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PROSPECTUS
[AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO]
SINGLE PREMIUM 5900 "O" Street, P.O. Box 82550
VARIABLE ANNUITY POLICY Lincoln, NE 68501
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This prospectus describes a single 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 tax qualified Policy for $2,000 or more or a non-tax
qualified Policy for $5,000 or more. You may make subsequent payments the first
Policy Year with prior approval by AVLIC.
You may direct that the premiums accumulate on a variable basis in one or more
of the 31 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>
<S> <C> <C>
CALVERT VARIABLE SERIES, CALVERT VARIABLE SERIES, INC. VARIABLE INSURANCE PRODUCTS FUNDS
INC. AMERITAS PORTFOLIOS ("CVS SOCIAL PORTFOLIOS") ("VIP")*
("AMERITAS PORTFOLIOS") CVS Social Small Cap Growth Equity-Income
Ameritas Money Market CVS Social Mid Cap Growth Growth
Ameritas Index 500 CVS Social International High Income
Ameritas Growth Equity Overseas
Ameritas Income & Growth CVS Social Balanced VARIABLE INSURANCE PRODUCTS FUNDS II
Ameritas Small ("VIP II")*
Capitalization Asset Manager
Ameritas MidCap Growth Investment Grade Bond
Ameritas Emerging Growth Asset Manager: Growth
Ameritas Research Contrafund()(R)
Ameritas Growth With *VIP and VIP II are collectively
Income referred to as "Fidelity Portfolios"
THE ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST THE UNIVERSAL INSTITUTIONAL FUNDS,
("ALGER AMERICAN FUND") ("MFS TRUST") INC. ("UNIVERSAL INSTITUTIONAL
Alger American Balanced Utilities FUNDS" OR "UIF")
Alger American Leveraged Global Governments Emerging Markets Equity
AllCap 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.
May 1, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS................................................. 3
FEE TABLE................................................... 5
FUND EXPENSE SUMMARY........................................ 6
QUESTIONS AND ANSWERS ABOUT THE POLICY...................... 11
CONDENSED FINANCIAL INFORMATION............................. 14
PERFORMANCE DATA............................................ 18
YEAR 2000................................................... 18
AVLIC, THE SEPARATE ACCOUNT AND THE FUNDS................... 19
Ameritas Variable Life Insurance Company............. 19
The Separate Account................................. 19
The Funds............................................ 20
Addition, Deletion, or Substitution of Investments... 21
THE FIXED ACCOUNT........................................... 22
THE POLICY.................................................. 22
Control of Policy.................................... 23
Policy Application and Premium Payment............... 23
Allocation of Premium................................ 23
Accumulation Value................................... 24
Transfers............................................ 24
DISTRIBUTIONS UNDER THE POLICY.............................. 24
Full and Partial Withdrawals......................... 25
Critical Needs Withdrawals........................... 25
Refund Privilege..................................... 25
CHARGES AND DEDUCTIONS...................................... 26
Administrative Charges............................... 26
Mortality and Expense Risk Charge.................... 26
Withdrawal Charge.................................... 27
Taxes................................................ 27
Fund Investment Advisory Fees and Expenses........... 28
ANNUITY PERIOD.............................................. 28
Annuity Date......................................... 28
Annuity Income Options............................... 28
FEDERAL TAX MATTERS......................................... 29
Introduction......................................... 29
Taxation of Annuities in General..................... 29
GENERAL PROVISIONS.......................................... 32
Beneficiary.......................................... 32
Change of Beneficiary................................ 32
Death of Annuitant Prior to Annuity Date............. 32
Death of Owner....................................... 32
Deferment of Payment................................. 33
Contestability....................................... 33
Misstatement of Age or Sex........................... 33
Reports and Records.................................. 33
DISTRIBUTION OF THE POLICIES................................ 33
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................ 34
THIRD PARTY SERVICES........................................ 34
VOTING RIGHTS............................................... 34
LEGAL PROCEEDINGS........................................... 35
STATEMENT OF ADDITIONAL INFORMATION......................... 35
</TABLE>
The Policy, certain provisions, and certain Portfolios are not available in all
States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, 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.
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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.
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.
BENEFICIARY - The person who will receive any benefits paid upon the death of
the Annuitant. The Beneficiary is designated by the Owner in the application. If
changed, the Beneficiary is as shown in the latest change filed and recorded
with AVLIC. If no Beneficiary survives the Annuitant, the Owner or the Owner's
estate will be the Beneficiary. The interest of any Beneficiary is subject to
that of any assignee.
CASH SURRENDER VALUE - The amount available for full or partial withdrawal,
which is the Accumulation Value less any withdrawal charge, and applicable
premium taxes and, in the case of a full withdrawal, less the annual Policy fee.
DEATH BENEFIT - The greater of the Cash Surrender Value or the Premium Payments
made.
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 the Premium Payment is 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, CVS Social Portfolios, Fidelity Portfolios, Alger
American Fund, MFS Trust and Universal Institutional 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.
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.
OWNER'S DESIGNATED BENEFICIARY - The person designated by the Owner to whom
Policy ownership passes upon the Owner's death.
PAYEE - The Owner, Annuitant, Beneficiary, or any other person, estate, or legal
entity to whom benefits are to be paid.
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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. Policy Anniversaries are
measured from the Policy Date.
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. CVS Social Portfolios offer the following Portfolios: CVS Social Small
Cap Growth, CVS Social Mid Cap Growth, CVS Social International Equity and CVS
Social Balanced. 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 Universal Institutional 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 - Under the Policy, the single premium payment must be $2,000 or
more for tax qualified Policies and $5,000 or more for non-tax qualified
Policies. Subsequent payments may be made during the first Policy Year with
prior AVLIC approval.
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.
SUCCESSOR OWNER - The person you may designate as to whom Policy ownership
passes upon your death.
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.
WITHDRAWAL CHARGE - The charge assessed upon certain withdrawals and
annuitizations to cover certain expenses relating to the sale of the Policies,
and as such is a "contingent deferred sales charge."
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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%
Withdrawal Charge -- (Maximum) as a percentage of the Premium
Payment ................................................................... 6.5%
The following table shows the current Withdrawal Charges as percentages of
Accumulation Value:
<TABLE>
<CAPTION>
YEAR %
<S> <C>
1................... 6
2................... 6
3................... 6
4................... 5
</TABLE>
<TABLE>
<CAPTION>
YEAR %
<S> <C>
5................... 4
6................... 3
7................... 2
8+.................. 0
</TABLE>
Surrender Fees ......................................................... 0%
Exchange Fee ........................................................... 0%
Transfer Fee ........................................................... 0%
ANNUAL POLICY FEE ..................................................... $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value)
Mortality and Expense Risk Fees ..................................... 1.25%
Annual Administrative Fee ........................................... 0.20%
(See the section on Charges and Deductions.)
Total Separate Account Annual Expenses .............................. 1.45%
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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, 1999, was as follows:
<TABLE>
<CAPTION>
TOTAL
(Reflecting
INVESTMENT waivers and/or
ADVISORY & OTHER WAIVERS AND/OR REIMBURSEMENTS,
PORTFOLIO MANAGEMENT EXPENSES TOTAL REIMBURSEMENTS IF ANY)
--------- ---------- -------- ----- -------------- ---------------
<S> <C> <C> <C> <C> <C>
AMERITAS PORTFOLIOS(1)
Ameritas Money Market 0.25% 0.08% 0.33% 0.05% 0.28%
Ameritas Index 500 0.29% 0.11% 0.40% 0.10% 0.30%
Ameritas Growth 0.80% 0.10% 0.90% 0.09% 0.81%
Ameritas Income & Growth 0.675% 0.115% 0.79% 0.09% 0.70%
Ameritas Small Capitalization 0.90% 0.10% 1.00% 0.08% 0.92%
Ameritas MidCap Growth 0.85% 0.12% 0.97% 0.11% 0.86%
Ameritas Emerging Growth 0.80% 0.18% 0.98% 0.11% 0.87%
Ameritas Research 0.80% 0.62% 1.42% 0.54% 0.88%
Ameritas Growth With Income 0.80% 0.46% 1.26% 0.36% 0.90%
CVS SOCIAL PORTFOLIOS
CVS Social Small Cap Growth 1.00% 0.58%(2) 1.58% -- 1.58%
CVS Social Mid Cap Growth 0.90% 0.21%(2) 1.11% -- 1.11%
CVS Social International Equity 1.10% 0.50%(2) 1.60%(3) -- 1.60%
CVS Social Balanced Portfolio 0.70% 0.19%(2) 0.89% -- 0.89%
FIDELITY PORTFOLIOS
VIP Equity-Income 0.48% 0.09% 0.57% -- 0.57%(4)
VIP Growth 0.58% 0.08% 0.66% -- 0.66%(4)
VIP High Income 0.58% 0.11% 0.69% -- 0.69%
VIP Overseas 0.73% 0.18% 0.91% -- 0.91%(4)
VIP II Asset Manager 0.53% 0.10% 0.63% -- 0.63%(4)
VIP II Investment Grade Bond 0.43% 0.11% 0.54% -- 0.54%
VIP II Asset Manager: Growth 0.58% 0.13% 0.71% -- 0.71%(4)
VIP II Contrafund(R) 0.58% 0.09% 0.67% -- 0.67%(4)
ALGER AMERICAN FUND(5)
Balanced 0.75% 0.18% 0.93% -- 0.93%
Leveraged AllCap 0.85% 0.08% 0.93% -- 0.93%
MFS TRUST
Utilities 0.75% 0.16%(6) 0.91% -- 0.91%
Global Governments 0.75% 0.30%(6) 1.05% 0.14% 0.91%(7)
New Discovery 0.90% 1.59%(6) 2.49% 1.42% 1.07%(7)
UNIVERSAL INSTITUTIONAL FUNDS
Emerging Markets Equity 1.25% 1.37% 2.62% 0.83% 1.79%(8)
Global Equity 0.80% 0.68% 1.48% 0.33% 1.15%(8)
International Magnum 0.80% 0.87% 1.67% 0.51% 1.16%(8)
Asian Equity 0.80% 2.23% 3.03% 1.76% 1.27%(8)
U.S. Real Estate 0.80% 1.10% 1.90% 0.80% 1.10%(8)
</TABLE>
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(1) The Portfolio's aggregate expenses are limited for a period of one year
following November 1, 1999 (October 29, 1999 for Ameritas Money Market).
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. Total expenses, both before and after waivers and/or
reimbursements, have been restated to reflect the above.
(2) "Other Expenses" reflect an indirect fee. Net fund operating expenses after
reductions for fees paid indirectly would be as follows:
<TABLE>
<S> <C>
CVS Social Small Cap Growth 1.15%
CVS Social Mid Cap Growth 1.02%
CVS Social International Equity 1.50%
CVS Social Balanced Portfolio 0.86%
</TABLE>
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(3) Total expenses have been restated to reflect expenses expected to be
incurred in 2000, resulting from a change in 1999 to the administrative
services agreement, as approved by the shareholders.
(4) A portion of the brokerage commissions that certain Funds pay was used to
reduce Fund expenses. In addition, through arrangements with certain Funds
custodian, credits realized as a result of uninvested cash balances were
used to reduce a portion of each applicable Fund's expenses. After these
reductions, the total operating expenses presented in the table would have
been:
<TABLE>
<S> <C>
VIP Equity-Income 0.56%
VIP Growth 0.65%
VIP Overseas 0.87%
VIP II Asset Manager 0.62%
VIP II Asset Manager: Growth 0.70%
VIP II Contrafund 0.65%
</TABLE>
(5) 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
0.01% of interest expense.
(6) 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). "Other Expenses" do
not take into account these expense reductions and are therefore higher than
the actual expenses of the series. Had these reductions been taken into
account, "Total (reflecting waivers and/or reimbursements, if any)" would be
lower and would equal 0.90% for Utilities Series and Global Governments
Series and 1.05% for New Discovery Series.
(7) MFS has contractually agreed, subject to reimbursement, to bear expenses for
the Global Governments Series and New Discovery Series such that the each
series "Other Expenses" (after taking into account the expense offset
arrangement described at (4), above) do not exceed 0.15% of the average
daily net assets of the series during the current fiscal year. Utilities
Series has no such limitation. These contracted fee arrangements will
continue until at least May 1, 2001, unless changed with the consent of the
board of trustees which oversees the series.
(8) The Portfolios' investment adviser has voluntarily agreed to reduce its
management fee and/or reimburse each Portfolio so that total annual
operating expenses for each Universal Institutional Funds ("UIF") Portfolio
will not exceed:
<TABLE>
<S> <C>
UIF Emerging Markets Equity Portfolio 1.75%
UIF Global Equity Portfolio 1.15%
UIF International Magnum Portfolio 1.15%
UIF Asian Equity Portfolio 1.20%
UIF U.S. Real Estate Portfolio 1.10%
</TABLE>
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 country tax expense and interest expense on
borrowing are excluded from annual operating expenses. If these expenses
were incurred, the Portfolio's total expenses after voluntary fee waivers
and/or expense reimbursements could exceed the expense ratios shown above.
For the year ended December 31, 1999, after giving effect to the above
voluntary management fee waiver and/or expense reimbursement, the total
expenses for each Portfolio, including 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.
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EXAMPLE: If you surrender your contract at the end of the applicable time period
you would pay the following expenses on a hypothetical $1,000 allocation to each
Portfolio, assuming a 5% annual return on assets. The example reflects expenses
of Separate Account VA-2 and the Portfolio, but does not reflect premium taxes
which may apply.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Money Market $78 $115 $134 $188
Ameritas Index 500 $79 $116 $135 $191
Ameritas Growth $83 $132 $160 $245
Ameritas Income & Growth $82 $128 $155 $233
Ameritas Small Capitalization $84 $135 $165 $256
Ameritas MidCap Growth $84 $133 $162 $250
Ameritas Emerging Growth $84 $133 $163 $251
Ameritas Research $84 $134 $163 $252
Ameritas Growth With Income $84 $134 $164 $254
CVS SOCIAL PORTFOLIOS
CVS Social Small Cap Growth $87 $141 $176 $279
CVS Social Mid Cap Growth $85 $138 $170 $266
CVS Social International Equity $90 $151 $193 $313
CVS Social Balanced $84 $133 $162 $250
FIDELITY PORTFOLIOS
VIP Equity-Income $81 $124 $148 $219
VIP Growth $82 $127 $153 $229
VIP High Income $82 $128 $154 $232
VIP Overseas $84 $135 $165 $255
VIP II Asset Manager $82 $126 $151 $226
VIP II Investment Grade Bond $81 $123 $147 $216
VIP II Asset Manager: Growth $82 $129 $155 $234
VIP II Contrafund $82 $127 $153 $230
ALGER AMERICAN FUND
Alger American Balanced $84 $135 $166 $257
Alger American Leveraged AllCap $84 $135 $166 $257
MFS TRUST
MFS Utilities $84 $135 $165 $255
MFS Global Governments $84 $135 $165 $255
MFS New Discovery $86 $139 $173 $271
UNIVERSAL INSTITUTIONAL FUNDS
UIF Emerging Markets Equity $92 $158 $205 $337
UIF Global Equity $87 $141 $176 $279
UIF International Magnum $87 $141 $176 $279
UIF Asian Equity $87 $143 $179 $284
UIF U.S. Real Estate $86 $140 $174 $274
</TABLE>
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EXAMPLE: If you annuitize your contract at the end of the applicable time period
you would pay the following expenses on a hypothetical $1,000 allocation to each
Portfolio, assuming a 5% annual return on assets. The example reflects expenses
of Separate Account VA-2 and the Portfolio, but does not reflect premium taxes
which may apply.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Money Market $78 $50 $ 87 $188
Ameritas Index 500 $79 $51 $ 88 $191
Ameritas Growth $83 $67 $114 $245
Ameritas Income & Growth $82 $63 $108 $233
Ameritas Small Capitalization $84 $70 $120 $256
Ameritas MidCap Growth $84 $68 $117 $250
Ameritas Emerging Growth $84 $68 $117 $251
Ameritas Research $84 $69 $118 $252
Ameritas Growth With Income $84 $69 $119 $254
CVS SOCIAL PORTFOLIOS
CVS Social Small Cap Growth $87 $77 $131 $279
CVS Social Mid Cap Growth $85 $73 $125 $266
CVS Social International Equity $90 $87 $149 $313
CVS Social Balanced $84 $68 $117 $250
FIDELITY PORTFOLIOS
VIP Equity-Income $81 $59 $102 $219
VIP Growth $82 $62 $106 $229
VIP High Income $82 $63 $108 $232
VIP Overseas $84 $70 $119 $255
VIP II Asset Manager $82 $61 $105 $226
VIP II Investment Grade Bond $81 $58 $100 $216
VIP II Asset Manager: Growth $82 $64 $109 $234
VIP II Contrafund $82 $62 $107 $230
ALGER AMERICAN FUND
Alger American Balanced $84 $70 $120 $257
Alger American Leveraged AllCap $84 $70 $120 $257
MFS TRUST
MFS Utilities $84 $70 $119 $255
MFS Global Governments $84 $70 $119 $255
MFS New Discovery $86 $74 $127 $271
UNIVERSAL INSTITUTIONAL FUNDS
UIF Emerging Markets Equity $92 $95 $161 $337
UIF Global Equity $87 $77 $131 $279
UIF International Magnum $87 $77 $131 $279
UIF Asian Equity $87 $78 $134 $284
UIF U.S. Real Estate $86 $75 $129 $274
</TABLE>
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EXAMPLE: If you do not surrender your contract at the end of the applicable time
period you would pay the following expenses on a hypothetical $1,000 allocation
to each Portfolio, assuming a 5% annual return on assets. The example reflects
expenses of Separate Account VA-2 and the Portfolio, but does not reflect
premium taxes which may apply.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Money Market $16 $50 $ 87 $188
Ameritas Index 500 $17 $51 $ 88 $191
Ameritas Growth $22 $67 $114 $245
Ameritas Income & Growth $21 $63 $108 $233
Ameritas Small Capitalization $23 $70 $120 $256
Ameritas MidCap Growth $22 $68 $117 $250
Ameritas Emerging Growth $22 $68 $117 $251
Ameritas Research $22 $69 $118 $252
Ameritas Growth With Income $23 $69 $119 $254
CVS SOCIAL PORTFOLIOS
CVS Social Small Cap Growth $25 $77 $131 $279
CVS Social Mid Cap Growth $24 $73 $125 $266
CVS Social International Equity $29 $87 $149 $313
CVS Social Balanced $22 $68 $117 $250
FIDELITY PORTFOLIOS
VIP Equity-Income $19 $59 $102 $219
VIP Growth $20 $62 $106 $229
VIP High Income $20 $63 $108 $232
VIP Overseas $23 $70 $119 $255
VIP II Asset Manager $20 $61 $105 $226
VIP II Investment Grade Bond $19 $58 $100 $216
VIP II Asset Manager: Growth $21 $64 $109 $234
VIP II Contrafund $20 $62 $107 $230
ALGER AMERICAN FUND
Alger American Balanced $23 $70 $120 $257
Alger American Leveraged AllCap $23 $70 $120 $257
MFS TRUST
MFS Utilities $23 $70 $119 $255
MFS Global Governments $23 $70 $119 $255
MFS New Discovery $24 $74 $127 $271
UNIVERSAL INSTITUTIONAL FUNDS
UIF Emerging Markets Equity $31 $95 $161 $337
UIF Global Equity $25 $77 $131 $279
UIF International Magnum $25 $77 $131 $279
UIF Asian Equity $26 $78 $134 $284
UIF U.S. Real Estate $25 $75 $129 $274
</TABLE>
The examples assume an average $30000 annuity investment. These examples should
not be considered a representation of past or future expenses, performance or
return. Actual expenses and/or returns may be greater or less than those shown.
Please refer to the Funds' prospectuses for more information.
ANNUITY
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<PAGE> 11
QUESTIONS AND ANSWERS ABOUT THE POLICY
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 31 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 31 Subaccounts which are listed at 3., 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 without charge. 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 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 first day of the
month after the annuitant's 95th birthday (90th in Oregon). (See the sections on
Annuity Date and Annuity Income Options.)
ANNUITY
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<PAGE> 12
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.
<TABLE>
<CAPTION>
MANAGED BY
MANAGED BY AMERITAS FIDELITY MANAGEMENT
INVESTMENT CORP. & RESEARCH COMPANY
------------------- -------------------
<S> <C>
Ameritas Money Market VIP(1) Equity-Income
Ameritas Index 500 VIP Growth
Ameritas Growth VIP High Income
Ameritas Income & Growth VIP Overseas
Ameritas Small Capitalization VIP II(2) Asset Manager
Ameritas MidCap Growth VIP II Investment Grade Bond
Ameritas Emerging Growth VIP II Asset Manager: Growth
Ameritas Research VIP II Contrafund
Ameritas Growth With Income (1) Variable Insurance Products Fund
(2) Variable Insurance Products Fund II
</TABLE>
<TABLE>
<CAPTION>
MANAGED BY CALVERT MANAGED BY
ASSET MANAGEMENT MASSACHUSETTS FINANCIAL
COMPANY, INC. SERVICES COMPANY
------------------ -----------------------
<S> <C>
CVS Social Small Cap Growth Utilities
CVS Social Mid Cap Growth Global Governments
CVS Social International Equity New Discovery
CVS Social Balanced
</TABLE>
<TABLE>
<CAPTION>
MANAGED BY
MANAGED BY MORGAN STANLEY
FRED ALGER DEAN WITTER INVESTMENT
MANAGEMENT, INC. MANAGEMENT INC.*
---------------- ----------------------
<S> <C>
Alger American: Emerging Markets Equity
Balanced Global Equity
Leveraged AllCap International Magnum
Asian Equity
U.S. Real Estate
* On December 1, 1998, Morgan Stanley
Asset Management Inc. changed its
name to Morgan Stanley Dean Witter
Investment Management Inc. but
continues to do business in certain
instances using the name Morgan
Stanley Asset Management.
</TABLE>
(See the section on The Funds.)
4. HOW ARE INVESTMENTS MADE IN THE FIXED ACCOUNT?
Premium payments allocated to the Fixed Account are placed in the general
account of AVLIC which supports insurance and annuity obligations. Policy Owners
are paid interest on the amounts placed in the Fixed Account at guaranteed rates
(4.5%) 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 premium paid is allocated to the Money
Market Subaccount. Thirteen days after the effective date, the Accumulation
Value is allocated among the Subaccounts or the 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 transfer the Accumulation Value among the Subaccounts during the Policy
Year as often as you wish. Transfers must be at least $250, or, if less, the
entire value of the Subaccount from which the transfer is made. The minimum
amount which can remain in a Subaccount as a result of a transfer is
ANNUITY
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<PAGE> 13
$100.00. Any amount below this minimum must be included in the amount
transferred. You may also make transfers from the Subaccounts to the Fixed
Account. One hundred percent of the amount deposited plus interest thereon may
be transferred out of the Fixed Account during the 30 day period following the
annual Policy anniversary date. (See the section on Transfers.)
7. CAN I GET TO MY MONEY IF I NEED IT?
You can make one partial withdrawal in each Policy Year during the accumulation
phase. You can take up to 10% of your Accumulation Value each year without a
charge. Withdrawals more than that may be charged up to 6.0% of each withdrawal.
In no event will the total withdrawal charge exceed 6.5% of the single Premium
Payment for the Policy. A withdrawal charge will not be assessed if after the
first two Policy Years, the Accumulation Value is applied to the life or joint
and last survivor Annuity Income Options. After AVLIC has had the premium
payment for 7 years, there is no charge for a withdrawal. Of course, you may
have to pay income tax and a tax penalty on any money you take out.
8. WHAT ARE CHARGES UNDER MY POLICY?
The Policy has insurance features and investment features, and there are costs
related to each.
AVLIC currently deducts a $30 Policy fee each year from your Policy. AVLIC also
deducts an annual administration fee of .20% and a mortality and expenses risk
charge of 1.25% of the average daily value of your Policy. Investment charges
range from .28% to 1.79% 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 6.5%
of your single Premium Payment. 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 section 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 an Annuity Income Option. (See the section on Death of an
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 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, 6850.
AVLIC's telephone number is 800-745-1112 and its website address is
www.overturelife.com. 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 changes,
transfers or withdrawals during the year.
ANNUITY
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<PAGE> 14
CONDENSED FINANCIAL INFORMATION
The financial statements for AVLIC and the subaccounts of 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
FUND DECEMBER 31 DECEMBER 31 YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMERITAS PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------
Ameritas Money Market 1.625 57,085,135 1999
1.564 28,938,755 1998
1.502 24,152,434 1997
1.442 38,305,988 1996
1.385 41,390,848 1995
1.325 48,755,227 1994
1.286 24,394,598 1993
1.262 23,516,861 1992
1.000 15,150,911 1991
1.173 11,911,544 1990
- -----------------------------------------------------------------------------------------------------------
Ameritas Index 500 181.083 319,626 1999
152.023 324,430 1998
119.950 305,483 1997
91.522 136,171 1996
75.455 8,790 1995
- -----------------------------------------------------------------------------------------------------------
Ameritas Growth 88.391 848,352 1999
66.442 966,582 1998
45.429 898,456 1997
36.580 999,196 1996
32.678 743,313 1995
24.259 641,127 1994
24.209 166.606 1993
20.017 61,911 1992
- -----------------------------------------------------------------------------------------------------------
Ameritas Income & Growth 54.194 416,349 1999
37.914 458,455 1998
28.997 550,158 1997
21.541 453,812 1996
18.224 366,345 1995
13.654 172,002 1994
15.073 98,621 1993
13.831 33,408 1992
- -----------------------------------------------------------------------------------------------------------
Ameritas Small Capitalization 76.916 698,431 1999
52.652 943,846 1998
46.147 1,205,615 1997
41.950 1,182,697 1996
40.773 1,084,734 1995
28.603 671,144 1994
30.286 539,880 1993
27.043 222,601 1992
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ANNUITY
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<PAGE> 15
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
ACCUMULATION NUMBER OF
UNIT VALUE ACCUMULATION
AS OF UNITS AS OF
FUND DECEMBER 31 DECEMBER 31 YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ameritas MidCap Growth 39.585 678,078 1999
30.395 783,105 1998
23.619 918,967 1997
20.796 1,089,364 1996
18.820 793,129 1995
13.190 268,394 1994
13.563 91,504 1993
- -----------------------------------------------------------------------------------------------------------
Ameritas Emerging Growth 37.555 912,963 1999
21.560 990,309 1998
16.270 1,005,468 1997
13.514 874,037 1996
11.693 80,882 1995
- -----------------------------------------------------------------------------------------------------------
Ameritas Research 23.296 116,064 1999
19.083 216,720 1998
15.660 96,620 1997
- -----------------------------------------------------------------------------------------------------------
Ameritas Growth With Income 21.139 363,745 1999
20.186 603,497 1998
16.709 524,597 1997
- -----------------------------------------------------------------------------------------------------------
CVS SOCIAL PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------
CVS Social Small Cap -- -- 1999
CVS Social Mid Cap Growth -- -- 1999
CVS Social International Equity -- -- 1999
CVS Social Balanced -- -- 1999
- -----------------------------------------------------------------------------------------------------------
FIDELITY PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------
VIP Equity-Income 44.818 2,423,288 1999
42.680 3,080,099 1998
38.716 3,708,458 1997
30.599 4,006,000 1996
27.112 4,341,951 1995
20.322 2,332,200 1994
19.217 1,692,368 1993
16.460 1,090,217 1992
11.850 873,089 1991
10.971 536,146 1990
- -----------------------------------------------------------------------------------------------------------
VIP Growth 83.643 1,749,637 1999
(As of October 23, 1987, the inception date of 61.617 2,120,046 1998
Separate Account VA-2, the accumulation unit 44.724 2,415,265 1997
value of this Subaccount was 9.840.) 36.673 2,841,801 1996
32.375 2,680,504 1995
24.207 2,448,226 1994
24.517 1,930,905 1993
20.795 1,058,120 1992
18.510 832,636 1991
13.399 344,241 1990
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ANNUITY
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<PAGE> 16
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
ACCUMULATION NUMBER OF
UNIT VALUE ACCUMULATION
AS OF UNITS AS OF
FUND DECEMBER 31 DECEMBER 31 YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VIP High Income 28.921 766,164 1999
(As of October 23, 1987, the inception date of 27.076 1,413,794 1998
Separate Account VA-2, the accumulation unit 28.657 1,704,372 1997
value of this Subaccount was 9.500.) 24.658 1,983,835 1996
21.896 1,638,821 1995
18.414 1,076,077 1994
18.938 780,485 1993
15.910 404,678 1992
9.550 429,942 1991
9.797 75,439 1990
- -----------------------------------------------------------------------------------------------------------
VIP Overseas 32.780 1,394,315 1999
(As of October 23, 1987, the inception date of 23.268 1,988,829 1998
Separate Account VA-2, the accumulation unit 20.895 2,281,007 1997
value of this Subaccount was 9.240.) 18.967 2,676,510 1996
16.964 2,693,065 1995
15.674 2,050,430 1994
15.601 1,680,013 1993
11.507 452,258 1992
13.100 261,860 1991
12.216 214,204 1990
- -----------------------------------------------------------------------------------------------------------
VIP II Asset Manager 30.316 3,750,030 1999
27.631 4,582,165 1998
24.317 5,404,448 1997
20.407 5,829,762 1996
18.030 6,384,770 1995
15.609 7,758,786 1994
16.830 5,540,620 1993
14.076 2,461,567 1992
12.550 1,037,391 1991
10.523 187,701 1990
- -----------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond 16.805 2,008,998 1999
17.196 2,222,622 1998
15.996 1,667,451 1997
14.851 1,649,737 1996
14.574 1,584,105 1995
12.577 1,185,302 1994
13.232 1,220,611 1993
12.074 799,187 1992
11.080 151,045 1991
- -----------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth 23.733 267,769 1999
20.849 249,812 1998
17.955 494,528 1997
14.536 131,061 1996
12.270 18,219 1995
- -----------------------------------------------------------------------------------------------------------
VIP II Contrafund 32.176 1,139,099 1999
26.218 1,222,512 1998
20.423 1,204,533 1997
16.657 1,297,694 1996
13.903 179,239 1995
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ANNUITY
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<PAGE> 17
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
ACCUMULATION NUMBER OF
UNIT VALUE ACCUMULATION
AS OF UNITS AS OF
FUND DECEMBER 31 DECEMBER 31 YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------
Balanced 29.480 352,831 1999
23.099 294,670 1998
17.783 249,403 1997
15.028 268,181 1996
13.813 182,891 1995
10.872 94,787 1994
11.499 34,687 1993
- -----------------------------------------------------------------------------------------------------------
Leveraged AllCap 62.252 337,218 1999
35.389 189,594 1998
22.702 152,026 1997
19.207 188,702 1996
17.358 59,365 1995
- -----------------------------------------------------------------------------------------------------------
MFS TRUST
- -----------------------------------------------------------------------------------------------------------
Utilities 30.612 326,970 1999
23.693 317,249 1998
20.319 284,051 1997
15.620 191,935 1996
13.345 40,557 1995
- -----------------------------------------------------------------------------------------------------------
Global Governments 11.511 58,409 1999
11.955 116,776 1998
11.218 79,453 1997
11.489 68,811 1996
11.184 15,780 1995
- -----------------------------------------------------------------------------------------------------------
New Discovery 17.562 11,137 1999
-- -- 1998
- -----------------------------------------------------------------------------------------------------------
UNIVERSAL INSTITUTIONAL FUNDS
- -----------------------------------------------------------------------------------------------------------
Emerging Markets Equity 14.078 264,210 1999
7.283 109,949 1998
9.728 122,627 1997
- -----------------------------------------------------------------------------------------------------------
Global Equity 13.717 164,992 1999
13.342 137,877 1998
11.905 67,151 1997
- -----------------------------------------------------------------------------------------------------------
International Magnum 14.162 151,069 1999
11.454 190,549 1998
10.642 162,450 1997
- -----------------------------------------------------------------------------------------------------------
Asian Equity 9.191 411,269 1999
5.175 101,177 1998
5.602 118,538 1997
- -----------------------------------------------------------------------------------------------------------
U.S. Real Estate 10.024 60,167 1999
10.302 66,675 1998
11.702 134,737 1997
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ANNUITY
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<PAGE> 18
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 Separate
Account VA-2 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 April 15, 2000, AVLIC has experienced no known Y2K problems. All of our
computer application and operating systems had been updated for the year 2000 by
December 31,1998. Continuous testing and monitoring throughout 1999 helped 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
18
<PAGE> 19
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 47 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, 1999 of over
$4.8 billion. AmerUs Life had total assets as of December 31, 1999 of over $10.7
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. All
ANNUITY
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<PAGE> 20
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 31
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.
ANNUITY
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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
CVS Social Portfolios Calvert Asset Management CVS Social Small Cap Growth
Company, Inc. CVS Social Mid Cap Growth
CVS Social International Equity
CVS Social Balanced
Fidelity Portfolios Fidelity Management and VIP Equity-Income
Research Company VIP Growth
VIP High Income
VIP Overseas
VIP II Asset Manager
VIP II Investment Grade Bond
VIP II Asset Manager: Growth
VIP II Contrafund
Alger American Fund Fred Alger Management, Inc Alger American Balanced
Alger American Leveraged AllCap
MFS Trust Massachusetts Financial Services Utilities
Company Global Governments
New Discovery
Universal Institutional
Funds Morgan Stanley Asset Emerging Markets Equity
Management Global Equity
International Magnum
Asian Equity
U.S. Real Estate
</TABLE>
Each of the funds, other than the Ameritas Portfolios and CVS Social 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:
<TABLE>
<S> <C>
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")
Ameritas Research MFS
Ameritas Growth With Income MFS
</TABLE>
CVS Social Portfolios are managed by Calvert Asset Management Company, Inc.,
which is also an affiliate of AVLIC. Certain administrative services are
provided by other Calvert entities, which are also affiliates of AVLIC.
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
ANNUITY
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<PAGE> 22
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 4.5%. 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 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").
ANNUITY
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<PAGE> 23
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
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 a single Premium Payment of not less than $5,000. An application
to purchase an annuity in a qualified plan must be submitted with a single
premium payment of $2,000. Subsequent premium payments may be made during the
first Policy Year with prior AVLIC approval. Acceptance is subject to AVLIC's
underwriting rules, and AVLIC reserves the right to reject any application for
any reason.
If the application and Premium Payment can be accepted in the form received, the
Premium Payment will be applied to purchase the Policy within two business days
from the date the premium was received. The date the 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.
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.
ANNUITY
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<PAGE> 24
ACCUMULATION VALUE
On the Effective Date, the Accumulation Value of the Policy is equal to the
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 administration 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 as often
as you wish without charge. 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 100% of the Accumulation Value of the Fixed Account.
The minimum amount that may remain in a Subaccount or the Fixed Account after a
transfer is $100.
You may initiate transactions by telephone. AVLIC will employ reasonable
procedures to confirm that telephone instructions are genuine, 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.
When available, procedures for making transfers through our website can be
accessed at the Internet address stated in the Ameritas Variable Life Insurance
Company section of this prospectus.
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.
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
ANNUITY
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<PAGE> 25
Value to less than $100 will be considered a request for full withdrawal. Any
partial annuitization will be allocated between earnings and 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.)
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
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<PAGE> 26
agent, or to AVLIC at the Home Office. A refund, if the premium was paid by
check, may be delayed until the check has cleared the Owner's bank.
CHARGES AND DEDUCTIONS
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
Payment before it is 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 premium is received.
Other charges, such as Withdrawal Charges, may be made upon withdrawals or, in
some cases, upon annuitization, as described more fully below.
ADMINISTRATIVE CHARGES
ANNUAL POLICY FEE. An annual Policy fee of $30.00 is deducted from the
Accumulation Value on the last Valuation Date of each Policy Year or upon a full
withdrawal. This charge, which is guaranteed not to increase, 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.
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, 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.
ANNUITY
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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 Withdrawal 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.
WITHDRAWAL CHARGE
Since no deduction for a sales charge is made from the Premium Payment, unless
waived, a Withdrawal 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 at that time and we will not
assess a Withdrawal Charge.
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 Withdrawal Charge, the Withdrawal Charge
will be expressed as a percentage of the Accumulation Value as follows:
<TABLE>
<CAPTION>
YEAR %
---- -
<S> <C>
1.................... 6
2.................... 6
3.................... 6
4.................... 5
</TABLE>
<TABLE>
<CAPTION>
YEAR %
---- -
<S> <C>
5.................... 4
6.................... 3
7.................... 2
8+................... 0
</TABLE>
The sum of all Withdrawal Charges will never exceed 6.5% of the Premium Payment
for the Policy.
In the case of a partial withdrawal or annuitization, the Withdrawal 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
Withdrawal Charge will not be assessed on withdrawals made at least two years
after the Premium Payment and applied under the Life Annuity or Joint and Last
Survivor Annuity options. (See the section on Annuity Income Options.)
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 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.
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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 Withdrawal 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.
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 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.
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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.
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
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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.
Distributions from nonqualified annuity policies are generally subject to
federal income tax. AVLIC will withhold taxes as required by the Code from the
distributions unless the taxpayer requests otherwise. Withholding cannot be
waived if the distribution is subject to mandatory back-up withholding (if no
mandatory taxpayer identification number is given or if AVLIC is notified that
the mandatory back-up holding is required). Mandatory back-up withholding rates
are 31% of income that is distributed. Distributions to non-resident aliens may
be subject to mandatory withholding at 30% of the income distributed.
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 deferral 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
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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
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 and for IRAs, is generally determined under rules similar to those
applicable to annuity distributions from nonqualified policies. However, for
annuity payments from plans qualified under Code Sections 401 and 403 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 could 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.
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GENERAL PROVISIONS
BENEFICIARY
The Beneficiary(ies) generally receives the Death Benefit proceeds following
death of the Annuitant. The Owner may name both primary and contingent
Beneficiaries. The 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 Beneficiary and Owner's Designated Beneficiary by
written request on a Change of Beneficiary form at any time during the
Annuitant's lifetime unless otherwise provided in the previous designation of
Beneficiary. AVLIC, at its option, may require that the Policy be returned to
the Home Office for endorsement of any change, or that other forms be completed.
The change will take effect as of the date the change is recorded at the Home
Office. AVLIC will not be liable for any payment made or action taken before the
change is recorded. No limit is placed on the number of changes that may be
made.
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Beneficiary.
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 Beneficiary, or if no such
election was made by the Owner and a cash benefit has not been paid, the
Beneficiary may make this election after the Annuitant's death. Since Due Proof
of Death includes a "Claimant's Statement," which specifies how the Beneficiary
wishes to receive the benefit (unless the Owner previously selected an 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 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 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.
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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.
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
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advisor. It also 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 $22,936,819 for 1999; $16,527,487 for 1998; and $11,961,951 for
1997.
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 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.
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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:
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY............................. 2
THE POLICY.................................................. 2
GENERAL MATTERS............................................. 7
FEDERAL TAX MATTERS......................................... 9
DISTRIBUTION OF THE POLICY.................................. 10
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS...................... 11
AVLIC....................................................... 11
STATE REGULATION............................................ 11
LEGAL MATTERS............................................... 11
EXPERTS..................................................... 11
OTHER INFORMATION........................................... 11
FINANCIAL STATEMENTS........................................ 11
</TABLE>
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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
<TABLE>
<S> <C>
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-12
403(b) ERISA Plans
403(b) Tax Sheltered Annuity (TSA)
Plans-Withdrawal Restrictions
</TABLE>
[AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO]
<PAGE> 37
[AMERITAS VARIABLE 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 (Form 4780), 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), a SIMPLE
IRA or a Roth IRA. A separate policy must be purchased for each individual under
each plan. 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.
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.
QD- 1
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ANNUITY; 2/2000
<PAGE> 38
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).
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
Education IRAs or employer contributions or salary deferrals made 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 except as otherwise permitted by the Internal Revenue Service. The
Internal Revenue Service announced transition relief from this rule for 1999.
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.
QD- 2
IRA/SEP/SIMPLE/ROTH
ANNUITY; 2/2000
<PAGE> 39
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" 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, SARSEP, or SIMPLE 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.
QD- 3
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ANNUITY; 2/2000
<PAGE> 40
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 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)).
QD- 4
IRA/SEP/SIMPLE/ROTH
ANNUITY; 2/2000
<PAGE> 41
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.
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.
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.
QD- 5
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ANNUITY; 2/2000
<PAGE> 42
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:
<TABLE>
<CAPTION>
MARRIED FILING JOINTLY SINGLE/HEAD OF HOUSEHOLD
YEAR ---------------------- ------------------------
- ---- AGI AGI
<C> <S> <C> <C> <C>
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
</TABLE>
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 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,
RECHARACTERIZATIONS OF CONVERSIONS AND DISTRIBUTIONS FROM A ROTH IRA 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 99-104, 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
DECEMBER 31, 1999. FOR THE 1999 TAX YEAR, THE DEADLINE IS
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CURRENTLY OCTOBER 16, 2000 (SEE FORM 8606 INSTRUCTIONS). 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 OR 1999, AS APPROPRIATE, FEDERAL INCOME TAX RETURN TO
REFLECT THE RECHARACTERIZATION. FOR 1998, THE CORRECTED RETURN MUST BE FILED
BY APRIL 15, 2000. 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").
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
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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 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 591/2; (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 59 1/2, except for: (1)
distributions made to a beneficiary on or after the owner's death; (2)
distributions attributable to the owner's being disabled as defined in Code
Section 72(m)(7); (3) distributions that are part of a series of
substantially equal periodic payments (made at least annually) for the life
of the annuitant or the joint lives of the annuitant and his or her
beneficiary; (4) distributions made on or after January 1, 1997 for medical
expenses which exceed 7.5% of the annuitant's adjusted gross income; (5)
distributions made on or after January 1, 1997, to purchase health insurance
for the individual and/or his or her spouse and dependents if he or she: (a)
has received unemployment compensation for 12 consecutive weeks or more; (b)
the distributions are made during the tax year that the unemployment
compensation is paid or the following tax year; and (c) the individual has
not been re-employed for 60 days or more; (6) distributions made on or after
January 1, 1998 for certain qualified higher education expenses of the
taxpayer, the taxpayer's spouse, or any child or grandchild of the taxpayer
or the taxpayer's spouse; or (7) qualified first-time home buyer
distributions made on or after January 1, 1998 (up to a lifetime maximum of
$10,000) used within 120 days of withdrawal to buy, build or rebuild a first
home that is the principal residence of the individual, his or her spouse, or
any child, grandchild, or ancestor of the individual or spouse. 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.
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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
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. Additional information is
also available in IRS Publication 590.
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 (Form 4780), 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 (Form 4780)
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.
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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.
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 $30 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.
ANNUAL ADMINISTRATION FEE: A charge at an annual rate of .20% of the
accumulation 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 only on an annual mode. If
an annuity option is elected, no partial or full withdrawals may be made after
the annuity date except as permitted under the particular annuity option.
Systematic or partial withdrawals may be continued after the annuity date, for
Qualified Policies, with AVLIC's consent. 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- 10
IRA/SEP/SIMPLE/ROTH
ANNUITY; 2/2000
<PAGE> 47
CONTINGENT DEFERRED SALES CHARGE: Since no deduction for a sales charge is made
from the premium payment, a contingent deferred sales charge (Withdrawal 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.
In no event will the total contingent deferred sales charge (Withdrawal Charge)
exceed 6.5% of the single premium payment for the Policy.
<TABLE>
<CAPTION>
CHARGE AS A % OF YEARS SINCE RECEIPT OF
PREMIUM PAYMENT PREMIUM PAYMENT
- --------------------- ----------------------
<S> <C>
6 1
6 2
6 3
5 4
4 5
3 6
2 7
0 8+
</TABLE>
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- 11
IRA/SEP/SIMPLE/ROTH
ANNUITY; 2/2000
<PAGE> 48
[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 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.
COMMISSIONS, FEES AND CHARGES
The following commissions, fees and charges apply to OVERTURE ANNUITY (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 $30 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.
ANNUAL ADMINISTRATION FEE: A charge at an annual rate of .20% of the
accumulation 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 only on an annual mode. No
partial or full withdrawals may be made after the annuity date except as
permitted under the particular annuity option or as may be permitted under the
Plan and the Internal Revenue Code and applicable regulations. 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 (Withdrawal
Charge) is imposed unless waived on certain partial and full withdrawals, and
upon certain annuitizations to cover expenses relating to Registered
Representatives and promotional expenses.
Total withdrawals in a policy year which exceed the greater of: (1) 10% of the
accumulation value at the time of the withdrawal, or (2) any portion of the
accumulation value which exceeds the total premium deposit will be subject to a
contingent deferred sales charge. Contingent deferred sales charges are assessed
only on premiums paid based upon the number of years since the policy year in
which the premiums withdrawn were paid, on a first-paid, first-withdrawn basis.
PENSION
QD- 12
ANNUITY; 2/2000
<PAGE> 49
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:
<TABLE>
<CAPTION>
CHARGE AS A % OF YEARS SINCE RECEIPT OF
PREMIUM PAYMENT PREMIUM PAYMENT
- --------------------- ----------------------
<S> <C>
6 1
6 2
6 3
5 4
4 5
3 6
2 7
0 8+
</TABLE>
In no event will the total contingent deferred sales charge (Withdrawal Charge)
exceed 6.5% of the single premium payment for the Policy.
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.
PENSION
QD- 13
ANNUITY; 2/2000
<PAGE> 50
Part B Registration No. 33-14774
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF ADDITIONAL INFORMATION
FOR
FLEXIBLE PREMIUM VARIABLE ANNUITY POLICY
OFFERED BY
AMERITAS VARIABLE LIFE INSURANCE COMPANY
(A NEBRASKA STOCK COMPANY)
5900 "O" STREET
LINCOLN, NEBRASKA 68510
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Flexible Premium Variable Annuity Policy ("Policy")
offered by Ameritas Variable Life Insurance Company ("AVLIC"). You may obtain a
copy of the Prospectus dated May 1, 2000 by writing Ameritas Variable Life
Insurance Company, 5900 "O" Street, Lincoln, Nebraska 68510, or calling,
1-800-745-1112. Terms used in the current Prospectus for the Policy are
incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated: May 1, 2000
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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.......................................... 8
Assignment................................................. 8
Annuity Data............................................... 8
Ownership.................................................. 8
Joint Annuitant........................................... 8
IRS Required Distributions................................ 8
FEDERAL TAX MATTERS............................................. 9
Taxation of AVLIC.......................................... 9
Tax Status of the Policies................................. 9
Qualified Policies......................................... 9
DISTRIBUTION OF THE POLICY......................................10
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS..........................11
AVLIC...........................................................11
STATE REGULATION................................................11
LEGAL MATTERS...................................................11
EXPERTS.........................................................11
OTHER INFORMATION...............................................11
FINANCIAL STATEMENTS............................................11
</TABLE>
ANNUITY
SAI 1
<PAGE> 52
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 is to reflect the financial strength 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% as an 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 31 Subaccounts, with the assets of each invested in
corresponding Portfolios of the Calvert Variable Series, Inc. Ameritas
Portfolios ("Ameritas Portfolios"), Calvert Variable Series, Inc. ("CVS Social
Portfolios"), Variable Insurance Products Fund or the Variable Insurance
Products Fund II (collectively the "Fidelity Portfolios"), the Alger American
Fund, the MFS Variable Insurance Trust, The Universal Institutional 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.
ANNUITY
SAI 2
<PAGE> 53
Ameritas Investment Corp. ("AIC") is the manager of the Ameritas Portfolios. AIC
is an affiliate of AVLIC. 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. Calvert Asset Management Company, Inc.
("CAMCO"), an AVLIC affiliate, is the manager of the CVS Social Portfolios.
Fidelity Management & Research Company (Fidelity) is the manager of the Fidelity
Portfolios. 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. The Universal Institutional 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 Separate Account VA-2. The Policies have
been offered since July 1, 1988. 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 Policies being offered will
be calculated as if the Policies had been offered during that period of time,
with all charges assumed to be those applicable to the Policies. 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 Separate Account VA-2 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 Separate Account VA-2, 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 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,
1999. Since the Policy is intended as a long-term product, the table also shows
the
ANNUITY
SAI 3
<PAGE> 54
average annual total return assuming that no money was withdrawn from the
Policy. The first column shows the average annual total return if you surrender
the Policy at the end of the period, the second column shows the average annual
return if you do not surrender the Policy.
AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/99
<TABLE>
<CAPTION>
TEN YEARS OR SINCE
OFFERED IN
ONE YEAR FIVE YEAR SEPARATE ACCOUNT
-------- --------- ----------------
SUBACCOUNT SURRENDER SURRENDER SURRENDER
SUBACCOUNTS INCEPTION DATE POLICY CONTINUE POLICY CONTINUE POLICY CONTINUE
- ----------- -------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Index 500(1) 08-01-95 9.28% 15.28% NA NA 21.55% 22.01%
Ameritas Growth(2) 05-01-92 23.17% 29.17% 26.43% 26.74% 21.40% 21.40%
Ameritas Income & Growth(2) 05-01-92 33.05% 39.05% 28.76% 29.05% 18.05% 18.05%
Ameritas Small
Capitalization(2) 05-01-92 36.19% 42.19% 18.55% 18.95% 14.89% 14.89%
Ameritas MidCap Growth(2) 05-01-93 20.37% 26.37% 21.48% 21.84% 20.42% 20.52%
Ameritas Emerging Growth(2) 08-01-95 64.24% 70.24% NA NA 31.59% 31.94%
Ameritas Research(2) 05-01-97 12.23% 18.23% NA NA 18.65% 20.33%
Ameritas Growth With
Income(2) 05-01-97 -5.09% 0.92% NA NA 13.10% 14.90%
CALVERT SOCIAL PORTFOLIOS
CVS Social Small Cap Growth 05-01-00 NA NA NA NA NA NA
CVS Social Mid Cap Growth 05-01-00 NA NA NA NA NA NA
CVS Social International
Equity 05-01-00 NA NA NA NA NA NA
CVS Social Balanced 05-01-00 NA NA NA NA NA NA
FIDELITY VIP
Equity-Income 10-23-87 -4.80% 1.20% 13.90% 14.37% 10.06%* 10.06%*
Growth 10-23-87 25.87% 31.87% 25.03% 25.35% 15.55%* 15.55%*
High Income 10-23-87 -3.00% 3.00% 5.63% 6.27% 8.36%* 8.36%*
Overseas 10-23-87 31.00% 37.00% 11.93% 12.44% 6.30%* 6.30%*
FIDELITY VIP II
Asset Manager 12-01-89 -0.10% 5.90% 10.53% 11.06% 8.91%* 8.91%*
Investment Grade Bond 06-01-91 -12.07% -6.07% 1.78% 2.52% 2.55% 2.55%
Asset Manager: Growth 08-01-95 4.00% 10.00% NA NA 14.35% 14.92%
Contrafund 08-01-95 12.88% 18.88% NA NA 18.55% 19.05%
ALGER AMERICAN FUND
Balanced 05-01-93 17.77% 23.77% 18.70% 19.10% 13.59% 13.73%
Leveraged AllCap 08-01-95 65.95% 71.95% NA NA 32.71% 33.05%
MFS FUNDS
Utilities 08-01-95 19.34% 25.34% NA NA 21.02% 21.49%
Global Governments 08-01-95 -13.50% -7.50% NA NA -3.42% -2.42%
New Discovery 11-01-99 NA NA NA NA 16.26% 18.82%
UNIVERSAL INSTITUTIONAL FUNDS
Emerging Markets Equity 05-01-97 82.34% 88.34% NA NA 4.43% 6.49%
Global Equity 05-01-97 -7.00% -1.00% NA NA 6.78% 8.76%
International Magnum 05-01-97 13.80% 19.80% NA NA 7.14% 9.12%
Asian Equity 05-01-97 67.48% 73.48% NA NA -9.62% -7.02%
U.S. Real Estate 05-01-97 -12.49% -6.49% NA NA -2.90% -0.59%
</TABLE>
* 10 Year Figure
(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
SAI 4
<PAGE> 55
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 Policies, that
hypothetically would have been made had Separate Account VA-2, with respect to
the Policies, 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. Policies may incur a Policy fee.
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,
1999.
HISTORICAL AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING ON 12/31/99
<TABLE>
<CAPTION>
TEN YEARS OR
ONE YEAR FIVE YEAR SINCE INCEPTION
-------- --------- ---------------
SURRENDER SURRENDER SURRENDER
SUBACCOUNTS INCEPTION POLICY CONTINUE POLICY CONTINUE POLICY CONTINUE
----------- --------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Growth 01-09-89 (1) 26.65% 32.65% 28.88% 29.17% 21.15%* 21.15%*
Ameritas Income & Growth 11-15-88 (1) 36.53% 42.53% 31.14% 31.41% 17.33%* 17.33%*
Ameritas Small Capitalization 09-21-88 (1) 39.67% 45.67% 21.18% 21.55% 16.82%* 16.82%*
Ameritas MidCap Growth 05-03-93 (1) 23.85% 29.85% 23.92% 24.25% 22.54%* 22.64%*
Ameritas Emerging Growth 07-24-95 (1) 67.72% 73.72% NA NA 34.04% 34.37%
Ameritas Research 07-26-95 (1) 15.71% 21.71% NA NA 20.47% 20.94%
Ameritas Growth With Income 10-09-95 (1) -1.61% 4.39% NA NA 18.60% 19.14%
Ameritas Index 500 08-01-95 (2) 12.76% 18.76% NA NA 23.98% 24.41%
CALVERT SOCIAL PORTFOLIOS
CVS Social Small Cap Growth 03-15-95 NA NA NA NA NA NA
CVS Social Mid Cap Growth 07-16-91 NA NA NA NA NA NA
CVS Social International
Equity 06-30-92 NA NA NA NA NA NA
CVS Social Balanced 09-02-86 NA NA NA NA NA NA
FIDELITY VIP
Equity-Income 10-09-86 -1.32% 4.68% 16.39% 16.82% 12.76%* 12.76%*
Growth 10-09-86 29.35% 35.35% 27.50% 27.81% 18.14%* 18.14%*
High Income 09-19-85 0.48% 6.48% 8.57% 9.14% 10.73%* 10.73%*
Overseas 01-28-87 34.48% 40.48% 15.11% 15.57% 9.72%* 9.72%*
FIDELITY VIP II
Asset Manager 09-06-89 3.38% 9.38% 13.40% 13.88% 11.45%* 11.45%*
Investment Grade Bond 12-05-88 -8.59% -2.59% 5.00% 5.65% 5.56%* 5.56%*
Asset Manager: Growth 01-03-95 7.48% 13.48% NA NA 18.02% 18.44%
Contrafund 01-03-95 16.36% 22.36% NA NA 25.59% 25.91%
ALGER AMERICAN FUND
Balanced 09-05-89 21.25% 27.25% 21.38% 21.75% 12.05%* 12.05%*
Leveraged AllCap 01-25-95 69.43% 75.43% NA NA 44.19% 44.38%
MFS FUNDS
Utilities 01-03-95 22.82% 28.82% NA NA 24.30% 24.64%
Global Governments 06-14-94 -10.02% -4.02% 2.02% 2.75% 2.00% 2.49%
New Discovery 05-01-98 66.24% 72.24% NA NA 37.02% 39.91%
UNIVERSAL INSTITUTIONAL FUNDS
Emerging Markets Equity 10-01-96 85.82% 91.82% NA NA 9.09% 10.34%
Global Equity 01-02-97 -3.52% 2.48% NA NA 9.11% 10.77%
International Magnum 01-02-97 17.28% 23.28% NA NA 10.32% 11.95%
Asian Equity 03-03-97 70.96% 76.96% NA NA -5.66% -3.35%
U.S Real Estate 03-03-97 -9.01% -3.01% NA NA -2.38% -0.21%
</TABLE>
* 10 Year Figure
(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 ($60,000) 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
SAI 5
<PAGE> 56
(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
($60,000) 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 Policy is intended as a long-term
product, the table shows the cumulative total returns assuming that no money was
withdrawn from the Policy.
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,
1999.
HISTORICAL CUMULATIVE TOTAL RETURN FOR PERIOD ENDING ON 12/31/99
<TABLE>
<CAPTION>
TEN YEARS
SUBACCOUNTS INCEPTION ONE YEAR FIVE YEAR SINCE INCEPTION
<S> <C> <C> <C> <C>
AMERITAS PORTFOLIOS
Ameritas Growth 01-09-89 (1) 33.04% 264.36% 598.81%*
Ameritas Income & Growth 11-15-88 (1) 42.94% 296.93% 407.87%*
Ameritas Small Capitalization 09-21-88 (1) 46.08% 168.91% 385.71%*
Ameritas MidCap Growth 05-03-93 (1) 30.23% 200.12% 295.53%
Ameritas Emerging Growth 07-24-95 (1) 74.18% NA 275.12%
Ameritas Research 07-26-95 (1) 22.07% NA 134.89%
Ameritas Growth With Income 10-09-95 (1) 4.72% NA 112.00%
Ameritas Index 500 08-01-95 (2) 19.12% NA 165.20%
CALVERT SOCIAL PORTFOLIOS
CVS Social Small Cap Growth 03-15-95 NA NA NA
CVS Social Mid Cap Growth 07-16-91 NA NA NA
CVS Social International Equity 06-30-92 NA NA NA
CVS Social Balanced 09-02-86 NA NA NA
FIDELITY VIP
Equity-Income 10-09-86 5.01% 120.54% 241.65%*
Growth 10-09-86 35.75% 245.53% 443.84%*
High Income 09-19-85 6.82% 57.06% 184.47%*
Overseas 01-28-87 40.88% 109.14% 160.22%*
FIDELITY VIP II
Asset Manager 09-06-89 9.72% 94.22% 203.66%*
Investment Grade Bond 12-05-88 -2.28% 33.62% 76.69%*
Asset Manager: Growth 01-03-95 13.83% NA 135.27%
Contrafund 01-03-95 22.72% NA 219.20%
ALGER AMERICAN FUND
Balanced 09-05-89 27.62% 171.16% 220.80%*
Leveraged AllCap 01-25-95 75.91% NA 517.96%
MFS FUNDS
Utilities 01-03-95 29.20% NA 203.46%
Global Governments 06-14-94 -3.71% 16.28% 16.41%
New Discovery 05-01-98 72.71% NA 75.62%
UNIVERSAL INSTITUTIONAL FUNDS
Emerging Markets Equity 10-01-96 92.32% NA 39.08%
Global Equity 01-02-97 2.81% NA 36.60%
International Magnum 01-02-97 23.65% NA 41.05%
Asian Equity 03-03-97 77.43% NA -8.41%
U.S. Real Estate 03-03-97 -2.69% NA 0.04%
</TABLE>
* 10 Year Figure
(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
ANNUITY
SAI 6
<PAGE> 57
invested prior to October 29, 1999. This presentation provides non-standard
performance in three respects: (i) the initial investment used in the
calculation ($60,000) 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 ($60,000) 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.
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 the 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:
365/7
Effective Yield=[(Base Period Return+1) ]-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, 1999 for the Money
Market Fund was 5.54% and the net effective yield for the 7-day period ended
December 31, 1999 for the Money Market Fund was 5.70%.
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:
6
YIELD=2[(((a - b) /cd) + 1) - 1]
Where a = net investment income earned during the period by the Portfolio
company attributable to shares owned by the Subaccount, b = expenses accrued for
the period (net of reimbursements), c = the average daily number of Accumulation
Units outstanding during the period, and d = the maximum offering price per
accumulation unit on the last day of the period. The yield reflects the
mortality and expense risk charge and the annual Policy fee.
GENERAL MATTERS
THE POLICY
The Policy, the application, any supplemental applications, and any amendments
or endorsements make up the entire contract. All statements made in the
application, in the absence of fraud, are considered representations and not
warranties. Only statements in the application that is attached to the Policy
and any supplemental applications made a part of the Policy when a change went
into effect can be used to contest a claim or the validity of the Policy. Only
the President, Vice President, Secretary or Assistant Secretary can modify the
Policy. Any changes must be made in writing, and approved by AVLIC. No agent has
the authority to alter or modify any of the terms, conditions or agreements of
the Policy or to waive any of its provisions.
ANNUITY
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<PAGE> 58
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 Nonqualified Policy and any Qualified Policy, if permitted by the plan or by
law relevant to the plan applicable to the Qualified Policy, may be assigned by
the Owner prior to the Annuity Date and during the Annuitant's lifetime. AVLIC
is not responsible for the validity of any assignment. No assignment will be
recognized until AVLIC receives written notice thereof. The interest of any
Beneficiary which the assignor has the right to change shall be subordinate to
the interest of an assignee. Any amount paid to the assignee shall be paid in
one sum, not withstanding any settlement agreement in effect at the time the
assignment was executed. AVLIC shall not be liable as to any payment or other
settlement made by AVLIC before receipt of written notice.
ANNUITY DATA
AVLIC will not be liable for obligations which depend on receiving information
from a payee until such information is received in a form satisfactory to AVLIC.
OWNERSHIP
The Owner of the Policy on the Policy Date is the Annuitant, unless otherwise
specified in the application. During the Annuitant's lifetime, all rights and
privileges under this Policy may be exercised solely by the Owner. Ownership
passes to the Owner's Designated Beneficiary upon the death of the Owner(s). If
the Owner has not named an Owner's Designated Beneficiary, or if no such
Beneficiary is living, the ownership passes to the Owner's estate. From time to
time AVLIC may require proof that the Owner is still living.
In order to change the Owner of the Policy or assign Policy rights, an
assignment of the Policy must be made in writing and filed with AVLIC at its
Home Office. The change will take effect as of the date the change is recorded
at the Home Office, and AVLIC will not be liable for any payment made or action
taken before the change is recorded. The payment of proceeds is subject to the
rights of any assignee of record. A change in the Owner will be valid only upon
absolute and complete assignment of the Policy. A collateral assignment is not a
change of ownership.
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 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 Owner and Annuitant are not the same, the Owner's Designated Beneficiary
is the person to whom ownership of the Policy passes by reason of death before
the Annuity Date and must be a natural person. If the Owner and Annuitant are
the same, the Annuitant's Beneficiary is the person to whom ownership of the
Policy passes. 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, even if the
original Owner was actually the same person as the Annuitant.
In the event that the Policy Owner is not a natural person (e.g., a trust or
corporation) then, for purposes of these distribution requirements 1) death of
the Annuitant will be treated as death of the Owner; 2) any change of Annuitant
will be treated as death of the Owner; and 3) in either case, the appropriate
distribution will be made upon death or change of the Annuitant.
These distribution requirements do not apply to any Policy that is exempt from
Section 72(s) of the Code.
ANNUITY
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<PAGE> 59
In the event of the Annuitant's death where the surviving spouse is not the
Annuitant's Beneficiary, the election to receive an annuity may need to be made
within 60 days of when the benefits become payable to avoid constructive receipt
of the Death Benefit. Further, the five (5) year payout rule may not be
available to defer taxes on any gain in the Policy in those circumstances.
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 currently to the owner. 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 and CAMCO, AVLIC affiliates, are the advisors to certain of the Funds, AVLIC
does not directly 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.
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
ANNUITY
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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 Policy Owner should fully review the prospectus and
consult with his or her tax consultant before purchasing as a part of a
Section 403(b) plan.
Generally, where the Policy is purchased by a qualified plan, the tax-deferral
feature is provided through the qualified plan and the tax-deferral feature of
the Policy is not necessary and does not provide any additional tax deferred
treatment of earnings.
The Policy does provide features unavailable in other products, such as lifetime
income payments, family protection through the Death Benefit, and certain
guarantees of fees and expenses. Fees imposed by the Policy may be higher than
alternative investments, such as mutual funds, as a result of offering these
features.
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 has also 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 Ameritas Investment Corp. 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 $22,936,819 for 1999: $16,527,487 for
1998; and $11,961,951 for 1997.
ANNUITY
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SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to assets of Separate Account VA-2 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
Separate Account VA-2.
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 Separate Account
VA-2.
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, 1999 and 1998, and for each
of the three years in the period ended December 31, 1999, and the financial
statements of the subaccounts of Separate Account VA-2 as of December 31, 1999,
and for each of the two years in the period then ended, included in this
Statement of Additional Information have been audited by Deloitte & Touche LLP,
1040 NBC Center, Lincoln, Nebraska 68508, independent auditors, as stated in
their reports appearing herein, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
OTHER INFORMATION
A registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information or in the
Prospectus. Statements contained in this Statement of Additional Information and
the Prospectus concerning the content of the policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of AVLIC, which are included in this Statement of
Additional Information, should be considered only as bearing on the ability of
AVLIC to meet its obligations under the Policies. They should not be considered
as bearing on the investment performance of the assets held in Separate Account
VA-2.
ANNUITY
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INDEPENDENT AUDITORS' REPORT
Board of Directors
Ameritas Variable Life Insurance Company
Lincoln, Nebraska
We have audited the accompanying statement of net assets of each of the
subaccounts of Ameritas Variable Life Insurance Company Separate Account VA-2
(comprising, respectively, the Money Market Portfolio Initial Class,
Equity-Income Portfolio Initial Class, Equity-Income Portfolio Service Class
(commenced June 15, 1998), Growth Portfolio Initial Class, Growth Portfolio
Service Class (commenced June 23, 1998), High Income Portfolio Initial Class,
High Income Portfolio Service Class (commenced June 23, 1998), Overseas
Portfolio Initial Class, and Overseas Portfolio Service Class (commenced July 7,
1998) of the Variable Insurance Products Fund; the Asset Manager Portfolio
Initial Class, Asset Manager Portfolio Service Class (commenced June 25, 1998),
Investment Grade Bond Portfolio Initial Class, Contrafund Portfolio Initial
Class, Contrafund Portfolio Service Class (commenced June 25, 1998) Index 500
Portfolio Initial Class, Asset Manager Growth Portfolio Initial Class, and Asset
Manager Growth Portfolio Service Class (commenced June 25, 1998) of the Variable
Insurance Products Fund II; the Small Capitalization Portfolio, Growth
Portfolio, Income and Growth Portfolio, Midcap Growth Portfolio, Balanced
Portfolio, and Leveraged Allcap Portfolio of the Alger American Fund; the
Emerging Growth Series Portfolio, World Governments Series Portfolio, Utilities
Series Portfolio, Research Series Portfolio, Growth with Income Series
Portfolio, and New Discovery Series Portfolio (commenced November 11, 1999) of
the MFS Variable Insurance Trust; the Asian Equity Portfolio, Emerging Markets
Equity Portfolio, Global Equity Portfolio, International Magnum Portfolio and
U.S. Real Estate Portfolio of the Morgan Stanley Dean Witter Universal Funds,
Inc.; and the Ameritas Emerging Growth Portfolio (commenced October 29, 1999),
Ameritas Growth Portfolio (commenced October 29, 1999), Ameritas Growth with
Income Portfolio (commenced October 29, 1999), Ameritas Income and Growth
Portfolio (commenced October 29, 1999), Ameritas Index 500 Portfolio (commenced
October 29, 1999), Ameritas Midcap Growth Portfolio (commenced October 29,
1999), Ameritas Money Market Portfolio (commenced October 28, 1999), Ameritas
Research Portfolio (commenced October 29, 1999), Ameritas Small Capitalization
Portfolio (commenced October 29, 1999) of the Calvert Variable Series, Inc.,
Ameritas Portfolios) as of December 31, 1999, 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 at December 31, 1999. 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 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 each of the subaccounts constituting
Ameritas Variable Life Insurance Company Separate Account VA-2 as of December
31, 1999, and the results of its operations and changes in 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, 2000
F-I- 1
<PAGE> 63
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
INVESTMENTS AT NET ASSET VALUE:
VARIABLE INSURANCE PRODUCTS FUND:
Equity-Income Portfolio Initial Class (Equity Income
I-Class) -- 6,435,370.711 shares at $25.71 per share
(cost $95,606,864).................................... $ 165,453,379
Equity-Income Portfolio Service Class (Equity Income
S-Class) -- 483,215.295 shares at $25.66 per share
(cost $12,122,972).................................... 12,399,303
Growth Portfolio Initial Class (Growth
I-Class) -- 3,825,293.680 shares at $54.93 per share
(cost $89,519,390).................................... 210,123,382
Growth Portfolio Service Class (Growth
S-Class) -- 394,127.892 shares at $54.80 per share
(cost $17,415,406).................................... 21,598,208
High Income Portfolio Initial Class (High Income
I-Class) -- 3,459,962.113 shares at $11.31 per share
(cost $34,972,168).................................... 39,132,172
High Income Portfolio Service Class (High Income
S-Class) -- 569,774.456 shares at $11.28 per share
(cost $6,395,947)..................................... 6,427,055
Overseas Portfolio Initial Class (Overseas
I-Class) -- 2,215,205.757 shares at $27.44 per share
(cost $20,569,485).................................... 60,785,246
Overseas Portfolio Service Class (Overseas
S-Class) -- 186,907.203 shares at $27.38 per share
(cost $4,202,722)..................................... 5,117,519
VARIABLE INSURANCE PRODUCTS FUND II:
Asset Manager Portfolio Initial Class (Asset Manager
I-Class) -- 7,468,384.028 shares at $18.67 per share
(cost $98,306,668).................................... 139,434,729
Asset Manager Portfolio Service Class (Asset Manager
S-Class) -- 554,881.983 shares at $18.59 per share
(cost $9,570,899)..................................... 10,315,256
Investment Grade Bond Portfolio Initial Class
(Investment Grade Bond I-Class) -- 4,828,480.331
shares at $12.16 per share (cost $58,074,923)......... 58,714,322
Contrafund Portfolio Initial Class (Contrafund
I-Class) -- 3,470,726.629 shares at $29.15 per share
(cost $60,255,895).................................... 101,171,683
Contrafund Portfolio Service Class (Contrafund
S-Class) -- 625,663.097 shares at $29.10 per share
(cost $15,347,949).................................... 18,206,797
Asset Manager Growth Portfolio Initial Class (Asset
Mgr. Growth I-Class) -- 1,087,878.452 shares at $18.38
per share (cost $15,395,559).......................... 19,995,205
Asset Manager Growth Portfolio Service Class (Asset
Mgr. Growth S-Class) -- 148,820.227 shares at $18.28
per share (cost $2,438,909)........................... 2,720,435
ALGER AMERICAN FUND:
Balanced Portfolio (Balanced) -- 2,561,095.320 shares
at $15.57 per share (cost $31,237,355)................ 39,876,253
Leveraged Allcap Portfolio (Leveraged
Allcap) -- 1,442,320.902 shares at $57.97 per share
(cost $50,773,753).................................... 83,611,342
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-I- 2
<PAGE> 64
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS, CONTINUED
MFS VARIABLE INSURANCE TRUST:
World Governments Series Portfolio (World Governments
Series) -- 339,481.942 shares at $10.03 per share
(cost $3,524,078)..................................... $ 3,405,005
Utilities Series Portfolio (Utilities
Series) -- 2,636,985.507 shares at $24.16 per share
(cost $47,033,438).................................... 63,709,570
New Discovery Series Portfolio (New Discovery
Series) -- 35,931.102 shares at $17.27 per share (cost
$550,745)............................................. 620,531
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.:
Asian Equity Portfolio (Asian Equity) -- 839,924.624
shares at $9.34 per share (cost $5,655,952)........... 7,844,896
Emerging Markets Equity Portfolio (Emerging Markets
Equity) -- 704,784.737 shares at $13.84 per share
(cost $7,686,053)..................................... 9,754,220
Global Equity Portfolio (Global Equity) -- 863,321.663
shares at $12.88 per share (cost $10,771,430)......... 11,119,583
International Magnum Portfolio (International
Magnum) -- 582,696.408 shares at $13.89 per share
(cost $6,661,954)..................................... 8,093,651
U.S. Real Estate Portfolio (US Real
Estate) -- 316,280.893 shares at $9.11 per share (cost
$3,530,565)........................................... 2,881,320
CALVERT VARIABLE SERIES, INC., AMERITAS PORTFOLIOS:
Ameritas Emerging Growth Portfolio (Emerging
Growth) -- 2,755,190.526 shares at $37.86 per share
(cost $71,416,122).................................... 104,311,514
Ameritas Growth Portfolio (Growth) -- 2,559,677.821
shares at $64.83 per share (cost $143,697,942)........ 165,943,913
Ameritas Growth with Income Portfolio (Growth with
Income) -- 1,457,150.796 shares at $21.17 per share
(cost $29,487,535).................................... 30,847,882
Ameritas Income and Growth Portfolio (Income and
Growth) -- 3,958,290.324 shares at $17.35 per share
(cost $54,929,527).................................... 68,676,337
Ameritas Index 500 Portfolio (Index
500) -- 1,059,461.110 shares at $167.30 per share
(cost $164,328,509)................................... 177,247,845
Ameritas Midcap Growth Portfolio (Midcap
Growth) -- 1,892,640.006 shares at $31.50 per share
(cost $50,096,579).................................... 59,618,160
Ameritas Money Market Portfolio (Money
Market) -- 166,038,806.150 shares at $1.00 per share
(cost $166,038,806)................................... 166,038,807
Ameritas Research Portfolio (Research) -- 938,609.343
shares at $22.99 per share (cost $18,964,720)......... 21,578,629
Ameritas Small Capitalization Portfolio (Small
Cap) -- 1,682,895.921 shares at $56.42 per share (cost
$74,788,383).......................................... 94,948,988
--------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS.... $1,991,723,137
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-I- 3
<PAGE> 65
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<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>
1999
INVESTMENT INCOME:
Dividend distributions received.......... $ 27,403,589 $ 5,491,391 $ 2,674,953 $ 60,699
Mortality and expense risk charge........ (20,985,412) (1,225,583) (2,282,808) (79,777)
------------ ----------- ----------- --------
NET INVESTMENT INCOME (LOSS)............... 6,418,177 4,265,808 392,145 (19,078)
------------ ----------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain distributions.......... 77,209,666 -- 5,913,057 134,177
Net change in unrealized
appreciation(depreciation)............ 283,368,099 -- 2,291,495 39,578
------------ ----------- ----------- --------
NET GAIN (LOSS) ON INVESTMENTS............. 360,577,765 -- 8,204,552 173,755
------------ ----------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................ $366,995,942 $ 4,265,808 $ 8,596,697 $154,677
============ =========== =========== ========
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 distributions.......... 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
============ =========== =========== ========
</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> 66
<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>
$ 275,994 $ 4,981 $ 5,123,853 $205,736 $ 867,148 $ 12,270
(2,228,931) (100,689) (626,922) (37,495) (714,049) (16,789)
----------- ---------- ----------- -------- ----------- --------
(1,952,937) (95,708) 4,496,931 168,241 153,099 (4,519)
----------- ---------- ----------- -------- ----------- --------
17,353,110 313,177 191,546 7,691 1,398,626 19,790
38,476,561 3,843,350 (493,915) 14,843 21,680,316 888,251
----------- ---------- ----------- -------- ----------- --------
55,829,671 4,156,527 (302,369) 22,534 23,078,942 908,041
----------- ---------- ----------- -------- ----------- --------
$53,876,734 $4,060,819 $ 4,194,562 $190,775 $23,232,041 $903,522
=========== ========== =========== ======== =========== ========
$ 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
=========== ========== =========== ======== =========== ========
</TABLE>
F-I- 5
<PAGE> 67
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<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>
1999
INVESTMENT INCOME:
Dividend distributions received........... $ 4,861,717 $ 87,054 $ 2,317,196 $ 379,372
Mortality and expense risk charge......... (1,829,733) (61,163) (776,815) (1,178,849)
----------- -------- ----------- -----------
NET INVESTMENT INCOME (LOSS)................ 3,031,984 25,891 1,540,381 (799,477)
----------- -------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain distributions........... 6,158,174 110,269 726,963 2,782,063
Net change in unrealized appreciation
(depreciation)......................... 3,833,320 612,167 (3,751,886) 16,341,494
----------- -------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS.............. 9,991,494 722,436 (3,024,923) 19,123,557
----------- -------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. $13,023,478 $748,327 $(1,484,542) $18,324,080
=========== ======== =========== ===========
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 distributions........... 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
=========== ======== =========== ===========
</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> 68
<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) CAPITALIZATION GROWTH GROWTH
----------- ----------- ------------- ------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 16,490 $ 1,167,704 $ 364,686 $ 18,702 $ -- $ 166,387 $ 86,242
(100,233) (1,496,283) (221,680) (15,795) (707,441) (1,307,380) (487,121)
---------- ----------- ---------- -------- ----------- ----------- ----------
(83,743) (328,579) 143,006 2,907 (707,441) (1,140,993) (400,879)
---------- ----------- ---------- -------- ----------- ----------- ----------
120,925 792,371 604,845 31,018 8,554,724 11,360,653 2,564,053
2,485,597 12,177,153 1,604,916 231,799 469,622 5,486,269 2,601,312
---------- ----------- ---------- -------- ----------- ----------- ----------
2,606,522 12,969,524 2,209,761 262,817 9,024,346 16,846,922 5,165,365
---------- ----------- ---------- -------- ----------- ----------- ----------
$2,522,779 $12,640,945 $2,352,767 $265,724 $ 8,316,905 $15,705,929 $4,764,486
========== =========== ========== ======== =========== =========== ==========
$ -- $ 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
========== =========== ========== ======== =========== =========== ==========
</TABLE>
F-I- 7
<PAGE> 69
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
----------------------------------------
MIDCAP LEVERAGED
GROWTH BALANCED ALLCAP
1999 ----------- ---------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend distributions received...................... $ -- $ 299,993 $ --
Mortality and expense risk charge.................... (498,302) (359,131) (513,954)
----------- ---------- -----------
NET INVESTMENT INCOME (LOSS)........................... (498,302) (59,138) (513,954)
----------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain distributions...................... 6,889,497 1,521,652 2,107,473
Net change in unrealized appreciation
(depreciation).................................... (3,851,259) 5,827,330 26,095,122
----------- ---------- -----------
NET GAIN (LOSS) ON INVESTMENTS......................... 3,038,238 7,348,982 28,202,595
----------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................... $ 2,539,936 $7,289,844 $27,688,641
=========== ========== ===========
1998
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 distributions...................... 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
=========== ========== ===========
</TABLE>
- ---------------
(1) Commenced business 11/11/99
The accompanying notes are an integral part of these financial statements.
F-I- 8
<PAGE> 70
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
----------------------------------------------------------------------------------------
WORLD
EMERGING GOVERNMENTS UTILITIES RESEARCH GROWTH WITH NEW DISCOVERY
GROWTH SERIES SERIES SERIES SERIES INCOME SERIES SERIES (1)
------------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 195,786 $ 485,153 $ 32,851 $ 86,188 $ --
(670,362) (47,710) (580,004) (178,869) (292,580) (538)
------------ ---------- ----------- ------------ ------------ --------
(670,362) 148,076 (94,851) (146,018) (206,392) (538)
------------ ---------- ----------- ------------ ------------ --------
-- -- 2,439,376 173,602 103,453 9,311
11,591,679 (288,901) 11,233,906 1,064,585 84,493 69,785
------------ ---------- ----------- ------------ ------------ --------
11,591,679 (288,901) 13,673,282 1,238,187 187,946 79,096
------------ ---------- ----------- ------------ ------------ --------
$ 10,921,317 $ (140,825) $13,578,431 $ 1,092,169 $ (18,446) $ 75,558
============ ========== =========== ============ ============ ========
$ -- $ 33,336 $ 245,880 $ 13,758 $ -- $ --
(611,693) (35,811) (308,735) (130,753) (265,114) --
------------ ---------- ----------- ------------ ------------ --------
(611,693) (2,475) (62,855) (115,995) (265,114) --
------------ ---------- ----------- ------------ ------------ --------
385,947 -- 1,117,922 180,422 -- --
13,357,575 172,955 2,524,701 1,891,547 4,105,744 --
------------ ---------- ----------- ------------ ------------ --------
13,743,522 172,955 3,642,623 2,071,969 4,105,744 --
------------ ---------- ----------- ------------ ------------ --------
$ 13,131,829 $ 170,480 $ 3,579,768 $ 1,954,974 $ 3,840,630 $ --
============ ========== =========== ============ ============ ========
</TABLE>
F-I- 9
<PAGE> 71
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
UNIVERSAL FUNDS, INC.
-----------------------------------------
ASIAN EMERGING GLOBAL
EQUITY MARKETS EQUITY EQUITY
1999 ---------- -------------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend distributions received....................... $ 39,486 $ 1,264 $ 130,565
Mortality and expense risk charge..................... (50,487) (63,674) (126,429)
---------- ----------- ---------
NET INVESTMENT INCOME (LOSS)............................ (11,001) (62,410) 4,136
---------- ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain distributions....................... -- -- 505,014
Net change in unrealized appreciation
(depreciation)..................................... 2,511,132 3,708,710 (212,881)
---------- ----------- ---------
NET GAIN (LOSS) ON INVESTMENTS.......................... 2,511,132 3,708,710 292,133
---------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $2,500,131 $ 3,646,300 $ 296,269
========== =========== =========
1998
INVESTMENT INCOME:
Dividend distributions received....................... $ 14,136 $ 15,303 $ 54,910
Mortality and expense risk charge..................... (15,708) (40,749) (78,584)
---------- ----------- ---------
NET INVESTMENT INCOME (LOSS)............................ (1,572) (25,446) (23,674)
---------- ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain distributions....................... -- -- 46,830
Net change in unrealized appreciation
(depreciation)..................................... (41,512) (979,576) 530,951
---------- ----------- ---------
NET GAIN (LOSS) ON INVESTMENTS.......................... (41,512) (979,576) 577,781
---------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $ (43,084) $(1,005,022) $ 554,107
========== =========== =========
</TABLE>
- ---------------
(1) Commenced business 10/29/99
(2) Commenced business 10/29/99
(3) Commenced business 10/29/99
(4) Commenced business 10/29/99
(5) Commenced business 10/29/99
The accompanying notes are an integral part of these financial statements.
F-I- 10
<PAGE> 72
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER CALVERT VARIABLE SERIES, INC.,
UNIVERSAL FUNDS, INC. AMERITAS PORTFOLIOS
--------------------------- --------------------------------------------------------------------
INTERNATIONAL U.S. REAL EMERGING GROWTH WITH INCOME AND
MAGNUM ESTATE GROWTH(1) GROWTH(2) INCOME(3) GROWTH(4) INDEX 500(5)
-------------- ---------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 58,422 $ 174,088 $ -- $ 20,307 $ 14,915 $ -- $ 260,667
(83,151) (42,152) (193,732) (347,699) (66,800) (139,267) (382,295)
---------- --------- ----------- ----------- ---------- ----------- -----------
(24,729) 131,936 (193,732) (327,392) (51,885) (139,267) (121,628)
---------- --------- ----------- ----------- ---------- ----------- -----------
29,598 -- -- -- -- 1,976,392 --
1,502,573 (264,366) 32,895,392 22,245,971 1,360,347 13,746,810 12,919,335
---------- --------- ----------- ----------- ---------- ----------- -----------
1,532,171 (264,366) 32,895,392 22,245,971 1,360,347 15,723,202 12,919,335
---------- --------- ----------- ----------- ---------- ----------- -----------
$1,507,442 $(132,430) $32,701,660 $21,918,579 $1,308,462 $15,583,935 $12,797,707
========== ========= =========== =========== ========== =========== ===========
$ 17,781 $ 85,165 $ -- $ -- $ -- $ -- $ --
(59,173) (39,682) -- -- -- -- --
---------- --------- ----------- ----------- ---------- ----------- -----------
(41,392) 45,483 -- -- -- -- --
---------- --------- ----------- ----------- ---------- ----------- -----------
19,782 25,863 -- -- -- -- --
207,777 (526,497) -- -- -- -- --
---------- --------- ----------- ----------- ---------- ----------- -----------
227,559 (500,634) -- -- -- -- --
---------- --------- ----------- ----------- ---------- ----------- -----------
$ 186,167 $(455,151) $ -- $ -- $ -- $ -- $ --
========== ========= =========== =========== ========== =========== ===========
</TABLE>
F-I- 11
<PAGE> 73
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
CALVERT VARIABLE SERIES, INC.,
AMERITAS PORTFOLIOS
-------------------------------------------------------
MIDCAP MONEY SMALL
GROWTH(1) MARKET(2) RESEARCH(3) CAP(4)
--------- --------- ----------- ------
<S> <C> <C> <C> <C>
1999
INVESTMENT INCOME:
Dividend distributions received........... $ -- $1,421,329 $ -- $ --
Mortality and expense risk charge......... (126,008) (493,961) (46,063) (186,708)
----------- ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS)................ (126,008) 927,368 (46,063) (186,708)
----------- ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain distributions........... 1,344,414 -- 245,686 726,966
Net change in unrealized appreciation
(depreciation)......................... 9,521,581 -- 2,613,908 20,160,605
----------- ---------- ---------- -----------
NET GAIN (LOSS) ON INVESTMENTS.............. 10,865,995 -- 2,859,594 20,887,571
----------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. $10,739,987 $ 927,368 $2,813,531 $20,700,863
=========== ========== ========== ===========
1998
INVESTMENT INCOME:
Dividend distributions received........... $ -- $ -- $ -- $ --
Mortality and expense risk charge......... -- -- -- --
----------- ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS)................ -- -- -- --
----------- ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain distributions........... -- -- -- --
Net change in unrealized appreciation
(depreciation)......................... -- -- -- --
----------- ---------- ---------- -----------
NET GAIN (LOSS) ON INVESTMENTS.............. -- -- -- --
----------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. $ -- $ -- $ -- $ --
=========== ========== ========== ===========
</TABLE>
- ---------------
(1) Commenced business 10/29/99
(2) Commenced business 10/28/99
(3) Commenced business 10/29/99
(4) Commenced business 10/29/99
The accompanying notes are an integral part of these financial statements.
F-I- 12
<PAGE> 74
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-I- 13
<PAGE> 75
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<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>
1999
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)........ $ 6,418,177 $ 4,265,808 $ 392,145 $ (19,078)
Net realized gain distributions..... 77,209,666 -- 5,913,057 134,177
Net change in unrealized
appreciation (depreciation)...... 283,368,099 -- 2,291,495 39,578
-------------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........... 366,995,942 4,265,808 8,596,697 154,677
NET INCREASE (DECREASE) FROM
POLICYOWNER TRANSACTIONS............ 197,931,848 (88,223,384) (28,967,793) 8,743,871
-------------- ------------ ------------ -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS.............................. 564,927,790 (83,957,576) (20,371,096) 8,898,548
NET ASSETS AT JANUARY 1, 1999......... 1,426,795,347 83,957,576 185,824,475 3,500,755
-------------- ------------ ------------ -----------
NET ASSETS AT DECEMBER 31, 1999....... $1,991,723,137 $ -- $165,453,379 $12,399,303
============== ============ ============ ===========
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 distributions..... 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
============== ============ ============ ===========
</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- 14
<PAGE> 76
<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>
$ (1,952,937) $ (95,708) $ 4,496,931 $ 168,241 $ 153,099 $ (4,519)
17,353,110 313,177 191,546 7,691 1,398,626 19,790
38,476,561 3,843,350 (493,915) 14,843 21,680,316 888,251
------------ ----------- ------------ ---------- ------------ ----------
53,876,734 4,060,819 4,194,562 190,775 23,232,041 903,522
(7,775,968) 15,216,651 (20,867,210) 4,241,855 (19,770,532) 3,478,050
------------ ----------- ------------ ---------- ------------ ----------
46,100,766 19,277,470 (16,672,648) 4,432,630 3,461,509 4,381,572
164,022,616 2,320,738 55,804,820 1,994,425 57,323,737 735,947
------------ ----------- ------------ ---------- ------------ ----------
$210,123,382 $21,598,208 $ 39,132,172 $6,427,055 $ 60,785,246 $5,117,519
============ =========== ============ ========== ============ ==========
$ (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
============ =========== ============ ========== ============ ==========
</TABLE>
F-I- 15
<PAGE> 77
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<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>
1999
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss).............. $ 3,031,984 $ 25,891 $ 1,540,381 $ (799,477)
Net realized gain distributions........... 6,158,174 110,269 726,963 2,782,063
Net change in unrealized appreciation
(depreciation).......................... 3,833,320 612,167 (3,751,886) 16,341,494
------------ ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. 13,023,478 748,327 (1,484,542) 18,324,080
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS.............................. (22,124,449) 7,547,717 2,755,584 5,852,748
------------ ----------- ----------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..... (9,100,971) 8,296,044 1,271,042 24,176,828
NET ASSETS AT JANUARY 1, 1999............... 148,535,700 2,019,212 57,443,280 76,994,855
------------ ----------- ----------- ------------
NET ASSETS AT DECEMBER 31, 1999............. $139,434,729 $10,315,256 $58,714,322 $101,171,683
============ =========== =========== ============
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 distributions........... 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
============ =========== =========== ============
</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- 16
<PAGE> 78
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II ALGER AMERICAN FUND
------------------------------------------------------ ---------------------------------------------
ASSET ASSET
MANAGER MANAGER
CONTRAFUND INDEX 500 GROWTH GROWTH SMALL INCOME AND
S-CLASS(2) I-CLASS I-CLASS S-CLASS(3) CAPITALIZATION GROWTH GROWTH
----------- ------------- ----------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ (83,743) $ (328,579) $ 143,006 $ 2,907 $ (707,441) $ (1,140,993) $ (400,879)
120,925 792,371 604,845 31,018 8,554,724 11,360,653 2,564,053
2,485,597 12,177,153 1,604,916 231,799 469,622 5,486,269 2,601,312
----------- ------------- ----------- ---------- ------------ ------------- ------------
2,522,779 12,640,945 2,352,767 265,724 8,316,905 15,705,929 4,764,486
12,962,665 (128,351,688) 2,528,640 1,800,596 (79,645,879) (118,680,195) (43,828,746)
----------- ------------- ----------- ---------- ------------ ------------- ------------
15,485,444 (115,710,743) 4,881,407 2,066,320 (71,328,974) (102,974,266) (39,064,260)
2,721,353 115,710,743 15,113,798 654,115 71,328,974 102,974,266 39,064,260
----------- ------------- ----------- ---------- ------------ ------------- ------------
$18,206,797 $ -- $19,995,205 $2,720,435 $ -- $ -- $ --
=========== ============= =========== ========== ============ ============= ============
$ (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
=========== ============= =========== ========== ============ ============= ============
</TABLE>
F-I- 17
<PAGE> 79
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
-----------------------------------------
MIDCAP LEVERAGED
GROWTH BALANCED ALLCAP
----------- ----------- -----------
<S> <C> <C> <C>
1999
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss)........................ $ (498,302) $ (59,138) $ (513,954)
Net realized gain distributions..................... 6,889,497 1,521,652 2,107,473
Net change in unrealized appreciation
(depreciation)................................... (3,851,259) 5,827,330 26,095,122
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 2,539,936 7,289,844 27,688,641
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS........................................ (45,837,475) 14,722,731 38,111,274
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS............... (43,297,539) 22,012,575 65,799,915
NET ASSETS AT JANUARY 1, 1999......................... 43,297,539 17,863,678 17,811,427
----------- ----------- -----------
NET ASSETS AT DECEMBER 31, 1999....................... $ -- $39,876,253 $83,611,342
=========== =========== ===========
1998
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss)........................ $ (483,549) $ 6,176 $ (147,668)
Net realized gain distributions..................... 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
=========== =========== ===========
</TABLE>
- ---------------
(1) Commenced business 11/11/99
The accompanying notes are an integral part of these financial statements.
F-I- 18
<PAGE> 80
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
---------------------------------------------------------------------------------------------------
EMERGING WORLD GOVERNMENTS UTILITIES RESEARCH GROWTH WITH NEW DISCOVERY
GROWTH SERIES SERIES SERIES SERIES INCOME SERIES SERIES(1)
------------- ----------------- --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ (670,362) $ 148,076 $ (94,851) $ (146,018) $ (206,392) $ (538)
-- -- 2,439,376 173,602 103,453 9,311
11,591,679 (288,901) 11,233,906 1,064,585 84,493 69,785
------------ ---------- ----------- ------------ ------------ -------------
10,921,317 (140,825) 13,578,431 1,092,169 (18,446) 78,558
(69,081,326) (118,896) 16,005,836 (16,475,809) (27,600,583) 541,973
------------ ---------- ----------- ------------ ------------ -------------
(58,160,009) (259,721) 29,584,267 (15,383,640) (27,619,029) 620,531
58,160,009 3,664,726 34,125,303 15,383,640 27,619,029 --
------------ ---------- ----------- ------------ ------------ -------------
$ -- $3,405,005 $63,709,570 $ -- $ -- $ 620,531
============ ========== =========== ============ ============ =============
$ (611,693) $ (2,475) $ (62,855) $ (116,995) $ (265,114) $ --
385,947 -- 1,117,922 180,422 -- --
13,357,575 172,955 2,524,701 1,891,547 4,105,744 --
------------ ---------- ----------- ------------ ------------ -------------
13,131,829 170,480 3,579,768 1,954,974 3,840,630 --
8,590,108 1,367,828 15,579,157 8,858,712 10,291,072 --
------------ ---------- ----------- ------------ ------------ -------------
21,721,937 1,538,308 19,158,925 10,813,686 14,131,702 --
36,438,072 2,126,418 14,966,378 4,569,954 13,487,327 --
------------ ---------- ----------- ------------ ------------ -------------
$ 58,160,009 $3,664,726 $34,125,303 $ 15,383,640 $ 27,619,029 $ --
============ ========== =========== ============ ============ =============
</TABLE>
F-I- 19
<PAGE> 81
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER
UNIVERSAL FUNDS, INC.
-------------------------------------------
ASIAN EMERGING GLOBAL
EQUITY MARKETS EQUITY EQUITY
1999 ---------- -------------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
NET INVESTMENT INCOME (LOSS)........................... $ (11,001) $ (62,410) $ 4,136
Net realized gain distributions...................... -- -- 505,014
Net change in unrealized appreciation
(depreciation).................................... 2,511,132 3,708,710 (212,881)
---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................... 2,500,131 3,646,300 296,269
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS......................................... 4,074,765 3,500,834 2,485,522
---------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS................ 6,574,896 7,147,134 2,781,791
NET ASSETS AT JANUARY 1, 1999.......................... 1,270,000 2,607,086 8,337,792
---------- ----------- -----------
NET ASSETS AT DECEMBER 31, 1999........................ $7,844,896 $ 9,754,220 $11,119,583
========== =========== ===========
1998
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
NET INVESTMENT INCOME (LOSS)........................... $ (1,572) $ (25,446) $ (23,674)
Net realized gain distributions...................... -- -- 46,830
Net change in unrealized appreciation
(depreciation).................................... (41,512) (979,576) 530,951
---------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations........................................ (43,084) (1,005,022) 554,107
Net increase (decrease) from policyowner
transactions...................................... 281,663 571,924 4,864,755
---------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS................ 238,579 (433,098) 5,418,862
NET ASSETS AT JANUARY 1, 1998.......................... 1,031,421 3,040,184 2,918,930
---------- ----------- -----------
NET ASSETS AT DECEMBER 31, 1998........................ $1,270,000 $ 2,607,086 $ 8,337,792
========== =========== ===========
</TABLE>
- ---------------
(1) Commenced business 10/29/99
(2) Commenced business 10/29/99
(3) Commenced business 10/29/99
(4) Commenced business 10/29/99
(5) Commenced business 10/29/99
The accompanying notes are an integral part of these financial statements.
F-I- 20
<PAGE> 82
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER CALVERT VARIABLE SERIES, INC.,
UNIVERSAL FUNDS, INC. AMERITAS PORTFOLIOS
-------------------------- ----------------------------------------------------------------------
INTERNATIONAL U.S. REAL EMERGING GROWTH WITH INCOME AND INDEX
MAGNUM ESTATE GROWTH(1) GROWTH(2) INCOME(3) GROWTH (4) 500(5)
------------- ---------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (24,729) $ 131,936 $ (193,732) $ (327,392) $ (51,885) $ (139,267) $ (121,628)
29,598 -- -- -- -- 1,976,392 --
1,502,573 (264,366) 32,895,392 22,245,971 1,360,347 13,746,810 12,919,335
---------- ---------- ------------ ------------ ----------- ----------- ------------
1,507,442 (132,430) 32,701,660 21,918,579 1,308,462 15,583,935 12,797,707
964,233 26,253 71,609,854 144,025,334 29,539,420 53,092,402 164,450,138
---------- ---------- ------------ ------------ ----------- ----------- ------------
2,471,675 (106,177) 104,311,514 165,943,913 30,847,882 68,676,337 177,247,845
5,621,976 2,987,497 -- -- -- -- --
---------- ---------- ------------ ------------ ----------- ----------- ------------
$8,093,651 $2,881,320 $104,311,514 $165,943,913 $30,847,882 $68,676,337 $177,247,845
========== ========== ============ ============ =========== =========== ============
$ (41,392) $ 45,483 $ -- $ -- $ -- $ -- $ --
19,782 25,863 -- -- -- -- --
207,777 (526,497) -- -- -- -- --
---------- ---------- ------------ ------------ ----------- ----------- ------------
186,167 (455,151) -- -- -- -- --
2,526,436 435,348 -- -- -- -- --
---------- ---------- ------------ ------------ ----------- ----------- ------------
2,712,603 (19,803) -- -- -- -- --
2,909,373 3,007,300 -- -- -- -- --
---------- ---------- ------------ ------------ ----------- ----------- ------------
$5,621,976 $2,987,497 $ -- $ -- $ -- $ -- $ --
========== ========== ============ ============ =========== =========== ============
</TABLE>
F-I- 21
<PAGE> 83
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
CALVERT VARIABLE SERIES, INC.,
AMERITAS PORTFOLIOS
---------------------------------------------------------
MIDCAP MONEY SMALL
GROWTH(1) MARKET(2) RESEARCH(3) CAP(4)
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
1999
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)........... $ (126,008) $ 927,368 $ (46,063) $ (186,708)
Net realized gain distributions........ 1,344,414 -- 245,686 726,966
Net change in unrealized appreciation
(depreciation)...................... 9,521,581 -- 2,613,908 20,160,605
----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............. 10,739,987 927,368 2,813,531 20,700,863
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS........................... 48,878,173 165,111,439 18,765,098 74,248,125
----------- ------------ ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS................................. 59,618,160 166,038,807 21,578,629 94,948,988
NET ASSETS AT JANUARY 1, 1999............ -- -- -- --
----------- ------------ ----------- -----------
NET ASSETS AT DECEMBER 31, 1999.......... $59,618,160 $166,038,807 $21,578,629 $94,948,988
=========== ============ =========== ===========
1998
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income (loss)........... $ -- $ -- $ -- $ --
Net realized gain distributions........ -- -- -- --
Net change in unrealized appreciation
(depreciation)...................... -- -- -- --
----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............. -- -- -- --
NET INCREASE (DECREASE) FROM POLICYOWNER
TRANSACTIONS........................... -- -- -- --
----------- ------------ ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS................................. -- -- -- --
NET ASSETS AT JANUARY 1, 1998............ -- -- -- --
----------- ------------ ----------- -----------
NET ASSETS AT DECEMBER 31, 1998.......... $ -- $ -- $ -- $ --
=========== ============ =========== ===========
</TABLE>
- ---------------
(1) Commenced business 10/29/99
(2) Commenced business 10/28/99
(3) Commenced business 10/29/99
(4) Commenced business 10/29/99
The accompanying notes are an integral part of these financial statements.
F-I- 22
<PAGE> 84
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 life
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, 1999, there are thirty-four
subaccounts within the Account. Eight of the subaccounts invest only in a
corresponding Portfolio of Variable Insurance Products Fund and seven 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 (Fidelity). Two 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. (Alger Management). Three of the subaccounts invest only in a
corresponding Portfolio of MFS Variable Insurance Trust which is a diversified
open-end management investment company managed by Massachusetts Financial
Services Company (MFS Co.). Five of the subaccounts invest only in a
corresponding Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.
which is a diversified open-end management investment company managed by Morgan
Stanley Dean Witter Investment Management Inc. Nine of the subaccounts invest
only in a corresponding Portfolio of Calvert Variable Series, Inc. Ameritas
Portfolios (Ameritas Portfolio) which is a diversified open-end management
investment company managed by Ameritas Investment Corp. (see Note 3). 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 Fidelity Money Market were transferred to the
Money Market subaccount of the Ameritas Portfolio as of October 28, 1999. Also,
as of October 29, 1999 pursuant to an order of the SEC allowing for the
substitution, all policyowner funds invested in a Portfolio of Fidelity Index
500 I-Class were transferred to the Index 500 subaccount of the Ameritas
Portfolio; all policyowner funds invested in a Portfolio of Alger Management
Growth were transferred to the Growth subaccount of the Ameritas Portfolio; all
policyowner funds invested in a Portfolio of Alger Management Income and Growth
were transferred to the Income and Growth subaccount of the Ameritas Portfolio;
all policyowner funds invested in a Portfolio of Alger Management Small
Capitalization Fund were transferred to the Small Cap subaccount of the Ameritas
Portfolio; all policyowner funds invested in a Portfolio of Alger Management
MidCap Growth were transferred to the MidCap Growth subaccount of the Ameritas
Portfolio; all policyowner funds invested in a Portfolio of MFS Co. Emerging
Growth Series were transferred to the Emerging Growth subaccount of the Ameritas
Portfolio; all policyowner funds invested in a Portfolio of MFS Co. Research
Series was transferred to the Research subaccount of the Ameritas Portfolio; and
all policyowner funds invested in a Portfolio of MFS Co. Growth with Income
Series were transferred to the Growth with Income subaccount of the Ameritas
Portfolio.
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.
F-I- 23
<PAGE> 85
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND ACCOUNTING POLICIES -- (CONTINUED)
VALUATION OF INVESTMENTS
The assets of the Account are carried at the net asset value of the underlying
Portfolios of the Funds. The value of the policyowners' units corresponds to the
Account's investment in the underlying subaccounts. The availability of
investment portfolio and subaccount options may vary between products. Share
transactions and security transactions are accounted for on a trade date basis.
FEDERAL AND STATE TAXES
The operations of the Account are included in the federal income tax return of
AVLIC, which is taxed as a life insurance company under the Internal Revenue
Code. AVLIC has the right to charge the Account any federal income taxes, or
provision for federal income taxes, attributable to the operations of the
Account or to the policies funded in the Account. Currently, AVLIC does not make
a charge for income or other taxes. Charges for state and local taxes, if any,
attributable to the Account may also be made.
2. POLICYOWNER CHARGES
AVLIC charges the Account for mortality and expense risks assumed. A daily
charge is made on the average daily value of the net assets representing equity
of policyowners held in each subaccount per each product's current policy
provisions. Additional charges are made at intervals and in amounts per each
product's current policy provisions. These charges are prorated against the
balance in each investment option of the policyowner, including the Fixed
Account option which is not reflected in this separate account.
3. RELATED PARTIES
During October 1999, AVLIC established a variable insurance trust (VIT) which
contains the Ameritas Portfolios. The Ameritas Portfolios are managed by
Ameritas Investment Corp., an affiliate of AVLIC. During the year ended December
31, 1999, the Account incurred advisory fees of approximately $583,000, payable
to Ameritas Investment Corp. Other affiliates of AVLIC also provided
sub-advisory and administrative services to the Ameritas Portfolios during 1999
of approximately $119,000.
F-I- 24
<PAGE> 86
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-I- 25
<PAGE> 87
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS
4. 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, 1999........ 83,957,576.230 7,310,168.164 137,879.292 3,655,507.381 51,779.065
Shares acquired.......... 513,998,274.360 5,782,652.022 547,150.278 9,532,676.366 486,567.516
Shares disposed of....... (597,955,850.590) (6,657,449.475) (201,814.275) (9,362,890.067) (144,218.689)
------------------ -------------- ------------ --------------- ------------
Shares owned at
December 31, 1999...... -- 6,435,370.711 483,215.295 3,825,293.680 394,127.892
================== ============== ============ =============== ============
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
================== ============== ============ =============== ============
</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- 26
<PAGE> 88
<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>
4,839,967.104 173,277.599 2,859,039.227 36,742.223 8,179,278.614 111,558.654 4,432,351.864
16,830,329.809 773,649.902 14,269,816.598 309,184.466 1,888,888.200 542,380.523 4,215,915.067
(18,210,334.800) (377,153.045) (14,913,650.068) (159,019.486) (2,599,782.786) (99,057.194) (3,819,786.600)
--------------- ------------ --------------- ------------ -------------- ----------- --------------
3,459,962.113 569,774.456 2,215,205.757 186,907.203 7,468,384.028 554,881.983 4,828,480.331
=============== ============ =============== ============ ============== =========== ==============
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
=============== ============ =============== ============ ============== =========== ==============
</TABLE>
F-I- 27
<PAGE> 89
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS
4. 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, 1999.... 3,150,362.284 111,439.527 819,191.106 887,480.881 38,568.028
Shares acquired...... 4,453,448.644 711,584.571 1,130,036.538 718,596.261 147,621.500
Shares disposed of... (4,133,084.299) (197,361.001) (1,949,227.644) (518,198.690) (37,369.301)
-------------- ------------ -------------- -------------- -----------
Shares owned at
December 31,
1999............... 3,470,726.629 625,663.097 -- 1,087,878.452 148,820.227
============== ============ ============== ============== ===========
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
============== ============ ============== ============== ===========
</TABLE>
- ---------------
(1) Commenced business 06/25/98
(2) Commenced business 06/25/98
F-I- 28
<PAGE> 90
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
--------------------------------------------------------------------------------------------------
SMALL INCOME AND MIDCAP LEVERAGED
CAPITALIZATION GROWTH GROWTH GROWTH BALANCED ALLCAP
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1,622,219.084 1,934,879.114 2,977,458.762 1,499,741.532 1,376,246.463 510,356.079
6,682,166.000 5,431,223.796 2,710,944.297 3,529,957.244 2,439,496.094 1,916,333.545
(8,304,385.084) (7,366,102.910) (5,688,403.059) (5,029,698.776) (1,254,647.237) (984,368.722)
-------------- -------------- -------------- -------------- -------------- -------------
-- -- -- -- 2,561,095.320 1,442,320.902
============== ============== ============== ============== ============== =============
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
============== ============== ============== ============== ============== =============
</TABLE>
F-I- 29
<PAGE> 91
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS
4. 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
------------------------------------------------------------------
WORLD
EMERGING GOVERNMENT UTILITIES RESEARCH
GROWTH SERIES SERIES SERIES SERIES
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Shares owned at January 1, 1999... 2,708,896.576 336,831.365 1,721,761.046 807,540.107
Shares acquired................... 1,849,694.205 671,340.732 1,885,547.594 650,055.996
Shares disposed of................ (4,558,590.781) (668,690.155) (970,323.133) (1,457,596.103)
-------------- ------------ -------------- --------------
Shares owned at December 31,
1999............................ -- 339,481.942 2,636,985.507 --
============== ============ ============== ==============
Shares owned at January 1, 1998... 2,257,625.308 208,268.140 831,927.658 289,420.764
Shares acquired................... 3,643,188.582 548,489.706 2,105,774.882 909,665.190
Shares disposed of................ (3,191,917.314) (419,926.481) (1,215,941.494) (391,545.847)
-------------- ------------ -------------- --------------
Shares owned at December 31,
1998............................ 2,708,896.576 336,831.365 1,721,761.046 807,540.107
============== ============ ============== ==============
</TABLE>
- ---------------
(1) Commenced business 11/11/99
F-I- 30
<PAGE> 92
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
---------------------------- ----------------------------------------------------------------------------
GROWTH WITH NEW EMERGING
INCOME DISCOVERY ASIAN MARKETS GLOBAL INTERNATIONAL U.S. REAL
SERIES SERIES(1) EQUITY EQUITY EQUITY MAGNUM ESTATE
-------------- ----------- -------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1,373,397.787 242,829.800 366,678.867 634,535.152 500,621.227 304,846.573
1,203,076.402 74,858.008 5,118,016.988 1,047,264.383 712,303.814 965,903.308 411,093.974
(2,576,474.189) (38,926.906) (4,520,922.164) (709,158.513) (483,517.303) (883,828.127) (399,659.654)
-------------- ----------- -------------- ------------- ------------ ------------ ------------
-- 35,931.102 839,924.624 704,784.737 863,321.663 582,696.408 316,280.893
============== =========== ============== ============= ============ ============ ============
820,397.016 -- 182,876.009 322,394.901 248,631.218 280,286.412 263,567.027
1,302,607.527 -- 2,164,894.930 593,796.286 832,986.970 747,756.545 549,316.381
(749,606.756) -- (2,104,941.139) (549,512.320) (447,083.036) (527,421.730) (508,036.835)
-------------- ----------- -------------- ------------- ------------ ------------ ------------
1,373,397.787 -- 242,829.800 366,678.867 634,535.152 500,621.227 304,846.573
============== =========== ============== ============= ============ ============ ============
</TABLE>
F-I- 31
<PAGE> 93
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-2
NOTES TO FINANCIAL STATEMENTS
4. SHARES OWNED -- (CONTINUED)
THE ACCOUNT INVESTS IN SHARES OF MUTUAL FUNDS. SHARE ACTIVITY AND TOTAL SHARES
OWNED WERE AS FOLLOWS:
<TABLE>
<CAPTION>
CALVERT VARIABLE SERIES, INC., AMERITAS PORTFOLIOS
----------------------------------------------------------------------------------
EMERGING
GROWTH GROWTH GROWTH WITH INCOME AND INDEX
PORTFOLIO(1) PORTFOLIO(2) INCOME(3) GROWTH(4) 500(5)
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Shares owned at
January 1, 1999
Shares acquired.... 3,128,363.372 4,071,628.320 1,602,206.945 4,550,030.334 1,386,125.523
Shares disposed of... (373,172.846) (1,511,950.499) (145,056.149) (591,740.010) (326,664.413)
------------- -------------- ------------- ------------- -------------
Shares owned at
December 31,
1999............... 2,755,190.526 2,559,677.821 1,457,150.796 3,958,290.324 1,059,461.110
============= ============== ============= ============= =============
Shares owned at
January 1, 1998.... -- -- -- -- --
Shares acquired...... -- -- -- -- --
Shares disposed of... -- -- -- -- --
------------- -------------- ------------- ------------- -------------
Shares owned at
December 31,
1998............... -- -- -- -- --
============= ============== ============= ============= =============
</TABLE>
- -------------------------
(1) Commenced business 10/29/99
(2) Commenced business 10/29/99
(3) Commenced business 10/29/99
(4) Commenced business 10/29/99
(5) Commenced business 10/29/99
(6) Commenced business 10/29/99
(7) Commenced business 10/28/99
(8) Commenced business 10/29/99
(9) Commenced business 10/29/99
F-I- 32
<PAGE> 94
<TABLE>
<CAPTION>
CALVERT VARIABLE SERIES, INC., AMERITAS PORTFOLIOS
-----------------------------------------------------------------
MIDCAP MONEY SMALL
GROWTH(6) MARKET(7) RESEARCH(8) CAP(9)
------------- ---------------- ------------- --------------
<S> <C> <C> <C>
2,715,529.105 560,202,901.620 1,068,799.043 3,942,078.699
(822,889.099) (394,164,095.470) (130,189.700) (2,259,182.778)
------------- ---------------- ------------- --------------
1,892,640.006 166,038,806.150 938,609.343 1,682,895.921
============= ================ ============= ==============
-- -- -- --
-- -- -- --
-- -- -- --
------------- ---------------- ------------- --------------
-- -- -- --
============= ================ ============= ==============
</TABLE>
F-I- 33
<PAGE> 95
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 (a wholly owned subsidiary of AMAL Corporation) as of December
31, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Lincoln, Nebraska
February 5, 2000
F-II- 1
<PAGE> 96
AMERITAS VARIABLE LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities, available for sale (amortized
cost $129,567 -- 12/99 and $146,650 -- 12/98).......... $ 124,734 $ 150,462
Equity securities, available for sale (amortized cost
$2,031 -- 12/99 and $2,031 -- 12/98)................... 1,705 2,020
Mortgage loans on real estate............................. 1,392 --
Loans on insurance policies............................... 16,499 10,949
Other invested assets..................................... -- 10,020
---------- ----------
Total investments................................. 144,330 173,451
Cash and cash equivalents................................... 11,970 12,011
Accrued investment income................................... 2,442 2,425
Reinsurance receivable-affiliate............................ 35,921 --
Reinsurance recoverable-affiliates.......................... 153 455
Prepaid reinsurance premium-affiliates...................... 2,537 2,380
Deferred policy acquisition costs........................... 152,297 121,236
Other....................................................... 2,840 1,695
Separate Accounts........................................... 2,394,445 1,709,448
---------- ----------
$2,746,935 $2,023,101
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policy and contract reserves.............................. $ 2,185 $ 1,681
Policy and contract claims................................ 755 625
Accumulated contract values............................... 240,050 213,874
Unearned policy charges................................... 2,030 1,814
Unearned reinsurance ceded allowance...................... 3,942 3,596
Federal income taxes--
Current................................................ 2,922 2,941
Deferred............................................... 6,725 8,348
Accounts payable -- affiliates............................ 7,285 3,364
Other..................................................... 6,639 4,722
Separate Accounts......................................... 2,394,445 1,709,448
---------- ----------
Total Liabilities................................. 2,666,978 1,950,413
---------- ----------
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................................ 42,870 40,370
Retained earnings......................................... 34,032 27,434
Accumulated other comprehensive income.................... (945) 884
---------- ----------
Total Stockholder's Equity........................ 79,957 72,688
---------- ----------
$2,746,935 $2,023,101
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 2
<PAGE> 97
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
INCOME:
Insurance revenues:
Contract charges.......................................... $51,794 $42,775 $33,717
Premium-reinsurance ceded................................. (8,683) (7,836) (6,840)
Reinsurance ceded allowance............................... 3,594 3,169 2,752
Investment revenues:
Investment income, net.................................... 13,970 14,052 8,277
Realized gains (losses), net.............................. (1,786) 79 368
Other....................................................... 3,016 2,269 980
------- ------- -------
61,905 54,508 39,254
------- ------- -------
BENEFITS AND EXPENSES:
Policy benefits:
Death benefits............................................ 2,805 2,200 1,356
Interest credited......................................... 12,512 13,400 7,258
Increase in policy and contract reserves.................. 504 740 192
Other..................................................... 190 222 92
Sales and operating expenses................................ 22,277 15,980 11,641
Amortization of deferred policy acquisition costs........... 12,760 11,847 9,584
------- ------- -------
51,048 44,389 30,123
------- ------- -------
INCOME BEFORE FEDERAL INCOME TAXES.......................... 10,857 10,119 9,131
------- ------- -------
Income taxes -- current..................................... 4,898 4,000 4,305
Income taxes -- deferred.................................... (639) (1,135) (844)
------- ------- -------
Total income taxes................................... 4,259 2,865 3,461
------- ------- -------
NET INCOME.................................................. $ 6,598 $ 7,254 $ 5,670
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 3
<PAGE> 98
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income.................................................. $6,598 $7,254 $5,670
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period
(net of deferred tax of ($1,610), $185 and $378 for
1999, 1998 and 1997 respectively)..................... (2,990) 343 702
Reclassification adjustment for (gains) losses included
in net income (net of deferred tax of $625, ($28) and
($129) for 1999, 1998 and 1997 respectively).......... 1,161 (51) (239)
------ ------ ------
Other comprehensive income (loss)......................... (1,829) 292 463
------ ------ ------
Comprehensive income........................................ $4,769 $7,546 $6,133
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 4
<PAGE> 99
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(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, 1997................. 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
Net unrealized investment loss, net.... -- -- -- -- (1,829) (1,829)
Capital contribution................... -- -- 2,500 -- -- 2,500
Net income............................. -- -- -- 6,598 -- 6,598
------ ------ ------- ------- ------- -------
BALANCE, December 31, 1999............... 40,000 $4,000 $42,870 $34,032 $ (945) $79,957
====== ====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 5
<PAGE> 100
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................. $ 6,598 $ 7,254 $ 5,670
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs......... 12,760 11,847 9,584
Policy acquisition costs deferred......................... (39,491) (34,820) (30,642)
Interest credited to contract values...................... 12,512 13,400 7,258
Amortization of discounts or premiums..................... 67 (28) (40)
Net gains on other invested assets........................ (2,830) (3,732) (631)
Net realized (gains) losses on investment transactions.... 1,786 (79) (368)
Deferred income taxes..................................... (639) (1,135) (844)
Change in assets and liabilities:
Accrued investment income.............................. (17) (624) (705)
Reinsurance recoverable-affiliates..................... 302 59 (505)
Prepaid reinsurance premium-affiliates................. (157) (82) (142)
Other assets........................................... (1,145) (1,496) 284
Policy and contract reserves........................... 504 740 192
Policy and contract claims............................. 130 (300) 819
Unearned policy charges................................ 216 316 255
Federal income tax payable-current..................... (19) 1,475 591
Unearned reinsurance ceded allowance................... 346 328 129
Other liabilities...................................... 5,838 (2,114) 2,172
-------- -------- --------
Net cash from operating activities........................ (3,239) (8,991) (6,923)
-------- -------- --------
INVESTING ACTIVITIES
Purchase of fixed maturity securities available for sale.... (48,474) (70,904) (92,291)
Purchase of equity securities available for sale............ -- -- (4,311)
Purchase of mortgage loans on real estate................... (1,400) --
Purchase of other invested assets........................... (1,252) (7,760) (1,611)
Proceeds from maturities or repayment of fixed maturity
securities available for sale............................. 11,242 15,289 25,168
Proceeds from sales of fixed maturity securities available
for sale.................................................. 7,762 22,282 16,419
Proceeds from the sale of equity securities available for
sale...................................................... -- 1,979 252
Proceeds from the sale of other invested assets............. 1,162 3,678 35
Net change in loans on insurance policies................... (5,550) (3,467) (3,173)
-------- -------- --------
Net cash from investing activities........................ (36,510) (38,903) (59,512)
-------- -------- --------
FINANCING ACTIVITIES
Capital contribution........................................ 2,500 -- --
Net change in accumulated contract values................... 37,208 46,194 69,462
-------- -------- --------
Net cash from financing activities........................ 39,708 46,194 69,462
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (41) (1,700) 3,027
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 12,011 13,711 10,684
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 11,970 $ 12,011 $ 13,711
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes.................................. $ 4,917 $ 2,525 $ 3,714
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-II- 6
<PAGE> 101
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(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, is 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 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 an
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, 1999, 1998 and 1997.
CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with remaining
maturity of less than three months to be cash equivalents.
F-II- 7
<PAGE> 102
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
SEPARATE ACCOUNTS
The Company operates separate accounts on which the earnings or losses accrue
exclusively to contractholders. The assets (mutual fund investments) and
liabilities of each account are clearly identifiable and distinguishable from
other assets and liabilities of the Company. Assets are reported at fair value.
PREMIUM REVENUE AND BENEFITS TO 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> 103
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (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
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Beginning balance........................................... $121,236 $ 98,746 $79,272
Acquisition costs deferred.................................. 39,491 34,820 30,642
Amortization of deferred policy acquisition costs........... (12,760) (11,847) (9,584)
Adjustment for unrealized investment (gain)/loss............ 6,145 (483) (1,584)
Balance released under co-insurance agreement (note 4)...... (1,815) -- --
-------- -------- -------
Ending balance.............................................. $152,297 $121,236 $98,746
======== ======== =======
</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, 2000, 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 reclassified to
conform to current year presentation.
F-II- 9
<PAGE> 104
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
(IN THOUSANDS)
2. INVESTMENTS
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Fixed maturity securities available for sale................ $ 9,644 $ 9,099 $6,622
Equity Securities available for sale........................ 159 179 156
Mortgage loans on real estate............................... 34 -- --
Loans on insurance policies................................. 845 590 370
Cash equivalents............................................ 681 659 642
Other invested assets....................................... 2,830 3,732 631
------- ------- ------
Gross investment income................................... 14,193 14,259 8,421
Investment expenses......................................... 223 207 144
------- ------- ------
Net investment income..................................... $13,970 $14,052 $8,277
======= ======= ======
</TABLE>
Net pretax realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1999 1998 1997
------- ---- ----
<S> <C> <C> <C>
Net gains (losses) on disposals of fixed maturity securities
available for sale (note 4)............................... $(1,786) $131 $365
Net gains (losses) on disposal of equity securities
available for sale........................................ -- (52) $ 3
------- ---- ----
Net gains (losses) on disposal of securities available for
sale...................................................... $(1,786) $ 79 $368
======= ==== ====
</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, 1999
----------------------------------
PROCEEDS GAINS LOSSES
-------- ----- ------
<S> <C> <C> <C>
Fixed maturity securities available for sale................ $7,762 $6 $80
====== == ===
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------
PROCEEDS GAINS LOSSES
-------- ----- ------
<S> <C> <C> <C>
Fixed maturity securities available for sale................ $22,282 $242 $301
Equity securities available for sale........................ 1,979 -- 52
------- ---- ----
Total securities available for sale....................... $24,261 $242 $353
======= ==== ====
</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>
F-II- 10
<PAGE> 105
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (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, 1999
-------------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
--------- ----- ------ --------
<S> <C> <C> <C> <C>
U.S. Corporate.................................... $ 85,653 $35 $3,388 $ 82,300
Mortgage-backed................................... 34,929 12 1,422 33,519
U.S. Treasury securities and obligations of U.S.
government agencies............................. 8,985 40 110 8,915
-------- --- ------ --------
Total fixed maturity securities available for
sale......................................... 129,567 87 4,920 124,734
-------- --- ------ --------
Equity securities available for sale.............. 2,031 -- 326 1,705
-------- --- ------ --------
Total securities available for sale............. $131,598 $87 $5,246 $126,439
======== === ====== ========
</TABLE>
<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>
The amortized cost and fair value of fixed maturity securities available for
sale by contractual maturity at December 31, 1999 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..................................... $ 3,448 $ 3,453
Due after one year through five years....................... 43,868 42,513
Due after five years through ten years...................... 32,139 31,066
Due after ten years......................................... 15,183 14,183
Mortgage-backed securities.................................. 34,929 33,519
-------- --------
Total..................................................... $129,567 $124,734
======== ========
</TABLE>
The Company purchased exchange and privately traded options to support certain
equity index annuity policyowner liabilities. These derivatives, reflected as
other invested assets, were used to manage fluctuations in the equity market
risk granted to the policyowners of the equity index annuities. These
derivatives involved, to varying degrees, elements of credit risk and market
risk. The options value on the balance sheet reflected the risk of potential
loss to the entity. At December 31, 1998 the Company held options with terms
ranging from 1 to 7 years with a notional amount of $18,655, a cost of $7,096
and a fair value of $10,020. Due to the transfer of these assets as part of the
co-insurance agreement outlined in note 4, there were no options outstanding at
December 31, 1999.
F-II- 11
<PAGE> 106
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
(IN THOUSANDS)
3. INCOME TAXES
The items that give rise to deferred tax assets and liabilities relate to the
following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-----------------
1999 1998
---- ----
<S> <C> <C>
Net unrealized investment gains on securities available for
sale...................................................... $ -- $ 1,365
Deferred policy acquisition costs........................... 45,802 36,031
Prepaid expenses............................................ 888 833
------- -------
Gross deferred tax liability................................ 46,690 38,229
------- -------
Future policy and contract benefits......................... 35,650 27,810
Net unrealized investment losses............................ 1,768 --
Capital loss carryforward................................... 515 --
Deferred future revenues.................................... 2,090 1,894
Other....................................................... 457 177
------- -------
Gross deferred tax asset.................................... 40,480 29,881
Less valuation allowance.................................... 515 --
------- -------
Total deferred tax asset after valuation allowance.......... 39,965 29,881
------- -------
Net deferred tax liability................................ $ 6,725 $ 8,348
======= =======
</TABLE>
The difference between the U.S. federal income tax rate and the tax provision
rate is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.................................. 35.0% 35.0% 35.0%
Other....................................................... 4.2 (6.7) 2.9
---- ---- ----
Effective tax rate........................................ 39.2% 28.3% 37.9%
==== ==== ====
</TABLE>
The Company has approximately $1.5 million of capital loss carryforward
available as of December 31, 1999. At December 31, 1999 the Company provided for
a valuation allowance against the deferred tax asset related to the capital loss
carryforward.
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. The IRS is
currently examining the Company's return for the tax period ending March 31,
1996. Management believes adequate provisions have been made for any additional
taxes which may become due with respect to the adjustments proposed by the IRS.
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, 1999, 1998
and 1997 was $12,265, $11,737 and $12,082, 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
$4,419, $4,104 and $3,810 of reinsurance premiums, net of ceded allowances, to
affiliates for the years
F-II- 12
<PAGE> 107
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
(IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS -- (CONTINUED)
ended December 31, 1999, 1998 and 1997, respectively. The Company has received
reinsurance recoveries from affiliates of $7,268, $3,310 and $2,260 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Effective June 30, 1999 the Company agreed to 100% co-insure its equity index
annuity business to AmerUs in a non-cash transaction. Under the terms of the
agreement investments with a fair value of $57,648 and amortized cost of $59,390
were transferred to AmerUs. In return AmerUs co-insured the full liability for
this business resulting in a $59,561 reinsurance receivable from affiliate being
recorded. The Company also released the $1,815 of deferred policy acquisition
costs which it was carrying on this block. In December 1999, AmerUs through
assumption reinsurance assumed approximately 40% of this block, reducing the
reinsurance receivable -- affiliate to $35,921. This amount is secured by a
letter of credit.
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. (AIC), a wholly-owned subsidiary of AMAL Corporation.
The Company received $93 for the year ended December 31, 1997 from this
affiliate to partially defray the costs of materials and prospectuses. The
Company received no recovery to defray these cost for the years ended December
31, 1999 and 1998. Policies placed by this affiliate generated commission
expense of $35,736, $28,621 and $23,232 for the years ended December 31, 1999,
1998 and 1997, 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, 1999, 1998 and 1997 were $159,
$163 and $29, respectively.
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, 1999, 1998 and 1997 were $47, $47 and $24,
respectively.
The Company is also included in the postretirement benefit plan providing group
medical coverage to retired employees of AMAL Corporation and it's subsidiaries.
Prior to August 1, 1997 these benefits were provided under a plan with Ameritas
Life Insurance Corp. These benefits are a specified percentage of premium until
age 65 and a flat dollar amount thereafter. Employees become eligible for these
benefits upon the attainment of age 55, 15 years of service and participation in
the plan for the immediately
F-II- 13
<PAGE> 108
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
(IN THOUSANDS)
5. BENEFIT PLANS -- (CONTINUED)
preceding 5 years. Benefit costs include the expected cost of postretirement
benefits for newly eligible employees, interest cost, and gains and losses
arising from differences between actuarial assumptions and actual experience.
Total Company contributions for the years ended December 31, 1999, 1998 and 1997
were $12, $12 and $5, respectively.
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 ($4,513), $319, and $2,048 for 1999, 1998 and 1997, respectively.
The Company's statutory surplus was $41,637, $44,589 and $45,265 at December 31,
1999, 1998 and 1997, respectively. 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.
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, 1999 and 1998. 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.
MORTGAGE LOANS ON REAL ESTATE -- Mortgage loans in good standing are
valued on the basis of discounted cash flow. The interest rate that is
assumed is based upon the weighted average term of the mortgage and
appropriate spread over Treasuries. There were no mortgage loans in default
at December 31, 1999.
F-II- 14
<PAGE> 109
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
(IN THOUSANDS)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
LOANS ON INSURANCE POLICIES -- Fair values for loans on insurance
policies are estimated using a discounted cash flow analysis at interest
rates currently offered for similar loans with similar remaining terms.
Loans on insurance policies with similar characteristics are aggregated for
purposes of the calculations.
OTHER INVESTED ASSETS -- Fair value is determined using an independent
pricing source.
CASH AND CASH EQUIVALENTS, ACCRUED INVESTMENT INCOME AND REINSURANCE
RECOVERABLE -- The carrying amounts equal fair value.
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
--------------------------------------------
1999 1998
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturity securities, available for sale..... $124,734 $124,734 $150,462 $150,462
Equity securities, available for sale............. 1,705 1,705 2,020 2,020
Mortgage loans on real estate..................... 1,392 1,369 -- --
Loans on insurance policies....................... 16,499 14,557 10,949 10,286
Other invested assets............................. -- -- 10,020 10,020
Cash and cash equivalents......................... 11,970 11,970 12,011 12,011
Accrued investment income......................... 2,442 2,442 2,425 2,425
Reinsurance receivable -- affiliate............... 35,921 35,921 -- --
Reinsurance recoverable -- affiliates............. 153 153 455 455
Financial liabilities:
Accumulated contract values excluding amounts held
under insurance contracts...................... 184,376 184,376 199,585 199,585
</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
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Separate Account V.......................................... $ 402,722 $ 282,653
Separate Account VA-2....................................... 1,991,723 1,426,795
---------- ----------
$2,394,445 $1,709,448
========== ==========
</TABLE>
F-II- 15
<PAGE> 110
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
(IN THOUSANDS)
8. SEPARATE ACCOUNTS -- (CONTINUED)
During 1999 the Company formed a variable insurance trust (VIT). AIC serves as
the investment advisor and another affiliate provides administrative services to
the VIT. AIC received advisory fees of $702 for the year ended December 31,
1999. At December 31, 1999 separate account assets under the VIT totaled
$1,066,249.
F-II- 16
