Separate Account, you
bear the entire investment risk prior to the annuity date.
Premium payments and subsequent allocations to the Fixed Account are placed in
the general account of the Company which supports insurance and annuity
obligations. Policyowners are paid interest on the amounts placed in the Fixed
Account at guaranteed rates (3.5%) or at higher rates declared by the Company.
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.
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A valuation period is the period between successive valuation dates. It begins
at the close of trading on the New York Stock Exchange on each valuation date
and ends at the close of trading on the next succeeding valuation date. A
valuation date is each day that the New York Stock Exchange is open for
business.
The accumulation value is expected to change from valuation period to valuation
period, reflecting the net investment experience of the selected portfolios of
the Funds, interest earned in the Fixed Account, additional premium payments,
partial withdrawals, as well as the deduction of any applicable charges under
the policy. GROWTH IN THE ACCUMULATION VALUE BASED ON INVESTMENTS IN THE
SEPARATE ACCOUNT IS NEITHER GUARANTEED NOR PROJECTED.
VALUE OF ACCUMULATION UNITS: The accumulation units of each Subaccount are
valued separately. The value of an accumulation unit may change each valuation
period according to the net investment performance of the shares purchased by
each Subaccount and the daily charge under the policy for mortality and expense
risks, any daily administrative fee, and if applicable, any federal and state
income tax charges.
CASH SURRENDER VALUE: The amount available for full or partial withdrawal, which
is the accumulation value less any contingent deferred sales charge, any
applicable premium taxes, and, in the case of a full withdrawal, the annual
policy fee.
ANNUAL POLICY FEE: An annual policy fee of $36, $30 in North Dakota, is deducted
from the accumulation value on the last valuation date of each policy year and
on a full withdrawal if between policy anniversaries. This charge reimburses the
Company for the administrative costs of maintaining the policy on the Company's
system. This charge may be increased to a maximum of $50 and may be reduced or
eliminated.
DAILY ADMINISTRATIVE FEE: A daily charge at an annual rate of .20% 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 the Company 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: The Company imposes a charge to compensate it
for bearing certain mortality and expense risks under the policies. For assuming
these risks, the Company 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. The Company
guarantees that this charge will never increase. If this charge is insufficient
to cover assumed risks, the loss will fall on the Company. Conversely, if the
charge proves more than sufficient, any excess will be added to the Company's
surplus. No mortality and expense risk charge is imposed on the Fixed Account.
TAXES: The Company 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, the Company 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 the Company
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 the Company. Partial withdrawals may
be either systematic or elective. Systematic withdrawals provide for an
automatic withdrawal, whereas, each elective withdrawal must be elected by the
owner. Systematic partial withdrawals are available on a monthly, quarterly,
semi-annual, or annual mode. This withdrawal right may be restricted by Section
403(b)(11) of the Internal Revenue Code if the annuity is used in connection
with a Section 403(b) retirement plan. No partial or full withdrawals may be
made after the annuity date except as permitted under the particular annuity
option. The amount available for a full or partial withdrawal (cash surrender
value) is the accumulation value at the end of the valuation period during which
the written request for withdrawal is received, less any contingent deferred
sales charge, any applicable premium taxes, and in the case of a full
withdrawal, less the annual policy fee that would be due on the last valuation
date of the policy year. The cash surrender value may be paid in a lump sum to
the owner, or, if elected, all or any part may be paid out under an annuity
income option.
QD-14
IRA/SEP/SIMPLE/ROTH
ANNUITY III; 8/99
<PAGE>
CONTINGENT DEFERRED SALES CHARGE: Since no deduction for a sales charge is made
from the premium payment, a contingent deferred sales charge is imposed on
certain partial and full withdrawals, and upon certain annuitizations to cover
certain expenses relating to the distribution of the policies, including
commissions to registered representatives and other promotional expenses.
Total withdrawals in a policy year which exceed the greater of: 1) 10% of the
accumulation value at the time of the withdrawal, or 2) any portion of the
accumulation value which exceeds the total premium deposit will be subject to a
contingent deferred sales charge (withdrawal charge).
Contingent deferred sales charges are assessed only on premiums paid based upon
the number of years since the policy year in which the premiums withdrawn were
paid, on a first-paid, first-withdrawn basis.
Where a partial or full withdrawal is taken or amounts are applied under an
annuity option, the amount withdrawn or annuitized (less any amount entitled to
the free withdrawal) will be subject to a contingent deferred sales charge
expressed in the following manner:
The charge will be a percentage of the premium payments withdrawn or annuitized.
CHARGE AS A % OF EACH YEARS SINCE RECEIPT OF
PREMIUM PAYMENT EACH PREMIUM PAYMENT
---------------------- -----------------------
6 1
6 2
6 3
5 4
4 5
3 6
2 7
0 8+
In the case of a partial withdrawal or annuitization, the contingent deferred
sales charge will be deducted from the amounts remaining under the policy. The
charge will be allocated pro rata among the Subaccounts or the Fixed Account
based on the accumulation value in each prior to the withdrawal or annuitization
unless an owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account, in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. In the case of a full withdrawal or annuitization, the contingent
deferred sales charge is deducted from the amount paid to the owner. Contingent
deferred sales charges will not be imposed on certain withdrawals if the amounts
withdrawn are applied under the Life Annuity or Joint and Last Survivor Annuity
Income Options.
SALES COMMISSIONS: No deductions are made from the premium payments for sales
charges. Compensation to the sales force is a maximum 6.5% based on premiums
paid. To offset the costs of compensation and distribution expenses, a
contingent deferred sales charge as described above is imposed on certain
partial and full withdrawals.
QD-15
IRA/SEP/SIMPLE/ROTH
ANNUITY III; 8/99
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO
EMPLOYEE BENEFIT PLAN
INFORMATION STATEMENT
401(a) Pension/Profit Sharing Plans
403(b) ERISA Plans
For purchasers of a 401(a) Pension/Profit Sharing Plan, or 403(b) ERISA Plan,
the purpose of this statement is to inform you as an independent Fiduciary of
the Employee Benefit Plan, of the Sales Representative's relationship to and
compensation from Ameritas Variable Life Insurance Company (AVLIC), as well as
to describe certain fees and charges under the OVERTURE ANNUITY III Policy being
purchased from the Sales Representative.
The Sales Representative is appointed with AVLIC as its Sales Representative and
is a Securities Registered Representative. In this position, the Sales
Representative is employed to procure and submit to AVLIC applications for
contracts, including applications for OVERTURE ANNUITY III.
COMMISSIONS, FEES AND CHARGES
The following commissions, fees and charges apply to OVERTURE ANNUITY III
(policy):
SALES COMMISSION: No deductions are made from the premium payments for sales
charges. Compensation to the Sales Representative's Broker/Dealer is a maximum
of up to 6.5% based on premiums paid. To offset the costs of compensation and
distribution expenses, a contingent deferred sales charge as described below is
imposed on certain partial and full withdrawals.
ANNUAL POLICY 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 $50 and may be
reduced or eliminated.
DAILY ADMINISTRATIVE FEE: The administrative fee is a daily charge at an annual
rate of .20% 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 this fee.
MORTALITY AND EXPENSE RISK CHARGE: AVLIC imposes a charge to compensate it for
bearing certain mortality and expense risks under the policies. AVLIC makes a
daily charge equal to an annual rate of 1.25% of the value of the average daily
net assets of the Account under the policies. This charge is subtracted when
determining the daily accumulation unit value. AVLIC guarantees that this charge
will never increase. If this charge is insufficient to cover assumed risks, the
loss will fall on AVLIC. Conversely, if the charge proves more than sufficient,
any excess will be added to AVLIC's surplus. No mortality and expense risk
charge is imposed on the Fixed Account.
PARTIAL AND FULL WITHDRAWALS: The policyowner may make a partial or a full
withdrawal of the policy to receive part or all of the accumulation value (less
any applicable charges), at any time before the annuity date and while the
annuitant is living by sending a written request to AVLIC. Partial withdrawals
may be either systematic or elective. Systematic withdrawals provide for an
automatic withdrawal, whereas, each elective withdrawal must be elected by the
owner. Systematic partial withdrawals are available on a monthly, quarterly,
semi-annual, or annual mode. No partial or full withdrawals may be made after
the annuity date except as permitted under the particular annuity option. The
amount available for partial or full withdrawal (cash surrender value) is the
accumulation value at the end of the valuation period during which the written
request for withdrawal is received, less any contingent deferred sales charge,
any applicable premium taxes, and in the case of a full withdrawal, the annual
policy fee that would be due on the last valuation date of the policy year. The
cash surrender value may be paid in a lump sum to the owner, or if elected, all
or any part may be paid out under an annuity income option.
CONTINGENT DEFERRED SALES CHARGE: Since no deduction for a sales charge is made
from the premium payment(s), a contingent deferred sales charge is imposed
unless waived on certain partial and full withdrawals, and upon certain
annuitizations to cover expenses relating to Registered Representatives and
promotional expenses.
QD-16
PENSION
ANNUITYIII; 8/99
<PAGE>
Total withdrawals in a policy year which exceed the greater of: (1) 10% of the
accumulation value at the time of the withdrawal, or (2) any portion of the
accumulation value which exceeds the total premium deposit will be subject to a
contingent deferred sales charge. Contingent deferred sales charges are assessed
only on premiums paid based upon the number of years since the policy year in
which the premiums withdrawn were paid, on a first-paid, first-withdrawn basis.
Where a partial or full withdrawal is taken or amounts are applied under an
annuity option, the amount withdrawn or annuitized (less any amount entitled to
the free withdrawal) will be subject to a contingent deferred sales charge
expressed as a percentage of the premium payments withdrawn or annuitized as
follows:
CHARGE AS A % OF EACH YEARS SINCE RECEIPT OF
PREMIUM PAYMENT EACH PREMIUM PAYMENT
--------------------- -----------------------
6 1
6 2
6 3
5 4
4 5
3 6
2 7
0 8+
In the case of a partial withdrawal or annuitization, the contingent deferred
sales charge will be deducted from the amounts remaining under the policy. The
charge will be allocated pro rata among the Subaccounts or the Fixed Account
based on the accumulation value in each prior to the withdrawal or annuitization
unless an owner requests a partial withdrawal or annuitization from particular
Subaccounts or the Fixed Account, in which case the charge will be allocated
among those Subaccounts or the Fixed Account in the same manner as the
withdrawal. In the case of a full withdrawal or annuitization, the contingent
deferred sales charge is deducted from the amount paid to the owner. Contingent
deferred sales charges will not be imposed on certain withdrawals if the amounts
withdrawn are applied under the Life Annuity or Joint and Last Survivor Annuity
Income Options.
TAXES: AVLIC will deduct premium taxes upon receipt of a premium payment or upon
annuitization depending upon the requirements of the law of the state of the
policyowner's residence. Currently, premium taxes range from 0% to 3.5% of the
premium paid, but are subject to change by legislation, administrative
interpretations, or judicial act.
FUND INVESTMENT ADVISORY FEES AND EXPENSES: At the direction of the policyowner,
the Separate Account VA-2 purchases shares of Funds which are available for
investment under this policy. The net assets of the Separate Account VA-2 will
reflect the value of the Fund shares and therefore, investment advisory fees and
other expenses of the Funds. A complete description of these fees and expenses
is contained in the Funds' Prospectuses.
403(B) TAX SHELTERED ANNUITY (TSA) PLANS-WITHDRAWAL RESTRICTIONS
For purchasers of a 403(b) Tax Sheltered Annuity (TSA) Plan, or 403(b) ERISA
Plan, the purpose of this statement is to inform you, as the purchaser of the
annuity or as the Fiduciary of an Employee Benefit Plan purchasing the annuity,
of the following distribution limitations, notwithstanding policy language to
the contrary. If this policy is purchased by the policyowner or his/her employer
as part of a retirement plan under Internal Revenue Code (IRC) Section 403(b),
distributions under the policy are limited as follows:
1. Distributions attributable to contributions made and interest accruing
after December 3l, 1988, pursuant to a salary reduction agreement within
the meaning of IRC Section 402(g)(3)(c) may be paid only:
(A) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled within the meaning of IRC Section 72(m)(7); or
(B) in the case of hardship. (Hardship distributions may not be made from
any income earned after December 31, 1988, which is attributable to
salary reduction contributions regardless of when the salary reduction
contributions were made).
2. Distributions attributable to funds transferred from IRC Section 403(b)(7)
custodial account may be paid or made available only:
(A) When the employee attains age 59 1/2, separates from service, dies or
becomes disabled within the meaning of IRC Section 72(m)(7); or
(B) in the case of financial hardship. Distributions on account of
financial hardship will be permitted only with respect to the
following amounts:
(i) benefits accrued as of December 31, 1988, but not earnings on
those amounts subsequent to that date.
(ii) contributions made pursuant to a salary reduction agreement
within the meaning of IRC Section 3121(a)(1)(D) after December
31, 1988, but not as to earnings on those contributions.
QD-17
PENSION
ANNUITYIII; 8/99
<PAGE>
PART B REGISTRATION NO. 33- 58642
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF ADDITIONAL INFORMATION
FOR
FLEXIBLE PREMIUM VARIABLE ANNUITY POLICY
OFFERED BY
AMERITAS VARIABLE LIFE INSURANCE COMPANY
(A NEBRASKA STOCK COMPANY)
5900 "O" STREET
LINCOLN, NEBRASKA 68510
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Flexible Premium Variable Annuity Policy ("Policy")
offered by Ameritas Variable Life Insurance Company ("AVLIC"). You may obtain a
copy of the Prospectus dated November 1, 1999, 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: November 1, 1999.
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION AND HISTORY............................................ 2
THE POLICY................................................................. 2
Accumulation Value..................................................... 2
Value of Accumulation Units............................................ 2
Calculation of Performance Data........................................ 2
Total Return........................................................... 3
Performance............................................................ 5
Yields................................................................. 7
GENERAL MATTERS............................................................ 7
The Policy............................................................. 7
Non-Participating...................................................... 7
Assignment............................................................. 7
Annuity Data........................................................... 8
Ownership.............................................................. 8
Joint Annuitant........................................................ 8
IRS Required Distributions............................................. 8
FEDERAL TAX MATTERS........................................................ 8
Taxation of AVLIC...................................................... 8
Tax Status of the Policies............................................. 8
Qualified Policies..................................................... 9
DISTRIBUTION OF THE POLICY................................................. 10
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS..................................... 10
AVLIC...................................................................... 10
STATE REGULATION........................................................... 10
LEGAL MATTERS.............................................................. 10
EXPERTS.................................................................... 10
OTHER INFORMATION.......................................................... 10
FINANCIAL STATEMENTS....................................................... 11
ANNUITY III
SAI 1
<PAGE>
GENERAL INFORMATION AND HISTORY:
In order to supplement the description in the Prospectus, the following provides
additional information concerning AVLIC and its history.
As of April 1, 1996, AVLIC is a wholly owned subsidiary of AMAL Corporation, a
Nebraska stock company. AMAL Corporation is a joint venture of Ameritas Life
Insurance Corp. (Ameritas Life), which owns a majority interest in AMAL
Corporation; and AmerUs Life Insurance Company (AmerUs Life), an Iowa stock life
insurance company, which owns a minority interest in AMAL Corporation.
AVLIC may publish in advertisements and reports to Policy Owners, 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 charge at an annual rate of .20% of the as an annual administration
fee; minus
(4) any applicable charge for federal and state income taxes, if any; and
(5) dividing the result by the total number of accumulation units held in
the Subaccount on the valuation date, before the purchase or redemption
of any units on that date.
CALCULATION OF PERFORMANCE DATA
As disclosed in the prospectus, premium payments will be allocated to Separate
Account VA-2 which has 27 Subaccounts, with the assets of each invested in
corresponding portfolios of the Calvert Variable Series, Inc. Ameritas
Portfolios ("Ameritas Portfolios"), 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 Dean
Witter Universal Funds, Inc. ("The Funds"), or to the Fixed Account. From time
to time AVLIC will advertise the performance data of the portfolios of the
Funds.
Ameritas Investment Corp. ("AIC") is the manager of the Ameritas Portfolios. AIC
is an affiliate of AVLIC. AIC
ANNUITY III
SAI 2
<PAGE>
offers clients a wide variety of financial products and services and has the
ability to execute stock and bond transactions on a number of national
exchanges. AIC also serves as principal underwriter for AVLIC's variable
universal life policies, and for Ameritas Life's variable life and variable
annuity. AIC is the underwriter for the Ameritas Portfolios and also serves as
its investment advisor. It has also executed selling agreements with a variety
of mutual funds, unit investment trusts, and direct participation programs.
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 Dean Witter Universal Funds,
Inc. are managed by Morgan Stanley Dean Witter Investment Management Inc.
Performance information for any subaccount may be compared, in reports and
advertising to: (1) the Standard & Poor's 500 Stock Index ("S&P 500"). Dow Jones
Industrial Average ("DJIA"), Donahue Money Market Institutional Averages; (2)
other variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services or the Variable Annuity Research and Data Service,
widely used independent research firms which rank mutual funds and other
investment companies by overall performance, investment objectives, and assets;
and (3) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment in a contract. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for annuity
charges and investment management costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including (i) the ranking of any
subaccount derived from rankings of variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services or by rating services,
companies, publications or other persons who rank separate accounts or other
investment products on overall performance or other criteria, and (ii) the
effect of tax deferred compounding on a subaccount's investment returns, or
returns in general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points in time, of the return
from an investment in a contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Standardized average annual total returns will be provided for the period since
the subaccounts have been offered in the Separate Account. The Contracts have
been offered since May 1, 1996. However, total return data may be advertised
based on the period of time that the underlying portfolios have been in
existence. The results for any period prior to the Contract being offered will
be calculated as if the Contracts had been offered during that period of time,
with all charges assumed to be those applicable to the Contracts. The tables
below are established to demonstrate performance results for each underlying
portfolio with charges deducted at the Separate Account level as if the policy
had been in force from the commencement of the portfolio. The performance
information is based on the historical investment experience of the underlying
portfolios and does not indicate or represent future performance.
TOTAL RETURN
Total returns quoted in advertising reflect all aspects of a subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18% which is the steady rate
that would equal 100% grown on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the subaccount's performance is not constant over
time, but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
The subaccounts will quote average annual returns for the period since offered
in the Separate Account, after deducting charges at the Separate Account level.
The average annual total returns will be computed by finding the average annual
compounded rates of return over a period of one, five and ten years (or, if
less, up to the life of the portfolio), that would equate the initial amount
invested to the withdrawal value, in accordance with the following formula: P(1
+ T)n = ERV where P is a hypothetical investment payment of $1,000, T is the
average annual total return, n is the number of years, and ERV is the withdrawal
value at the end of the periods shown. This formula is used to obtain
standardized average annual total return. The returns will reflect the mortality
and expense risk charge (1.25% on an annual basis), annual administration fee at
an annual rate of .20% and the annual policy fee. The following table shows the
average annual total return on a hypothetical investment in the subaccounts for
the last
ANNUITY III
SAI 3
<PAGE>
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, 1998.
Since the contract is intended as a long-term product, the table also shows the
average annual total return assuming that no money was withdrawn from the
contract. The first column shows the average annual total return if you
surrender the contract at the end of the period, the second column shows the
average annual return if you do not surrender the contract.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/98
TEN YEAR OR
SINCE OFFERED IN
ONE YEAR FIVE YEAR SEPARATE ACCOUNT
-------- ---------- ------------------
SUBACCOUNT SURRENDER SURRENDER SURRENDER
SUBACCOUNTS INCEPTION DATE CONTRACTS CONTINUE CONTRACTS CONTINUE CONTRACTS CONTINUE
- -------------- -------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Index 500(1) 08-01-95 16.89% 22.89% NA NA 22.65% 23.53%
Ameritas Growth(2) 05-01-92 36.36% 42.36% 18.67% 19.07% 19.85% 19.95%
Ameritas Income and Growth(2) 05-01-92 20.89% 26.89% 16.33% 16.77% 14.84% 14.97%
Ameritas Small Capitalization(2) 05-01-92 4.27% 10.27% 7.67% 8.26% 10.98% 11.15%
Ameritas MidCap Growth(2) 05-01-93 18.83% 24.83% 13.75% 14.22% 18.96% 19.19%
Ameritas Emerging Growth(2) 08-01-95 22.65% 28.65% NA NA 21.39% 22.29%
Ameritas Research(2) 05-01-97 12.01% 18.01% NA NA 18.09% 21.29%
Ameritas Growth With Income(2) 05-01-97 0.97% 16.97% NA NA 20.29% 23.45%
FIDELITY VIP
Equity-Income 10-23-87 0.42% 6.42% 13.72% 14.19% 11.27%* 11.27%*
Growth 10-23-87 27.90% 33.89% 16.47% 16.90% 15.37%* 15.37%*
High Income 10-23-87 -15.31% -9.31% 3.18% 3.88% 6.55%* 6.55%*
Overseas 10-23-87 1.53% 7.53% 3.96% 4.64% 5.54%* 5.54%*
FIDELITY VIP II
Asset Manager 12-01-89 3.80% 9.80% 6.06% 6.68% 8.86% 8.86%
Inv. Grade Bond 06-01-91 -2.32% 3.69% 0.78% 1.54% 3.62% 3.62%
Asset Manager: Growth 08-01-95 6.28% 12.28% NA NA 14.98% 16.01%
Contrafund 08-01-95 18.52% 24.52% NA NA 17.73% 18.71%
ALGER AMERICAN FUND
Balanced 05-01-93 20.03% 26.03% 10.87% 11.40% 11.51% 11.83%
Leveraged AllCap 08-01-95 45.98% 51.98% NA NA 22.33% 23.22%
MFS VARIABLE INS. TRUST
Utilities 08-01-95 6.77% 12.77% NA NA 19.07% 20.02%
Global Governments 08-01-95 -3.25% 2.75% NA NA -2.37% -0.85%
New Discovery 11-01-99 NA NA NA NA NA NA
MORGAN STANLEY DEAN WITTER
UNIVERSAL FUNDS, INC.
Emerging Markets Equity 05-01-97 -34.88% 28.88% NA NA -27.47% -23.10%
Global Equity 05-01-97 2.24% 8.25% NA NA 11.27% 14.59%
International Magnum 05-01-97 -2.19% 3.81% NA NA -0.15% 3.41%
Asian Equity 05-01-97 -17.40% -11.40% NA NA -39.37% -34.47%
U.S. Real Estate 05-01-97 -21.74% -15.74% NA NA -0.74% 2.83%
* 10 Year Figure
</TABLE>
(1) This Subaccount changed its name and the Portfolio in which it invests
on October 29, 1999. The sub-adviser that manages the investments of the
Portfolio in which this Subaccount now invests did not manage the
investments of the Portfolio in which it invested prior to October 29,
1999. The Ameritas Money Market Portfolio replaced the VIP Money Market
Portfolio ("prior Portfolio"). The Ameritas Index 500 Portfolio replaced
the VIP II Index 500 Portfolio ("prior Portfolio"). Performance for each
Subaccount reflects the performance of the prior Portfolio.
(2) This Subaccount changed its name and the Portfolio in which it invests
on October 29, 1999. The sub-adviser that manages the investments of the
Portfolio in which this Subaccount now invests also managed the
investments of the Portfolio in which it invested prior to October 29,
1999. The Ameritas Growth, Ameritas Income & Growth, Ameritas Small
Capitalization, and Ameritas MidCap Growth Portfolios replaced the Alger
American Growth, Alger American Income & Growth, Alger American Small
Capitalization, and Alger American MidCap Growth Portfolios (each a
"prior Portfolio"), respectively. The Ameritas Emerging Growth, Ameritas
Research, and Ameritas Growth With Income Portfolios replaced the MFS
Emerging Growth, MFS Research, and MFS Growth With Income Portfolios
(each a "prior Portfolio"), respectively. Performance for each
Subaccount reflects the performance of the prior Portfolio.
ANNUITY III
SAI 4
<PAGE>
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 Separate Account
VA-2, based upon the actual historical performance of the mutual fund
portfolio(s) in which that subaccount has invested. This information reflects
all actual charges and deductions of the mutual fund portfolio and all Separate
Account VA-2 charges and deductions, with respect to the Contracts, that
hypothetically would have been made had Separate Account VA-2, with respect to
the Contracts, been invested in these portfolios for all of the periods
indicated. This is calculated in a manner similar to standardized average annual
total return, except the total return is based on an initial investment of
$30,000.
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,
1998.
<TABLE>
<CAPTION>
HISTORICAL AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/98
10 YEARS OR
ONE YEAR FIVE YEAR SINCE INCEPTION
-------- --------- ---------------
PORTFOLIO SURRENDER SURRENDER SURRENDER
SUBACCOUNTS INCEPTION CONTRACTS CONTINUE CONTRACTS CONTINUE CONTRACTS CONTINUE
----------- --------- --------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Growth 01-09-89(1) 39.91% 45.91% 21.75% 22.11% 20.37% 20.37%
Ameritas Income and Growth 11-15-88(1) 24.44% 30.44% 19.61% 20.00% 13.95%* 13.95%*
Ameritas Small Capitalization 09-21-88(1) 7.80% 13.80% 10.91% 11.43% 18.17%* 18.17%*
Ameritas MidCap Growth 05-03-93(1) 22.38% 28.38% 16.84% 17.27% 21.55% 21.76%
Ameritas Emerging Growth 07-24-95(1) 26.19% 32.19% NA NA 23.88% 24.74%
Ameritas Research 07-26-95(1) 15.56% 21.56% NA NA 19.83% 20.76%
Ameritas Growth With Income 10-09-95(1) 14.51% 20.51% NA NA 23.17% 24.14%
Ameritas Index 500 08-01-95(2) 20.43% 26.43% NA NA 25.25% 26.09%
FIDELITY VIP
Equity-Income 10/9/86 3.96% 9.96% 16.63% 17.06% 13.97%* 13.97%*
Growth 10/9/86 31.45% 37.45% 19.59% 19.98% 17.72%* 17.72%*
High Income 9/19/85 -11.78% -5.78% 6.56% 7.18% 9.49%* 9.49%*
Overseas 1/28/87 5.07% 11.07% 7.48% 8.07% 8.44%* 8.44%*
FIDELITY VIP II
Asset Manager 9/6/89 7.34% 13.34% 9.60% 10.15% 11.37% 11.37%
Inv. Grade Bond 12/5/88 1.22% 7.22% 4.45% 5.11% 6.77%* 6.77%*
Asset Manager: Growth 1/3/95 9.82% 15.82% NA NA 19.21% 19.94%
Contrafund 1/3/95 22.07% 28.07% NA NA 26.19% 26.81%
ALGER AMERICAN FUND
Balanced 9/5/89 23.58% 29.58% 14.24% 14.70% 10.40% 10.40%
Leveraged AllCap 1/25/95 49.54% 55.54% NA NA 36.95% 37.45%
MFS VARIABLE INS. TRUST
Utilities 1/3/95 10.31% 16.31% NA NA 22.95% 23.62%
Global Governments 6/14/94 0.29% 6.29% NA NA 3.23% 4.01%
New Discovery 5/1/98 NA NA NA NA NA NA
MORGAN STANLEY DEAN WITTER
UNIVERSAL FUNDS, INC.
Emerging Markets Equity 10/1/96 -31.36% -25.36% NA NA -16.96% -13.68%
Global Equity 1/2/97 5.78% 11.78% NA NA 12.45% 15.10%
International Magnum 1/2/97 1.34% 7.34% NA NA 3.74% 6.61%
Asian Equity 3/3/97 -13.86 -7.86% NA NA -35.09% -30.53%
U.S. Real Estate 3/3/97 -18.22% -12.22% NA NA -1.97% 1.32%
* 10 Year Figure
</TABLE>
(1) This inception date is the inception date for the Portfolio in which the
Subaccount invested prior to October 29, 1999. The Subaccount changed its
name and the Portfolio in which it invests on October 29, 1999. The
sub-adviser that manages the investments of the Portfolio in which this
Subaccount now invests also managed the investments of the Portfolio in
which it invested prior to October 29, 1999. This presentation provides
non-standard performance in two respects: (i) the initial investment used in
the calculation ($30,000) differs from that used for the standard
performance presentation in the Average Annual Total Return chart which
appears earlier in this Statement of Additional Information; and (ii) the
inception date used is the Portfolio inception date rather than the
Subaccount inception date.
ANNUITY III
SAI 5
<PAGE>
(2) This is the Subaccount inception date, not the Portfolio inception date.
This Subaccount changed its name and the Portfolio in which it invests on
October 29, 1999. The sub-adviser that manages the investments of the
Portfolio in which this Subaccount now invests did not manage the
investments of the Portfolio in which it invested prior to October 29, 1999.
This presentation provides non-standard performance for the subaccount
because the initial investment amount used in the calculation ($30,000)
differs from that used for the standard performance presentation in the
Average Annual Total Return chart which appears earlier in this Statement of
Additional Information.
In addition to average annual returns, the subaccounts may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. The returns will reflect the mortality and expense risk
charge (1.25% on an annual basis), annual administration fee at an annual rate
of .20%%, and the annual Policy fee. Since the contract is intended as a
long-term product, the table shows the cumulative total returns assuming that no
money was withdrawn from the contract.
The following table shows the historical cumulative total return on an
investment in the subaccounts for the last year, five years, and ten years (or,
if less, up to the life of the portfolio) for the period ending December 31,
1998.
<TABLE>
<CAPTION>
HISTORICAL CUMULATIVE TOTAL RETURN FOR PERIOD ENDING ON 12/31/98
PORTFOLIO 10 YEARS OR
SUBACCOUNTS INCEPTION ONE YEAR FIVE YEAR SINCE INCEPTION
----------- --------- -------- --------- ---------------
<S> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Growth 01-09-89 (1) 46.03% 172.27% 536.77%
Ameritas Income and Growth 11-15-88 (1) 30.56% 149.60% 271.13%*
Ameritas Small Capitalization 09-21-88 (1) 13.92% 72.48% 431.46%*
Ameritas MidCap Growth 05-03-93 (1) 28.50% 122.40% 205.43%
Ameritas Emerging Growth 07-24-95 (1) 32.31% NA 114.21%
Ameritas Research 07-26-95 (1) 21.68% NA 91.43%
Ameritas Growth With Income 10-09-95 (1) 20.63% NA 101.46%
Ameritas Index 500 08-01-95 (2) 26.55% NA 122.64%
FIDELITY VIP
Equity-Income 10-09-86 10.08% 120.42% 271.07%*
Growth 10-09-86 37.57% 149.35% 412.31%*
High Income 09-19-85 -5.66% 42.10% 148.55%*
Overseas 01-28-87 11.19% 48.15% 126.23%*
FIDELITY VIP II
Asset Manager 09-06-89 13.46% 62.94% 173.96%
Inv. Grade Bond 12-05-88 7.34% 28.99% 93.73%*
Asset Manager: Growth 01-03-95 15.94% NA 107.04%
Contrafund 01-03-95 28.19% NA 158.54%
ALGER AMERICAN FUND
Balanced 09-05-89 29.70% 99.34% 153.09%
Leveraged AllCap 01-25-95 55.66% NA 249.24%
MFS VARIABLE INS. TRUST
Utilities 01-03-95 16.43% NA 133.53%
Global Governments 06-14-94 6.41% NA 20.08%
New Discovery 05-01-98 NA NA NA
MORGAN STANLEY DEAN WITTER
UNIVERSAL FUNDS, INC.
Emerging Markets Equity 10-01-96 -25.24% NA -27.93%
Global Equity 01-02-97 11.90% NA 32.48%
International Magnum 01-01-97 7.46% NA 13.73%
Asian Equity 03-03-97 -7.74% NA -48.53%
U.S. Real Estate 03-03-97 -12.10% NA 2.53%
* 10 Year Figure
</TABLE>
(1) This inception date is the inception date for the Portfolio in which the
Subaccount invested prior to October 29, 1999. The Subaccount changed its
name and the Portfolio in which it invests on October 29, 1999. The
sub-adviser that manages the investments of the Portfolio in which this
Subaccount now invests also managed the investments of the Portfolio in
which it invested prior to October 29, 1999. This presentation provides
non-standard performance in three respects: (i) the initial investment used
in the calculation ($30,000) differs from that used for the standard
performance presentation in the Average Annual Total Return chart which
appears earlier in this Statement of Additional Information; (ii) the
inception date used is the Portfolio inception date rather than the
Subaccount inception date; and (iii) the chart shows cumulative total return
instead of average annual total return.
(2) This is the Subaccount inception date, not the Portfolio inception date.
This Subaccount changed its name and the Portfolio in which it invests on
October 29, 1999. The sub-adviser that manages the investments of the
Portfolio in which this Subaccount now invests did not manage the
investments of the Portfolio in which it invested prior to October 29, 1999.
This presentation provides non-standard performance for the subaccount in
two respects: (i) the initial investment amount used in the calculation
($30,000) differs from that used for the standard performance presentation
in the Average Annual Total Return chart which appears earlier in this
Statement of Additional Information, and (ii) the chart shows cumulative
total return instead of average annual total return.
ANNUITY III
SAI 6
<PAGE>
YIELDS
Some subaccounts may also advertise yields. Yields quoted in advertising reflect
the change in value of an investment in the subaccount over a stated period of
time, not taking into account capital gains or losses. Yields are annualized and
stated as a percentage. Yields do not reflect the impact of any contingent
deferred sales load.
Current yield for Money Market subaccount reflects the income generated by a
subaccount over a 7 day period. Current yield is calculated by determining the
net change, exclusive of capital changes, in the value of a hypothetical account
having one Accumulation Unit at the beginning of the period adjusting for the
maintenance charge, and dividing the difference by the value of the subaccount
at the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The resulting yield figure is
carried to the nearest hundredth of a percent. Effective yield for the Money
Market subaccount is calculated in a similar manner to current yield except that
investment income is assumed to be reinvested throughout the year at the 7 day
rate. Effective yield is obtained by taking the base period returns as computed
above, and then compounding the base period return by adding 1, raising the sum
to a power equal to (365/7) and subtracting one from the result, according to
the formula:
Effective Yield=[(Base Period Return+1)365/7]-1.
Since the reinvestment of income is assumed in the calculation of effective
yield, it will generally be higher than current yield.
The net average yield for the 7-day period ended December 31, 1998 for the Money
Market Fund was 3.48% and the net effective yield for the 7-day period ended
December 31, 1998 for the Money Market Fund was 3.55%. The Money Market
Subaccount changed the portfolio in which it invests on October 29, 1999. The
sub-adviser that manages the investments of the Portfolio in which this
Subaccount now invests did not manage the investments of the Portfolio in which
it invested prior to October 29, 1999. 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[(a - b + 1)6 - 1]
cd
Where a = net investment income earned during the period by the portfolio
company attributable to shares owned by the subaccount, b = expenses accrued for
the period (net of reimbursements), c = the average daily number of accumulation
units outstanding during the period, and d = the maximum offering price per
accumulation unit on the last day of the period. The yield reflects the
mortality and expense risk charge and the annual policy fee.
GENERAL MATTERS
THE POLICY
The Policy, the application, any supplemental applications, and any amendments
or endorsements make up the entire contract. All statements made in the
application, in the absence of fraud, are considered representations and not
warranties. Only statements in the application that is attached to the Policy
and any supplemental applications made a part of the Policy when a change went
into effect can be used to contest a claim or the validity of the Policy. Only
the President, Vice President, Secretary or Assistant Secretary can modify the
Policy. Any changes must be made in writing, and approved by AVLIC. No agent has
the authority to alter or modify any of the terms, conditions or agreements of
the Policy or to waive any of its provisions.
NON-PARTICIPATING
The Policies are non-participating. No dividends are payable and the Policies
will not share in the profits or surplus earnings of AVLIC.
ASSIGNMENT
Any non-qualified policy and any qualified policy, if permitted by the plan or
by law relevant to the plan applicable to the qualified policy, may be assigned
by the owner prior to the annuity date and during the annuitant's lifetime.
AVLIC is not responsible for the validity of any assignment. No assignment will
be recognized until AVLIC receives written notice thereof. The interest of any
beneficiary which the assignor has the right to change shall be subordinate to
the interest of an assignee. Any amount paid to the assignee shall be paid in
one sum, not withstanding any settlement agreement in effect at the time the
assignment was executed. AVLIC shall not be liable as to any payment or other
settlement made by AVLIC before receipt of written notice.
ANNUITY III
SAI 7
<PAGE>
ANNUITY DATA
AVLIC will not be liable for obligations which depend on receiving information
from a payee until such information is received in a form satisfactory to AVLIC.
OWNERSHIP
The owner of the Policy on the policy date is the annuitant, unless otherwise
specified in the application. During the annuitant's lifetime, all rights and
privileges under this Policy may be exercised solely by the owner. Ownership
passes to the 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.
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 the owner's interest is payable to (or for the benefit of) the surviving
spouse of the owner, the surviving spouse will be treated as the original owner
for purposes of applying the above distribution requirements.
FEDERAL TAX MATTERS
TAXATION OF AVLIC
AVLIC is taxed as a life insurance company under Part I of Subchapter L of the
Code. Since Separate Account VA-2 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 Separate Account VA-2 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 VA-2 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
Separate Account VA-2 unless the investments made by Separate Account VA-2 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. Separate Account VA-2, through
the Funds, intends to comply with the diversification requirements prescribed by
Treasury regulations which affect how the Funds' assets may be invested. While
AIC, an AVLIC affiliate, is the advisor to certain of the funds, AVLIC does not
control any of the Funds. AVLIC has entered into agreements regarding
participation in the Funds, which require the Funds to be operated in compliance
with the requirements prescribed by the Treasury.
ANNUITY III
SAI 8
<PAGE>
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. Roth IRAs--Section 408A of the Code permits certain individuals to
establish an individual retirement program known as a "Roth Individual
Retirement Annuity" or a "Roth IRA." Roth IRAs are subject to limits on
eligibility and maximum contributions. Unlike regular IRAs, Roth IRAs are
not subject to minimum distribution requirements at age 70 1/2. In
addition, certain qualified distributions from a Roth IRA may not be
subject to federal income tax on withdrawal. Distributions from other types
of qualified plans may not, as a general rule, be rolled over to a Roth
IRA. However, a regular IRA can be converted to a Roth IRA in certain
circumstances. Sales of a Policy for use as a Roth IRA may be subject to
special requirements of the Internal Revenue Service. Purchasers of a Roth
IRA Policy will be provided with supplemental information required by the
Internal Revenue Service or other appropriate agency.
d. SIMPLE IRAs--Section 408(p) of the Code permits certain small employers to
establish a "SIMPLE Individual Annuity" or "SIMPLE IRA" plan for the
benefit of its eligible employees. Employers who maintain SIMPLE IRA plans
make a specified amount of either matching or non-elective contributions to
SIMPLE IRAs of eligible employees. Employees may also make salary deferred
contributions to their SIMPLE IRAs. The Code specifies limits on
eligibility, contributions, and the timing of distributions, among other
things. Sales of SIMPLE IRAs may be subject to special requirements of the
Internal Revenue Service. Purchasers of a SIMPLE IRA Policy will be
provided with supplemental information required by the Internal Revenue
Service or other appropriate agency.
e. 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.
f. Plans of Public School Systems and Certain Tax Exempt
Organizations--Section 403(b) of the Code permits public school systems and
certain tax-exempt organizations to establish plans that provide retirement
benefits for employees through the purchase of annuity contracts subject to
applicable code limits. Such plans may permit the purchase of the Policies
in order to provide benefits under the plans. Section 403(b)(11) of the
Code became effective January 1, 1989 and generally provides that the
policyholder may not elect to withdraw funds attributable to salary
reduction contributions from a plan under Section 403(b) before age 59 1/2
and pay the taxes. The money may only be withdrawn as provided by the Code.
On November 28, 1988, the Division of Investment Management issued a No
Action Letter which stated that the Division would not recommend
enforcement action against registrants who followed Section 403(b)(11) and
did not allow such a withdrawal so long as the No Action Letter is complied
with. The Registrant is acting in reliance on the November 28, 1988, No
Action Letter and has complied, is complying and/or will comply with its
provisions. The policyholder should fully review the prospectus and consult
with his or her tax consultant before purchasing this annuity as a part of
a Section 403(b) plan.
ANNUITY III
SAI 9
<PAGE>
DISTRIBUTION OF THE POLICY
Ameritas Investment Corp. ("AIC"), 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. AIC is wholly owned by AMAL Corporation,
which also owns AVLIC. AIC also serves as principal underwriter for AVLIC's
variable universal life policies, and for Ameritas Life's variable life and
variable annuity. AIC is the underwriter for the Ameritas Portfolios, and also
serves as its investment advisor. It also has executed selling agreements with a
variety of mutual funds, unit investment trusts, and direct participation
programs.
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 AIC. The offering of the
Policies is continuous and AIC does not anticipate discontinuing the offering of
this policy. However, AIC does reserve the right to discontinue the offering of
the policies.
Gross variable annuity compensation for the Policies and for all other variable
annuity policies issued by AVLIC totaled $16,527,487 for 1998, $11,961,951 for
1997; and $10,067,075 for 1996.
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 Donald
R. Stading, Secretary and General Counsel of AVLIC.
EXPERTS
The financial statements of AVLIC as of December 31, 1998 and 1997, and for each
of the three years in the period ended December 31, 1998, and the financial
statements of Separate Account VA-2 as of December 31, 1998, 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
ANNUITY III
SAI 10
<PAGE>
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.
ANNUITY III
SAI 11
<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, 1998, 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, 1998. 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, 1998, 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 5, 1999
F-I-1
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
INVESTMENTS AT NET ASSET VALUE:
VARIABLE INSURANCE PRODUCTS FUND:
Money Market Portfolio Initial Class (Money Market
I-Class) -- 83,957,576.23 shares at $1.00 per share
(cost $83,957,576).................................... $ 83,957,576
Equity-Income Portfolio Initial Class (Equity Income
I-Class) -- 7,310,168.164 shares at $25.42 per share
(cost $118,269,454)................................... 185,824,475
Equity-Income Portfolio Service Class (Equity Income
S-Class) -- 137,879.292 shares at $25.39 per share
(cost $3,264,000)..................................... 3,500,755
Growth Portfolio Initial Class (Growth I-Class) --
3,655,507.381 shares at $44.87 per share (cost
$81,895,186).......................................... 164,022,616
Growth Portfolio Service Class (Growth S-Class) --
51,779.065 shares at $44.82 per share (cost
$1,981,286)........................................... 2,320,738
High Income Portfolio Initial Class (High Income
I-Class) -- 4,839,967.104 shares at $11.53 per share
(cost $51,150,901).................................... 55,804,820
High Income Portfolio Service Class (High Income
S-Class) -- 173,277.599 shares at $11.51 per share
(cost $1,978,161)..................................... 1,994,425
Overseas Portfolio Initial Class (Overseas I-Class) --
2,859,039.227 shares at $20.05 per share (cost
$38,788,292).......................................... 57,323,737
Overseas Portfolio Service Class (Overseas S-Class) --
36,742.223 shares at $20.03 per share (cost
$709,400)............................................. 735,947
VARIABLE INSURANCE PRODUCTS FUND II:
Asset Manager Portfolio Initial Class (Asset Manager
I-Class) -- 8,179,278.614 shares at $18.16 per share
(cost $111,240,959)................................... 148,535,700
Asset Manager Portfolio Service Class (Asset Manager
S-Class) -- 111,558.654 shares at $18.10 per share
(cost $1,887,022)..................................... 2,019,212
Investment Grade Bond Portfolio Initial Class
(Investment Grade Bond I-Class) -- 4,432,351.864
shares at $12.96 per share (cost $53,051,995)......... 57,443,280
Contrafund Portfolio Initial Class (Contrafund I-Class)
-- 3,150,362.284 shares at $24.44 per share (cost
$52,420,562).......................................... 76,994,855
Contrafund Portfolio Service Class (Contrafund S-Class)
-- 111,439.527 shares at $24.42 per share (cost
$2,348,103)........................................... 2,721,353
Index 500 Portfolio Initial Class (Index 500 I-Class)
-- 819,191.106 shares at $141.25 per share (cost
$84,061,136).......................................... 115,710,743
Asset Manager Growth Portfolio Initial Class (Asset
Mgr. Growth I-Class) -- 887,480.881 shares at $17.03
per share (cost $12,119,068).......................... 15,113,798
Asset Manager Growth Portfolio Service Class (Asset
Mgr. Growth S-Class) -- 38,568.028 shares at $16.96
per share (cost $604,388)............................. 654,115
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-I- 2
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS, CONTINUED
ALGER AMERICAN FUND:
Small Capitalization Portfolio (Small Capital) --
1,622,219.084 shares at $43.97 per share (cost
$51,137,188).......................................... 71,328,974
Growth Portfolio (Growth) -- 1,934,879.114 shares at
$53.22 per share (cost $66,162,226)................... 102,974,266
Income and Growth Portfolio (Income and Growth) --
2,977,458.762 shares at $13.12 per share (cost
$31,292,193).......................................... 39,064,260
Midcap Growth Portfolio (Midcap Growth) --
1,499,741.532 shares at $28.87 per share (cost
$28,866,155).......................................... 43,297,539
Balanced Portfolio (Balanced) -- 1,376,246.463 shares
at $12.98 per share (cost $15,052,110)................ 17,863,678
Leveraged Allcap Portfolio (Leveraged Allcap) --
510,356.079 shares at $34.90 per share (cost
$11,068,959).......................................... 17,811,427
MFS VARIABLE INSURANCE TRUST:
Emerging Growth Series Portfolio (Emerging Growth
Series) -- 2,708,896.576 shares at $21.47 per share
(cost $38,869,413).................................... 58,160,009
World Governments Series Portfolio (World Govern.
Series) -- 336,831.365 shares at $10.88 per share
(cost $3,494,899)..................................... 3,664,726
Utilities Series Portfolio (Utilities Series) --
1,721,761.046 shares at $19.82 per share (cost
$28,683,078).......................................... 34,125,303
Research Series Portfolio (Research Series) --
807,540.107 shares at $19.05 per share (cost
$13,362,814).......................................... 15,383,640
Growth with Income Series Portfolio (Growth with Inc.
Series) -- 1,373,397.787 shares at $20.11 per share
(cost $22,839,491).................................... 27,619,029
MORGAN STANLEY UNIVERSAL FUNDS:
Asian Equity Portfolio (Asian Equity) -- 242,829.800
shares at $5.23 per share (cost $1,592,188)........... 1,270,000
Emerging Markets Equity Portfolio (Emerg. Mkts. Equity)
-- 366,678.867 shares at $7.11 per share (cost
$4,247,629)........................................... 2,607,086
Global Equity Portfolio (Global Equity) -- 634,535.152
shares at $13.14 per share (cost $7,776,758).......... 8,337,792
International Magnum Portfolio (International Magnum)
-- 500,621.227 shares at $11.23 per share (cost
$5,692,851)........................................... 5,621,976
U.S. Real Estate Portfolio (US Real Estate) --
304,846.573 shares at $9.80 per share (cost
$3,372,376)........................................... 2,987,497
--------------
Net Assets Representing Equity of Policyowners.... $1,426,795,347
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-I- 3
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
----------------------------------------
MONEY EQUITY EQUITY
MARKET INCOME INCOME
TOTAL I-CLASS I-CLASS S-CLASS(1)
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
1998
INVESTMENT INCOME:
Dividend distributions received.......... $ 22,110,883 $ 4,909,957 $ 2,456,196 $ --
Mortality and expense risk charge........ (15,831,212) (1,194,527) (2,339,350) (7,417)
------------ ----------- ----------- --------
NET INVESTMENT INCOME (LOSS)............... 6,279,671 3,715,430 116,846 (7,417)
------------ ----------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on
investments........................... 78,731,557 -- 8,741,168 --
Net change in unrealized appreciation
(depreciation)........................ 135,562,898 -- 8,490,127 236,755
------------ ----------- ----------- --------
NET GAIN (LOSS) ON INVESTMENTS............. 214,294,455 -- 17,231,295 236,755
------------ ----------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................ $220,574,126 $ 3,715,430 $17,348,141 $229,338
============ =========== =========== ========
1997
INVESTMENT INCOME:
Dividend distributions received.......... $ 18,333,107 $ 3,951,302 $ 2,247,348 $ --
Mortality and expense risk charge........ (12,015,158) (951,568) (1,978,672) --
------------ ----------- ----------- --------
NET INVESTMENT INCOME (LOSS)............... 6,317,949 2,999,734 268,676 --
------------ ----------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on
investments........................... 34,973,424 -- 11,299,164 --
Net change in unrealized appreciation
(depreciation)........................ 118,096,018 -- 24,959,276 --
------------ ----------- ----------- --------
NET GAIN (LOSS) ON INVESTMENTS............. 153,069,442 -- 36,258,440 --
------------ ----------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................ $159,387,391 $ 2,999,734 $36,527,116 $ --
============ =========== =========== ========
</TABLE>
- ---------------
(1) Commenced business 06/15/98
(2) Commenced business 06/23/98
(3) Commenced business 06/23/98
(4) Commenced business 07/07/98
The accompanying notes are an integral part of these financial statements.
F-I- 4
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
-----------------------------------------------------------------------------
HIGH HIGH
GROWTH GROWTH INCOME INCOME OVERSEAS OVERSEAS
I-CLASS S-CLASS(2) I-CLASS S-CLASS(3) I-CLASS S-CLASS(4)
----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 605,437 $ -- $ 4,330,339 $ -- $1,140,373 $ --
(1,732,129) (4,565) (690,007) (3,896) (736,427) (1,477)
----------- -------- ----------- ------- ---------- -------
(1,126,692) (4,565) 3,640,332 (3,896) 403,946 (1,477)
----------- -------- ----------- ------- ---------- -------
15,836,955 -- 2,751,569 -- 3,361,100 --
29,131,150 339,452 (7,886,561) 16,265 4,670,094 26,547
----------- -------- ----------- ------- ---------- -------
44,968,105 339,452 (5,134,992) 16,265 8,031,194 26,547
----------- -------- ----------- ------- ---------- -------
$43,841,413 $334,887 $(1,494,660) $12,369 $8,435,140 $25,070
=========== ======== =========== ======= ========== =======
$ 833,612 $ -- $ 3,454,785 $ -- $ 920,980 $ --
(1,491,200) -- (640,776) -- (738,232) --
----------- -------- ----------- ------- ---------- -------
(657,588) -- 2,814,009 -- 182,748 --
----------- -------- ----------- ------- ---------- -------
3,731,404 -- 426,996 -- 3,656,013 --
19,009,272 -- 4,550,641 -- 3,210,442 --
----------- -------- ----------- ------- ---------- -------
22,740,676 -- 4,977,637 -- 6,866,455 --
----------- -------- ----------- ------- ---------- -------
$22,083,088 $ -- $ 7,791,646 $ -- $7,049,203 $ --
=========== ======== =========== ======= ========== =======
</TABLE>
F-I- 5
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
------------------------------------------------------
ASSET ASSET INVESTMENT
MANAGER MANAGER GRADE BOND CONTRAFUND
I-CLASS S-CLASS(1) I-CLASS I-CLASS
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998
INVESTMENT INCOME:
Dividend distributions received............ $ 4,583,852 $ -- $1,731,957 $ 350,465
Mortality and expense risk charge.......... (1,858,697) (4,137) (594,742) (813,557)
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS)................. 2,725,155 (4,137) 1,137,215 (463,092)
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments.... 13,751,556 -- 205,487 2,578,421
Net change in unrealized appreciation
(depreciation).......................... 2,204,967 132,190 2,019,428 13,791,602
----------- -------- ---------- -----------
NET GAIN (LOSS) ON INVESTMENTS............... 15,956,523 132,190 2,224,915 16,370,023
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $18,681,678 $128,053 $3,362,130 $15,906,931
=========== ======== ========== ===========
1997
INVESTMENT INCOME:
Dividend distributions received............ $ 4,269,843 $ -- $1,567,477 $ 238,666
Mortality and expense risk charge.......... (1,677,072) -- (353,893) (505,870)
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS)................. 2,592,771 -- 1,213,584 (267,204)
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments.... 10,710,793 -- -- 630,759
Net change in unrealized appreciation
(depreciation).......................... 10,040,817 -- 877,219 7,170,889
----------- -------- ---------- -----------
NET GAIN (LOSS) ON INVESTMENTS............... 20,751,610 -- 877,219 7,801,648
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $23,344,381 $ -- $2,090,803 $ 7,534,444
=========== ======== ========== ===========
</TABLE>
- ---------------
(1) Commenced business 06/25/98
(2) Commenced business 06/25/98
(3) Commenced business 06/25/98
The accompanying notes are an integral part of these financial statements.
F-I- 6
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II ALGER AMERICAN FUND
----------------------------------------------------------- ----------------------------------------
ASSET MANAGER ASSET MANAGER
CONTRAFUND INDEX 500 GROWTH GROWTH SMALL INCOME AND
S-CLASS(2) I-CLASS I-CLASS S-CLASS(3) CAPITAL GROWTH GROWTH
---------- ----------- ------------- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 786,943 $ 297,859 $ -- $ -- $ 173,339 $ 104,987
(4,856) (1,123,527) (196,347) (1,275) (803,975) (945,575) (404,776)
-------- ----------- ---------- ------- ----------- ----------- ----------
(4,856) (336,584) 101,512 (1,275) (803,975) (772,236) (299,789)
-------- ----------- ---------- ------- ----------- ----------- ----------
-- 1,822,698 1,392,928 -- 8,752,723 10,592,649 2,904,643
373,250 19,083,799 634,145 49,726 2,183,950 18,379,701 5,691,621
-------- ----------- ---------- ------- ----------- ----------- ----------
373,250 20,906,497 2,027,073 49,726 10,936,673 28,972,350 8,596,264
-------- ----------- ---------- ------- ----------- ----------- ----------
$368,394 $20,569,913 $2,128,585 $48,451 $10,132,698 $28,200,114 $8,296,475
======== =========== ========== ======= =========== =========== ==========
$ -- $ 238,743 $ -- $ -- $ -- $ 156,764 $ 77,900
-- (585,714) (127,412) -- (763,410) (650,590) (236,367)
-------- ----------- ---------- ------- ----------- ----------- ----------
-- (346,971) (127,412) -- (763,410) (493,826) (158,467)
-------- ----------- ---------- ------- ----------- ----------- ----------
-- 484,440 7,452 -- 2,112,658 283,904 644,447
-- 11,124,629 2,228,379 -- 5,974,644 10,340,154 4,535,877
-------- ----------- ---------- ------- ----------- ----------- ----------
-- 11,609,069 2,235,831 -- 8,087,302 10,624,058 5,180,324
-------- ----------- ---------- ------- ----------- ----------- ----------
$ -- $11,262,098 $2,108,419 $ -- $ 7,323,892 $10,130,232 $5,021,857
======== =========== ========== ======= =========== =========== ==========
</TABLE>
F-I- 7
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
---------------------------------------
MIDCAP LEVERAGED
GROWTH BALANCED ALLCAP
1998 ----------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend distributions received....................... $ -- $ 158,910 $ --
Mortality and expense risk charge..................... (483,549) (152,734) (147,668)
----------- ---------- ----------
NET INVESTMENT INCOME (LOSS)............................ (483,549) 6,176 (147,668)
----------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments............... 3,119,502 705,874 437,518
Net change in unrealized appreciation
(depreciation)..................................... 6,907,531 2,653,456 5,190,038
----------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS.......................... 10,027,033 3,359,330 5,627,556
----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $ 9,543,484 $3,365,506 $5,479,888
=========== ========== ==========
1997
INVESTMENT INCOME:
Dividend distributions received....................... $ 17,621 $ 72,040 $ --
Mortality and expense risk charge..................... (416,023) (83,767) (107,315)
----------- ---------- ----------
NET INVESTMENT INCOME (LOSS)............................ (398,402) (11,727) (107,315)
----------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments............... 429,680 97,681 --
Net change in unrealized appreciation
(depreciation)..................................... 3,558,421 937,442 1,319,217
----------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS.......................... 3,988,101 1,035,123 1,319,217
----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $ 3,589,699 $1,023,396 $1,211,902
=========== ========== ==========
</TABLE>
- ---------------
(1) Commenced business 05/01/97
(2) Commenced business 05/01/97
(3) Commenced business 05/12/97
(4) Commenced business 05/01/97
The accompanying notes are an integral part of these financial statements.
F-I- 8
<PAGE>
<TABLE>
<CAPTION>
MORGAN STANLEY
MFS VARIABLE INSURANCE TRUST UNIVERSAL FUNDS
------------------------------------------------------------------------- ------------------------
EMERGING WORLD UTILITIES RESEARCH GROWTH WITH ASIAN EMERG. MKTS.
GROWTH SERIES GOVERN. SERIES SERIES SERIES(1) INC. SERIES(2) EQUITY(3) EQUITY(4)
------------- -------------- ---------- ---------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 33,336 $ 245,880 $ 13,758 $ -- $ 14,136 $ 15,303
(611,693) (35,811) (308,735) (130,753) (265,114) (15,708) (40,749)
----------- -------- ---------- ---------- ---------- --------- -----------
(611,693) (2,475) (62,855) (116,995) (265,114) (1,572) (25,446)
----------- -------- ---------- ---------- ---------- --------- -----------
385,947 -- 1,117,922 180,422 -- -- --
13,357,575 172,955 2,524,701 1,891,547 4,105,744 (41,512) (979,576)
----------- -------- ---------- ---------- ---------- --------- -----------
13,743,522 172,955 3,642,623 2,071,969 4,105,744 (41,512) (979,576)
----------- -------- ---------- ---------- ---------- --------- -----------
$13,131,829 $170,480 $3,579,768 $1,954,974 $3,840,630 $ (43,084) $(1,005,022)
=========== ======== ========== ========== ========== ========= ===========
$ -- $ 23,328 $ -- $ -- $ 55,234 $ 1,300 $ 20,729
(383,765) (23,313) (123,508) (21,546) (65,442) (3,852) (17,436)
----------- -------- ---------- ---------- ---------- --------- -----------
(383,765) 15 (123,508) (21,546) (10,208) (2,552) 3,293
----------- -------- ---------- ---------- ---------- --------- -----------
-- 10,575 -- -- 258,379 -- 91,711
5,563,031 (36,397) 2,737,314 129,278 673,794 (280,675) (660,966)
----------- -------- ---------- ---------- ---------- --------- -----------
5,563,031 (25,822) 2,737,314 129,278 932,173 (280,675) (569,255)
----------- -------- ---------- ---------- ---------- --------- -----------
$ 5,179,266 $(25,807) $2,613,806 $ 107,732 $ 921,965 $(283,227) $ (565,962)
=========== ======== ========== ========== ========== ========= ===========
</TABLE>
F-I- 9
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
--------------------------------------- ---------
GLOBAL INTERNATIONAL U.S. REAL STOCK
EQUITY(1) MAGNUM(2) ESTATE(3) INDEX
--------- ------------- --------- -----
<S> <C> <C> <C> <C>
1998
INVESTMENT INCOME:
Dividend distributions received................. $ 54,910 $ 17,781 $ 85,165 $ --
Mortality and expense risk charge............... (78,584) (59,173) (39,682) --
-------- --------- --------- ---------
NET INVESTMENT INCOME (LOSS)...................... (23,674) (41,392) 45,483 --
-------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments......... 46,830 19,782 25,863 --
Net change in unrealized appreciation
(depreciation)............................... 530,951 207,777 (526,497) --
-------- --------- --------- ---------
NET GAIN (LOSS) ON INVESTMENTS.................... 577,781 227,559 (500,634) --
-------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. $554,107 $ 186,167 $(455,151) $ --
======== ========= ========= =========
1997
INVESTMENT INCOME:
Dividend distributions received................. $ 18,981 $ 86,248 $ 42,620 $ 37,586
Mortality and expense risk charge............... (12,407) (14,166) (12,020) (29,822)
-------- --------- --------- ---------
NET INVESTMENT INCOME (LOSS)...................... 6,574 72,082 30,600 7,764
-------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments......... 40,539 5,746 51,083 --
Net change in unrealized appreciation
(depreciation)............................... 30,082 (278,652) 141,617 240,273
-------- --------- --------- ---------
NET GAIN (LOSS) ON INVESTMENTS.................... 70,621 (272,906) 192,700 240,273
-------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. $ 77,195 $(200,824) $ 223,300 $ 248,037
======== ========= ========= =========
</TABLE>
- ---------------
(1) Commenced business 05/02/97
(2) Commenced business 05/01/97
(3) Commenced business 05/01/97
F-I- 10
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-I- 11
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
-------------------------------------------
EQUITY
MONEY MARKET EQUITY INCOME INCOME
TOTAL I-CLASS I-CLASS S-CLASS(1)
-------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
1998
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)......... $ 6,279,671 $ 3,715,430 $ 116,846 $ (7,417)
Net realized gain (loss) on
investments....................... 78,731,557 -- 8,741,168 --
Net change in unrealized appreciation
(depreciation).................... 135,562,898 -- 8,490,127 236,755
-------------- ------------ ------------ ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............ 220,574,126 3,715,430 17,348,141 229,338
NET INCREASE (DECREASE) FROM
POLICYOWNER TRANSACTIONS............. 138,601,922 22,164,859 (10,270,912) 3,271,417
-------------- ------------ ------------ ----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................... 359,176,048 25,880,289 7,077,229 3,500,755
NET ASSETS AT JANUARY 1, 1998.......... 1,067,619,299 58,077,287 178,747,246 --
-------------- ------------ ------------ ----------
NET ASSETS AT DECEMBER 31, 1998........ $1,426,795,347 $ 83,957,576 $185,824,475 $3,500,755
============== ============ ============ ==========
1997
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)......... $ 6,317,949 $ 2,999,734 $ 268,676 $ --
Net realized gain (loss) on
investments....................... 34,973,424 -- 11,299,164 --
Net change in unrealized appreciation
(depreciation).................... 118,096,018 -- 24,959,276 --
-------------- ------------ ------------ ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............ 159,387,391 2,999,734 36,527,116 --
NET INCREASE (DECREASE) FROM
POLICYOWNER TRANSACTIONS............. 96,731,159 (16,426,180) 8,142,445 --
-------------- ------------ ------------ ----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................... 256,118,550 (13,426,446) 44,669,561 --
NET ASSETS AT JANUARY 1, 1997.......... 811,500,749 71,503,733 134,077,685 --
-------------- ------------ ------------ ----------
NET ASSETS AT DECEMBER 31, 1997........ $1,067,619,299 $ 58,077,287 $178,747,246 $ --
============== ============ ============ ==========
</TABLE>
- ---------------
(1) Commenced business 06/15/98
(2) Commenced business 06/23/98
(3) Commenced business 06/23/98
(4) Commenced business 07/07/98
The accompanying notes are an integral part of these financial statements.
F-I- 12
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
-------------------------------------------------------------------------------
HIGH HIGH
GROWTH GROWTH INCOME INCOME OVERSEAS OVERSEAS
I-CLASS S-CLASS(2) I-CLASS S-CLASS(3) I-CLASS S-CLASS(4)
------------ ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ (1,126,692) $ (4,565) $ 3,640,332 $ (3,896) $ 403,946 $ (1,477)
15,836,955 -- 2,751,569 -- 3,361,100 --
29,131,150 339,452 (7,886,561) 16,265 4,670,094 26,547
------------ ---------- ----------- ---------- ----------- --------
43,841,413 334,887 (1,494,660) 12,369 8,435,140 25,070
(5,387,432) 1,985,851 (2,985,396) 1,982,056 (6,253,341) 710,877
------------ ---------- ----------- ---------- ----------- --------
38,453,981 2,320,738 (4,480,056) 1,994,425 2,181,799 735,947
125,568,635 -- 60,284,876 -- 55,141,938 --
------------ ---------- ----------- ---------- ----------- --------
$164,022,616 $2,320,738 $55,804,820 $1,994,425 $57,323,737 $735,947
============ ========== =========== ========== =========== ========
$ (657,588) $ -- $ 2,814,009 $ -- $ 182,748 $ --
3,731,404 -- 426,996 -- 3,656,013 --
19,009,272 -- 4,550,641 -- 3,210,442 --
------------ ---------- ----------- ---------- ----------- --------
22,083,088 -- 7,791,646 -- 7,049,203 --
(7,707,236) -- (140,776) -- (5,891,139) --
------------ ---------- ----------- ---------- ----------- --------
14,375,852 -- 7,650,870 -- 1,158,064 --
111,192,783 -- 52,634,006 -- 53,983,874 --
------------ ---------- ----------- ---------- ----------- --------
$125,568,635 $ -- $60,284,876 $ -- $55,141,938 $ --
============ ========== =========== ========== =========== ========
</TABLE>
F-I- 13
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
---------------------------------------------------------
ASSET INVESTMENT
ASSET MANAGER MANAGER GRADE BOND CONTRAFUND
I-CLASS S-CLASS(1) I-CLASS I-CLASS
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1998
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)................ $ 2,725,155 $ (4,137) $ 1,137,215 $ (463,092)
Net realized gain (loss) on investments..... 13,751,556 -- 205,487 2,578,421
Net change in unrealized appreciation
(depreciation)............................ 2,204,967 132,190 2,019,428 13,791,602
------------ ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................... 18,681,678 128,053 3,362,130 15,906,931
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS................................ (15,450,556) 1,891,159 20,420,227 11,886,631
------------ ---------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS....... 3,231,122 2,019,212 23,782,357 27,793,562
NET ASSETS AT JANUARY 1, 1998................. 145,304,578 -- 33,660,923 49,201,293
------------ ---------- ----------- -----------
NET ASSETS AT DECEMBER 31, 1998............... $148,535,700 $2,019,212 $57,443,280 $76,994,855
============ ========== =========== ===========
1997
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)................ $ 2,592,771 $ -- $ 1,213,584 $ (267,204)
Net realized gain (loss) on investments..... 10,710,793 -- -- 630,759
Net change in unrealized appreciation
(depreciation)............................ 10,040,817 -- 877,219 7,170,889
------------ ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................... 23,344,381 -- 2,090,803 7,534,444
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS................................ (1,349,261) -- 4,978,214 11,522,809
------------ ---------- ----------- -----------
TOTAL INCREASE(DECREASE) IN NET ASSETS........ 21,995,120 -- 7,069,017 19,057,253
NET ASSETS AT JANUARY 1, 1997................. 123,309,458 -- 26,591,906 30,144,040
------------ ---------- ----------- -----------
NET ASSETS AT DECEMBER 31, 1997............... $145,304,578 $ -- $33,660,923 $49,201,293
============ ========== =========== ===========
</TABLE>
- ---------------
(1) Commenced business 06/25/98
(2) Commenced business 06/25/98
(3) Commenced business 06/25/98
The accompanying notes are an integral part of these financial statements.
F-I- 14
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II ALGER AMERICAN FUND
- ---------------------------------------------------- ----------------------------------------
ASSET MGR. ASSET MGR.
CONTRAFUND INDEX 500 GROWTH GROWTH SMALL INCOME AND
S-CLASS(2) I-CLASS I-CLASS S-CLASS(3) CAPITAL GROWTH GROWTH
- ---------- ------------ ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$ (4,856) $ (336,584) $ 101,512 $ (1,275) $ (803,975) $ (772,236) $ (299,789)
-- 1,822,698 1,392,928 -- 8,752,723 10,592,649 2,904,643
373,250 19,083,799 634,145 49,726 2,183,950 18,379,701 5,691,621
- ---------- ------------ ----------- -------- ----------- ------------ -----------
368,394 20,569,913 2,128,585 48,451 10,132,698 28,200,114 8,296,475
2,352,959 32,088,011 (1,357,855) 605,664 (8,549,142) 19,541,259 5,828,399
- ---------- ------------ ----------- -------- ----------- ------------ -----------
2,721,353 52,657,924 770,730 654,115 1,583,556 47,741,373 14,124,874
-- 63,052,819 14,343,068 -- 69,745,418 55,232,893 24,939,386
- ---------- ------------ ----------- -------- ----------- ------------ -----------
$2,721,353 $115,710,743 $15,113,798 $654,115 $71,328,974 $102,974,266 $39,064,260
========== ============ =========== ======== =========== ============ ===========
$ -- $ (346,971) $ (127,412) $ -- $ (763,410) $ (493,826) $ (158,467)
-- 484,440 7,452 -- 2,112,658 283,904 644,447
-- 11,124,629 2,228,379 -- 5,974,644 10,340,154 4,535,877
- ---------- ------------ ----------- -------- ----------- ------------ -----------
-- 11,262,098 2,108,419 -- 7,323,892 10,130,232 5,021,857
-- 33,633,958 9,152,452 -- 5,835,385 2,936,361 8,178,488
- ---------- ------------ ----------- -------- ----------- ------------ -----------
-- 44,896,056 11,260,871 -- 13,159,277 13,066,593 13,200,345
-- 18,156,763 3,082,197 -- 56,586,141 42,166,300 11,739,041
- ---------- ------------ ----------- -------- ----------- ------------ -----------
$ -- $ 63,052,819 $14,343,068 $ -- $69,745,418 $ 55,232,893 $24,939,386
========== ============ =========== ======== =========== ============ ===========
</TABLE>
F-I- 15
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
-----------------------------------------
MIDCAP LEVERAGED
GROWTH BALANCED ALLCAP
----------- ----------- -----------
<S> <C> <C> <C>
1998
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss)........................ $ (483,549) $ 6,176 $ (147,668)
Net realized gain (loss) on investments............. 3,119,502 705,874 437,518
Net change in unrealized appreciation
(depreciation)................................... 6,907,531 2,653,456 5,190,038
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 9,543,484 3,365,506 5,479,888
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS........................................ 389,788 6,314,331 4,056,065
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS............... 9,933,272 9,679,837 9,535,953
NET ASSETS AT JANUARY 1, 1998......................... 33,364,267 8,183,841 8,275,474
----------- ----------- -----------
NET ASSETS AT DECEMBER 31, 1998....................... $43,297,539 $17,863,678 $17,811,427
=========== =========== ===========
1997
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss)........................ $ (398,402) $ (11,727) $ (107,315)
Net realized gain (loss) on investments............. 429,680 97,681 --
Net change in unrealized appreciation
(depreciation)................................... 3,558,421 937,442 1,319,217
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 3,589,699 1,023,396 1,211,902
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS........................................ 516,814 1,897,757 826,499
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS............... 4,106,513 2,921,153 2,038,401
NET ASSETS AT JANUARY 1, 1997......................... 29,257,754 5,262,688 6,237,073
----------- ----------- -----------
NET ASSETS AT DECEMBER 31, 1997....................... $33,364,267 $ 8,183,841 $ 8,275,474
=========== =========== ===========
</TABLE>
- ---------------
(1) Commenced business 05/01/97
(2) Commenced business 05/01/97
(3) Commenced business 05/12/97
(4) Commenced business 05/01/97
The accompanying notes are an integral part of these financial statements.
F-I- 16
<PAGE>
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST MORGAN STANLEY UNIVERSAL FUNDS
--------------------------------------------------------------------------- -------------------------------
EMERGING WORLD UTILITIES RESEARCH GROWTH WITH ASIAN EMERG. MKTS.
GROWTH SERIES GOVERN. SERIES SERIES SERIES(1) INC. SERIES(2) EQUITY(3) EQUITY(4)
------------- -------------- ----------- ----------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (611,693) $ (2,475) $ (62,855) $ (116,995) $ (265,114) $ (1,572) $ (25,446)
385,947 -- 1,117,922 180,422 -- -- --
13,357,575 172,955 2,524,701 1,891,547 4,105,744 (41,512) (979,576)
------------ ---------- ----------- ----------- ----------- ---------- -----------
13,131,829 170,480 3,579,768 1,954,974 3,840,630 (43,084) (1,005,022)
8,590,108 1,367,828 15,579,157 8,858,712 10,291,072 281,663 571,924
------------ ---------- ----------- ----------- ----------- ---------- -----------
21,721,937 1,538,308 19,158,925 10,813,686 14,131,702 238,579 (433,098)
36,438,072 2,126,418 14,966,378 4,569,954 13,487,327 1,031,421 3,040,184
------------ ---------- ----------- ----------- ----------- ---------- -----------
$ 58,160,009 $3,664,726 $34,125,303 $15,383,640 $27,619,029 $1,270,000 $ 2,607,086
============ ========== =========== =========== =========== ========== ===========
$ (383,765) $ 15 $ (123,508) $ (21,546) $ (10,208) $ (2,552) $ 3,293
-- 10,575 -- -- 258,379 -- 91,711
5,563,031 (36,397) 2,737,314 129,278 673,794 (280,675) (660,966)
------------ ---------- ----------- ----------- ----------- ---------- -----------
5,179,266 (25,807) 2,613,806 107,732 921,965 (283,227) (565,962)
11,676,622 887,245 6,961,486 4,462,222 12,565,362 1,314,648 3,606,146
------------ ---------- ----------- ----------- ----------- ---------- -----------
16,855,888 861,438 9,575,292 4,569,954 13,487,327 1,031,421 3,040,184
19,582,184 1,264,980 5,391,086 -- -- -- --
------------ ---------- ----------- ----------- ----------- ---------- -----------
$ 36,438,072 $2,126,418 $14,966,378 $ 4,569,954 $13,487,327 $1,031,421 $ 3,040,184
============ ========== =========== =========== =========== ========== ===========
</TABLE>
F-I- 17
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
----------------------------------------- -----------
GLOBAL INTERNATIONAL U.S. REAL STOCK
EQUITY(1) MAGNUM(2) ESTATE(3) INDEX
---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
1998
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)............... $ (23,674) $ (41,392) $ 45,483 $ --
Net realized gain (loss) on investments.... 46,830 19,782 25,863 --
Net change in unrealized appreciation
(depreciation).......................... 530,951 207,777 (526,497) --
---------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. 554,107 186,167 (455,151) --
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS............................... 4,864,755 2,526,436 435,348 --
---------- ---------- ---------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS...... 5,418,862 2,712,603 (19,803) --
NET ASSETS AT JANUARY 1, 1998................ 2,918,930 2,909,373 3,007,300 --
---------- ---------- ---------- -----------
NET ASSETS AT DECEMBER 31, 1998 $8,337,792 $5,621,976 $2,987,497 $ --
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
1997
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)............... $ 6,574 $ 72,082 $ 30,600 $ 7,764
Net realized gain (loss) on investments.... 40,539 5,746 51,083 --
Net change in unrealized appreciation
(depreciation).......................... 30,082 (278,652) 141,617 240,273
---------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. 77,195 (200,824) 223,300 248,037
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS............................... 2,841,735 3,110,197 2,784,000 (9,585,094)
---------- ---------- ---------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS...... 2,918,930 2,909,373 3,007,300 (9,337,057)
NET ASSETS AT JANUARY 1, 1997................ -- -- -- 9,337,057
---------- ---------- ---------- -----------
NET ASSETS AT DECEMBER 31, 1997.............. $2,918,930 $2,909,373 $3,007,300 $ --
========== ========== ========== ===========
</TABLE>
- ---------------
(1) Commenced business 05/02/97
(2) Commenced business 05/01/97
(3) Commenced business 05/01/97
The accompanying notes are an integral part of these financial statements.
F-I- 18
<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, 1998, there are thirty-three
subaccounts within the Account. Nine of the subaccounts invest only in a
corresponding Portfolio of Variable Insurance Products Fund and eight 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 policyowner
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.
F-I- 19
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-I- 20
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-I- 21
<PAGE>
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:
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------------------------------------
EQUITY EQUITY
MONEY MARKET INCOME INCOME GROWTH GROWTH
I-CLASS I-CLASS S-CLASS(1) I-CLASS S-CLASS(2)
------------------ -------------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Shares owned at January 1,
1998...................... 58,077,286.870 7,361,912.916 -- 3,384,599.320 --
Shares acquired............. 1,252,783,192.600 8,936,857.352 157,505.669 18,036,796.629 61,359.108
Shares disposed of.......... (1,226,902,903.240) (8,988,602.104) (19,626.377) (17,765,888.568) (9,580.043)
------------------ -------------- ----------- --------------- ----------
Shares owned at December 31,
1998...................... 83,957,576.230 7,310,168.164 137,879.292 3,655,507.381 51,779.065
================== ============== =========== =============== ==========
Shares owned at January 1,
1997...................... 71,503,732.540 6,375,543.739 -- 3,570,738.040 --
Shares acquired............. 853,215,634.620 6,785,276.757 -- 9,039,036.135 --
Shares disposed of.......... (866,642,080.290) (5,798,907.580) -- (9,225,174.855) --
------------------ -------------- ----------- --------------- ----------
Shares owned at December 31,
1997...................... 58,077,286.870 7,361,912.916 -- 3,384,599.320 --
================== ============== =========== =============== ==========
</TABLE>
- ---------------
(1) Commenced business 06/15/98
(2) Commenced business 06/23/98
(3) Commenced business 06/23/98
(4) Commenced business 07/07/98
(5) Commenced business 06/25/98
F-I- 22
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND VARIABLE INSURANCE PRODUCTS FUND II
-------------------------------------------------------------- ---------------------------------------------
ASSET ASSET INVESTMENT
HIGH INCOME HIGH INCOME OVERSEAS OVERSEAS MANAGER MANAGER GRADE BOND
I-CLASS S-CLASS(3) I-CLASS S-CLASS(4) I-CLASS S-CLASS(5) I-CLASS
--------------- ------------ --------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
4,439,239.772 -- 2,871,975.918 -- 8,067,994.337 -- 2,680,009.791
20,362,230.074 208,295.763 15,350,838.156 56,470.828 3,866,005.207 119,601.673 6,429,503.361
(19,961,502.742) (35,018.164) (15,363,774.847) (19,728.605) (3,754,720.930) (8,043.019) (4,677,161.288)
--------------- ------------ --------------- ----------- -------------- ----------- --------------
4,839,967.104 173,277.599 2,859,039.227 36,742.223 8,179,278.614 111,558.654 4,432,351.864
=============== ============ =============== =========== ============== =========== ==============
4,203,994.114 -- 2,865,386.075 -- 7,283,488.356 -- 2,172,541.324
12,090,797.257 -- 6,633,173.353 -- 2,847,323.335 -- 1,694,137.840
(11,855,551.599) -- (6,626,583.510) -- (2,062,817.354) -- (1,186,669.373)
--------------- ------------ --------------- ----------- -------------- ----------- --------------
4,439,239.772 -- 2,871,975.918 -- 8,067,994.337 -- 2,680,009.791
=============== ============ =============== =========== ============== =========== ==============
</TABLE>
F-I- 23
<PAGE>
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:
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
-------------------------------------------------------------------------------
ASSET MGR. ASSET MGR.
CONTRAFUND CONTRAFUND INDEX 500 GROWTH GROWTH
I-CLASS S-CLASS(1) I-CLASS I-CLASS S-CLASS(2)
-------------- ----------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Shares owned at January
1, 1998.............. 2,467,467.035 -- 551,209.193 876,715.624 --
Shares acquired........ 4,576,497.181 121,734.196 1,324,443.401 1,222,397.249 42,705.086
Shares disposed of..... (3,893,601.932) (10,294.669) (1,056,461.488) (1,211,631.992) (4,137.058)
-------------- ----------- -------------- -------------- ----------
Shares owned at
December 31, 1998.... 3,150,362.284 111,439.527 819,191.106 887,480.881 38,568.028
============== =========== ============== ============== ==========
Shares owned at January
1, 1997.............. 1,820,292.255 -- 203,711.023 235,282.226 --
Shares acquired........ 2,201,624.166 -- 1,006,210.576 1,122,271.776 --
Shares disposed of..... (1,554,449.386) -- (658,712.406) (480,838.378) --
-------------- ----------- -------------- -------------- ----------
Shares owned at
December 31, 1997.... 2,467,467.035 -- 551,209.193 876,715.624 --
============== =========== ============== ============== ==========
</TABLE>
- ---------------
(1) Commenced business 06/25/98
(2) Commenced business 06/25/98
F-I- 24
<PAGE>
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
- ------------------------------------------------------------------------------------------------
SMALL INCOME AND MIDCAP LEVERAGED
CAPITAL GROWTH GROWTH GROWTH BALANCED ALLCAP
- -------------- -------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1,594,180.984 1,291,695.359 2,269,279.878 1,379,829.066 760,580.036 357,163.335
8,230,321.407 6,178,338.314 3,626,258.757 2,752,648.203 1,499,644.125 719,818.141
(8,202,283.307) (5,535,154.559) (2,918,079.873) (2,632,735.737) (883,977.698) (566,625.397)
- -------------- -------------- -------------- -------------- ------------- ------------
1,622,219.084 1,934,879.114 2,977,458.762 1,499,741.532 1,376,246.463 510,356.079
============== ============== ============== ============== ============= ============
1,383,186.051 1,228,263.919 1,394,185.376 1,370,386.612 569,554.981 322,162.842
4,468,000.589 1,800,274.339 2,269,264.497 1,673,797.476 422,401.028 415,875.563
(4,257,005.656) (1,736,842.899) (1,394,169.995) (1,664,355.022) (231,375.973) (380,875.070)
- -------------- -------------- -------------- -------------- ------------- ------------
1,594,180.984 1,291,695.359 2,269,279.878 1,379,829.066 760,580.036 357,163.335
============== ============== ============== ============== ============= ============
</TABLE>
F-I- 25
<PAGE>
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:
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
--------------------------------------------------------------------------------
EMERGING WORLD UTILITIES RESEARCH GROWTH WITH
GROWTH SERIES GOVERN. SERIES SERIES SERIES(1) INC. SERIES(2)
-------------- -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Shares owned at January
1, 1998............... 2,257,625.308 208,268.140 831,927.658 289,420.764 820,397.016
Shares acquired......... 3,643,188.582 548,489.706 2,105,774.882 909,665.190 1,302,607.527
Shares disposed of...... (3,191,917.314) (419,926.481) (1,215,941.494) (391,545.847) (749,606.756)
-------------- ------------ -------------- ------------ --------------
Shares owned at December
31, 1998.............. 2,708,896.576 336,831.365 1,721,761.046 807,540.107 1,373,397.787
============== ============ ============== ============ ==============
Shares owned at January
1, 1997............... 1,479,016.961 119,563.323 394,662.255 -- --
Shares acquired......... 2,976,120.153 298,925.691 898,208.994 337,744.371 905,870.017
Shares disposed of...... (2,197,511.806) (210,220.874) (460,943.591) (48,323.607) (85,473.001)
-------------- ------------ -------------- ------------ --------------
Shares owned at December
31, 1997.............. 2,257,625.308 208,268.140 831,927.658 289,420.764 820,397.016
============== ============ ============== ============ ==============
</TABLE>
- ---------------
(1) Commenced business 05/01/97
(2) Commenced business 05/01/97
(3) Commenced business 05/12/97
(4) Commenced business 05/01/97
(5) Commenced business 05/02/97
(6) Commenced business 05/01/97
(7) Commenced business 05/01/97
F-I- 26
<PAGE>
<TABLE>
<CAPTION>
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
--------------------------------------------------------------------------------- ------------
ASIAN EMERGING MKTS. GLOBAL INTERNATIONAL U.S. REAL STOCK
EQUITY(3) EQUITY(4) EQUITY(5) MAGNUM(6) ESTATE(7) INDEX
-------------- -------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
182,876.009 322,394.901 248,631.218 280,286.412 263,567.027 --
2,164,894.930 593,796.286 832,986.970 747,756.545 549,316.381 --
(2,104,941.139) (549,512.320) (447,083.036) (527,421.730) (508,036.835) --
-------------- ------------ ------------ ------------ ------------ ------------
242,829.800 366,678.867 634,535.152 500,621.227 304,846.573 --
============== ============ ============ ============ ============ ============
-- -- -- -- -- 460,407.134
190,839.842 443,006.443 350,250.974 359,431.599 443,135.897 3,213.612
(7,963.833) (120,611.542) (101,619.756) (79,145.187) (179,568.870) (463,620.746)
-------------- ------------ ------------ ------------ ------------ ------------
182,876.009 322,394.901 248,631.218 280,286.412 263,567.027 --
============== ============ ============ ============ ============ ============
</TABLE>
F-I- 27
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-I- 28
<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, 1998 and 1997, and the related statements
of operations, comprehensive income, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
February 5, 1999
F-II- 1
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities, available for sale (amortized
cost $146,650 -- 1998 and $113,158 -- 1997)............ $ 150,462 $ 115,955
Equity securities, available for sale (amortized cost
$2,031 -- 1998 $4,061 -- 1997)......................... 2,020 4,135
Loans on insurance policies............................... 10,949 7,482
Other invested assets..................................... 10,020 2,206
---------- ----------
Total investments................................. 173,451 129,778
Cash and cash equivalents................................... 12,011 13,711
Accrued investment income................................... 2,425 1,801
Reinsurance recoverable -- affiliates....................... 455 514
Prepaid reinsurance premium -- affiliates................... 2,380 2,298
Deferred policy acquisition costs........................... 121,236 98,746
Other....................................................... 1,695 199
Separate Accounts........................................... 1,709,448 1,265,348
---------- ----------
$2,023,101 $1,512,395
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policy and contract reserves.............................. $ 1,681 $ 941
Policy and contract claims................................ 625 925
Accumulated contract values............................... 213,874 154,281
Unearned policy charges................................... 1,814 1,498
Unearned reinsurance ceded allowance...................... 3,596 3,268
Federal income taxes --
Current................................................ 2,941 1,466
Deferred............................................... 8,348 9,326
Other..................................................... 8,086 10,200
Separate Accounts......................................... 1,709,448 1,265,348
---------- ----------
Total Liabilities................................. 1,950,413 1,447,253
---------- ----------
Commitments and contingencies
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......................................... 27,434 20,180
Accumulated other comprehensive income.................... 884 592
---------- ----------
Total Stockholder's Equity........................ 72,688 65,142
---------- ----------
$2,023,101 $1,512,395
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 2
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
INCOME:
Insurance revenues:
Contract charges.......................................... $42,775 $33,717 $26,345
Premium-reinsurance ceded................................. (7,836) (6,840) (5,895)
Reinsurance ceded allowance............................... 3,169 2,752 2,235
Investment revenues:
Investment income, net.................................... 14,052 8,277 3,603
Realized gains, net....................................... 79 368 19
Other....................................................... 2,269 980 567
------- ------- -------
54,508 39,254 26,874
------- ------- -------
BENEFITS AND EXPENSES:
Policy benefits:
Death benefits............................................ 2,200 1,356 716
Interest credited......................................... 13,400 7,258 2,736
Increase in policy and contract reserves.................. 740 192 140
Other..................................................... 222 92 52
Sales and operating expenses................................ 15,980 11,641 10,041
Amortization of deferred policy acquisition costs........... 11,847 9,584 5,531
------- ------- -------
44,389 30,123 19,216
------- ------- -------
INCOME BEFORE FEDERAL INCOME TAXES.......................... 10,119 9,131 7,658
------- ------- -------
Income taxes -- current..................................... 4,000 4,305 3,819
Income taxes -- deferred.................................... (1,135) (844) (811)
------- ------- -------
Total income taxes................................... 2,865 3,461 3,008
------- ------- -------
NET INCOME.................................................. $ 7,254 $ 5,670 $ 4,650
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 3
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income.................................................. $7,254 $5,670 $4,650
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during the period (net
of deferred tax of $185, $378, and ($159) for 1998,
1997 and 1996, respectively).......................... 343 702 (295)
Reclassification adjustment for gains included in net
income (net of deferred tax of $28, $129 and $7 for
1998, 1997 and 1996, respectively).................... (51) (239) (12)
------ ------ ------
Other comprehensive income (loss)......................... 292 463 (307)
------ ------ ------
Comprehensive income........................................ $7,546 $6,133 $4,343
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 4
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
------ ------ ---------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996................. 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
Net unrealized investment gain, net.... -- -- -- -- 292 292
Net income............................. -- -- -- 7,254 -- 7,254
------ ------ -------- ------- ----------- --------
BALANCE, December 31, 1998............... 40,000 $4,000 $ 40,370 $27,434 $ 884 $ 72,688
====== ====== ======== ======= =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 5
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................. $ 7,254 $ 5,670 $ 4,650
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs......... 11,847 9,584 5,531
Policy acquisition costs deferred......................... (34,820) (30,642) (26,596)
Interest credited to contract values...................... 13,400 7,258 2,736
Amortization of discounts or premiums..................... (28) (40) (83)
Net gains on other invested assets........................ (3,732) (631) --
Net realized gains on investment transactions............. (79) (368) (19)
Deferred income taxes..................................... (1,135) (844) (811)
Change in assets and liabilities:
Accrued investment income.............................. (624) (705) (306)
Reinsurance recoverable-affiliates..................... 59 (505) 48
Prepaid reinsurance premium-affiliates................. (82) (142) (650)
Other assets........................................... (1,496) 284 (377)
Policy and contract reserves........................... 740 192 140
Policy and contract claims............................. (300) 819 106
Unearned policy charges................................ 316 255 279
Federal income tax payable-current..................... 1,475 591 (310)
Unearned reinsurance ceded allowance................... 328 129 860
Other liabilities...................................... (2,114) 2,172 3,762
-------- -------- --------
Net cash from operating activities........................ (8,991) (6,923) (11,040)
-------- -------- --------
INVESTING ACTIVITIES
Purchase of fixed maturity securities available for sale.... (70,904) (92,291) (31,514)
Purchase of equity securities available for sale............ -- (4,311) --
Purchase of other invested assets........................... (7,760) (1,611) --
Proceeds from maturities or repayment of fixed maturity
securities available for sale............................. 23,124 25,168 5,307
Proceeds from sales of fixed maturity securities available
for sale.................................................. 14,447 16,419 3,014
Proceeds from the sale of equity securities available for
sale...................................................... 1,979 252 --
Proceeds from the sale of other invested assets............. 3,678 35 --
Net change in loans on insurance policies................... (3,467) (3,173) (1,670)
-------- -------- --------
Net cash from investing activities........................ (38,903) (59,512) (24,863)
-------- -------- --------
FINANCING ACTIVITIES
Return of capital........................................... -- -- (15,000)
Capital contribution........................................ -- -- 25,670
Net change in accumulated contract values................... 46,194 69,462 30,257
-------- -------- --------
Net cash from financing activities........................ 46,194 69,462 40,927
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (1,700) 3,027 5,024
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 13,711 10,684 5,660
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 12,011 $ 13,711 $ 10,684
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes.................................. $ 2,525 $ 3,714 $ 4,129
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 6
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(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 operations
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 and realized gains on 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, 1998, 1997 and 1996.
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
F-II- 7
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
identifiable and distinguishable from other assets and liabilities of the
Company. Assets are reported at fair value.
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 in accumulated contract values 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 in accumulated contract values 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.
F-II- 8
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
A roll-forward of the amounts reflected in the balance sheets as deferred
acquisition costs is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Beginning balance........................................... $ 98,746 $79,272 $57,664
Acquisition costs deferred.................................. 34,820 30,642 26,596
Amortization of deferred policy acquisition costs........... (11,847) (9,584) (5,531)
Adjustment for unrealized investment (gain)/loss............ (483) (1,584) 543
-------- ------- -------
Ending balance.............................................. $121,236 $98,746 $79,272
======== ======= =======
</TABLE>
To the extent that unrealized gains or losses on available for sale securities
would result in an adjustment of deferred policy acquisition costs had those
gains or losses actually been realized, the related unamortized deferred policy
acquisition costs are recorded as an adjustment of the unrealized investment
gains or losses included in stockholder's equity.
FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy and contract benefits left with the Company on
variable universal life and annuity-type contracts are based on the policy
account balance, and are shown as accumulated contract values. In addition the
Company carries as future policy benefits a liability for additional coverages
offered under policy riders.
INCOME TAXES
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the cumulative differences in assets and liabilities
determined on a tax return and financial statement basis at the current enacted
tax rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, entitled "Accounting for Derivative
Instruments and Hedging Activities" (SFAS no. 133). The statement requires that
all derivatives (including certain derivatives embedded in contracts) be
recorded on the balance sheet and measured at fair value. SFAS no. 133 requires
that changes in the fair value of derivatives be recognized currently in
operations unless specific hedge accounting criteria are met. If such criteria
are met, the derivative's gain or loss will offset related results of the hedged
item in the statement of operations. A company must formally document, designate
and assess the effectiveness of transactions to apply hedge accounting
treatment.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, with
earlier implementation permitted. The statement must be implemented as of the
beginning of a quarter and retroactive application to financial statements of
prior periods is prohibited. The Company has not determined the financial
statement impact of adopting this statement.
RECLASSIFICATIONS
Certain items on the prior year financial statements have been restated to
conform to current year presentation.
F-II- 9
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
(IN THOUSANDS)
2. INVESTMENTS
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturity securities available for sale................ $ 9,099 $6,622 $3,308
Equity Securities available for sale........................ 179 156 --
Loans on insurance policies................................. 590 370 214
Cash equivalents............................................ 659 642 618
Other invested assets....................................... 3,732 631 --
------- ------ ------
Gross investment income................................... 14,259 8,421 4,140
Investment expenses......................................... 207 144 537
------- ------ ------
Net investment income..................................... $14,052 $8,277 $3,603
======= ====== ======
</TABLE>
Net pretax realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net gains on disposals of fixed maturity securities
available for sale........................................ $131 $365 $19
Net gains (losses) on disposal of equity securities
available for sale........................................ (52) 3 --
---- ---- ---
Net gains on disposal of securities available for sale...... $ 79 $368 $19
==== ==== ===
</TABLE>
Proceeds from sales of securities available for sale and gross gains and losses
realized on those sales were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------
PROCEEDS GAINS LOSSES
-------- ----- ------
<S> <C> <C> <C>
Fixed maturity securities available for sale................ $22,282 $433 $302
Equity securities available for sale........................ 1,979 -- $ 52
------- ---- ----
Total securities available for sale....................... $24,261 $433 $354
======= ==== ====
</TABLE>
<TABLE>
<CAPTION>
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
======= ==== ==
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------
PROCEEDS GAINS LOSSES
-------- ----- ------
<S> <C> <C> <C>
Fixed maturity securities available for sale................ $3,014 $30 $--
====== === ==
</TABLE>
F-II- 10
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
(IN THOUSANDS)
2. INVESTMENTS -- (CONTINUED)
The amortized cost and fair value of investments in securities by type of
investment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------- FAIR
COST GAINS LOSSES VALUE
--------- ------ ------ --------
<S> <C> <C> <C> <C>
U. S. Corporate................................... $ 98,658 $3,146 $159 $101,645
Mortgage-backed................................... 35,314 430 14 35,730
U.S. Treasury securities and obligations of U.S.
government agencies............................. 12,678 409 -- 13,087
-------- ------ ---- --------
Total fixed maturity securities available for
sale......................................... 146,650 3,985 173 150,462
-------- ------ ---- --------
Equity securities available for sale.............. 2,031 -- 11 2,020
-------- ------ ---- --------
Total securities available for sale............. $148,681 $3,985 $184 $152,482
======== ====== ==== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
--------- ------ ------ --------
<S> <C> <C> <C> <C>
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
======== ====== === ========
</TABLE>
The amortized cost and fair value of fixed maturity securities available for
sale by contractual maturity at December 31, 1998 are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Due in one year or less..................................... $ 3,933 $ 3,964
Due after one year through five years....................... 39,120 40,029
Due after five years through ten years...................... 54,266 56,034
Due after ten years......................................... 14,017 14,705
Mortgage-backed securities.................................. 35,314 35,730
-------- --------
Total..................................................... $146,650 $150,462
======== ========
</TABLE>
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.
F-II- 11
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
(IN THOUSANDS)
2. INVESTMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------
NOTIONAL FAIR
AMOUNT COST VALUE
-------- ---- -----
<S> <C> <C> <C>
Options..................................................... $18,655 $7,096 $10,020
======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------
NOTIONAL FAIR
AMOUNT COST VALUE
-------- ---- -----
<S> <C> <C> <C>
Options..................................................... $1,340 $1,544 $2,206
====== ====== ======
</TABLE>
3. INCOME TAXES
The items that give rise to deferred tax assets and liabilities relate to the
following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-----------------
1998 1997
---- ----
<S> <C> <C>
Net unrealized investment gains on securities available for
sale...................................................... $ 1,365 $ 1,080
Deferred policy acquisition costs........................... 36,031 29,271
Prepaid expenses............................................ 833 804
------- -------
Gross deferred tax liability................................ 38,229 31,155
------- -------
Future policy and contract benefits......................... 27,810 20,014
Deferred future revenues.................................... 1,894 1,668
Other....................................................... 177 147
------- -------
Gross deferred tax asset.................................... 29,881 21,829
------- -------
Net deferred tax liability................................ $ 8,348 $ 9,326
======= =======
</TABLE>
The difference between the U.S. federal income tax rate and the consolidated tax
provision rate is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.................................. 35.0% 35.0% 35.0%
Other....................................................... (6.7) 2.9 4.3
---- ---- ----
Effective tax rate........................................ 28.3% 37.9% 39.3%
==== ==== ====
</TABLE>
The Company's federal income tax returns have been examined by the Internal
Revenue Service (IRS) through 1995. The Company is currently appealing certain
adjustments proposed by the IRS for tax years 1993 through 1995. Management
believes adequate provisions have been made for any additional taxes which may
become due with respect to the adjustments proposed by the IRS.
F-II- 12
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
(IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS
Affiliates provide technical, financial, legal, marketing and investment
advisory support to the Company under administrative service agreements. The
cost of these services to the Company for years ended December 31, 1998, 1997
and 1996 was $11,737, $12,082 and $10,922, respectively.
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 retention limit. These reinsurance contracts do not
relieve the Company of its obligations to its policyowners. The Company paid
$4,104, $3,810 and $3,301 of net reinsurance premiums to affiliates for the
years ended December 31, 1998, 1997 and 1996, respectively. The Company has
received reinsurance recoveries from affiliates of $3,310, $2,260 and $659 for
the years ended December 31, 1998, 1997 and 1996, respectively.
The Company has entered into guarantee agreements with ALIC, AmerUs and AMAL
Corporation whereby, they guarantee the full, complete and absolute performance
of all duties and obligations of the Company.
The Company's variable life and annuity products are distributed through
Ameritas Investment Corp., a wholly-owned subsidiary of AMAL Corporation. The
Company received $93 and $54 for the years ended December 31, 1997 and 1996,
respectively, from this affiliate to partially defray the costs of materials and
prospectuses. The Company received no recovery to defray these cost for the year
ended December 31, 1998. Policies placed by this affiliate generated commission
expense of $28,353, $23,232 and $20,373 for the years ended December 31, 1998,
1997 and 1996, 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 1, 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 multiple employer noncontributory defined benefit
plan that covers substantially all full-time employees of Ameritas Life
Insurance Corp. and its subsidiaries and AMAL Corporation and its 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 years ended December 31, 1998 and 1997 were $163 and $29,
respectively. The Company had no full time employees during 1996.
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 years ended December 31, 1998 and 1997 were $47 and $24, respectively. The
Company had no full time employees during 1996.
The Company is also included in the postretirement benefit plan providing group
medical coverage to retired employees of AMAL Corporation and its 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
F-II- 13
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
(IN THOUSANDS)
5. BENEFIT PLANS -- (CONTINUED)
employees, interest cost, and gains and losses arising from differences between
actuarial assumptions and actual experience. Total Company contributions for the
years ended December 31, 1998 and 1997 were $12 and $5, respectively. The
Company had no full time employees during 1996.
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.
6. INSURANCE REGULATORY MATTERS
Net income (loss), as determined in accordance with statutory accounting
practices, was $321, $2,048 and $855 for 1998, 1997 and 1996, respectively. The
Company's statutory surplus was $44,589, $45,265 and $44,100 at December 31,
1998, 1997 and 1996, respectively. Effective January 1, 1996 the Company changed
reserving methods used for most existing products resulting in an increase in
statutory surplus of approximately $20,601. 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, 1998 and 1997. 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
F-II- 14
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
(IN THOUSANDS)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
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.
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.
Estimated fair values are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------
1998 1997
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturity securities, available for sale..... $150,462 $150,462 $115,955 $115,955
Equity securities, available for sale............. 2,020 2,020 4,135 4,135
Loans on insurance policies....................... 10,949 10,286 7,482 6,657
Other invested assets............................. 10,020 10,020 2,206 2,206
Cash and cash equivalents......................... 12,011 12,011 13,711 13,711
Accrued investment income......................... 2,425 2,425 1,801 1,801
Reinsurance recoverable -- affiliates............. 455 455 514 514
Financial liabilities:
Accumulated contract values excluding amounts held
under insurance contracts...................... 199,585 199,585 144,109 144,109
</TABLE>
8. SEPARATE ACCOUNTS
The Company is currently marketing variable life and variable annuity products
which have separate accounts as an investment option. Separate Account V
(Account V) was formed to receive and invest premium receipts from variable life
insurance policies issued by the Company. Separate Account VA-2 (Account VA-2)
was formed to receive and invest premium receipts from variable annuity policies
issued by the Company. Both Separate Accounts are registered under the
Investment Company Act of 1940, as amended, as unit investment trusts. Account V
and VA-2's assets and liabilities are segregated from the other assets and
liabilities of the Company.
Amounts in the Separate Accounts are:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Separate Account V.......................................... $ 282,653 $ 197,729
Separate Account VA-2....................................... 1,426,795 1,067,619
---------- ----------
$1,709,448 $1,265,348
========== ==========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company has a $15,000 unsecured line of credit entered into in September,
1998. No balance was outstanding at any time during 1998.
F-II- 15
