COMPANY LOGO
AMERITAS VARIABLE LIFE INSURANCE COMPANY
PROSPECTUS
One Ameritas Way/5900 "O" Street
VARIABLE UNIVERSAL LIFE POLICY P.O. Box 82550/Lincoln, Nebraska 68501
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This Prospectus describes a flexible premium variable life insurance policy
("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC"), a
stock life insurance company. The Policy is designed to operate generally as a
single premium policy but provides the flexibility to make additional premium
payments. The Policy also provides the flexibility to change the level of death
benefits payable under the Policy. This flexibility allows a Policyowner to
provide for changing insurance needs under a single insurance policy.
The minimum required premium is $10,000, except for Insureds who have an age
nearest birthday of 0 to 15, for which the minimum premium is $5,000. The Policy
is available only to persons who have an age nearest birthday of 80 or less at
the time the Policy is purchased.
The Policy guarantees a death benefit payable at the Insured's death for as long
as the Policy remains in force. The Policyowner may choose either death benefit
Option A (generally, a level benefit that equals the Specified Amount of the
Policy) or Option B (a variable benefit that generally equals the Specified
Amount plus the Policy's cash value). The minimum Specified Amount for a Policy
is the amount that a premium of $10,000 ($5,000 for ages 0-15) will purchase.
The Policy provides for a cash surrender value that can be obtained by partial
withdrawals, completely surrendering the Policy, or by policy loans. There is no
minimum guaranteed cash value. However, the Policy could be a modified endowment
contract. Policy loans, partial withdrawals or a surrender prior to age 59 1/2
may result in adverse tax consequences and or penalties.
The Policyowner may allocate net premiums to one or more of the Subaccounts of
Ameritas Variable Life Insurance Company Separate Account V ("Account"). The
initial premium payment will be allocated to the Money Market Subaccount, as of
the issue date, for 13 days. After the expiration of the 13 day period (see page
21) the accumulation value will be allocated to the Subaccounts or the Fixed
Account as selected by the Policyowner. The amount of the Policy's cash value,
the duration of the death benefit and, if Option B is selected, the amount of
the death benefit above the Specified Amount, will vary with the investment
experience of the selected Subaccounts or the Fixed Account. In addition, the
cash value will also be adjusted for other factors, including the amount of
charges imposed and the premium payments made. The Policy will continue in force
so long as the cash surrender value is sufficient to pay certain monthly charges
imposed in connection with the Policy.
The assets of each Subaccount are invested in shares of a corresponding
portfolio of the Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Alger American Fund, and/or MFS Variable Insurance Trust
(collectively, the "Funds"). The Variable Insurance Products Fund is a mutual
fund with five portfolios: the Money Market, High Income, Equity-Income, Growth
and Overseas Portfolios. The Variable Insurance Products Fund II is a mutual
fund with five portfolios: the Asset Manager, Investment Grade Bond, Index 500,
Contrafund, and Asset Manager: Growth Portfolios. The Alger American Fund is a
mutual fund with six portfolios: the Alger American Income and Growth, Alger
American Balanced, Alger American Small Capitalization, Alger American MidCap
Growth, Alger American Leveraged AllCap and Alger American Growth Portfolios.
MFS Variable Insurance Trust, is a Massachusetts business trust. The Trust has
twelve separate portfolios or series, of which, MFS Emerging Growth Series, MFS
Utilities Series, and MFS World Governments Series are offered. The accompanying
prospectuses for the Funds describe the investment objectives and policies and
the risks of the portfolios of the Funds.
You have the right to examine the Policy and return it for a refund for a
limited time.
Replacing existing insurance with a Policy or purchasing a Policy as a means to
obtain additional insurance protection if the purchaser already owns another
flexible premium variable life insurance policy may not be advantageous.
This Prospectus Must Be Accompanied Or Preceded By The Current Prospectuses for
Variable Insurance Products Fund, Variable Insurance Products Fund II, Alger
American Fund, and MFS Variable Insurance Trust.
These securities are not deposits with, or obligations of, or guaranteed or
endorsed by, any financial institution; and the securities are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency. These securities involve investment risk, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY STATE SECURITIES REGULATORY AUTHORITIES, NOR HAS THE
COMMISSION OR STATE REGULATORY AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date of This Prospectus is May 1, 1996.
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TABLE OF CONTENTS
Page
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Definitions.............................................................. 3
Ameritas Variable Life Insurance Company and the Account................. 8
Ameritas Variable Life Insurance Company......................... 8
Ameritas Variable Life Insurance Company Separate Account V...... 8
The Funds........................................................ 9
Investment Objectives and Policies of the Funds' Portfolios...... 9
Fixed Account.................................................... 13
Addition, Deletion or Substitution of Investments................ 14
Policy Benefits.......................................................... 14
Purposes of the Policy........................................... 14
Death Benefit Proceeds........................................... 15
Death Benefit Options............................................ 15
Cash Value....................................................... 16
Benefits at Maturity............................................. 16
Payment of Policy Benefits....................................... 17
Policy Rights............................................................ 17
Loan Benefits.................................................... 17
Surrenders....................................................... 18
Transfers........................................................ 18
Systematic Programs.............................................. 19
Refund Privilege................................................. 19
Exchange Privilege............................................... 19
Payment and Allocation of Premiums....................................... 20
Issuance of a Policy............................................. 20
Premiums......................................................... 20
Allocation of Premiums and Cash Value............................ 21
Policy Lapse and Reinstatement................................... 21
Charges and Deductions................................................... 22
Premium Charge................................................... 22
Monthly Deduction................................................ 22
Daily Charges Against the Account................................ 23
Fund Investment Advisory Fee and Expenses........................ 23
Cash Surrender Charge............................................ 23
Transfer Charge.................................................. 24
Partial Withdrawal Charge........................................ 24
General Provisions....................................................... 24
Distribution of the Policies............................................. 26
Federal Tax Matters...................................................... 26
Safekeeping of the Account's Assets...................................... 28
Voting Rights............................................................ 28
State Regulation of AVLIC................................................ 29
Executive Officers and Directors of AVLIC................................ 29
Legal Matters............................................................ 31
Legal Proceedings........................................................ 31
Experts.................................................................. 31
Additional Information................................................... 31
Financial Statements..................................................... 31
Ameritas Variable Life Insurance Company Account V............... 32
Ameritas Variable Life Insurance Company......................... 39
Appendices............................................................... 51
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The Policy, certain funds and/or certain riders are not available in all
states.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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DEFINITIONS
ACCOUNT - Ameritas Variable Life Insurance Company Separate Account V, a
separate investment account established by AVLIC to receive and invest the net
premiums paid under the Policy and allocated by the Policyowner to the Account.
ACCRUED EXPENSE CHARGES - The sum of any monthly deductions that are due and
unpaid.
ATTAINED AGE - The Issue Age of the Insured plus the number of complete policy
years that the Policy has been in force.
AVLIC - Ameritas Variable Life Insurance Company, a Nebraska stock company.
BENEFICIARY - The beneficiary is designated by the Policyowner in the
application. If changed, the beneficiary is as shown in the latest change filed
and recorded with AVLIC. If no beneficiary survives the Insured, the Policyowner
or the Policyowner's estate will be the beneficiary. The interest of any
beneficiary is subject to that of any assignee.
CASH VALUE - The total amount that a Policy provides for investment at any time.
It is equal to the total of the cash value held in the Account and the cash
value held in the general account which secures policy loans.
CASH SURRENDER VALUE - The Policy cash value on the date of surrender, less any
outstanding policy debt, any cash surrender charge, and any accrued expense
charges.
DEATH BENEFIT - The amount of insurance coverage provided under the Policy.
DEATH BENEFIT PROCEEDS - The proceeds payable to the beneficiary upon receipt by
AVLIC of the proof of the death of the Insured while the Policy is in force
equal to: (l) the death benefit; minus (2) any outstanding policy debt; minus
(3) any monthly deduction that may apply to that period, including the deduction
for the month of death.
DECLARED RATES - AVLIC guarantees that it will credit interest in the Fixed
Account at an effective annual rate of at least 4.5%. AVLIC may, at its sole
discretion, declare higher interest rates for amounts allocated or transferred
to the Fixed Account.
DUE PROOF OF DEATH - All of the following must be submitted:
(1) A certified copy of the death certificate;
(2) A Claimant Statement;
(3) The Policy; and
(4) Any other information that AVLIC may reasonably require to establish the
validity of the contract.
EARNINGS LOAN VALUE - The amount of cash value equaling the difference between
the cash value and the total premium paid.
FIXED ACCOUNT - An account that is a part of AVLIC's general account to which
all or a portion of premium payments may be allocated for accumulation at fixed
rates of interest.
FUNDS - The Funds available on the policy date or as later changed by AVLIC. The
Funds available as of the date of this Prospectus are the Variable Insurance
Products Fund ("Fidelity Fund"), Variable Insurance Products Fund II ("Fidelity
Fund II") ("collectively the "Fidelity Funds"), the Alger American Fund ("Alger
American Fund"), and/or the MFS Variable Insurance Trust ("MFS Fund"). The Funds
have one or more portfolios each. There is a portfolio that corresponds to each
of the Subaccounts of the Account.
GUIDELINE SINGLE PREMUIM - The "Guideline Single Premium" as defined in Section
7702 of the Internal Revenue Code of 1986. It is based on the single premium
that would be required to provide the future benefits under the Policy, computed
using certain assumptions, including an assumed interest rate of 6% and standard
guaranteed cost of insurance rates and charges and the premium loads.
INSURED - The person upon whose life the Policy is issued.
ISSUE AGE - The age at the Insured's nearest birthday on the policy date.
ISSUE DATE - The date that all financial, contractual and administrative
requirements have been met and processed for the Policy.
MATURITY DATE - The policy anniversary nearest the Insured's 95th birthday, if
living, unless the maturity has been extended by election of the Extended
Maturity Rider.
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MINIMUM FIRST YEAR PREMIUM - The premium that must be paid on or before the date
the Policy is delivered to pay for insurance coverage under the selected death
benefit option.
MONTHLY ACTIVITY DATE - The same date in each succeeding month as the policy
date except that whenever the monthly activity date falls on a date other than a
valuation date, the monthly activity date will be deemed the next valuation
date.
NET PREMIUM - The premium paid less any charge for premium taxes.
OUTSTANDING POLICY DEBT - The sum of all unpaid policy loans and accrued
interest on policy loans.
PLANNED PERIODIC PREMIUMS - A selected scheduled premium of a level amount at a
fixed interval. The Policyowner is not required to select a scheduled premium.
The Policyowner is also not required to follow this schedule, if selected, and
following this schedule does not necessarily ensure that the Policy will remain
in force.
POLICY - The flexible premium variable life insurance Policy offered by AVLIC
and described in this Prospectus.
POLICYOWNER - The owner of the Policy, as designated in the application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee is
the Policyowner. A collateral assignee is not the Policyowner.
POLICY DATE - The date set forth in the Policy that is the effective date of
coverage for all coverage provided in the original application and that is used
to determine policy anniversary dates, policy years and monthly activity dates.
Policy anniversaries are measured from the policy date. The policy date and the
issue date will be the same unless: 1) an earlier policy date is specifically
requested, or 2) when additional premiums or application amendments are needed
at the time of delivery (See Issuance of a Policy, page 20).
POLICY YEAR - The period from one policy anniversary date until the next policy
anniversary date.
SPECIFIED AMOUNT - The minimum death benefit under the Policy so long as the
Policy remains in force.
SUBACCOUNT - A subdivision of the Account. Each Subaccount invests exclusively
in the shares of a specified portfolio of the Funds.
VALUATION DATE - A valuation date is each day on which the New York Stock
Exchange is open for trading.
VALUATION PERIOD - The period between two successive valuation dates, commencing
at the close of the New York Stock Exchange ("NYSE") on one valuation date and
ending at the close of the NYSE on the next succeeding valuation date.
SUMMARY
The following summary of Prospectus information should be read in conjunction
with the detailed information appearing elsewhere in this Prospectus. Unless
otherwise indicated, the description of the Policy contained in this Prospectus
assumes that the Policy is in effect and that there is no outstanding
indebtedness.
THE POLICY
This flexible premium variable life insurance policy ("Policy") allows the
Policyowner, within certain limitations, to choose: (a) the amount and frequency
of premium payments; (b) the manner in which the Policyowner's accumulation
values are invested; and (c) a choice of two benefit options.
So long as the Policy remains in force, it will provide for: (1) life insurance
coverage on the named Insured up to age 95; (2) cash value; (3) surrender rights
(including partial withdrawals and total surrenders) and policy loan privileges;
and (4) accelerated death benefits under certain circumstances in the instance
of terminal illness (See Accelerated Benefit Rider for Terminal Illness, page
25).
PREMIUMS
This Policy differs in two important respects from a conventional life insurance
policy. The failure to pay a planned periodic premium will not in itself cause
the policy to lapse and a policy can lapse even if planned periodic premiums
have been paid. (See Payment and Allocation of Premiums, page 20). The Policy
will lapse when its cash surrender value is insufficient to pay the monthly
deduction for insurance charges and administrative charges and the grace period
expires. The Policy is designed so that it may be used as a single premium
policy, whereby a single, large premium payment may be made. The Policy will not
be placed in force if the minimum first year
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premium has not been paid on or before the date the Policy is delivered. The
minimum first year premium for the Policy is no less than $10,000, except for
Insureds who have an age nearest birthday of 0 to 15 for whom the minimum first
year premium is no less than $5,000. The minimum first year premium generally
approximates 80% of the Guideline Single Premium for the coverage amount
selected as defined for federal tax purposes. If the initial premium is less
than 100% of the Guideline Single Premium, the Policyowner may establish a
schedule of premium payments ("planned periodic premiums"), subject to the
limitations set by federal tax law on total premiums paid. (See Premiums,
page 20).
The Policyowner may select the manner in which new premiums are allocated
between one or more of the Subaccounts or the Fixed Account. (See Fixed Account,
page 13). The assets of each Subaccount are invested in a corresponding
portfolio of the Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Alger American Fund, or the MFS Variable Insurance Trust,
which are mutual fund companies with separate investment portfolios, each
intended to pursue different investment objectives. (See The Funds, page 9).
ALLOCATION OF PREMIUMS
On the issue date of the Policy, premiums paid are allocated to the Money Market
Subaccount. Premium payments received by AVLIC prior to the issue date are held
in the general account until the issue date. Should the policyowner elect a
policy date prior to the issue date the amounts held in the general account will
be credited with interest at a rate determined by AVLIC for the period from the
later of, the policy date or the date the payment has been converted into
Federal Funds (monies of member banks within the Federal Reserve System which
are held on deposit at a Federal Reserve Bank) that are available to AVLIC until
the amounts are transferred to the Money Market Subaccount. As of thirteen days
from the issue date of the Policy, the Policy's cash value will be reallocated
to the Subaccounts or the Fixed Account as selected by the Policyowner.
Thereafter, net premiums are allocated to the Subaccounts or the Fixed Account
according to the latest Policyowner instructions. After the first policy year,
all premiums are subject to a premium charge (see below) and then, the net
premium is allocated. The Policyowner may change the allocation instructions for
future premium payments at any time. The Policyowner may also make a special
designation for unscheduled premiums. Subject to certain restrictions, a
Policyowner may transfer amounts among the Subaccounts. (See Allocation of
Premiums and Cash Value, page 21).
CHARGES
PREMIUM CHARGES. No premium charges will be deducted from premium payments made
during the first year. However, a charge of 2 1/2% of the premiums will be
deducted from premium payments made after the first year to reimburse AVLIC for
premium taxes.
MONTHLY DEDUCTIONS FROM THE CASH VALUE. On each monthly activity date, the cash
value will be reduced by the monthly deduction. The monthly deduction is equal
to: (a) a charge for the cost of insurance for the current policy month, plus,
(b) one-twelfth of any flat extra rating charge (See Monthly Deduction, page 22
and Rate Class, page 22).
DAILY CHARGES AGAINST THE ACCOUNT. A Daily Charge will be imposed at an annual
rate of 1.20% of the average daily net assets of each Subaccount, but not the
Fixed Account, to compensate AVLIC for certain mortality and expense risks and
administrative costs incurred in connection with the Policy. (See Daily Charges
Against the Account, page 23).
No charges are currently made against the Account for federal, state or local
taxes (in addition to state premium taxes). If there is a material change from
the expected treatment of AVLIC under federal, state or local tax laws, AVLIC
may determine to make deductions from the Account to pay those taxes. (See
Federal Tax Matters, page 26).
In addition, because the Account purchases shares of the Funds, the value of the
units in each Subaccount will reflect the net asset value of shares of the
various Funds held therein, and therefore, the management fee and other expenses
incurred by the Funds. (See The Funds, page 9).
CASH SURRENDER CHARGE. If a Policy is surrendered prior to the 7th policy
anniversary, AVLIC will assess a cash surrender charge based upon percentages of
premiums actually paid during the first policy year, limited as shown in the
policy schedule pages. Subject to other considerations, the Policyowner may
decide to minimize the cash surrender charge by paying only the minimum amount
required during the first policy year. However, the amount paid will affect the
values and costs under the Policy and the duration of the Policy.
AVLIC has voluntarily lowered its maximum surrender charge to 9%. This would
affect the surrender charge for the first 3 years. The Policy provides that
should the Policyowner surrender during the first seven policy years
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AVLIC may assess a cash surrender charge beginning with 11.5% during the first
year grading off to 0% during the next seven years. The maximum charge allowed
by the Policy is based on a 9% deferred sales cost and a 2.5% charge for premium
tax. Because the cash surrender charge may be significant upon early surrender,
prospective Policyowners should purchase a Policy only if they do not intend to
surrender the Policy for a substantial period.(See Cash Surrender Charge, page
23).
TRANSFER CHARGE. The first 15 transfers per policy year will be allowed free of
charge. Thereafter a transfer charge of $10 may be assessed for each transfer of
cash value among Subaccounts, or the Fixed Account, to compensate AVLIC for
administrative costs in handling the transfer. The transfer charge will be
deducted from the amount transferred. Transfers may be made 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 yearly anniversary date of the Policy. (See Transfer Charge, page
24).
PARTIAL WITHDRAWAL CHARGE. A maximum charge, not to exceed the lesser of $50 or
2% of the amount withdrawn may be deducted for each partial withdrawal.
Currently the charge is the lesser of $25 or 2% of the amount withdrawn. The
charge will be deducted from the amount paid as a result of the withdrawal and
will compensate AVLIC for the administrative costs of partial withdrawals. (See
Partial Withdrawal Charge, page 24).
THE ISSUER
The Policy is issued by AVLIC, which is a Nebraska stock life insurance company.
A separate account of AVLIC, Ameritas Variable Life Insurance Company Separate
Account V ("Account"), has been established to hold the assets supporting the
Policy. The Account has nineteen Subaccounts that support the Policies which
correspond to, and invest in, the portfolios of the Funds. For more detailed
information about AVLIC and the Account, see Ameritas Variable Life Insurance
Company and the Account, page 8. The financial statements for AVLIC and the
Account can be found beginning on page 32.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS AND DEATH BENEFIT OPTIONS. So long as the Policy remains
in force, AVLIC will pay the proceeds under the Policy upon receipt of due proof
of death of the Insured. These proceeds will be the Policy's death benefit,
reduced by any outstanding policy debt and any accrued expenses. The proceeds
may be paid in a lump sum or in accordance with an optional payment plan.
The Policy provides for two death benefit options unless the Extended Maturity
Rider is in effect. Under either option, so long as the Policy remains in force,
the death benefit will not be less than the current Specified Amount of the
Policy. The death benefit may, however, exceed the Specified Amount, depending
upon the investment experience of the Policy. Death Benefit Option A provides
for a level benefit equal to the current Specified Amount of the Policy, unless
the cash value of the Policy on the date of the Insured's death multiplied by
the applicable percentage set forth in the Policy is greater, in which case the
death benefit is equal to that larger amount. Death Benefit Option B provides
for a variable benefit equal to the current Specified Amount of the Policy plus
the Policy's cash value on the date of the Insured's death, or if greater, the
cash value of the Policy on the date of the Insured's death multiplied by the
applicable percentage set forth in the Policy. (See Death Benefit Proceeds, page
15).
If the Extended Maturity Rider is in effect, the Death Benefit will be the Cash
Value.
BENEFITS AT MATURITY. On the maturity date of the Policy, if the Insured is
still living, the Policyowner will be paid the cash value of the Policy less any
outstanding policy debt.
CASH VALUE BENEFITS. The Policy's cash value in the Account will reflect the
amount and frequency of premium payments, the investment experience of the
chosen Subaccounts, policy loans, any partial withdrawals, and any charges
imposed in connection with the Policy. The entire investment risk is borne by
the Policyowner. AVLIC does not guarantee a minimum cash value in the Separate
Account. (See Cash Value, page 16).
The Policyowner may at any time surrender the Policy and receive its cash
surrender value, which is the cash value less any outstanding policy debt, cash
surrender charge and accrued expense charges. (See Surrenders page 18). Subject
to certain limitations, the Policyowner may also make a partial withdrawal from
the Policy and obtain a portion of the cash surrender value at any time and
prior to the maturity date. Partial withdrawals will reduce both the cash value
and the death benefit payable under the Policy. (See Partial Withdrawals, page
18). A charge will be deducted from the amount paid upon partial withdrawal.
(See Partial Withdrawal Charge, page 24).
POLICY LOANS. The Policyowner may exercise certain loan privileges under a
Policy. THIS POLICY MAY BE A MODIFIED ENDOWMENT CONTRACT ("MEC"). THERE ARE
ADVERSE TAX CONSEQUENCES FOR MECS, INCLUDING WHEN A POLICY LOAN PROVISION IS
EXERCISED. (See Tax Treatment of the Policy, page 7, MEC and Tax Penalty on
Early Withdrawals, page 27).
<PAGE>
The maximum loan amount, which is the amount that may be borrowed, is 85% of the
cash value less any cash surrender charge and accrued expenses. Texas and
Virginia Policyowners may borrow 100% of the cash value subject to certain
deductions. The minimum loan that may be requested is $1000. The available loan
amount at any time is the maximum loan amount less any outstanding policy debt.
Loans currently will accrue interest on a daily basis at the rate of 4 1/2% per
year on that portion of the outstanding policy debt not exceeding the Earnings
Loan Value and 6% per year on the remainder of the outstanding policy debt.
AVLIC may increase these rates to a maximum of 8%. The amount of any loans
outstanding plus any accrued interest equals the outstanding policy debt.
Interest is due on each policy anniversary and if not paid when due, will be
added to the outstanding loan. When the loan is made or when interest is not
paid when due, an amount sufficient to secure the policy debt is transferred out
of the Account and into AVLIC's general account as security for the loan and
will earn interest at the annual rate of 4.5%, credited on the policy
anniversary. Upon partial or full loan repayment, the portion of the cash value
in the general account securing the repaid portion of the policy loan will be
transferred to the Account or the Fixed Account. Any loan transaction will
permanently affect the values of the Policy. If the outstanding policy debt
exceeds the Policy's cash value less any cash surrender charge and accrued
expenses, the excess must be repaid within the specified time period or the
Policy will terminate without value. Should the policy lapse while loans are
outstanding the portion of the loans attributable to earnings will become
taxable distributions. (See Loan Benefits, page 17).
FLEXIBILITY TO ADJUST DEATH BENEFITS
After the first policy anniversary, the Policyowner has flexibility to adjust
the death benefit by changing the death benefit option. After the second policy
year the Policyowner has flexibility to adjust the death benefit by decreasing
the Specified Amount of the Policy. A change in the Specified Amount and a
change in the death benefit option may only be made once per year, and are
subject to certain limitations. No change will be allowed if the resulting
Specified Amount is less than the minimum allowed. The minimum Specified Amount
during the first three policy years is the amount that a premium of $10,000
($5,000 for ages 0-15) will purchase; thereafter, the minimum is $15,000. A
change in the death benefit option from Option A to Option B will require
satisfactory evidence of insurability. Finally, no decrease will be allowed if
the Specified Amount is less than $15,000 in the first three policy years. (See
Change in Death Benefit Option, page 15, and Change in Specified Amount, page
15).
TAX TREATMENT OF THE POLICY
The Internal Revenue Code ("the Code") defines a modified endowment insurance
contract ("MEC") as one where the accumulated amount paid under the contract at
any time during the first 7 contract years exceeds the sum of the net level
premiums which would have been paid on or before that time if the Policy was
paid up after the payment of 7 level annual premiums. Because this is designed
to operate as a single premium contract, the initial premium exceeds the amounts
allowed in the seven pay test. Partial or full surrenders, assignments, policy
pledges, and loans (including loans to pay loan interest) under the Policy will
be taxable to the extent of any gain under the Policy. A 10% penalty tax also
applies to the taxable portion of any distribution prior to the Policyowner
reaching age 59 1/2. The 10% penalty tax does not apply if the Policyowner is
disabled as defined under the Code or if the distribution is paid out in the
form of a life annuity on the life of the Policyowner or the joint lives of the
Policyowner and beneficiary. (See Federal Tax Matters, page 26).
Like death benefits payable under conventional life insurance policies, life
insurance proceeds payable under a Policy should be completely excludable from
the gross income of the beneficiary. As a result, the beneficiary generally will
not be taxed on these proceeds. (See Federal Tax Matters, page 26).
REFUND PRIVILEGE
The Policyowner is granted a period of time (a "free look period") to examine a
Policy and return it for a refund. The Policyowner may cancel the Policy within
45 days after Part I of the application is signed, within 10 days after the
Policyowner receives the Policy, or 10 days after AVLIC delivers a cancellation
notice, whichever is later. The amount of the refund is the greater of the
premium paid or the premium paid adjusted by investment gains or losses.
(See Refund Privilege, page 19).
EXCHANGE PRIVILEGE
During the first 24 months after the Policy date of the Policy, subject to
certain restrictions, the Policyowner may exchange the Policy for a non-variable
life insurance policy issued by AVLIC or Ameritas Life. The Policy provisions
and applicable charges for the new Policy will be based on the same policy date
and issue age as under the Policy. (See Exchange Privilege, page 19).
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AVLIC AND THE ACCOUNT
AMERITAS VARIABLE LIFE INSURANCE COMPANY
Ameritas Variable Life Insurance Company ("AVLIC") is a stock life insurance
company organized in the State of Nebraska. AVLIC was incorporated on June 22,
1983 and commenced business December 29, 1983. AVLIC is currently licensed to
sell life insurance in 46 states and the District of Columbia. AVLIC's financial
statements may be found at page 39.
AVLIC is a wholly-owned subsidiary of Ameritas Life. Ameritas Life is a mutual
life insurance company domiciled in Nebraska since 1887. The Home Offices of
both AVLIC and Ameritas Life are at One Ameritas Way, 5900 "0" Street, P.O. Box
82550, Lincoln, Nebraska 68501. Ameritas Life and its subsidiaries had total
assets at December 31, 1995 of over $2.4 billion. AVLIC, as a wholly-owned
subsidiary of Ameritas Life, has a rating of A+ (Superior) from A.M. Best
Company, a firm that analyses insurance carriers. Ameritas Life enjoys a long
standing A+ (Superior) rating from A.M. Best. Ameritas Life also has an AA
("Excellent") rating from Standard & Poor's for claims-paying ability. Ameritas
Life guarantees the obligations of AVLIC. This guarantee will continue until
AVLIC is recognized by a National Rating Agency as having a financial rating
equal to or greater than Ameritas Life, or until AVLIC is acquired by another
insurance company who has a financial rating by a National Rating Agency equal
to or greater than Ameritas Life and who agrees to assume the guarantee.
AVLIC voted to approve a Merger Agreement with Ameritas Life ("Agreement") at
its December 5, 1994, board meeting. The merger was scheduled to occur on May 1,
1995, or such later date as the required regulatory approvals could be obtained.
On March 31, 1995, the company determined to postpone the merger to evaluate its
options in light of the present regulatory climate. On February 27, 1996, AVLIC
determined to postpone the merger indefinitely.
AVLIC may publish in advertisements and reports to Policyowners, the ratings and
other information assigned it by one or more independent rating services. The
purpose of the ratings is to reflect the financial strength and/or claims-paying
ability of AVLIC. The ratings do not relate to the performance of the separate
account. Further AVLIC may publish charts and other information concerning
dollar cost averaging, portfolio rebalancing, earnings sweep, tax-deference and
other investment methods.
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
Ameritas Variable Life Insurance Company Separate Account V ("the Account") was
established under Nebraska law on August 28, 1985.
The assets of the account are held by AVLIC segregated from all of AVLIC's other
assets, are not chargeable with liabilities arising out of any other business
which AVLIC may conduct, and income, gains, or losses of the Account are
credited without regard to the other income, gains, or losses of AVLIC. Although
the assets maintained in the Account will not be charged with any liabilities
arising out of AVLIC's other business, all obligations arising under the
policies are liabilities of AVLIC who will maintain assets in the Account of a
total market value at least equal to the reserve and other contract liabilities
of the Account. The Account will at all times contain assets equal to or greater
than account values invested in the separate account. Nevertheless, to the
extent assets in the Account exceed AVLIC's liabilities in the Account, the
assets are available to cover the liabilities of AVLIC's General Account. AVLIC
may, from time to time, withdraw assets available to cover the General Account
obligations.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve
<PAGE>
any SEC supervision of the management or investment policies or practices of the
Account. For state law purposes, the Account is treated as a Division of AVLIC.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Account and the funds
available for investment by the Account may appear in advertisements, sales
literature, or reports to Policyowners or prospective purchasers. We may also
provide a hypothetical illustration of Cash Value, Cash Surrender Value and
Death Benefit based on historical investment returns of the Funds for a sample
insured based on assumptions as to age, sex, and other policy specific
assumptions.
We may also provide individualized hypothetical illustrations of Cash Value,
Cash Surrender Value and Death Benefit based on historical investment returns of
the Funds. These illustrations will reflect deductions for fund expenses and
Policy and Account charges, including the Monthly Deduction, Premium Charge and
Cash Surrender Charge. These hypothetical illustrations will be based on the
actual historical experience of the funds as if the Subaccounts had been in
existence and a Policy issued for the same periods as those indicated for the
funds.
THE FUNDS
Each Subaccount of the Account will invest only in the shares of a corresponding
portfolio of the Fidelity Fund, Fidelity Fund II, the Alger American Fund,
and/or the MFS Fund. The Funds are each registered with the SEC under the 1940
Act as an open-end management investment company. These registrations do not
involve SEC supervision of the management or investment practices or policies 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 have
no effect on the investment performance of any other portfolio.
As of May 1, 1996, The Dreyfus Stock Index Fund is no longer an investment
option under the contract. Funds allocated to the Dreyfus Stock Index Fund as of
April 30, 1996 may remain invested in that portfolio. If transferred out of the
Dreyfus Stock Index portfolio, however, reinvestment into that portfolio will
not be an option. AVLIC eventually intends to file an application with the
Securities and Exchange Commission to substitute the shares of another portfolio
for shares of the Dreyfus Stock Index Fund.
The investment objectives and policies of each portfolio are summarized below.
There is no assurance that any of the portfolios will achieve their stated
objectives. More detailed information, including a description of risks, is in
the prospectuses for the Funds, which must accompany or precede this Prospectus.
All underlying fund information, including Fund prospectuses, has been provided
to AVLIC by the underlying Funds. AVLIC has not independently verified this
information. One or more of the Portfolios may employ investment techniques that
involve certain risks, including investing in non-investment grade, high risk
debt securities, entering into repurchase agreements and reverse repurchase
agreements, lending portfolio securities, engaging in "short sales against the
box," investing in instruments issued by foreign banks, entering into firm
commitment agreements and investing in warrants and restricted securities. The
Alger American Leveraged AllCap Portfolio may employ "leverage" by borrowing
money to increase its portfolio of securities, and may purchase or sell options
and enter into futures contracts on securities indexes to increase gain or to
hedge the value of the Portfolio. The High Income, Equity-Income, Asset
Manager, and Asset Manager: Growth Portfolios may invest in non-investment
grade, high risk debt securities. These Prospectuses should be read carefully
together with this Prospectus and retained.
Each Policyowner should periodically consider the allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investing in the Funds' various portfolios.
Since the Fidelity Fund, the Fidelity Fund II, the Alger American Fund, and the
MFS Fund are each designed to provide investment vehicles for variable annuity
and variable life insurance contracts of various insurance companies and will be
sold to separate accounts of other insurance companies as investment vehicles
for various types of variable life insurance policies and variable annuity
contracts, there is a possibility that a material conflict may arise between the
interests of the Account and one or more of the separate accounts of another
participating insurance company. In the event of a material conflict, the
affected insurance companies agree to take any necessary steps, including
removing its separate accounts from the Funds, to resolve the matter. The risks
of such mixed and shared funding are described further in the prospectuses of
the Funds.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS' PORTFOLIOS
FIDELITY FUNDS
- --------------
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------ --------------------------- -------------------------
Money Market1 High-quality U.S. dollar Seeks to obtain as high
denominated money market a level of current income
instruments of domestic and as is consistent with
foreign Issuers.(Commercial preserving capital and
Paper, Certificate of providing liquidity.
Deposit).
<PAGE>
High Income1 At least 65% in income Seeks to obtain a high
producing debt securities level of current income
and preferred stocks, up to by investing in high
20% in common stocks and income producing lower-
other equity securities, rated debt securities
and up to 15% in securities (sometimes called "junk
subject to restriction on bonds"), preferred stocks
resale. including convertible
securities and restricted
securities.
Equity-Income1 At least 65% in income Seeks reasonable income
producing common or prefer- by investing primarily in
red stock. The remainder income producing equity
will normally be invested securities. The goal is
in convertible and non- to achieve a yield in
convertible debt obligations. excess of the composite
yield of the Standard &
Poor's 500 Composite
Stock Price Index.
Growth1 Portfolio purchases normally Seeks to achieve capital
will be common stocks of appreciation.
both well-known established
companies and smaller, less-
known companies, although
the investments are not
restricted to any one type
of security. Dividend
income will only be consid-
ered if it might have an
effect on stock values.
Overseas1 At least 65% invested in Seeks long-term growth
securities of issuers of capital primarily
outside of North America. through investments in
Most issuers will be foreign securities.
located in developed coun-
tries in the Americas, the
Far East and Pacific Basin,
Scandinavia and Western
Europe. While the primary
purchases will be common
stocks, all types of
securities may be purchased.
Asset Manager2 Equities (Growth, High Div- Seeks to obtain high
idends, Utility), bonds total return with
(Government, Agency, Mort- reduced risk over the
gage backed, Convertible long term by allocating
and Zero Coupon) and money its assets among domes-
market instruments. tic and foreign stocks,
bonds, and short-term
fixed-income securities.
Investment
Grade Bond2 A portfolio of investment Seeks as high a level of
grade fixed-income secu- current income as is con-
rities with an average mat- sistent with the preser-
urity of ten years or less. vation of capital.
Index 500 2 At least 80% (65% if fund Seeks investment results
assets are below $20 that correspond to the
million) in equity secu- total return of common
rities of companies that stocks publicly traded in
compose the Standard & the United States, as
Poor's 500. Also purchases represented by the
short-term debt securities Standard & Poor's 500.
for cash management pur-
poses and uses various in-
vestment techniques, such
as futures contracts, to
adjust its exposure to the
Standard & Poor's 500.
Contrafund2 Portfolio purchases will Seeks long-term capital
normally be common stock or appreciation.
securities convertible into
common stock of companies
believed to be undervalued
due to an overly pessimis-
tic appraisal by the public.
Asset Manager:
Growth2 Focuses on stocks for high Seeks to maximize total
potential returns but also return by allocating its
purchases bonds and short- assets among stocks,
term instruments. bonds, short-term instru-
ments and other invest-
ments.
<PAGE>
ALGER AMERICAN
- --------------
FUNDS
- -----
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------ --------------------------- -------------------------
Income and The Portfolio attempts to Seeks to provide a high
Growth invest 100% of its assets, level of dividend income
except during temporary to the extent consistent
defensive periods, and it with prudent investment
is a fundamental policy of management. Capital ap-
the Portfolio to invest at preciation is a secondary
least 65% of its assets in objective of the Port-
dividend paying equity folio.
securities that are listed
on a national exchange or
in securities convertible
into dividend paying equity
securities.
Balanced The Portfolio will invest Seeks current income and
its assets in common stocks long-term capital apprec-
and investment grade pre- iation by investing in
ferred stock and debt sec- common stocks and fixed
urities as well as sec- income securities, with
urities convertible into emphasis on income pro-
common stocks. Except dur- ducing securities which
ing defensive periods, it appear to have some
is anticipated that 25% of potential for capital
the portfolio assets will appreciation.
be invested in fixed income
senior securities.
Small-Cap Except during temporary Seeks long-term capital
defensive periods, the appreciation.
Portfolio invests at least
65% of its total assets in
equity securities of
companies that, at the time
of purchase of the secur-
ities, have total market
capitalization within the
range of companies included
in the Russell 2000 Growth
Index, updated quarterly.
The Russell 2000 Growth
Index is designed to track
the performance of small
capitalization companies.
The Portfolio may invest up
to 35% of its total assets
in equity securities of
companies that, at the time
of purchase, have total
market capitalization
outside the range of com-
panies included in the
Russell 2000 Growth Index
and in excess of that amount
(up to 100% of its assets)
during temporary defensive
periods.
MidCap Except during temporary Seeks long-term capital
Growth defensive periods, the appreciation.
Portfolio invests at least
65% of its total assets in
equity securities of
companies that, at the time
of purchase of the sec-
urities, have total market
capitalization within the
range of companies included
in the S&P Mid Cap 400
Index, updated quarterly.
The S&P MidCap 400 Index
is designed to track the
performance of medium cap-
italization companies. The
Portfolio may invest up to
35% of its total assets in
equity securities of com-
panies that, at the time of
purchase, have total market
capitalization outside the
range of companies included
in the S&P MidCap 400 Index
and in excess of that amount
(up to 100% of its assets)
during temporary defensive
periods.
Growth The Portfolio will invest Seeks long-term capital
its assets in companies appreciation.
whose securities are traded
on domestic stock exchange
or in the over-the-counter
market. The Portfolio will
invest at least 85% of its
net assets in equity sec-
urities and at least 65%
of its total assets in the
securities of companies
that have a total market
capitalization of $1
billion or greater.
<PAGE>
Leveraged Invests at least 85% of net Seeks long-term capital
All Cap assets in equity securities appreciation.
of companies of any size,
except during defensive
periods. May purchase put
and call options and sell
covered options to increase
gain and hedge. May enter
into futures contracts and
purchase and sell options
on these futures contracts.
May also borrow money
for purchase of additional
securities.
MFS FUNDS
- ---------
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------ ---------------------------- -------------------------
Emerging Growth At least 80% normally will Seeks to provide long-
Series be invested in equity term capital growth. Div-
securities of emerging idend and interest income
growth companies. Up to is incidental.
25% may be invested
in foreign securities not
including ADR's.
Utilities Series At least 65%, but up to Seeks capital growth and
100%, normally will be in- current income (above
vested in equity and debt that available from a
securities of both domestic portfolio invested en-
and foreign companies in tirely in equity secur-
the utilities industry. ities).
Normally, not more than 35%
will be invested in equity
and debt securities of
issuers in other industries,
including foreign securi-
ties, emerging market sec-
urities and non-dollar den-
ominated securities.
World Governments At least 80% normally will Seeks capital preser-
Series be invested in debt secur- vation and growth with
ities. May invest up to moderate current income.
100% of assets in foreign
securities, including
emerging markets secur-
ities.
1 Variable Insurance Products Fund Portfolio.
2 Variable Insurance Products Fund II Portfolio.
FUND MANAGEMENT FEES
Fee information relating to the underlying funds was provided to AVLIC by the
underlying funds. AVLIC has not independently verified the information received
from the underlying funds.
Fidelity Management & Research Company (FMR) is the Manager for the Fidelity
Funds. Each portfolio pays FMR a monthly fee for managing its investment and
business affairs.
Fred Alger Management Inc. ("Alger Management") serves as the Alger American
Fund investment manager. Each portfolio pays Alger Management a separate fee
computed daily and paid monthly at annual rates based upon a percentage of the
value of the relevant portfolio's daily net assets.
Massachusetts Financial Services Company ("MFS Co."), a Delaware Corporation, is
the investment adviser to each series of the MFS Variable Insurance Trust.
<PAGE>
EXPENSE SUMMARY
The amount of expenses borne by each portfolio for the fiscal year ended
December 31, 1995, was as follows:
<TABLE>
<CAPTION>
INVESTMENT ADVISORY
PORTFOLIO AND MANAGEMENT OTHER EXPENSE
TOTAL
- ------------------ ---------------------- ------------------ -------------
FIDELITY
- ------------------
<S> <C> <C> <C>
Money Market .24% .09% .33%
High Income .60% .11% .71% (1)
Equity-Income .51% .10% .61%
Growth .61% .09% .70%
Overseas .76% .15% .91%
Asset Manager .71% .08% .79%(1)
Investment Grade Bond .45% .14% .59%
Index 500 .00% .28% .28%(2)
Contrafund .61% .11% .72%(1)
Asset Manager Growth .71% .29% 1.00%(1,2)
Alger American (3)
- -------------------
Income and Growth .625% .125% .75%
Balanced .75% .25% 1.00%
Small Cap .85% .07% .92%
MidCap Growth .80% .10% .90%
Growth .75% .10% .85%
Leveraged AllCap .85% .71% 1.56%
MFS
- ---
Emerging Growth Series .75% .25% 1.00%(4)
Utilities Series .75% .25% 1.00%(4)
World Governments Series .75% .25% 1.00%(5)
</TABLE>
(1) A portion of the brokerage commissions the fund paid was used to reduce
its expenses. Without this reduction total operating expenses would have
been (for High Income: 0.71% (please note there were brokerage
commissions paid, but it did not affect the ratio); for Asset Manager
0.81%; for Asset Manager: Growth 1.13% ; and for Contrafund: 0.73%)
(2) The fund's expenses were voluntarily reduced by the fund's investment
adviser. Absent reimbursement, management fee, other expenses, and total
expenses would have been (Index 500 Portfolio) 0.28%, 0.19% and 0.47%,
respectively; and (Asset Manager: Growth) 0.71%, 0.42% and 1.13%,
respectively.
(3) Alger Management has agreed to reimburse the portfolios to the extent
that the annual operating expenses (excluding interest, taxes, fees for
brokerage services and extraordinary expenses) exceed respectively; Alger
American Income and Growth, and Alger American Balanced, 1.25%; Alger
American Small-Cap, Alger American MidCap, Alger American Leveraged All
Cap, and the Alger American Growth, 1.50%. As long as the expense
limitations continue for a portfolio, if a reimbursement occurs, it has
the effect of lowering the portfolio's expense ratio and increasing its
total return.
(4) MFS Co. has agreed to bear, subject to reimbursement, expenses for each
of the Emerging Growth Series and the Utilities Series such that each
Series' aggregate operating expenses shall not exceed, on an annualized
basis, 1.00% of the average daily net assets of the Series from November
2, 1994 through December 31, 1996, 1.25% of the average daily net assets
of the Series from Janaury 1, 1997 through December 31, 1998, and 1.50%
of the average daily net assets of the Series from January 1, 1999
through December 31, 2004; provided however, that this obligation
may be terminated or revised at any time. Absent this expense
arrangement, "Other Expenses" and "Total Operating Expenses" would be
2.16% and 2.91%, respectively, for the Emerging Growth Series and 2.33%
and 3.08%, respectively, for the Utilities Series.
(5) MFS Co. has agreed to bear, subject to reimbursement, until December 31,
2004, expenses of the World Governments Series such that the Series'
aggregate operating expenses do not exceed 1.00%, on an annualized basis,
of its average daily net assets. Absent this expense arrangement,"Other
Expenses" and "Total Operating Expenses" for the World Governments
Series would be 1.24% and 1.99%, respectively.
FIXED ACCOUNT
Owners may elect to allocate all or a portion of their premium payments to the
Fixed Account, and they may also transfer monies from the Separate Account to
the Fixed Account or from the Fixed Account to the Separate Account. (See
Transfers, page 18).
Payments allocated to the Fixed Account and transfers from the Separate Account
to the Fixed Account are placed in the general account of AVLIC, which supports
insurance and annuity obligations. The general account includes all of AVLIC's
assets, except those assets segregated in the separate accounts. AVLIC has the
sole discretion to invest the assets of the general account, subject to
applicable law. AVLIC bears an investment risk for all amounts
<PAGE>
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 after the expiration of a contract year. Because of exemptive
and exclusionary provisions, interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act") nor is the general
account registered as an investment company under the 1940 Act. Accordingly,
neither the general account nor any interest therein is generally subject to the
provisions of the 1933 or 1940 Act. We understand that the staff of the SEC has
not reviewed the disclosures in this Prospectus relating to the Fixed Account
portion of the Contract; however, disclosures regarding the Fixed Account
portion of the Contract may be subject to generally applicable provisions of the
federal securities laws regarding the accuracy and completeness of statements
made in prospectuses.
AVLIC guarantees that it will credit interest at an effective annual rate of at
least 4.5%. AVLIC may, at its sole discretion, declare higher interest rate(s)
for amounts allocated or transferred to the general account ("Declared
Rate(s)"). Each month AVLIC will establish the declared rate for the monies
transferred or allocated to the Fixed Account that month. The owner will earn
interest on the amount transferred or allocated (after the refund period) at the
rate declared for a 12-month period effective the month of transfer or
allocation. After the end of the 12- month period, the monies will earn interest
at the rate established by AVLIC for each month.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Generally AVLIC reserves the right, subject to applicable law, and, if
necessary, after notice and prior approval from the SEC and/or state insurance
authorities, to make additions to, deletions from, or substitutions for the
shares that are held in the Account or that the Account may purchase. The
Account may, to the extent permitted by law, purchase other securities for other
contracts or permit a conversion between contracts upon request by the
Policyowners.
AVLIC may, in its sole discretion, also establish additional Subaccounts of the
Account, which would invest in shares corresponding to a new portfolio of the
Fund or in shares of another investment company or eliminate one or more
Subaccounts if marketing needs, tax considerations or investment conditions
warrant. Any new Subaccounts may be made available to existing Policyowners on a
basis to be determined by AVLIC.
If any of these substitutions or changes are made, AVLIC may by appropriate
endorsement change the Policy to reflect the substitution or change. If AVLIC
deems it to be in the best interest of Policyowners, and subject to any
approvals that may be required under applicable law, the Account may be operated
as a management company under the 1940 Act, it may be deregistered under that
Act if registration is no longer required, or it may be combined with other
AVLIC Separate Accounts. To the extent permitted by applicable law, AVLIC may
also transfer the assets of the Account associated with the Policies to another
Separate Account. In addition, AVLIC may, when permitted by law, restrict or
eliminate any voting rights of Policyowners or other persons who have voting
rights as to the Account.
The Policyowner will be notified of any material change in the investment policy
of any portfolio in which the owner has an interest.
POLICY BENEFITS
The rights and benefits under the Policy are summarized in this prospectus. The
Policy itself is what controls the rights and benefits. A copy of the Policy is
available upon request from AVLIC.
PURPOSES OF THE POLICY
The Policy is designed to provide the Policyowner with both lifetime insurance
protection to the policy anniversary nearest the Insured's 95th birthday and
flexibility in connection with the amount and frequency of premium payments and
the level of life insurance proceeds payable under the Policy. Unlike
traditional life insurance, other than the minimum first year premium, the
Policyowner is not required to pay scheduled premiums to keep a Policy in force.
The Policy is designed so that a single premium payment may be made, or the
Policyowner has the flexibility to vary subsequent premium payments. Moreover,
the Policy allows a Policyowner to adjust the level of death benefits payable
under the Policy without having to purchase a new Policy by decreasing the
Specified Amount or changing the death benefit option. Thus, as insurance needs
or financial conditions change, the Policyowner has the flexibility to adjust
life insurance benefits and vary premium payments.
The death benefit may, and the cash value will, vary with the investment
experience of the chosen Subaccounts of the Account. The Policyowner reaps the
benefit of any appreciation in value of the underlying assets, but bears the
investment risk of any depreciation in value. As a result, whether or not a
Policy continues in force may depend in part upon the investment experience of
the chosen Subaccounts. The failure to pay a planned periodic premium will not
necessarily cause the Policy to lapse, but the Policy could lapse even if
planned periodic premiums have been paid, depending upon the investment
experience of the Account.
<PAGE>
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, AVLIC will, upon due proof of the
Insured's death, pay the death benefit proceeds of a Policy in accordance with
the death benefit option in effect at the time of the Insured's death. The
amount of the death benefits payable will be determined at the end of the
valuation period during which the Insured's death occurred. The death benefit
proceeds may be paid in a lump sum or under one or more of the payment options
set forth in the Policy. (See Payment Options, page 17).
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options, unless the Extended Maturity
Rider is in effect, and the Policyowner selects one of the options in the
application. The death benefit under either option will never be less than the
current Specified Amount of the Policy as long as the Policy remains in force.
(See Policy Lapse and Reinstatement, page 21). The minimum Specified Amount
currently is the amount that a premium of $10,000 ($5,000 for ages 0-15) will
purchase.
OPTION A. Under Option A, the death benefit is the current Specified Amount of
the Policy or, if greater, the applicable percentage of cash value on the date
of death. The applicable percentage is 250% for Insureds with an attained age 40
or younger on the policy anniversary prior to the date of death. For Insureds
with an attained age over 40 on that policy anniversary, the percentage
declines. For example, the percentage at age 40 is 250%, at age 50 is 185%, at
age 60 is 130%, at age 70 is 115%, at age 80 is 108%, and at age 90 is 100%.
Accordingly, under Option A the death benefit will remain level at the Specified
Amount unless the applicable percentage of cash value exceeds the current
Specified Amount, in which case the amount of the death benefit will vary as the
cash value varies. Policyowners who prefer to have favorable investment
performance reflected in higher cash value, rather than increased insurance
coverage, generally should select Option A.
OPTION B. Under Option B, the death benefit is equal to the current Specified
Amount plus the cash value of the Policy or, if greater, the applicable
percentage of the cash value on the date of death. The applicable percentage is
the same as under Option A: 250% for Insureds with an attained age 40 or younger
on the policy anniversary prior to the date of death, and for Insureds with an
attained age over 40 on that policy anniversary the percentage declines as in
Option A. Accordingly, under Option B the amount of the death benefit will
always vary as the cash value varies (but will never be less than the Specified
Amount). Policyowners who prefer to have favorable investment performance
reflected in increased insurance coverage, rather than higher cash values,
generally should select Option B.
EXTENDED MATURITY
If the Extended Maturity Rider is in effect, the Death Benefit will be the Cash
Value.
CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit option in effect
may be changed once per year any time after the first policy year by sending
AVLIC a written request for change. AVLIC will require evidence of insurability
before making a change in the death benefit option from Option A to Option B.
The effective date of such a change will be the monthly activity date on or
following the date the change is approved by AVLIC.
If the death benefit option is changed from Option A to Option B, the death
benefit after the change will equal the Specified Amount before the change plus
the cash value on the effective date of the change. If the death benefit option
is changed from Option B to Option A, the death benefit after the change will
equal the death benefit before the change minus the cash value on the effective
date of change.
No charges will be imposed upon a change in death benefit option, nor will such
a change in and of itself result in an immediate change in the amount of a
Policy's cash value. However, a change in the death benefit option may affect
the monthly cost of insurance charge since this charge varies with the net
amount at risk, which is the amount by which the death benefit that would be
payable on a monthly activity date exceeds the cash value on that date. Changing
from Option B to Option A will generally decrease the net amount at risk, and
therefore cost of insurance charges. Changing from Option A to Option B will
generally result in a net amount at risk that remains level. Such a change,
however, will result in an increase in the cost of insurance charges over time,
since the cost of insurance rates increase with the Insured's age. If, however,
the change was from Option A to Option B, the cost of insurance rate may be
different for the increased death benefit. (See Charges and Deductions - Cost of
Insurance, page 22).
CHANGE IN SPECIFIED AMOUNT. Subject to certain limitations, after the second
policy year a Policyowner may decrease the Specified Amount of a Policy. A
decrease in Specified Amount may affect the cost of insurance rate and the net
amount at risk, both of which may affect a Policyowner's cost of insurance
charge. (See Charges and Deductions - Cost of Insurance, page 22).
Any decrease in the Specified Amount will become effective on the monthly
activity date on or following the date a written request is approved by AVLIC.
The Specified Amount of a Policy may be changed only once per year, and AVLIC
may limit the size of a change in a policy year.
The Specified Amount remaining in force after any requested decrease may not be
less than the amount a minimum first year premium of $10,000 ($5,000 for ages
0-15) would have purchased during the first 3 Policy years and
<PAGE>
$15,000 thereafter. Further, no decrease will be allowed if the Specified Amount
is less than $15,000 in the first three Policy years. In addition, if following
the decrease in Specified Amount, the Policy would not comply with the maximum
premium limitations required by federal tax law (see Premium Limitations, page
21), the decrease may be limited or cash value may be returned to the
Policyowner at the Policyowner's election, to the extent necessary to meet these
requirements.
METHODS OF AFFECTING INSURANCE PROTECTION. A Policyowner may increase or
decrease the pure insurance protection provided by a Policy - the difference
between the death benefit and the cash value - in several ways as insurance
needs change. These ways include decreasing the Specified Amount of insurance,
changing the level of premium payments, and, to a lesser extent, making a
partial withdrawal of the Policy's cash value. The consequences of each of these
methods will depend upon the individual circumstances.
DURATION OF THE POLICY. The Policy will not be placed in force if the minimum
first year premium has not been paid on or before the date the Policy is
delivered. The Policy will remain in force so long as the cash surrender value
is sufficient to pay the monthly deduction. (See Monthly Deduction, page 22).
Where, however, the cash surrender value is insufficient to pay the monthly
deduction and the grace period expires without an adequate payment by the
Policyowner, the Policy will lapse and terminate without value. (See Policy
Lapse and Reinstatement, page 21).
CASH VALUE
The Policy's cash value in the Account will reflect the investment performance
of the chosen Subaccounts of the Account, the net premiums paid, any partial
withdrawals, and the charges assessed in connection with the Policy. A
Policyowner may at any time surrender the Policy and receive the Policy's cash
surrender value. (See Surrenders, page 18). There is no guaranteed minimum cash
value.
DETERMINATION OF CASH VALUE. Cash value is determined on each valuation date. On
the policy issue date, the cash value in a Subaccount will equal the portion of
any premium allocated to the Subaccount, reduced by the portion of the first
monthly deduction allocated to that Subaccount. (See Allocation of Premiums and
Cash Value, page 21). Thereafter, on each valuation date, the cash value of a
Policy will equal:
(1) The aggregate of the values attributable to the Policy in each of the
Subaccounts on the valuation date, determined for each Subaccount by
multiplying the Subaccount's unit value by the number of Subaccount units
allocated to the Policy; plus
(2) The value of the Fixed Account; plus
(3) Any cash value impaired by policy debt held in the general account; plus
(4) Any net premiums received on that valuation date; less
(5) Any partial withdrawal, and its charge, made on that valuation date; less
(6) Any monthly deduction to be made on that valuation date; less
(7) Any federal or state income taxes charged against the cash value.
In computing the Policy's cash value, the number of Subaccount units allocated
to the Policy is determined after any transfers among Subaccounts, or the Fixed
Account, (and deduction of transfer charges) but before any other Policy
transactions, such as receipt of net premiums and partial withdrawals, on the
valuation date. Because the cash value is dependent upon a number of variables,
a Policy's cash value cannot be predetermined.
THE UNIT VALUE. The unit value of each Subaccount reflects the investment
performance of that Subaccount. The unit value of each Subaccount shall be
calculated by (i) multiplying the per share net asset value of the corresponding
Fund portfolio on the valuation date times the number of shares held by the
Subaccount, before the purchase or redemption of any shares on that date; minus
(ii) a Daily Charge not exceeding an annual rate of 1.20% for mortality and
expense risk (.90%) and administrative costs (.30%); and (iii) dividing the
result by the total number of units held in the Subaccount on the valuation
date, before the purchase or redemption of any units on that date. (See Daily
Charges Against the Account, page 23).
VALUATION DATE AND VALUATION PERIOD. A valuation date is each day on which the
New York Stock Exchange ("NYSE") is open for trading. A valuation period is the
period between two successive valuation dates, commencing at the close of the
NYSE on each valuation date and ending at the close of the NYSE on the next
succeeding valuation date.
BENEFITS AT MATURITY
If the Insured is living, AVLIC will pay the cash value of the Policy, less
outstanding policy debt, on the maturity date. The Policy will mature on the
policy anniversary nearest the Insured's 95th birthday, if living, unless the
maturity has been extended by election of the Extended Maturity Rider.
<PAGE>
PAYMENT OF POLICY BENEFITS
Death benefit proceeds under the Policy will usually be paid within seven days
after AVLIC receives due proof of death. Cash value benefits will ordinarily be
paid within seven days of receipt of a written request. Payments may be
postponed in certain circumstances. (See Postponement of Payments, page 25). The
Policyowner may decide the form in which the benefits will be paid. During the
Insured's lifetime, the Policyowner may arrange for the death benefit proceeds
to be paid in a lump sum or under one or more of the optional methods of payment
described below. These choices are also available if the Policy is surrendered
or matures. If no election is made, AVLIC will pay the benefits in a lump sum.
When death benefits are payable in a lump sum and no election for an optional
method of payment is in force at the death of the Insured, the beneficiary may
select one or more of the optional methods of payment.
An election or change of method of payment must be in writing. A change in
beneficiary revokes any previous settlement election. Further, if the Policy is
assigned, any amounts due to the assignee will first be paid in one sum. The
balance, if any, may be applied under any payment option. Once payments have
begun, the payment option may not be changed.
PAYMENT OPTIONS. The minimum amount of each payment is $25. If a payment would
be less than $25, AVLIC has the right to make payments less often so that the
amount of each payment is at least $25. Once a payment option is in effect, the
proceeds will be transferred to AVLIC's general account. AVLIC may make other
payment options available in the future. For additional information concerning
these options, see the Policy itself. The following payment options are
currently available:
Option ai- INTEREST PAYMENT OPTION. AVLIC will hold any amount applied under
this option. Interest on the unpaid balance will be paid or credited each month
at a rate determined by AVLIC.
Option aii- FIXED AMOUNT PAYABLE OPTION. Each payment will be for an agreed
fixed amount. Payments continue until the amount AVLIC holds runs out.
Option b- FIXED PERIOD PAYMENT OPTION. Equal payments will be made for any
period selected up to 20 years.
Option c- LIFETIME PAYMENT OPTION. Equal monthly payments are based on the life
of a named person. Payments will continue for the lifetime of that person.
Variations provide for guaranteed payments for a period of time.
Option d- JOINT LIFETIME PAYMENT OPTION. Equal monthly payments are based on the
lives of two named persons. While both are living, one payment will be made each
month. When one dies, the same payment will continue for the lifetime of the
other.
As an alternative to the above payment options, the proceeds may be paid in any
other manner approved by AVLIC. Further, one of AVLIC's affiliates may make
payments under the above payment options. If an affiliate makes the payment, it
will do so according to the rules set out above.
POLICY RIGHTS
LOAN BENEFITS
LOAN PRIVILEGES. AVLIC will permit the Policyowner to borrow money from it using
the Policy as the only security for the loan. The maximum amount that may be
borrowed is 85% of the cash value less the cash surrender charge and any accrued
expenses as of the date of the policy loan. The minimum amount of any loan
request is $1,000. The loan may be completely or partially repaid at any time
while the Insured is living, prior to the maturity date. Loans usually are paid
within 7 days after receipt of a written request. Texas and Virginia
Policyowners may borrow 100% of the surrender value after deducting interest and
policy charges for the remainder of the policy year. LOANS MAY HAVE ADVERSE TAX
CONSEQUENCES. (See Tax Treatment of Policy Proceeds, page 27).
INTEREST. The interest rate charged on the portion of the outstanding policy
debt not exceeding the Earnings Loan Value is 4 1/2% per year. Outstanding
policy debt in excess of the Earnings Loan Value is charged 6% interest per
year. The determination of whether the outstanding policy debt exceeds the
Earnings Loan Value will be made each time a loan is taken. AVLIC may increase
either of these rates to a maximum of 8%. Interest accrues daily and is due on
each policy anniversary date. If unpaid when due, interest will be added to the
amount of the loan and bear interest at the same rate.
EFFECT OF POLICY LOANS. When a loan is made, cash value equal to the amount of
the loan will be transferred from the cash value in the Account to the general
account of AVLIC as security for the indebtedness. The cash value transferred
out of the Account will be allocated among the Subaccounts, or the Fixed
Account, in accordance with the instructions given when the loan is requested.
The minimum amount which can remain in a Subaccount as a result of a loan is
$100. If no instructions are given, the amount will be withdrawn in proportion
to the various deposits in the Subaccount or Fixed Account. If loan interest is
not paid when due in any policy year, on the policy anniversary thereafter,
AVLIC will loan the interest and allocate the amount transferred to secure the
excess indebtedness among the Subaccounts and the Fixed Account as set out just
above. No charge will be imposed for these transfers. A policy loan will
permanently affect the cash value of a Policy, and may permanently affect the
<PAGE>
amount of the death benefit, even if the loan is repaid. Should the policy lapse
while policy loans are outstanding the portion of the loans attributable
to earnings will become taxable.
Cash value in the general account held to secure indebtedness will be credited
with interest at a rate of 4.5% per year. Currently, the net cost to borrow to
the Policyowner ranges from 0% interest per annum (on the amount not exceeding
the Earnings Loan Value) to 1 1/2% per annum. However, the Policy permits a
maximum net cost to borrow of 3 1/2%. Interest earned on amounts held in the
general account will be allocated to the Subaccounts and the Fixed Account on
each policy anniversary in the same proportion that net premiums are being
allocated to those Subaccounts and the Fixed Account at the time. Upon repayment
of indebtedness, the portion of the repayment allocated to a Subaccount in
accordance with the repayment of indebtedness provision (see below) will be
transferred to the Subaccount and increase the cash value in that Subaccount or
the Fixed Account.
OUTSTANDING POLICY DEBT. The outstanding policy debt equals the total of all
policy loans and accrued interest on policy loans. If the policy debt exceeds
the cash value less any cash surrender charge and any accrued expenses, the
Policyowner must pay the excess. AVLIC will send a notice of the amount which
must be paid. If the Policyowner does not make the required payment within the
61 days after AVLIC sends the notice, the Policy will terminate without value. A
lapsed Policy may later be reinstated. (See Policy Lapse and Reinstatement, page
21).
REPAYMENT OF INDEBTEDNESS. Unscheduled premiums paid while a policy loan is
outstanding are treated as repayment of indebtedness only if the Policyowner so
requests. As indebtedness is repaid, the cash value in the general account
securing the indebtedness repaid will be allocated among the Subaccounts and the
Fixed Account in the same proportion that net premiums are being allocated to
those Subaccounts at the time of repayment.
SURRENDERS
At any time during the lifetime of the Insured and prior to the maturity date,
the Policyowner may totally surrender the Policy by sending a written request to
AVLIC. Certain partial withdrawals may also be made. Surrenders from the Account
will generally be paid within seven days of receipt of the written request. (See
Postponement of Payments, page 25). SURRENDERS AND PARTIAL WITHDRAWALS MAY HAVE
ADVERSE TAX CONSEQUENCES. (See Modified Endowment Contract; Tax Penalty on Early
Withdrawals page 27).
TOTAL SURRENDERS. If the Policy is being totally surrendered, the Policy itself
must be returned to AVLIC along with the request. AVLIC will pay an amount equal
to the cash surrender value at the end of the valuation period during which the
surrender request is received at AVLIC's Home Office. Coverage under the Policy
will terminate as of the date of a total surrender. A Policyowner may elect to
have the amount paid in a lump sum or under a payment option. (See Payment
Options, page 17).
PARTIAL WITHDRAWALS. Partial withdrawals are irrevocable. The amount of a
partial withdrawal may not exceed the cash surrender value on the date the
request is received and in policy years one through seven, may not exceed 10%
of the minimum first year premium. The cash surrender value after a partial
withdrawal must be at least $1,000. The amount paid will be deducted from the
Policy's cash value at the end of the valuation period during which the request
is received. The amount will be deducted from the Subaccounts according to the
instructions of the Policyowner when the withdrawal is requested, provided that
the minimum amount remaining in a Subaccount as a result of the allocation is
$100. If no instructions are given, the amount will be withdrawn in proportion
to the various deposits in the Subaccount and/or Fixed Account.
The Death Benefit may be reduced by the amount of any partial withdrawal and may
affect the way in which the cost of insurance charge is calculated and the
amount of pure insurance protection under the Policy. (See Monthly Deduction -
Cost of Insurance, page 22; Death Benefits - Methods of Affecting Insurance
Protection, page 16). If Option B is in effect, the Specified Amount will not
change, but the cash value will be reduced.
The Specified Amount remaining in force after a partial withdrawal, during the
first three policy years, may not be less than the amount a premium of $10,000
would purchase ($5,000 for ages 0-15) and thereafter may not be less than
$15,000. Also, no partial withdrawal will be allowed if the Specified Amount is
less than $15,000 in the first three years. Any request for a partial withdrawal
that would reduce the Specified Amount below this amount will not be
implemented. A fee not to exceed the lesser of $50.00 or 2% of the amount
withdrawn is deducted from each partial withdrawal amount paid. Currently the
charge is the lesser of $25 or 2% of the amount withdrawn.
(See Partial Withdrawal Charge, page 24).
TRANSFERS
Cash value may be transferred among the Subaccounts of the Account. The total
amount transferred each time must be at least $250, or the balance of the
Subaccount, if less. The minimum amount that may remain in a Subaccount after a
transfer is $100. AVLIC will effectuate transfers and determine all values in
connection with transfers on the later of the date designated in the request or
at the end of the valuation period during which the transfer request is
received. Cash value on the date of a transfer will not be affected except to
the extent of any transfer charge. Transfers may also be made 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 yearly anniversary of the date of the Policy.
An unlimited number of transfers may be made, with the first fifteen transfers
per policy year permitted free of charge. A transfer charge may be imposed each
additional time amounts are transferred and will be deducted from
<PAGE>
the amount transferred. The charge is $10 per transfer. (See Transfer Charge,
page 24). Transfers resulting from policy loans or exercise of the exchange
privilege will not be subject to a transfer charge. In addition, such
transfers will not be counted for purposes of the limitation on the number
of transfers allowed in each year. AVLIC may at any time revoke or modify the
transfer privilege, including the minimum amount transferable. (See also Tax
Status of the Policy, page 27).
The privilege to initiate transactions by telephone will be made available
to Policyowners automatically. AVLIC will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and if it does
not, AVLIC may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures AVLIC follows for transactions initiated by
telephone include, but are not limited to, requiring the Policyowner to provide
the policy number at the time of giving transfer instructions; AVLIC's tape
recording of all telephone transfer instructions; and the provision, by AVLIC,
of written confirmation of telephone transactions.
Transfers may be subject to additional restrictions at the fund level.
SYSTEMATIC PROGRAMS
AVLIC may offer systematic programs as discussed below. Transfers of
Accumulation Value made pursuant to these programs will not be counted in
determining whether the transfer fee applies. All other normal transfer
restrictions, as described above, apply.
PORTFOLIO REBALANCING. Under the Portfolio Rebalancing program, the Owner can
instruct AVLIC to allocate Accumulation Value among the Subaccounts of the
Account and the Fixed Account, on a systematic basis, in accordance with
allocation instructions specified by the Owner.
DOLLAR COST AVERAGING. Under the Dollar Cost Averaging program, the Owner can
instruct AVLIC to automatically transfer, on a systematic basis, a predetermined
amount or percentage specified by the Owner from any one Subaccount or the Fixed
Account to any Subaccount(s) of the Separate Account.
EARNINGS SWEEP. Permits systematic redistribution of earnings among Subaccounts.
The Owner can request participation in the available programs when purchasing
the Policy or at a later date. The Owner can change the allocation percentage or
discontinue any program by sending written notice or calling the Home Office.
Other scheduled programs may be made available. AVLIC reserves the right to
modify, suspend or terminate such programs at any time. There is no charge for
participation in these programs at this time.
REFUND PRIVILEGE
The Policyowner may cancel the Policy within the later of 10 days after the
Policyowner receives it, within 10 days after AVLIC mails a cancellation notice,
or within 45 days of completing Part I of the application. If a Policy is
cancelled within this time period, a refund will be paid. The refund will be the
greater of the premium paid or the premium paid adjusted by investment gains or
losses.
To cancel the Policy, the Policyowner should mail or deliver it to AVLIC at the
Home Office. A refund of premiums paid by check may be delayed until the check
has cleared the Policyowner's bank. (See Postponement of Payments, page 25).
EXCHANGE PRIVILEGE
During the first 24 policy months after the policy date of the Policy, the
Policyowner may exchange the Policy for a non-variable life insurance policy
issued by AVLIC or Ameritas Life. No new evidence of insurability will be
required.
The policy date, issue age and risk classification for the Insured will be the
same under the new Policy as under the old. In addition, the policy provisions
and applicable charges for the new Policy and its riders will be based on the
same policy date and issue age as under the Policy. Cash values for the exchange
and payments will be established after making adjustments for investment gains
or losses and after recognizing variance, if any, between payment or charges,
dividends or cash values under the flexible contract and under the new Policy.
The Policyowner may elect either the same Specified Amount or the same net
amount at risk for the new Policy as under the old.
To make the change, the Policy, a completed application for exchange and any
required payment must be received by AVLIC. The exchange will be effective on
the valuation date when all financial and contractual arrangements for the new
Policy have been completed.
<PAGE>
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and submit
it to AVLIC's Home Office (One Ameritas Way, 5900 "O" Street, P.O. Box 82550,
Lincoln, Nebraska 68501). A Policy will generally be issued only to individuals
80 years of age on their nearest birthday or less who supply satisfactory
evidence of insurability to AVLIC. AVLIC may, at its sole discretion, issue a
Policy to an individual above the age of 80. Acceptance is subject to AVLIC's
underwriting rules, and AVLIC reserves the right to reject an application for
any reason.
The policy date is the effective date of coverage for all coverage applied for
in the original application. The policy date is used to determine policy
anniversary dates, policy years and policy months. The policy date and the issue
date will be the same unless: 1) an earlier policy date is specifically
requested, or 2) when additional premiums or application amendments are needed.
When there are additional requirements before issue (see below) the policy date
will be when it is sent for delivery and the issue date will be the date the
requirements are met.
The issue date is the date that all financial, contractual and administrative
requirements have been met and processed for the Policy. When all required
premiums and application amendments have been received by AVLIC in its Home
Office, the issue date will be the date the Policy is mailed to the Policyowner
or sent to the agent for delivery to the Policyowner. When application
amendments or additional premiums need to be obtained upon delivery of the
Policy, the issue date will be when the policy receipt and Federal funds are
received; and the application amendments are received and reviewed in AVLIC's
Home Office. On the issue date, the premium paid (plus any interest credited on
premiums paid before the issue date less any cost of insurance charge for the
period between the policy date and the issue date) is allocated to the Money
Market Subaccount. After the expiration of the refund period, the accumulation
value will be allocated to the subaccounts or the Fixed Account as selected by
the Policyowner.
Interim conditional insurance coverage may be issued prior to the policy date,
provided that certain conditions are met, upon the completion of an application
and the payment of a specified amount at the time of the application. The amount
of the interim coverage is limited to the smaller of the amount of insurance
applied for, $100,000, or $25,000 if the proposed Insured is under age 10 or
over age 60 at his nearest birthday.
PREMIUMS
The minimum first year premium must be paid on or before the date the Policy is
delivered. No insurance will take effect before the minimum first year premium
is received in AVLIC's home office in Federal Funds. No other premiums are
required. The amounts and frequency of the planned periodic premiums are shown
in the Schedule of Premiums in the Policy. However, subject to certain
limitations, a Policyowner has flexibility in determining the frequency and
amount of premiums since the planned periodic premium schedule is not binding on
the Policyowner. The timing and amount of premium payments will have an effect
on the values under, and the duration of, the Policy, including the cash
surrender charge, the cost of insurance charge, the premium tax charges and the
cash value under the Policy.
MINIMUM FIRST YEAR PREMIUM. The minimum first year premium is equal to the
amount designated in the Policy. The minimum first year premium will be no less
than $10,000, except on Insureds who have an age nearest birthday of 0 to 15,
for which the minimum premium will be no less than $5,000. The minimum first
year premium generally approximates 80% of the Guideline Single Premium, as
defined for federal tax purposes, for the initial Specified Amount. The
Guideline Single Premium is based on the single premium that would be required
to provide the future benefits under the Policy, computed using certain
assumptions, including an assumed interest rate of 6% and standard guaranteed
cost of insurance rates and charges and the premium loads. There is no
representation that the Policy will not lapse if the minimum first year premium
is paid, nor is there a guarantee that the Policy will not lapse even if planned
periodic premiums are paid.
PREMIUM FLEXIBILITY. A Policyowner may make a single premium payment, make
unscheduled premium payments at any time in any amount, or skip planned periodic
premium payments, subject to the premium limitations described below. Therefore,
unlike conventional insurance policies, this Policy does not obligate the
Policyowner to pay premiums in accordance with a rigid and inflexible premium
schedule.
The level of premium payments does, however, affect the nature of the Policy,
including the amount of pure insurance coverage and the charge for that
coverage. Comparing two Policies that are identical in all respects other than
the amount of the initial premium paid, the Policy with the larger initial
premium will have a greater cash value and, therefore, will provide less pure
insurance protection (a lower net amount at risk) and have a smaller monthly
cost of insurance charge. AVLIC does reserve the right to limit the number and
amount of additional or unscheduled premium payments.
PLANNED PERIODIC PREMIUMS. At the time the Policy is issued, if the initial
premium is less than 100% of the Guideline Single Premium, the Policyowner may
determine a planned periodic premium schedule that provides for the payment of
level premiums at selected intervals; subject, however, to a minimum planned
periodic premium schedule of $1,200 on an annual basis and a maximum schedule of
no greater than the limitation on total premiums established by federal tax law.
The Policyowner is not required to pay premiums in accordance with this
schedule. The Policyowner has considerable flexibility to alter the amount and
frequency of premiums paid.
Policyowners can also change the frequency and amount of planned periodic
premiums by sending a written request to the Home Office, although AVLIC
reserves the right to limit any increase. Premium payment notices will be sent
annually, semi-annually or quarterly depending upon the frequency of the planned
periodic premiums. Payment
<PAGE>
of the planned periodic premiums does not guarantee that the Policy remains in
force. Instead, the duration of the Policy depends upon the Policy's cash
surrender value. (See Duration of the Policy, page 16). Thus, even if planned
periodic premiums are paid by the Policyowner, the Policy will nonetheless lapse
any time cash surrender value is insufficient to pay certain monthly charges,
and a grace period expires without a sufficient payment. (See Policy Lapse
and Reinstatement, page 21).
Any premium received in an amount different from the planned periodic premium
will be considered an unscheduled premium.
PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both
planned and unscheduled, exceed the current maximum premium limitations
established by federal tax laws. If at any time a premium is paid which would
result in total premiums exceeding the current maximum premium limitation, AVLIC
will only accept that portion of the premium which will make total premiums
equal the maximum. Any part of the premium in excess of that amount will be
returned or applied as otherwise agreed and no further premiums will be accepted
until allowed by the current maximum premium limitations prescribed by law.
AVLIC may also establish a minimum acceptable premium amount.
ALLOCATION OF PREMIUMS AND CASH VALUE
ALLOCATION OF PREMIUMS. In the application for a Policy, the Policyowner
allocates premiums to one or more Subaccounts of the Account or to the Fixed
Account. The minimum percentage that may be allocated to any one Subaccount or
to the Fixed Account is 10% of the premium, and fractional percentages may not
be used. The allocations must total 100%. The allocation for future premiums may
be changed without charge at any time by providing proper notification to the
Home Office.
The initial premium is allocated as of the issue date of the Policy to the Money
Market Subaccount for 13 days. Thereafter, the accumulation value will be
allocated to the Subaccounts or the Fixed Account as selected by the
Policyowner. Premium payments received by AVLIC prior to the issue date are held
in the general account and are credited with interest at a rate determined by
AVLIC for the period from the date the payment has been converted into Federal
Funds that are available to AVLIC until the date the amounts are transferred to
the Money Market Subaccount, but in no event will interest be credited prior to
the policy date. After the first policy year, all premiums are subject to a
premium charge, and thus the net premium is allocated to the selected Subaccount
or the Fixed Account. If there is any outstanding policy debt at the time of
payment, AVLIC will treat it as a premium payment unless otherwise instructed in
proper written notice.
The value of amounts allocated to Subaccounts of the Account will vary with the
investment performance of these Subaccounts, and the Policyowner bears the
entire investment risk. This will affect the Policy's cash value, and may affect
the death benefit as well. Policyowners should periodically review their
allocations of premiums and values in light of market conditions and overall
financial planning requirements.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make a
planned periodic premium payment will not itself cause the Policy to lapse.
Lapse will occur when the cash surrender value is insufficient to cover the
monthly deduction, and a grace period expires without a sufficient payment. The
grace period is 61 days from the date AVLIC mails a notice that the grace period
has begun. AVLIC will notify the Policyowner at the beginning of the grace
period by mail addressed to the last known address on file with AVLIC. The
notice will specify the premium required to keep the Policy in force. Failure to
pay the required amount within the grace period will result in lapse of the
Policy. If the Insured dies during the grace period, any overdue monthly
deductions and outstanding policy debt will be deducted from the proceeds.
If the cash surrender value is insufficient to cover the monthly deduction, the
Policyowner must pay a premium during the grace period sufficient to cover the
monthly deduction. (See Charges and Deductions, page 22).
REINSTATEMENT. A lapsed Policy may be reinstated any time within 2 years after
the end of the grace period (or if required by state law, longer periods), but
before the maturity date. Reinstatement will be affected based on the Insured's
underwriting classification at the time of the reinstatement. Reinstatement is
subject to the following:
1. Evidence of insurability of the Insured satisfactory to AVLIC;
2. Payment of a premium equal to the greater of $1,000 or an amount that,
after the deduction of premium charges, is large enough to cover the
monthly deductions for at least the three policy months commencing with the
effective date of reinstatement; and
3. Any policy debt will be reinstated with interest due and accrued.
4. The Policy cannot be reinstated if it has been surrendered for its full
cash surrender value.
The amount of cash value on the date of reinstatement will be equal to the
amount of the cash value on the date of lapse, increased by the premium paid at
reinstatement, less the premium charges and the amounts stated above, plus that
part of the deferred sales load (i.e., cash surrender charge) which would apply
if the Policy were surrendered
<PAGE>
on the date of reinstatement. The last addition to the cash value is designed
to avoid duplicate cash surrender charges. The original policy date will be
used for purposes of calculating the cash surrender charge. If any policy debt
was reinstated, that debt will be held in AVLIC's general account. Cash value
calculations will then proceed as described under "Determination Of Cash Value"
on page 16.
The effective date of reinstatement will be the first monthly activity date on
or next following the date of approval by AVLIC of the application for
reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate AVLIC for:
(1) providing the insurance benefits set forth in the Policy and any optional
insurance benefits added by rider; (2) administering the Policy; (3) assuming
certain risks in connection with the Policy; and (4) incurring expenses in
distributing the Policy. The nature and amount of these charges are described
more fully below.
PREMIUM CHARGE
No premium charges will be deducted from premium payments made during the first
policy year prior to their allocation to the selected Subaccounts or the Fixed
Account. However, a charge equal to 2.5% of the premium will be deducted from
each payment made after the first policy year prior to allocation among the
selected Subaccounts to reimburse AVLIC for premium taxes. Various states and
their subdivisions impose a tax on premiums received by insurance companies.
Premium taxes vary from state to state.
Although no deduction for premium taxes is made from premiums paid during the
first policy year, upon surrender, a portion of the cash surrender charge
includes a charge for state premium taxes of no greater than 2.5% of the
premiums paid. (See "Cash Surrender Charge," page 23). The charges for premium
taxes represent an amount AVLIC considers necessary to pay all premium taxes
imposed by the states and their subdivisions.
MONTHLY DEDUCTION
Charges will be deducted on each monthly activity date from the cash value of
the Policy to compensate AVLIC for insurance provided. The monthly deduction
includes: (a) the cost of insurance for the current policy month, plus (b)
one-twelfth of any flat extra rating charge. The monthly deduction will be
deducted as of the policy date and on each monthly activity date thereafter. It
will be allocated among the Subaccounts or the Fixed Account on a pro rata
basis. Each of these charges is described in more detail below.
COST OF INSURANCE. Because the cost of insurance depends upon several variables,
the cost for each policy month can vary from month to month. AVLIC will
determine the monthly cost of insurance charges by multiplying the applicable
cost of insurance rate by the net amount at risk for each policy month. The net
amount at risk on any monthly activity date is the amount by which the death
benefit which would have been payable on that monthly activity date exceeds the
cash value on that date.
COST OF INSURANCE RATE. The annual cost of insurance rate is based on the
Insured's sex, attained age, policy duration and risk class. The rate will vary
if the Insured is a smoker or non-smoker or is considered a substandard risk
classification and rated with a tabular extra rating. For the initial Specified
Amount, the cost of insurance rate will not exceed those shown in the Schedule
of Guaranteed Annual Cost of Insurance Rates shown in the schedule pages of the
Policy. These guaranteed rates are based on the Insured's age nearest birthday,
risk class, and the 1980 Commissioners Standard Ordinary Smoker and Non-Smoker,
Male and Female Mortality Tables. The cost of insurance rate, surrender charges
and payment options for policies issued in Massachusetts, Montana and certain
other states are on a sex neutral (unisex) basis. Any change in the cost of
insurance rates will apply to all persons of the same age, sex and risk class
and whose policies have been in effect for the same length of time.
If the underwriting class for any increase in death benefit resulting from a
change in death benefit option from A to B is not the same as the underwriting
class at issue, the cost of insurance rate used after such increase will be a
composite rate based upon a weighted average of the rates of the different
underwriting classes. Decreases will also be reflected in the cost of insurance
rate as discussed earlier. The actual charges made during the Policy year will
be shown in the annual report delivered to Policyowners.
RATE CLASS. The rate class of an Insured may affect the cost of insurance rate.
AVLIC currently places Insureds into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with
<PAGE>
higher mortality risks. If a Policy is rated at issue with a tabular extra
rating, the guaranteed rate is a multiple of the guaranteed rate for a standard
issue. This multiple factor is shown in the Schedule of Benefits in the Policy.
Insureds may also be assigned a flat extra rating to reflect certain additional
risks. The flat extra rating will not impact the cost of insurance rate, but
1/12 of any flat extra cost will be deducted as part of the monthly deduction on
each monthly activity date.
DAILY CHARGES AGAINST THE ACCOUNT
A Daily Charge will be deducted from the value of the net assets of the Account
to compensate AVLIC for mortality and expense risks assumed and the
administrative costs incurred in connection with the Policy. This daily charge
from the Account will be at the rate of 0.003288 percent (equivalent to an
annual rate of 1.20 percent) of the average daily net assets of the Account. The
daily charge will be deducted from the net asset value of the Account, and
therefore the Subaccounts, on each valuation date. Where the previous day or
days was not a valuation date, the deduction on the valuation date will be
0.003288 percent multiplied by the number of days since the last valuation date.
No mortality and expense charges will be deducted from the amounts in the Fixed
Account.
Of this Daily Charge, .002466 percent (equivalent to an annual rate of 0.90
percent) of the average daily net assets of the Account is deducted to
compensate AVLIC for the mortality and expense risk assumed under the Policies.
AVLIC believes that this level of charge is reasonable in relation to the risks
assumed by AVLIC under the Policies. The mortality risk assumed by AVLIC is that
Insureds' may live for a shorter time than assumed, and that an aggregate amount
of death benefits greater than that assumed accordingly will be paid. The
expense risk assumed is that expenses incurred in issuing and administering the
policies will exceed the administrative charges provided in the Policies.
AVLIC also deducts .000822 percent (equivalent to an annual rate of 0.30
percent) of the average daily net assets of the Account on a daily basis to
compensate it for administrative costs in connection with the Policy. AVLIC
has primary responsibility for the administration of the Policy and the Account.
AVLIC intends to administer the Policy itself through an arrangement whereby
AVLIC may purchase some administrative services from Ameritas Life. The services
in connection with the Policy involve issuance of the Policy, ordinary ongoing
maintenance of the Policy, and future changes in the Policy initiated by the
Policyowner. Administrative expenses in connection with the issuance of the
Policy are medical exams, review of applications for insurance underwriting
decisions, and processing of the applications and establishing policy records.
Ongoing ordinary administrative expenses expected to be incurred in connection
with a Policy include premium billing; recordkeeping; processing death
benefit claims, cash surrenders, and policy changes; preparing and mailing
reports; and overhead costs. Future changes in the Policy initiated by the
Policyowner include changes in the death benefit option. Administrative costs
for changing the death benefit option include the cost of processing
applications and changing and establishing policy records. The Daily Charge
is assessed throughout the life of the Policy. AVLIC does not expect to make a
profit on the portion of the charge levied to cover administrative expenses.
TAXES. Currently, no charge will be made against the Account for federal, state
or local income taxes. AVLIC may, however, make such a charge in the future if
income or gains within the Account will incur any federal, or any significant
state or local income tax liability, or if the federal, state or local tax
treatment of AVLIC changes. Charges for such taxes, if any, would be deducted
from the Account as a portion of the Daily Charge. (See Federal Tax Matters,
page 26).
FUND INVESTMENT ADVISORY FEE AND EXPENSES
Because the Account purchases shares of the Funds, the net assets of the Account
will reflect the investment advisory fees and other expenses incurred by the
Funds. The investment advisers to the Funds will receive compensation with
respect to the Funds' portfolios that they advise at a rate which varies by
portfolio and the size of that portfolio. (See The Funds, page 9).
AVLIC may receive administrative fees from the investment advisers of certain
funds.
CASH SURRENDER CHARGE
If a Policy is surrendered prior to the 7th policy anniversary, AVLIC will
assess a cash surrender charge based upon percentages of the premiums actually
paid during the first policy year, limited as shown in the policy schedule
pages. Paying less premium in the first year generally will have the effect of
reducing the cash surrender charge. However, depending upon the investment
experience, if the Policyowner chooses to pay less premium in the first year,
the cost of insurance charge may increase, the premium tax charge may be
greater, the Policy Values may be reduced and there is an increased risk that
the Policy will lapse. A portion of the cash surrender charge includes a charge
to cover state premium taxes. The remainder of the charge is deducted to
compensate AVLIC for the cost of distributing the Policy. The cost includes
agents' commissions, the printing of Prospectuses and sales literature, and
advertising.
The sales load portion of the cash surrender charge in any policy year is not
necessarily related to actual distribution expenses incurred in that year.
Instead, AVLIC expects to incur the majority of distribution expenses in the
early
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policy years and to recover amounts to pay such expenses over the life of
the Policy. AVLIC anticipates that funds generated by the sales loads will not
be sufficient to cover distribution expenses. To the extent that sales and
distribution expenses exceed sales loads in any year, AVLIC will pay them from
its other assets or surplus in its general account, which include amounts
derived from mortality and expense risk charges and other charges made under the
Policy. AVLIC believes that this distribution financing arrangement will benefit
the Account and the Policyowners.
AVLIC has voluntarily lowered its maximum surrender charge to 9%, which amount
will be charged on surrenders during policy years one, two and three. The Policy
provides that surrender charges may equal, respectively, 11.5%, 10.5% and 9.5%
for the first three years. Thereafter, the cash surrender charge grades to 8.5%
in year four, 7% in year five, 5% in year six, 2% in year seven and 0% after the
seventh year. The charge allowed by the Policy is based on a 9% sales load and a
2.5% charge for premium tax. The sales load and premium tax components of the
cash surrender charge grade down proportionately. There is no cash surrender
charge assessed upon decreases in the Specified Amount of the Policy or partial
withdrawals of cash value. There is no additional cash surrender charge
attributable to payments made after the first policy year. Because the cash
surrender charge may be significant upon early surrender, prospective
Policyowners should purchase a Policy only if they do not intend to surrender
the Policy for a substantial period.
TRANSFER CHARGE
A transfer charge of $10.00 may be imposed for each additional transfer among
the Subaccounts or the Fixed Account after fifteen per policy year to compensate
AVLIC for the costs of effecting the transfer. Since the charge reimburses AVLIC
for the cost of effecting the transfer only, it does not expect to make any
profit from the transfer charge. This charge will be deducted from the amount
transferred. The transfer charge will not be imposed on transfers that occur
as a result of policy loans or the exercise of exchange rights. The amount
of the transfer charge is guaranteed not to be increased.
PARTIAL WITHDRAWAL CHARGE
A charge will be imposed for each partial withdrawal to compensate AVLIC for the
administrative costs in effecting the requested payment and in making necessary
calculations for any reductions in Specified Amount which may be required by
reason of the partial withdrawal. The charge will be deducted from the amount of
the withdrawal. The current charge made will be the lesser of 2% of the amount
withdrawn or $25. This charge is guaranteed not to be more than the lesser of
$50 or 2% of the amount withdrawn. AVLIC does not expect to make any profit from
the partial withdrawal charge.
GENERAL PROVISIONS
THE CONTRACT
The Policy, the application, any supplemental applications, and any amendments
or endorsements make up the entire contract. 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. The rights and benefits under the Policy are summarized in this
prospectus. The Policy itself is what controls the rights and benefits. A copy
of the Policy is available upon request from AVLIC.
CONTROL OF POLICY
The Policyowner is as shown in the application or subsequent written
endorsement. Subject to the rights of any irrevocable beneficiary and any
assignee of record, all rights, options, and privileges belong to the
Policyowner, if living; otherwise to any successor-owner or owners, if living;
otherwise to the estate of the last owner to die.
BENEFICIARY
The Policyowner may name both primary and contingent beneficiaries in the
application. Payments will be shared equally among beneficiaries of the same
class unless otherwise stated. If a beneficiary dies before the Insured,
payments will be made to any surviving beneficiaries of the same class;
otherwise to any beneficiary(ies) of the next class; otherwise to the owner;
otherwise to the estate of the owner.
CHANGE OF BENEFICIARY
The Policyowner may change the beneficiary by written request at any time during
the Insured's lifetime unless otherwise provided in the previous designation of
beneficiary. 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.
<PAGE>
CHANGE IN OWNER OR ASSIGNMENT
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. Payment of proceeds is subject to the
rights of any assignee of record. A collateral assignment is not a change of
ownership.
PAYMENT OF PROCEEDS
The proceeds are subject first to any indebtedness to AVLIC and then to the
interest of any assignee of record. The balance of any death benefit proceeds
shall be paid in one sum to the designed beneficiary unless an optional method
of payment is selected. If no beneficiary survives the Insured, the proceeds
shall be paid in one sum to the Policyowner, if living; otherwise to any
successor-owner, if living; otherwise to the owner's estate. Any proceeds
payable on the Maturity Date or upon full surrender shall be paid in one sum
unless an optional method of payment is elected.
INCONTESTABILITY
The Policy is incontestable after it has been in force for two years from the
policy date during the lifetime of the Insured. However, this two year provision
shall not apply to riders that provide disability or accidental death benefits.
Any reinstatement of a Policy shall be incontestable only after having been in
force during the lifetime of the Insured for two years after the effective date
of the reinstatement.
MISSTATEMENT OF AGE, SEX, OR SMOKING
If the age, sex, or smoking habits of the Insured have been misstated, the
amount of the death benefit and cash values under the Policy will be adjusted.
The death benefit will be adjusted in proportion to the correct and incorrect
cost of insurance rates. The adjustment in the cash value will be the difference
between the cost of insurance deductions that were made and those that should
have been made.
SUICIDE
Suicide within two years of the policy date is not covered by the Policy, unless
otherwise provided by state law. If the Insured, while sane or insane, commits
suicide within two years after the policy date, AVLIC will pay only the premiums
received, less any partial withdrawals and any outstanding policy debt. The laws
of Missouri provide that death by suicide at any time is covered by the Policy,
and further, that suicide by an insane person is not a defense to the payment of
Accidental Death Benefits unless the insane person intended suicide when the
Insured applied for the Policy.
POSTPONEMENT OF PAYMENTS
Payment of any amount upon complete surrender, partial withdrawal, policy loans,
benefits payable at death or maturity, and transfers may be postponed whenever:
(i) the New York Stock Exchange is closed other than customary week-end and
holiday closings, or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission; (ii) the Commission by
order permits postponement for the protection of Policyowners; (iii) an
emergency exists, as determined by the Commission, as a result of which disposal
of securities is not reasonably practicable or it is not reasonably practicable
to determine the value of the Account's net assets; or, (iv) surrenders or
partial withdrawals from the Fixed Account may be deferred for up to 6 months
from the date of written request.
Payments under the Policy of any amounts derived from premiums paid by check may
be delayed until such time as the check has cleared the Policyowner's bank.
ACCELERATED BENEFIT RIDER FOR TERMINAL ILLNESS (LIVING BENEFIT RIDER)
Upon satisfactory proof of terminal illness and after the two-year contestable
period (no waiting period in certain states), AVLIC will accelerate the payment
of up to 50% of the lowest scheduled death benefit as provided by eligible
coverage, less an amount up to two guideline level premiums. Future premium
allocations after the payment of the benefit must be allocated to the Fixed
Account. Payment will not be made for amounts less than $4,000 or more than
$250,000 on all policies issued by AVLIC or its affiliates.
AVLIC may charge the lesser of 2% of the benefit or $50 as a withdrawal charge
to cover the costs of administration.
Satisfactory proof of terminal illness must include a written statement from a
licensed physician who is not related to the insured or the Policyowner stating
that the insured has a non-correctable medical condition that, with a reasonable
degree of medical certainty, will result in the death of the insured in less
than 12 months (6 months in
<PAGE>
certain states) from the physician's statement. Further, the condition must
first be diagnosed while the policy was in force.
The accelerated benefit first will be used to repay an outstanding policy loans
and unpaid loan interest, and will also affect future loans, partial
withdrawals, and surrenders. The accelerated benefit will be treated as a lien
against the death benefit policy value and will thus reduce the proceeds payable
on the death of the insured.
There is no extra premium for this rider. This rider is not available in all
states.
EXTENDED MATURITY RIDER - This rider may be elected by submitting a written
request to AVLIC during the 90 days prior to Maturity Date. If elected, as long
as the Cash Surrender Value is greater than zero, the policy may remain in force
for purposes of providing a benefit at the time of the Insured's death. Once
this rider becomes effective, no further premium payments will be accepted, and
no monthly charges will be made for cost of insurance, riders or flat extra
rating. All other policy provisions not specifically noted herein will remain in
effect while the policy continues in force. Interest on policy loans will
continue to accrue and become part of the policy debt. This rider does not
extend the original Maturity Date for purposes of determining benefits under
any other riders. Death Benefit Proceeds are payable to the beneficiary.
There is no extra premium for this rider. This rider is not available in all
states.
The Internal Revenue Service has not issued a ruling regarding the tax
consequences of this rider. There may be tax consequences to the election of
this rider.
REPORTS AND RECORDS
AVLIC will maintain all records relating to the Account and will mail to the
Policyowner, at the last known address of record, within 30 days after each
policy anniversary, an annual report which shows the current cash value, cash
surrender value, death benefit, premiums paid, outstanding policy debt and other
information. The Policyowner will also be sent a periodic report for the Funds
and a list of the portfolio securities held in each portfolio of the Funds.
DISTRIBUTION OF THE POLICIES
Ameritas Investment Corp., a wholly-owned subsidiary of Ameritas Life and an
affiliated company of AVLIC, will act as the principal underwriter of the
Policies, pursuant to an Underwriting Agreement between itself and AVLIC.
Ameritas Investment Corp. was organized under the laws of the State of Nebraska
on December 29, 1983, and is a registered broker/dealer pursuant to the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers. Ameritas Investment Corp. offers its 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. It also has executed selling
agreements with a variety of mutual funds, unit investment trusts and direct
participation programs.
The Policies are sold by individuals who are Registered Representatives of
Ameritas Investment Corp. and who are licensed as life insurance agents for
AVLIC. In addition, Ameritas Investment Corp. has entered into agreements with
other registered broker/dealers to permit their Registered Representatives to
sell the Policies subject to applicable law.
Registered Representatives who sell the Policy will receive commissions based
upon a commission schedule. After issuance of the Policy, commissions will
equal, at most, 5% of premiums paid in the first policy year. Further,
Registered Representatives who meet certain production standards may receive
additional compensation and managers receive override commission with respect to
the policies.
FEDERAL TAX MATTERS
The following discussion provides a general description of the federal income
tax considerations associated with the Policy. This discussion is not intended
as tax advice. Any person concerned about these tax implications should consult
a competent tax advisor. 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 (the` Service'). No representation is made as to the
likelihood of continuation of the present federal income tax laws or of the
current interpretations by the Service. The following summary does not purport
to be complete or to cover all situations.
Special rules not described in this Prospectus may be applicable in certain
situations. Specifically, this discussion does not address tax provisions that
may be applicable if the Policyowner is a corporation. Moreover, no attempt has
been made to consider in detail any applicable state or other tax (except
premium taxes, see discussion "Premium Charge," page 22) laws.
Counsel and other competent advisors should be consulted for more complete
information before a Policy is purchased.
<PAGE>
(a) TAXATION OF AVLIC. AVLIC is taxed as a life insurance company under Part
I of Subchapter L of the Internal Revenue Code of 1986 (the "Code"). At
this time, since the Account is not an entity separate from AVLIC, and
its operations form a part of AVLIC, it will not be taxed separately as
a 'regulated investment company' under Subchapter M of the Code.
Net investment income and realized net capital gains on the assets of
the Account are reinvested and are taken into account in determining the
death benefit and cash value of the Policy. As a result, such net
investment income and realized net capital gains are automatically
retained as part of the reserves under the Policy. AVLIC believes that
Account net investment income and realized net capital gains will not be
taxable to the extent that such income and gains are retained as
reserves under the Policy.
AVLIC does not currently expect to incur any federal income tax
liability attributable to the Account with respect to the sale of the
Policies. Accordingly, no charge is being made currently to the Account
for federal income taxes. If, however, AVLIC determines that it may
incur such taxes attributable to the Account, it may assess a charge for
such taxes against the Account.
AVLIC may also incur state and local taxes (in addition to premium taxes
for which a deduction from premiums is currently made) in various
states. At present, these taxes are not significant. If there is a
material change in state or local tax laws, charges for such taxes
attributable to the Account, if any, may be assessed against the
Account.
(b) MODIFIED ENDOWMENT CONTRACT. The Code (Section 7702A) also states that a
Policy becomes a "modified endowment contract" if it does not meet a
7-pay premium test described in the section. Because this Policy is
designed to operate generally as a single premium contract, it does not
meet that test. While gains remaining in the Policy continue to be tax
deferred, distributions such as partial or full surrenders, assignments,
policy pledges, and loans (including loans to pay loan interest) under
the Policy will be taxable to the extent of any gain under the Policy.
(c) TAX PENALTY ON EARLY WITHDRAWALS. A 10% penalty tax also applies to the
taxable portion of any distribution such as prior to the Policyowner
reaching age 59 1/2. The 10% penalty tax does not apply if the
Policyowner is disabled as defined under the code or if the distribution
is paid out in the form of a life annuity on the life of the Policyowner
or the joint lives of the Policyowner and beneficiary.
(d) TAX STATUS OF THE POLICY. The Code (Section 7702) includes a definition
of a life insurance contract for federal tax purposes, which places
limitations on the amount of premiums that may be paid for the Policy
and the relationship of the cash value to the death benefit. AVLIC
believes that the Policy meets the statutory definition of a life
insurance contract. If the death benefit of a Policy is changed, the
applicable definitional limitations may change. In the case of a
decrease in the death benefit, a partial surrender, a change from Option
B to Option A, or any other such change that reduces future benefits
under the Policy during the first 15 years after a Policy is issued and
that results in a cash distribution to the Policyowners in order for the
Policy to continue complying with the Section 7702 definitional
limitations on premiums and cash values, the Policyowner must include in
ordinary income (to the extent of any gain in the Policy)certain amounts
prescribed in Section 7702 which are so distributed.
The Code (Section 817(h)) also authorizes the Secretary of the Treasury
(the "Treasury") to set standards by regulation or otherwise for the
investments of the Account to be 'adequately diversified' in order for
the Policy to be treated as a life insurance contract for federal tax
purposes. The Account, through the Funds, intends to comply with the
diversification requirements prescribed by the Treasury in regulations
published in the Federal Register on March 2, 1989, which affect how the
Funds' assets may be invested. Although AVLIC does not control the
Funds, it 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. Thus, AVLIC believes that the
Policy will be treated as a life insurance contract for federal tax
purposes.
In connection with the issuance of regulations relating to the
diversification requirements, the Treasury announced that such
regulations do not provide guidance concerning the extent to which
owners may direct their investments to particular divisions of a
separate account. Regulations in this regard may be issued in the
future. It is not clear what these regulations will provide nor whether
they will be prospective only. It is possible that when regulations are
issued, the Policy may need to be modified to comply with such
regulations. For these reasons, the Company reserves the right to modify
the Policy as necessary to prevent the Owner from being considered the
owner of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal tax purposes.
(e) TAX TREATMENT OF POLICY PROCEEDS. AVLIC believes that the Policy will
be treated in a manner consistent with a fixed benefit life insurance
policy for federal income tax purposes. Thus, AVLIC believes that the
<PAGE>
death benefit payable under either death benefit option under the Policy
will be excludable from the gross income of the beneficiary under
Section 101(a)(1) of the Code, and the Policyowner will not be deemed to
be in constructive receipt of the cash value under the Policy until its
actual surrender. However, in the event of certain cash distributions
under the Policy resulting from any change which reduces future benefits
under the Policy, the distribution will be taxed in whole or in part as
ordinary income (to the extent of gain in the Policy). See discussion
above, "Tax Status of the Policy."
Loans received from a MEC will be considered distributions to the extent
of any gain under the Policy. Generally, interest paid on any loan under
a Policy owned by an individual will not be tax deductible. In addition,
interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or is financially interested in
the business carried on by that taxpayer will not be tax deductible to
the extent the aggregate amount of such loans with respect to Policies
covering such individual exceeds $50,000. Further, even as to interest
on loans up to $50,000 per such individual, such interest would not be
deductible if the Policy were deemed for federal tax purposes to be a
single premium life insurance contract. Policyowners should consult a
competent tax advisor as to whether the Policy would be so deemed. See
"Tax Status of the Policy" above for a discussion of potential changes
to the tax treatment of loans and withdrawals.
The right to exchange the Policy for a non-variable life insurance
policy (see Exchange Privilege, page 19), may have tax consequences and,
the right to change owners (see General Provisions, page 24), and the
provision for partial withdrawals (see Surrenders, page 18) will have
tax consequences. Upon complete surrender or when maturity benefits are
paid, if the amount received plus any outstanding policy debt exceeds
the total premiums paid that are not treated as previously withdrawn by
the Policyowner, the excess generally will be taxed as ordinary income.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on
applicable law and the circumstances of each Policyowner or beneficiary.
In addition, if the Policy is used in connection with tax-qualified
retirement plans, certain limitations prescribed by the service on, and
rules with respect to the taxation of, life insurance protection
provided through such plans may apply.
SAFEKEEPING OF THE ACCOUNT'S ASSETS
AVLIC holds the assets of the Account. The assets are kept physically segregated
and held separate and apart from the general account assets. AVLIC maintains
records of all purchases and redemptions of Fund shares by each of the
Subaccounts.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Account will be invested in
shares of the corresponding portfolios of the Funds. AVLIC is the legal holder
of those shares and as such has the right to vote to elect the Board of
Directors of the Funds, to vote upon certain matters that are required by the
1940 Act to be approved or ratified by the shareholders of a mutual fund, and to
vote upon any other matter that may be voted upon at a shareholders' meeting. To
the extent required by law, AVLIC will vote all shares of the Funds held in the
Account at regular and special shareholder meetings of the Funds in accordance
with instructions received from Policyowners. The number of votes for which each
Policyowner has the right to provide instructions will be determined as of the
record date selected by the Board of Directors of the Funds. AVLIC will furnish
Policyowners with the proper forms, materials and reports to enable them to give
it these instructions.
The number of Fund shares in a Subaccount for which instructions may be given by
a Policyowner is determined by dividing the Policy's cash value held in that
Subaccount by the net asset value of one share in the corresponding portfolio of
the Fund. Fractional shares will be counted. Fund shares held in each Subaccount
for which no timely instructions from Policyowners are received and Fund shares
held in each Subaccount which do not support Policyowner interests will be voted
by AVLIC in the same proportion as those shares in that Subaccount for which
timely instructions are received. Voting instructions to abstain on any item to
be voted will be applied on a pro rata basis to reduce the votes eligible to be
cast. Should applicable federal securities laws or regulations permit, AVLIC may
elect to vote shares of the Funds in its own right.
Matters on which Policyowners may give voting instructions include the
following: (1) election of the Board of Directors of the Fund; (2) ratification
of the independent accountant of the Fund; (3) approval of the Investment
Advisory Agreement for the Portfolio(s) of the Fund corresponding to the
Policyowner's selected Subaccount; and
<PAGE>
(4) any change in the fundamental investment policies of the Portfolio(s)
corresponding to the Policyowner's selected Subaccount(s).
DISREGARD OF VOTING INSTRUCTION. AVLIC may, if required by state insurance
officials, disregard voting instructions if those instructions would require
shares to be voted to cause a change in the subclassification or investment
objectives or policies of one or more of the Funds' portfolios, or to approve or
disapprove an investment adviser or principal underwriter for the Funds. In
addition, AVLIC itself may disregard voting instructions that would require
changes in the investment objectives or policies of any portfolio or in an
investment adviser or principal underwriter for a Fund, if AVLIC reasonably
disapproves those changes in accordance with applicable federal regulations. If
AVLIC does disregard voting instructions, it will advise Policyowners of that
action and its reasons for the action in the next annual report or proxy
statement to Policyowners.
STATE REGULATION OF AVLIC
AVLIC, a stock life insurance company organized under the laws of Nebraska, is
subject to regulation by the Nebraska Department of Insurance. On or before
March 1 of each year an NAIC convention blank covering the operations and
reporting on the financial condition of AVLIC and the Account as of December 31
of the preceding year must be filed with the Nebraska Department of Insurance.
Periodically, the Nebraska Department of Insurance examines the liabilities and
reserves of AVLIC and the Account and certifies their adequacy.
In addition, AVLIC is subject to the insurance laws and regulations of other
states within which it is licensed or may become licensed to operate. The
policies offered by the prospectus are available in the various states as
approved. Generally, the Insurance Department of any other state applies the
laws of the state of domicile in determining permissible investments.
EXECUTIVE OFFICERS AND DIRECTORS OF AVLIC
Shows name and position(s) with AVLIC* followed by the principal occupations for
the last five years.***
LAWRENCE J. ARTH, DIRECTOR, CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER*
Director, Chairman of the Board, and Chief Executive Officer: ALIC**, First
Ameritas Life Insurance Corp. of New York.; Director, Chairman of the Board,
President, and Chief Executive Officer: AMAL Corporation; Pathmark Assurance
Company, Bankers Life Nebraska Company, BLN Financial Services, Inc.; Director
and Chairman of the Board: Veritas Corp., Ameritas Investment Corp., Ameritas
Investment Advisors, Inc., FMA Realty Inc.; Director, Chairman, President, Chief
Executive Officer: Lincoln Gateway Shopping Center, Inc.; Director: Ameritas
Bankers Assurance Company, Ameritas Managed Dental Plan, Inc.
KENNETH C. LOUIS, DIRECTOR, EXECUTIVE VICE PRESIDENT*
President and Chief Operating Officer: ALIC; Director, Executive Vice President:
AMAL Corporation; Director and Senior Vice President: Ameritas Investment Corp.;
Director: First Ameritas Life Insurance Corp. of New York, Ameritas Investment
Advisors, Inc., Ameritas Investment Corp., Veritas Corp., Ameritas Bankers
Assurance Company, Bankers Life Nebraska Company, BLN Financial Services, Inc.,
FMA Realty, Inc., Lincoln Gateway Shopping Center, Inc., Pathmark Assurance
Company, Ameritas Managed Dental Plan, Inc.
D T DOAN, DIRECTOR AND EXECUTIVE VICE PRESIDENT****
Director and Executive Vice President: AMAL Corporation; Director and Senior
Vice President: Ameritas Investment Corp.; Vice Chairman and President-Insurance
Operations, American Mutual Life Insurance Company (formerly known as ("f.k.a.")
Central Life Assurance Company *****).
ROBERT B. BUSH, DIRECTOR, SENIOR VICE PRESIDENT VARIABLE OPERATIONS AND
ADMINISTRATION*
Executive Vice President-Individual Insurance, ALIC; Chairman, President, CEO:
CUNA Mutual Financial Services Corporation; CUNA Brokerage Services, Inc.;
Century Financial Services Corp.; CUNA Mutual General Agency of Texas, Inc.; CM
Field Services, Inc.; Plan America Program, Inc.; Director: CU Financial and
Insurance Services, Inc.; CUNA Mutual Insurance Agency of Alabama, Inc.; CUNA
Mutual Insurance Agency of Massachusetts, Inc.; CUNA Mutual Life Insurance
Agency of Mississippi, Ltd.; CUNA Mutual Casualty Insurance Agency of
Mississippi, Inc.; CUNA Mutual Insurance Agency of New Mexico, Inc; CUNA Mutual
Insurance Agency of Ohio, Inc.; Vice President: CUNA Mutual Funds Management
Company, L.L.C.; Senior Vice President: CUNA Mutual Insurance Society; CUNA
Mutual Investment Corporation; CUMIS Insurance Society, Inc.; League General
Insurance Company; Members Life Insurance Company; CUNA Mutual Insurance Agency,
Inc.; Century Life of America; Century Life Insurance Co.
<PAGE>
WAYNE E. BREWSTER, SENIOR VICE PRESIDENT-VARIABLE SALES*
Vice President-Variable Sales: ALIC.
ASHOK CHAWLA, VICE PRESIDENT-FIXED ANNUITY INVESTMENTS****
Senior Vice President - Fixed Income Group: American Mutual Life Insurance
Company; Director-Risk Management: Providian Corp.; Assistant Vice President:
Lincoln National Corp.
THOMAS C. GODLASKY, DIRECTOR****
Director, AIC; Executive Vice President and Chief Investment Officer, American
Mutual Life Insurance Company; Manager-Fixed Income and Derivatives Department,
Providian Corporation
JOSEPH K. HAGGERTY, ASSISTANT GENERAL COUNSEL****
Assistant Secretary and Assistant General Counsel, AMAL Corporation; Senior Vice
President and General Counsel: American Mutual Life Insurance Company (f.k.a.
Central Life Assurance Company*****); Senior Vice President, Assistant
Secretary, Deputy General Counsel: I.C.H. Corporation; Assistant Secretary:
Integrity National Life Insurance Company; Senior Vice President: Facilities
Management Installation, Inc.; Vice President: Constitution Life Insurance
Company; Bankers Life and Casualty Company; Bankers Multiple Line Insurance
Company; Certified Life Insurance Company; Lifetime Security Life Insurance
Company; Philadelphia American Life Insurance Company; Southeast Title and
Insurance Company; Southwestern Life Insurance Company; Union Bankers Insurance
Company; Western Pioneer Life Insurance Company; Director: Bankers Life and
Casualty Company of New York; Vice President and Director: Modern American Life
Insurance Company
JAMES R. HAIRE, VICE PRESIDENT AND ACTUARY*
Senior Vice President-Corporate Actuary and Strategic Development: ALIC;
Director: Pathmark Assurance Co.; Director and Vice President: First Ameritas
Life Insurance Corp. of New York
JON C. HEADRICK, TREASURER*
Executive Vice President-Investments and Treasurer: ALIC; Treasurer to: Ameritas
Investment Corp., AMAL Corporation, Veritas Corp., Ameritas Bankers Assurance
Company, Bankers Life Nebraska Company, Pathmark Assurance Company, First
Ameritas Life Insurance Corp. of New York, Ameritas Managed Dental Plan, Inc.;
Director, Vice President and Treasurer to: BLN Financial Services Inc.;
Director, President and Treasurer: FMA Realty Inc., Armenta Corp.; Director and
Treasurer: Ameritas Investment Corp.; Director, President and Chief Executive
Officer: Ameritas Investment Advisors Inc.
SANDRA K. HOLMES, VICE PRESIDENT-FIXED ANNUITY CUSTOMER SERVICE****
Vice President: American Mutual Life Insurance Company (f.k.a. Central Life
Assurance Company*****)
KENNETH R. JONES, VICE PRESIDENT-CORPORATE COMPLIANCE AND ASSISTANT SECRETARY*
Vice President, Corporate Compliance & Assistant Secretary: ALIC; Ameritas
Investment Advisors, Inc., Ameritas Investment Corp., First Ameritas Life
Insurance Corp. of New York; Assistant Vice President & Assistant Secretary:
Bankers Life Nebraska Company, Pathmark Assurance Company.
NORMAN M. KRIVOSHA, SECRETARY AND GENERAL COUNSEL*
Executive Vice President, Secretary & Corporate General Counsel: ALIC; Secretary
and General Counsel: AMAL Corporation, Ameritas Investment Corp.; Director,
Secretary: Ameritas Investment Advisors Inc., Ameritas Investment Corp., BLN
Financial Services, Inc., Ameritas Bankers Assurance Company, Veritas Corp.,
Pathmark Assurance Company, Bankers Life Nebraska Company; Armenta Corp., FMA
Realty, Inc.; Ameritas Managed Dental Plan, Inc.; Vice President, Secretary &
General Counsel: First Ameritas Life Insurance Corp. of New York; Secretary:
Lincoln Gateway Shopping Center, Inc.
JOANN M. MARTIN, CONTROLLER*
Senior Vice President-Controller and Chief Financial Officer: ALIC; Director and
Chief Financial Officer: Ameritas Managed Dental Plan, Inc.; Director: Ameritas
Investment Advisors, Inc., Ameritas Investment Corp., BLN Financial Services,
Inc., FMA Realty, Inc.; Controller to: Veritas Corp., Bankers Life Nebraska
Company, Pathmark Assurance Company; Director, Controller: Lincoln Gateway
Shopping Center Inc.; Director, Comptroller, Assistant Secretary: Ameritas
Bankers Assurance Company; Vice President, Comptroller: First Ameritas Life
Insurance Corp. of New York.
SHEILA SANDY, ASSISTANT SECRETARY****
Annuity Manager: American Mutual Life Insurance Company
<PAGE>
MICHAEL E. SPROULE, DIRECTOR****
Director, Ameritas Investment Corp.; Executive Vice President and Chief
Financial Officer: American Mutual Life Insurance Company (f.k.a. Central Life
Assurance Company*****); I.C.H. Corporation
LINDA S. STRECK, VICE PRESIDENT-FIXED ANNUITY PRODUCT DEVELOPMENT****
Actuarial Vice President - Product Development and Management: American Mutual
Life Insurance Company (f.k.a. Central Life Assurance Company*****).
KEVIN WAGONER, ASSISTANT TREASURER****
Director Investment Accounting: American Mutual Life Insurance Company (f.k.a.
Central Life Assurance Company*****); Senior Financial Analyst: Target Stores
* The Principal business address: of each person listed is Ameritas
Variable Life Insurance Company, One Ameritas Way, 5900 "O" Street,
P.O. Box 82550, Lincoln, Nebraska 68501.
** Ameritas Life Insurance Corp.
*** Where an individual has held more than one position with an
organization during the last 5-year period, the last position held has
been given.
**** Principal business address for D T Doan, Joseph Haggerty, Sandra K.
Holmes, Michael E. Sproule, Ashok K. Chawla, Thomas C. Godlasky,
Sheila E. Sandy, Linda S. Streck, and Kevin Wagoner is: American Mutual
Life Insurance Company, 611 Fifth Avenue, Des Moines, Iowa 50309.
***** Central Life Assurance Company merged with American Mutual Life
Insurance Company on December 31, 1994. Central Life Assurance Company
was the survivor of the merger. Contemporaneous with the merger,
Central Life Assurance Company changed its name to American Mutual Life
Insurance Company.
LEGAL MATTERS
All matters of Nebraska law pertaining to the Policy, including the validity of
the Policy and AVLIC's right to issue the Policy under Nebraska Insurance Law,
have been passed upon by Norman M. Krivosha, Secretary and General Counsel of
AVLIC.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Account is a party or to which the
assets of the Account are subject. AVLIC is not involved in any litigation that
is of material importance in relation to its total assets or that relates to the
Account.
EXPERTS
The financial statements of AVLIC as of December 31, 1995 and 1994, and for each
of the three years in the period ended December 31, 1995 and the financial
statements of the Account as of December 31, 1995 and for each of the three
years in the period then ended, included in this Prospectus have been audited by
Deloitte & Touche LLP, 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.
Actuarial matters included in this Prospectus have been examined by Thomas P.
McArdle, Assistant Vice President Associate Actuary of Ameritas Life Insurance
Corp., as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL 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 offered hereby. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Account, AVLIC and the Policy offered hereby.
Statements contained in this Prospectus as to the contents of the Policy and
other legal instruments are summaries. For a complete statement of the terms
thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of AVLIC which are included in this Prospectus should
be considered only as bearing on the ability of AVLIC to meet its obligations
under the Policies. They should not be considered as bearing on the investment
performance of the assets held in the Account.
<PAGE>
Independent Auditors' Report
Board of Directors
Ameritas Variable Life
Insurance Company
Lincoln, Nebraska
We have audited the accompanying statement of net assets of Ameritas Variable
Life Insurance Company Separate Account V as of December 31, 1995, and the
related statements of operations and changes in net assets for each of the three
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1995. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company
Separate Account V as of December 31, 1995, and the results of its operations
and changes in its net assets for each of the three years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
February 1, 1996
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
ASSETS
INVESTMENTS AT NET ASSET VALUE:
<S> <C>
Variable Insurance Products Fund:
Money Market Portfolio - 5,613,527.070 shares at
$1.00 per share (cost $5,613,527) $ 5,613,527
Equity-Income Portfolio - 652,438.732 shares at
$19.27 per share (cost $9,667,592) 12,572,494
Growth Portfolio - 702,196.341 shares at
$29.20 per share (cost $14,143,041) 20,504,133
High Income Portfolio - 358,988.159 shares at
$12.05 per share (cost $3,703,023) 4,325,807
Overseas Portfolio - 438,914.420 shares at
$17.05 per share (cost $6,616,181) 7,483,491
Variable Insurance Products Fund II:
Asset Manager Portfolio - 1,221,448.421 shares at
$15.79 per share (cost $16,521,707) 19,286,671
Investment Grade Bond Portfolio - 171,189.054 shares at
$12.48 per share (cost $2,013,214) 2,136,439
Contrafund Portfolio - 9,382.665 shares at
$13.78 per share (cost $129,565) 129,293
Index 500 Portfolio - 61.274 shares at
$75.71 per share (cost $4,403) 4,639
Asset Manager: Growth Portfolio - 1,153.239 shares at
$11.78 per share (cost $14,071) 13,585
Alger American Fund:
Small Capitalization Portfolio - 263,321.551 shares at
$39.41 per share (cost $8,012,444) 10,377,502
Growth Portfolio - 150,146.226 shares at
$31.16 per share (cost $3,672,555) 4,678,557
Income and Growth Portfolio - 51,644.863 shares at
$17.79 per share (cost $790,984) 918,762
Midcap Growth Portfolio - 138,005.038 shares at
$19.44 per share (cost $2,229,077) 2,682,818
Balanced Portfolio - 32,000.820 shares at
$13.64 per share (cost $391,329) 436,491
Leveraged Allcap Portfolio - 5,780.602 shares at
$17.43 per share (cost $99,893) 100,756
Dreyfus Stock Index Fund:
Stock Index Fund Portfolio - 127,452.178 shares at
$17.20 per share (cost $1,880,387) 2,192,178
MFS Variable Insurance Trust:
Emerging Growth Series Portfolio -10,355.688 shares at
$11.41 per share (cost $119,796) 118,158
World Governments Series Portfolio - 1,555.043 shares at
$10.17 per share (cost $16,700) 15,815
Utilities Series Portfolio - 1,475.513 shares at
$12.57 per share (cost $19,793) 18,547
---------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 93,609,663
===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSET
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
------------ ------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 1,293,935 $ 799,210 $ 499,740
EXPENSE
Charges to policyowners for assuming
mortality and expense risk (Note B) 723,000 465,706 260,944
----------- ----------- -----------
INVESTMENT INCOME - NET 570,935 333,504 238,796
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NET
Capital gain distributions received 403,845 1,403,280 292,625
Unrealized increase/(decrease) 14,755,373 (2,469,056) 3,683,814
----------- ------------ ----------
NET GAIN/(LOSS) ON INVESTMENTS 15,159,218 (1,065,776) 3,976,439
----------- ------------ ----------
NET (DECREASE)/INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS 15,730,153 (732,272) 4,215,235
NET INCREASE IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS (Note B) 19,763,147 21,904,104 14,840,992
----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS 35,493,300 21,171,832 19,056,227
NET ASSETS
Beginning of period 58,116,363 36,944,531 17,888,304
----------- ----------- -----------
End of period $ 93,609,663 $ 58,116,363 $ 36,944,531
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
A. ORGANIZATION AND ACCOUNTING POLICIES:
-------------------------------------
Ameritas Variable Life Insurance Company Separate Account V (the Account)
was established on August 28, 1985, under Nebraska law by Ameritas Variable
Life Insurance Company (AVLIC), a wholly-owned subsidiary of Ameritas Life
Insurance Corp. (ALIC). 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, 1995, there are twenty
subaccounts within the Account. Five of the subaccounts invest only in a
corresponding Portfolio of Variable Insurance Products Fund and five invest
only in a corresponding Portfolio of Variable Insurance Products Fund II.
Both funds are diversified open-end management investment companies and are
managed by Fidelity Management and Research Company. Six of the subaccounts
invest only in a corresponding Portfolio of Alger American Fund which is a
diversified open-end management investment company managed by Fred Alger
Management, Inc. One subaccount invests only in a corresponding Portfolio
of Dreyfus Stock Index Fund which is a non-diversified open-end management
investment company managed by Dreyfus Service Corporation. Three of the
subaccounts invest only in a corresponding Portfolio of MFS Variable
Insurance Trust which is a diversified open-end management investment
company managed by Massachusetts Financial Services Company. All five funds
are registered under the Investment Company Act of 1940, as amended. Each
Portfolio pays the manager a monthly fee for managing its investments and
business affairs. The assets of the Account are carried at the net asset
value of the underlying Portfolios of the Funds. 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.
AVLIC currently does not expect to incur any federal income tax liability
attributable to the Account with respect to the sale of the variable life
insurance policies. If, however, AVLIC determines that it may incur such
taxes attributable to the Account, it may assess a charge for such taxes
against the Account.
B. POLICYHOLDER CHARGES:
---------------------
AVLIC charges the Account for mortality and expense risks assumed. A daily
charge is made on the average daily value of the net assets representing
equity of policyowners held in each subaccount per each product's current
policy provisions. Additional charges are made at intervals and in amounts
per each product's current policy provisions. These charges are prorated
against the balance in each investment option of the policyholder,
including the Fixed Account option which is not reflected in this separate
account. The withdrawal of these charges are included as other operating
transfers.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
C. INFORMATION BY FUND:
<TABLE>
<CAPTION>
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
-------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance 12-31-94 $ 6,247,662 $ 6,295,945 $ 12,362,890 $ 2,970,211 $ 4,954,650
Distributed earnings 330,031 558,647 71,777 214,996 39,788
Mortality risk charge (57,621) (89,161) (160,505) (40,007) (60,098)
Unrealized increase/(decrease) --- 2,148,654 4,664,368 542,261 616,308
Net premium transferred (906,545) 3,658,409 3,565,603 638,346 1,932,843
------------- ------------ ------------- ------------- ------------
Balance 12-31-95 $ 5,613,527 $ 12,572,494 $ 20,504,133 $ 4,325,807 $ 7,483,491
============= ============ ============= ============= ============
Variable Insurance Products Fund II
------------------------------------------------------------------------------
Asset Investment Contrafund Asset Mgr.: Index 500
Manager Grade Bond (1) Growth (2) (3)
------------- ------------- ------------ -------------- -------------
Balance 12-31-94 $ 16,158,059 $ 907,159 $ --- $ --- $ ---
Distributed earnings 346,679 34,269 1,284 564 ---
Mortality risk charge (164,848) (13,893) (119) (25) (7)
Unrealized increase/(decrease) 2,471,611 183,723 (273) (486) 236
Net premium transferred 475,170 1,025,181 128,401 13,532 4,410
------------- ----------- ------------ -------------- ------------
Balance 12-31-95 $ 19,286,671 $ 2,136,439 $ 129,293 $ 13,585 $ 4,639
============= =========== ============ ============== ============
Alger American Fund
------------------------------------------------------------------------------------
Small Income and Midcap Leveraged
Capitalization Growth Growth Growth Balanced Allcap(4)
--------------- ------------ ----------- ----------- ----------- -----------
Balance 12-31-94 $ 4,264,367 $ 2,012,571 $ 307,350 $ 545,887 $ 126,178 $ ---
Distributed earnings --- 34,885 5,186 142 3,039 ---
Mortality risk charge (67,150) (32,981) (5,765) (14,362) (2,251) (57)
Unrealized increase/(decrease) 2,184,006 924,176 146,805 430,138 45,544 863
Net premium transferred 3,996,279 1,739,906 465,186 1,721,013 263,981 99,950
------------- ------------ ----------- ----------- ----------- -----------
Balance 12-31-95 $ 10,377,502 $ 4,678,557 $ 918,762 $ 2,682,818 $ 436,491 $ 100,756
============= ============ =========== =========== =========== ===========
MFS Variable Insurance Trust Dreyfus
---------------------------------------------- -------------
Emerging World (6) Utilities Stock
Growth(5) Governments (7) Index Fund TOTAL
------------- --------------- ------------- ------------- ---------------
Balance 12-31-94 $ --- $ --- $ --- $ 963,434 $ 58,116,363
Distributed earnings 2,634 1,440 1,745 50,674 1,697,780
Mortality risk charge (118) (37) (10) (13,985) (723,000)
Unrealized increase/(decrease) (1,638) (885) (1,246) 401,208 14,755,373
Net premium transferred 117,280 15,297 18,058 790,847 19,763,147
------------- -------------- ------------ ----------- ---------------
Balance 12-31-95 $ 118,158 $ 15,815 $ 18,547 $ 2,192,178 $ 93,609,663
============= ============== ============ =========== ===============
(1) Commenced business 09/05/95. (5) Commenced business 09/12/95.
(2) Commenced business 09/13/95. (6) Commenced business 09/13/95.
(3) Commenced business 10/17/95. (7) Commenced business 10/18/95.
(4) Commenced business 09/13/95.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
C. INFORMATION BY FUND:
Alger American Fund
--------------------------------------------------------------------------------
Small Income Midcap
Capitalization Growth and Growth Growth Balanced
--------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance 12-31-93 $ 2,431,108 $ 513,578 $ 155,544 $ 91,469 $ 12,416
Distributed earnings 197,447 56,309 12,250 805 1,173
Mortality risk charge (28,810) (10,955) (2,338) (2,777) (667)
Unrealized increase/(decrease) (212,648) 11,388 (27,043) 15,802 (793)
Net premium transferred 1,877,270 1,442,251 168,937 440,588 114,049
--------------- ------------- -------------- ------------- -------------
Balance 12-31-94 $ 4,264,367 $ 2,012,571 $ 307,350 $ 545,887 $ 126,178
=============== ============= ============== ============= =============
Variable Insurance Products Fund
--------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
--------------- ------------- ------------- ------------- -------------
Balance 12-31-93 $ 3,302,391 $ 4,081,214 $ 8,666,232 $ 2,112,409 $ 2,627,460
Distributed earnings 227,947 343,291 540,322 192,676 16,253
Mortality risk charge (53,086) (50,692) (97,597) (24,422) (41,486)
Unrealized increase/(decrease) --- (10,817) (430,322) (216,500) (57,561)
Net premium transferred 2,770,410 1,932,949 3,684,255 906,048 2,409,984
------------- ------------ ------------ ------------ ------------
Balance 12-31-94 $ 6,247,662 $ 6,295,945 $ 12,362,890 $ 2,970,211 $ 4,954,650
============= ============ =========== ============ ============
Variable Insurance
Products Fund II Dreyfus
----------------------------- -------------
Asset Investment Stock
Manager Grade Bond Index Fund TOTAL
-------------- ------------ ------------- -------------
Balance 12-31-93 $ 11,412,386 $ 1,069,216 $ 469,108 $ 36,944,531
Distributed earnings 589,342 2,944 21,731 2,202,490
Mortality risk charge (133,984) (12,468) (6,424) (465,706)
Unrealized increase/(decrease) (1,465,271) (53,875) (21,416) (2,469,056)
Net premium transferred 5,755,586 (98,658) 500,435 21,904,104
------------- ------------- ------------ -------------
Balance 12-31-94 $ 16,158,059 $ 907,159 $ 963,434 $ 58,116,363
============= ============= ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
C. INFORMATION BY FUND:
Alger American Fund
--------------------------------------------------------------------------------
Small Income Midcap
Capitalization Growth and Growth Growth (1) Balanced (2)
--------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance 12-31-92 $ 596,677 $ 56,046 $ 37,708 $ --- $ ---
Distributed earnings --- 189 218 922 ---
Mortality risk charge (12,717) (2,485) (775) (191) (42)
Unrealized increase/(decrease) 298,611 64,901 6,462 7,801 411
Net premium transferred 1,548,537 394,927 111,931 82,937 12,047
--------------- ------------- ------------- -------------- ------------
Balance 12-31-93 $ 2,431,108 $ 513,578 $ 155,544 $ 91,469 $ 12,416
=============== ============= ============== ============ ============
Variable Insurance Products Fund
--------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
--------------- ------------- ------------- ------------- -------------
Balance 12-31-92 $ 2,600,260 $ 2,476,762 $ 5,152,469 $ 857,133 $ 586,673
Distributed earnings 84,138 89,586 125,620 82,061 15,219
Mortality risk charge (26,767) (33,306) (67,253) (17,034) (13,317)
Unrealized increase/(decrease) --- 430,027 1,063,056 215,584 333,367
Net premium transferred 644,760 1,118,145 2,392,340 974,665 1,705,518
-------------- -------------- ------------ ----------- -----------
Balance 12-31-93 $ 3,302,391 $ 4,081,214 $ 8,666,232 $ 2,112,409 $ 2,627,460
============== ============== ============ =========== ===========
Variable Insurance
Products Fund II Dreyfus
----------------------------- -------------
Asset Investment Stock
Manager Grade Bond Index Fund TOTAL
-------------- ------------ ------------- -------------
Balance 12-31-92 $ 4,852,263 $ 510,803 $ 161,510 $ 17,888,304
Distributed earnings 237,544 60,677 96,191 792,365
Mortality risk charge (74,672) (9,236) (3,149) (260,944)
Unrealized increase/(decrease) 1,317,267 15,527 (69,200) 3,683,814
Net premium transferred 5,079,984 491,445 283,756 14,840,992
------------- ------------ ------------ -------------
Balance 12-31-93 $ 11,412,386 $ 1,069,216 $ 469,108 $ 36,944,531
============= ============ ============ =============
(1) Commenced business 06/17/93.
(2) Commenced business 06/28/93.
</TABLE>
<PAGE>
Independent Auditors' Report
Board of Directors
Ameritas Variable Life
Insurance Company
Lincoln, Nebraska
We have audited the accompanying balance sheets of Ameritas Variable Life
Insurance Company as of December 31, 1995 and 1994, and the related statements
of operations, changes in stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with statutory accounting principles which are considered generally
accepted accounting principles for mutual life insurance companies and their
insurance subsidiaries.
As discussed in Note A to the financial statements, effective December 31, 1995,
the Company changed a reserving practice.
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
February 1, 1996
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except shares)
December 31,
---------------------------
1995 1994
------------ ------------
ASSETS
<S> <C> <C>
Investments:
Bonds, at amortized cost ( fair value of $40,344
and $34,021) (Note C) $ 38,753 $ 34,607
Short-term investments 4,289 7,714
Loans on life insurance policies 2,639 1,597
------------- -------------
Total investments 45,681 43,918
Cash 1,371 431
Accrued investment income 790 774
Reinsurance recoverable - affiliates (Note E) 57 467
Other assets 76 129
Separate Accounts (Note F) 682,482 462,886
------------- ------------
$ 730,457 $ 508,605
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Life and annuity reserves $ 28,740 $ 30,578
Funds left on deposit with the company 87 142
Interest maintenance reserve 41 36
Accounts payables - affiliates (Note E) 1,926 884
Income tax payable-affiliates 1,221 36
Accrued professional fees 20 11
Sundry current liabilities -
Cash with applications 1,305 562
Other 662 692
Valuation reserve 193 163
Separate Accounts (Note F) 682,482 462,886
------------- -----------
716,677 495,990
------------- -----------
STOCKHOLDER'S EQUITY:
Common stock, par value $100 per share; 4,000 4,000
authorized 50,000 shares, issued and
outstanding 40,000 shares
Additional paid-in capital 29,700 29,700
Deficit (19,920) (21,085)
------------- -----------
13,780 12,615
------------- -----------
$ 730,457 $ 508,605
============ ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(in thousands)
Year Ended December 31,
--------------------------------------------------------
1995 1994 1993
-------------- --------------- ---------------
<S> <C> <C> <C>
INCOME:
Premium income $ 158,436 $ 174,085 $ 155,166
Less reinsurance: (Note E)
Yearly renewable term (5,110) (1,333) (843)
-------------- --------------- ---------------
Net premium income 153,326 172,752 154,323
Miscellaneous insurance income 4,482 1,398 459
Net investment income (Note D) 3,507 3,050 2,897
-------------- --------------- ---------------
161,315 177,200 157,679
-------------- --------------- ---------------
EXPENSES:
Increase (decrease) in reserves (296) (637) 1,717
Benefits to policyowners 31,094 19,012 8,128
Commissions 14,813 15,799 13,080
General insurance expenses (Note E) 6,641 6,403 4,216
Taxes, licenses and fees 1,275 1,183 829
Net premium transferred to
Separate Accounts (Note F) 106,053 139,974 136,451
------------- --------------- ---------------
159,580 181,734 164,421
------------- --------------- ---------------
Income(loss) before income taxes
and realized capital gains 1,735 (4,534) (6,742)
Income taxes (benefit)-current 1,752 (611) (1,501)
-------------- --------------- ---------------
(Loss) before realized capital gains (17) (3,923) (5,241)
Realized capital gains(losses) (net of tax
of $12, $11 and $19 and $18, $12 and
$32 transfers to interest maintenance
reserve for 1995, 1994 and 1993,
respectively) (2) (2) 1
-------------- --------------- ---------------
Net (loss) $ (19) $ (3,925) $ (5,240)
============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands, except shares)
Additional
Common Stock Paid in
Shares Amount Capital Deficit Total
------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 40,000 $ 4,000 $ 18,200 $ (11,793) $ 10,407
Transfer to valuation reserve - - - (62) (62)
Capital contribution from
Ameritas Life Insurance Corp. - - 5,500 - 5,500
Net (loss) - - - (5,240) (5,240)
------------ ----------- ------------- ------------ ------------
BALANCE, December 31, 1993 40,000 4,000 23,700 (17,095) 10,605
Increase in non-admitted assets (2) (2)
Transfer to valuation reserve - - - (63) (63)
Capital contribution from
Ameritas Life Insurance Corp. - - 6,000 - 6,000
Net (loss) - - - (3,925) (3,925)
------------ ------------ ------------- ------------ ------------
BALANCE, December 31, 1994 40,000 4,000 29,700 (21,085) 12,615
Decrease in non-admitted assets - - - 5 5
Transfer to valuation reserve - - - (30) (30)
Release of reserves (Note A) - - - 1,618 1,618
Settlement/intercompany taxes - - - (409) (409)
Net (loss) - - - (19) (19)
----------- ----------- ------------- ------------ ------------
BALANCE, December 31, 1995 40,000 $ 4,000 $ 29,700 $ (19,920) $ 13,780
=========== =========== ============= ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993
-------------- --------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net premium income received $ 153,867 $ 172,701 $ 154,408
Miscellaneous insurance income 4,201 1,398 459
Net investment income received 3,405 2,899 2,848
Net premium transferred to Separate Accounts (105,654) (140,161) (136,451)
Benefits paid to policyowners (31,200) (18,944) (8,207)
Commissions (12,343) (15,799) (13,080)
Expenses and taxes (10,664) (7,547) (4,939)
Net increase in policy loans (1,041) (576) (592)
Income taxes (987) 527 1,630
Other operating income and disbursements 1,978 (2,222) 270
-------------- --------------- -----------------
Net cash provided by (used in) operating activities 1,562 (7,724) (3,654)
-------------- --------------- -----------------
INVESTING ACTIVITIES:
Maturity of bonds 3,713 5,108 8,266
Purchase of investments (7,760) (15,673) (1,460)
-------------- --------------- -----------------
Net cash (used in) provided by investing activities (4,047) (10,565) 6,806
-------------- --------------- -----------------
FINANCING ACTIVITIES:
Capital contribution - 6,000 5,500
-------------- --------------- -----------------
NET (DECREASE) INCREASE IN CASH AND
SHORT TERM INVESTMENTS (2,485) (12,289) 8,652
CASH AND SHORT TERM INVESTMENTS -
BEGINNING OF PERIOD 8,145 20,434 11,782
-------------- --------------- -----------------
CASH AND SHORT TERM INVESTMENTS -
END OF PERIOD $ 5,660 $ 8,145 $ 20,434
============== =============== =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
A. 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 Ameritas Life Insurance Corp.(ALIC), a mutual life insurance
company. The Company began issuing variable life insurance and variable
annuity policies in 1987. The variable life and variable annuity policies
are not participating with respect to dividends.
The accompanying financial statements have been prepared in accordance with
life insurance accounting practices prescribed by the Insurance Department
of the State of Nebraska. While appropriate for mutual life insurance
companies, such accounting practices differ in certain respects from
generally accepted accounting principles followed by other business
enterprises. The Financial Accounting Standards Board (FASB) has undertaken
consideration of changing those methods constituting generally accepted
accounting principles applicable to mutual life insurance companies. In
accordance with pronouncements issued by the FASB in 1993 and 1994,
financial statements prepared on the basis of statutory accounting practices
will no longer be described as prepared in conformity with generally
accepted accounting principles for fiscal years beginning after December 15,
1995.
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 - Bonds and short-term investments earning interest are carried
at amortized cost which, for short-term investments, approximates market.
Separate account assets are carried at market. Realized gains and losses are
determined on the basis of specific identification.
ACQUISITION COSTS - Commissions, reinsurance ceded allowances, underwriting
and other costs of issuing new policies as well as maintenance and
settlement costs are reported as costs of insurance operations in the period
incurred.
PREMIUMS - Premiums are reported as income when collected over the premium
paying periods of the policies. Premium income consists of:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C>
Life $ 32,020 $ 31,980 $ 20,591
Annuity 126,416 142,105 134,575
-------------- -------------- --------------
$ 158,436 $ 174,085 $ 155,166
============== ============== ==============
</TABLE>
POLICY RESERVES - Generally, reserves for variable life and annuity policies
are established and maintained on the basis of each policyholder's interest
in the account values of Separate Accounts V and VA-2. However, reserves
established for certain annuity products are determined on the basis of the
Commissioner's Annuity Reserve Valuation Method (CARVM) reserving method
which approximates surrender values. The account values are net of
applicable cost of insurance and other expense charges. The cost of
insurance has been developed by actuarial methods. The Company uses the
mortality rates from the Commissioners 1980 Standard Ordinary Smoker and
Non- Smoker, Male and Female Mortality Tables in computing minimum values
and reserves. Policy reserves are also provided for amounts held in the
general accounts consistent with requirements of the Nebraska Department of
Insurance.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------------------------
(Continued)
-----------
INTEREST MAINTENANCE RESERVE - The interest maintenance reserve is
calculated based on the prescribed methods developed by the NAIC. This
reserve is used to accumulate realized gains and losses resulting from
interest rate changes on fixed income investments. These gains and losses
are then amortized into investment income over what would have been the
remaining years to maturity of the underlying investment.
VALUATION RESERVE - Valuation reserves are a required appropriation of
Stockholder's Equity to provide for possible losses that may occur on
certain investments held by the Company. The appropriation (Asset Valuation
Reserve) is based on the holdings of bonds, stocks, mortgages, real estate
and short-term investments. Realized and unrealized gains and losses, other
than those resulting from interest rate changes, are added or charged to the
reserve (subject to certain maximums).
INCOME TAXES - The Company files a consolidated life/non-life tax return
with Ameritas Life Insurance Corp. and its subsidiaries. An agreement among
the members of the consolidated group provides for distribution of
consolidated tax results as if filed on a separate return basis. The current
income tax expense or benefit (including effects of capital gains and losses
and net operating losses) is apportioned generally on a sub-group
(life/non-life) basis. As a result of differences in accounting between book
and tax purposes for certain items, primarily deferred acquisition costs and
certain reserve calculations, taxes are provided in excess of the 35%
statutory corporate rate.
CHANGE IN ACCOUNTING - Effective December 31, 1995 the Company released the
voluntary mortality fluctuation reserve through a credit to stockholder's
equity. The increase in reserve included in the statements of operations for
the years ended 1995, 1994 and 1993 were $659, $421 and $135, respectively.
B. FINANCIAL INSTRUMENTS:
----------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to
estimate a value:
Bonds
For publicly traded securities, fair value is determined using an
independent pricing source. For securities without a readily ascertainable
fair value, fair value has been determined using an interest rate spread
matrix based upon quality, weighted average maturity, and Treasury yields.
Short-term Investments
The carrying amount approximates fair value because of the short maturity of
these instruments.
Loans on Life Insurance Policies
Fair values for policy loans are estimated using discounted cash flow
analyses at interest rates currently offered for similar loans. Policy loans
with similar characteristics are aggregated for purposes of the
calculations.
Cash
The carrying amounts reported in the balance sheet equals fair value.
Accrued Investment Income
Fair value on accrued investment income equals book value.
Funds left on Deposit
Funds on deposit which do not have fixed maturities are carried at the
amount payable on demand at the reporting date.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
B. FINANCIAL INSTRUMENTS: (Continued)
----------------------------------
The estimated fair values, as of December 31, 1995 and 1994, of the
Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Financial Assets:
Bonds $ 38,753 $ 40,344 $ 34,607 $ 34,021
Short-term investments 4,289 4,289 7,714 7,714
Loans on life insurance policies 2,639 2,346 1,597 1,190
Cash 1,371 1,371 431 431
Accrued investment income 790 790 774 774
Financial Liabilities:
Funds left on deposit 87 87 142 142
These fair values do not necessarily represent the value for which the financial instrument could be sold.
</TABLE>
C. BONDS:
------
The table below provides additional information relating to bonds held by
the Company as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Fair Unrealized Unrealized Carrying
Cost Value Gains Losses Value
-------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
LONG TERM BONDS:
Corporate-U.S. $ 20,667 $ 21,597 $ 930 $ - $ 20,667
Mortgage-Backed 3,628 3,742 114 - 3,628
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies 14,458 15,005 551 4 14,458
-------------- ------------- ------------ ------------- ------------
$ 38,753 $ 40,344 $ 1,595 4 $ 38,753
============== ============= ============ ============= ============
</TABLE>
The comparative data as of December 31, 1994 is summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Fair Unrealized Unrealized Carrying
Cost Value Gains Losses Value
-------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
LONG TERM BONDS:
Corporate-U.S. $ 19,634 $ 19,396 $ 160 $ 398 $ 19,634
Corporate-Foreign 1,000 1,008 8 - 1,000
Mortgage-Backed 1,149 1,184 35 - 1,149
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies 12,824 12,433 47 438 12,824
-------------- ------------- ------------ ------------- -------------
$ 34,607 $ 34,021 $ 250 $ 836 $ 34,607
============== ============= ============ ============= =============
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
C. BONDS: (Continued)
------------------
The carrying value and fair value of bonds at December 31, 1995 by
contractual maturity are shown below:
<TABLE>
<CAPTION>
Fair Carrying
Value Value
--------------- ----------------
<S> <C> <C>
Due in one year or less $ 10,731 $ 10,429
Due after one year through five years 25,368 24,200
Due after five years through ten years 503 496
Due after ten years - -
Mortgage-Backed Securities 3,742 3,628
--------------- ----------------
$ 40,344 $ 38,753
=============== ================
Investments in securities of one issuer other than United States Government
and United States Government Agencies which exceed 10% of total
stockholder's equity as of December 31, 1995 are as follows:
</TABLE>
<TABLE>
<CAPTION>
Included in Bonds: Carrying
ISSUER Value
------ --------------
<S> <C>
Leggett & Platt Inc Medium Term Notes $ 1,500
Sears, Roebuck & Co 1,499
Included in Short-Term Investments:
ISSUER
------
GTE Northwest Inc Discount Note $ 1,500
Goldman Sachs Money Market Treasury Obligations 1,539
Investments in securities of one issuer other than United States Government
and United States Government Agencies which exceed 10% of total
stockholder's equity as of December 31, 1994 are as follows:
Included in Bonds: Carrying
ISSUER Value
------ -------------
Leggett & Platt Inc Medium Term Notes $ 1,500
Sears, Roebuck & Co 1,499
Included in Short-Term Investments:
ISSUER
------
GTE Northwest Inc Discount Note $ 1,397
Potomac Electric Power Co Disc Note 1,499
AT&T Corp Disc Note 1,299
Cargill Inc Disc Note 1,496
At December 31, 1995, the Company had securities with a market value of $3,356
on deposit with various State Insurance Departments.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
D. INVESTMENT INCOME:
------------------
Net investment income for the years ended December 31, 1995, 1994 and 1993
is comprised as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
Bonds $ 2,819 $ 2,410 $ 2,384
Short-term investments 597 609 529
IMR amortization 15 5 1
Loans on life insurance policies 128 82 39
--------------- ---------------- ---------------
Gross investment income 3,559 3,106 2,953
Less investment expenses 52 56 56
--------------- ---------------- ---------------
Net investment income $ 3,507 $ 3,050 $ 2,897
=============== ================ ===============
</TABLE>
E. RELATED PARTY TRANSACTIONS:
---------------------------
Ameritas Life Insurance Corp. provides technical, financial and legal
support to the Company under an administrative service agreement. The cost
of these services to the Company for years ended December 31, 1995, 1994 and
1993 was $4,858, $4,029 and $1,915, respectively. The Company also leases
office space and furniture and equipment from Ameritas Life Insurance Corp.
The cost of these leases to the Company for the years ended December 31,
1995, 1994 and 1993 was $37, $40 and $54, respectively.
Under the terms of an investment advisory agreement, the Company paid $44,
$43 and $44 for the years ended December 31, 1995, 1994 and 1993 to Ameritas
Investment Advisors Inc., an indirect wholly-owned subsidiary of Ameritas
Life Insurance Corp.
The Company entered into a reinsurance agreement (yearly renewable term)
with Ameritas Life Insurance Corp. Under this agreement, Ameritas Life
Insurance Corp. assumes life insurance risk in excess of the Company's $50
retention limit. The Company recorded $5,085 of gross reinsurance premiums
for the year ended December 31, 1995 which includes reinsurance ceded
commission allowances of $2,805 resulting in net reinsurance ceded premiums
of $2,280. In 1994 and 1993 the Company reported reinsurance ceded premiums
net of reinsurance ceded commission allowances. The Company paid $1,333 and
$843 of net reinsurance premiums for the years ended December 31, 1994 and
1993, respectively.
The Company has entered into a guarantee agreement with Ameritas Life
Insurance Corp., whereby, Ameritas Life Insurance Corp. guarantees the full,
complete and absolute performance of all duties and obligations of the
Company.
The Company's products are distributed through Ameritas Investment Corp., an
indirect wholly-owned subsidiary of Ameritas Life Insurance Corp. The
Company received $192, $272 and $23 for the years ended December 31, 1995,
1994 and 1993, respectively, from this affiliate to partially defray the
costs of materials and prospectuses. Policies placed by this affiliate
generated commission expense of $14,028, $15,223 and $12,621 for the years
ended December 31, 1995, 1994 and 1993, respectively.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
F. 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:
December 31,
---------------------------
1995 1994
------------ ------------
Separate Account V $ 93,610 $ 58,117
Separate Account VA-2 588,872 404,769
------------ ------------
$ 682,482 $ 462,886
============ ============
The assets of Account V are invested in shares of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, Alger American Fund,
Dreyfus Stock Index Fund and MFS Variable Insurance Trust. Each fund is
registered with the SEC under the Investment Company Act of 1940, as
amended, as an open-end diversified management investment company.
The Variable Insurance Products Fund and the Variable Insurance Products
Fund II are managed by Fidelity Management and Research Company. Variable
Insurance Products Fund has five portfolios: the Money Market Portfolio, the
High Income Portfolio, the Equity Income Portfolio, the Growth Portfolio and
the Overseas Portfolio. The Variable Insurance Fund II has five portfolios:
the Investment Grade Bond Portfolio, Asset Manager Portfolio, Contrafund
Portfolio (effective August 25, 1995), Asset Manager Growth Portfolio(
effective September 15, 1995) and the Index 500 Portfolio (September 21,
1995). The Alger American Fund is managed by Fred Alger Management, Inc. and
has six portfolios: Income and Growth Portfolio, Small Capitalization
Portfolio, Growth Portfolio, MidCap Growth Portfolio (effective June 17,
1993), Balanced Portfolio (effective June 28, 1993) and the Leveraged Allcap
Portfolio (effective August 30, 1995). The Dreyfus Stock Index Fund is
managed by Wells Fargo Nikko Investment Advisors and has the Stock Index
Fund Portfolio. The MFS Variable Insurance Trust is managed by Massachusetts
Financial Services Company. The MFS Variable Insurance Trust has three
portfolios: the Emerging Growth Portfolio (effective August 25, 1995), World
Governments Portfolio (effective August 24, 1995) and the Utilities
Portfolio (effective September 18, 1995)
Separate Account VA-2 allows investment in the Variable Insurance Products
Fund, Variable Insurance Products Fund II, Alger American Fund, Dreyfus
Stock Index Fund and the MFS Variable Insurance Trust with the same
portfolios as described above.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(in thousands)
G. BENEFIT PLANS:
--------------
The Company is included in the noncontributory defined-benefit pension plan
that covers substantially all full-time employees of Ameritas Life Insurance
Corp. and its subsidiaries. Pension costs include current service costs,
which are accrued and funded on a current basis, and past service costs,
which are amortized over the average remaining service life of all employees
on the adoption date. The assets and liabilities of this plan are not
segregated. The Company had no full time employees during 1995. Total
Company contributions for the years ended December 31, 1994 and 1993 were
$47 and $51, 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. The Company
had no full time employees during 1995. Total Company contributions for the
years ended December 31, 1994 and 1993 were $20 and $22, respectively.
The Company is also included in the postretirement benefit plan providing
group medical coverage to retired employees of Ameritas Life Insurance Corp.
and its subsidiaries. These benefits are a specified percentage of premium
until age 65 and a flat dollar amount thereafter. Employees become eligible
for these benefits upon the attainment of age 55, 15 years of service and
participation in the plan for the immediately preceding 5 years. Benefit
costs include the expected cost of postretirement benefits for newly
eligible employees, interest cost, and gains and losses arising from
differences between actuarial assumptions and actual experience. The assets
and liabilities of this plan are not segregated. The Company had no full
time employees during 1995. Total Company contributions for the years ended
December 31, 1994 and 1993 were $7 and $2, respectively.
Expenses for the defined benefit pension plan and postretirement group
medical plan are allocated to the Company based on a percentage of payroll.
H. REGULATORY MATTERS:
-------------------
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.
No dividends are to be paid in 1996 without approval of the Insurance
Department.
I. SUBSEQUENT EVENTS - UNAUDITED:
------------------------------
On April 1, 1996 Ameritas Life consummated an agreement with American Mutual
Life Insurance Company whereby AVLIC became a wholly-owned subsidiary of a
newly formed holding company, AMAL Corporation. The agreement was announced
March 11, 1996. The holding company will contribute approximately $18
million of additional paid-in capital to AVLIC. Under terms of the
agreement the AMAL Corporation will initially be 66% owned by Ameritas Life
and 34% owned by American Mutual. American Mutual has options to purchase
an additional 15% interest over the next five years if certain production
requirements are met. Ameritas Life, American Mutual and AMAL Corporation
guarantee the obligations of AVLIC. This guarantee will continue until
AVLIC is recognized by a National Rating Agency as having a financial
rating equal to or greater than Ameritas Life, or until AVLIC is acquired
by another insurance company who has a financial rating by a National
Rating Agency equal to or greater than Ameritas Life and who agrees to
assume the guarantee; provided that if AML sells its interest in AMAL
Corporation to another insurance company who has a financial rating by a
National Rating Agency equal to or greater than that of AML, and the
purchaser assumes the guarantee, AML will be relieved of its obligations
under the Guarantee.
Effective January 1, 1996, with the approval of the State of Nebraska
Insurance Department, AVLIC changed reserving methods used for most existing
products resulting in an increase in statutory surplus of approximately $23.4
million.
On February 28, 1996 the Board of Directors declared a return of paid-in
capital of $15 million paid by a note due on or before August 15, 1996. This
action was approved by the State of Nebraska Insurance Department (Insurance
Department). Any additional distributions of capital or surplus would require
approval of the Insurance Department.
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The following tables illustrate how the cash values and death benefits of a
Policy may change with the investment experience of the Fund. The tables show
how the cash values and death benefits of a Policy issued to an Insured of a
given age and specified underwriting risk classification who pays the given
premium at issue would vary over time if the investment return on the assets
held in each portfolio of the Funds were a uniform, gross, after-tax annual rate
of 0%, 6%, or 12%. The tables on pages 52 through 55 illustrate a Policy issued
to a male, age 35, under a Preferred rate non-smoker underwriting risk
classification. This policy provides for a standard smoker and non-smoker, and
preferred non-smoker classification and different rates for certain specified
amounts. The cash values and death benefits would be different from those shown
if the gross annual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above and below those averages for individual
policy years, or if the Insured were assigned to a different underwriting risk
classification.
The second column of the tables shows the accumulated value of the premiums paid
at 5%. The following columns show the death benefits and the cash values for
uniform hypothetical rates of return shown in these tables. The tables on pages
52 and 54 are based on the current cost of insurance rates, current expense
deductions and the maximum percent of premium loads. These reflect the basis on
which AVLIC currently sells its Policies. The maximum allowable cost of
insurance rates under the Policy are based upon the 1980 Commissioner's Standard
Ordinary Smoker and Non-Smoker, Male and Female Mortality Tables. Since these
are recent tables and are split to reflect smoking habits and sex, the current
cost of insurance rates used by AVLIC are at this time equal to the maximum cost
of insurance rates for many ages. AVLIC anticipates reflecting future
improvements in actual mortality experience through adjustments in the current
cost of insurance rates actually applied. AVLIC also anticipates reflecting any
future improvements in expenses incurred by applying lower percent of premiums
of loads and other expense deductions. The death benefits and cash values shown
in the tables on pages 53 and 55 are based on the assumption that the maximum
allowable cost of insurance rates as described above and maximum allowable
expense deductions are made throughout the life of the Policy.
The amounts shown for the death benefits, surrender values and accumulation
values reflect the fact that the net investment return of the Subaccounts is
lower than the gross, after-tax return of the assets held in the Funds as a
result of expenses paid by the Fund and charges levied against the Subaccounts.
The values shown take into account an average of the daily management fee paid
by each portfolio available for investment (the equivalent to an annual rate of
.63% of the aggregate average daily net assets of the Fund), the other expenses
incurred by the Fund (0.19%), and the daily charge by AVLIC to each Subaccount
for assuming mortality and expense risks and administrative costs (which is
equivalent to a charge at an annual rate of 1.20% of the average net assets of
the Subaccounts) After deduction of these amounts, the illustrated gross annual
investment rates of return of 0%, 6%, and 12%, correspond to approximate net
annual rates of -2.02%, 3.98%, 9.98% respectively.
The Investment Advisor or other affiliates of the various funds have agreed to
reimburse the portfolios to the extent that the aggregate operating expenses
(certain portfolio's may exclude certain items) were in excess of an annual rate
of 1.00% for the High Income, Contrafund and Asset Manager: Growth Portfolios,
1.50% for the Equity-Income, Growth and Overseas Portfolios, .80% for the
Investment Grade Bond Portfolio, .28% for the Index 500 Portfolio, 1.25% for the
Asset Manager Portfolio, 1.25% for the Alger American Income and Growth and
Alger American Balanced Portfolio; 1.50% for the Alger American Small
Capitalization, Alger American Mid-Cap Growth, Alger American Leveraged AllCap,
and Alger American Growth Portfolios, 1.00% for the MFS Emerging Growth, MFS
Utilities, and MFS World Governments Portfolios of daily net assets. These
agreements are expected to continue in future years. As long as this
reimbursement continues for a portfolio, if a reimbursement occurs, it has the
effect of lowering the portfolios expense ratio and increasing its total return.
The hypothetical values shown in the tables do not reflect any charges for
Federal Income tax burden attributable to the Account, since AVLIC is not
currently making such charges. However, such charges may be made in the future
and, in that event, the gross annual investment rate of return would have to
exceed 0 percent, 6 percent, or 12 percent by an amount sufficient to cover the
tax charges in order to produce the death benefits and values illustrated. (See
Federal Tax Matters, page 26).
The tables illustrate the policy values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated, if
all net premiums are allocated to the Account, and if no policy loans have been
made. The tables are also based on the assumptions that the policyowner has not
requested an increase or decrease in the initial Specified Amount, that no
partial withdrawals have been made, and that no more than fifteen transfers have
been made in any policy year so that no transfer charges have been incurred.
Illustrated values would be different if the proposed Insured were female, a
smoker, in substandard risk classification, or were another age, or if a higher
or lower premium was illustrated.
Upon request, AVLIC will provide comparable illustration based upon the proposed
Insured's age, sex and underwriting classification, the Specified Amount, the
death benefit option, and planned periodic premium schedule requested, and any
available riders requested. In addition, upon client request, illustrations may
be furnished reflecting allocation of premiums to specified Subaccounts. Such
illustrations will reflect the expenses of the portfolio in which the Subaccount
invests.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
Single Endowment at Age 95
Male Issue Age: 35 Non-Smoker Standard Underwriting Class
MINIMUM FIRST YEAR PREMIUM: $10,000
INITIAL SPECIFIED AMOUNT: $55,593
DEATH BENEFIT OPTION: A
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
Cash Value Less Any
Cash Surrender Charge (1)(2) Death Benefit (1)(2)
----------------------------------------- ------------------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
End Of Accumulated Annual Investment Rate of Return Of: Annual Investment Rate of Return Of:
Policy At 5% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-2.02% net) (3.98% net) (9.98% net) (-2.02% net) (3.98% net) (9.98% net)
- -------- -------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8821 9419 10017 55620 55620 55620
2 11025 8544 9748 11025 55620 55620 55620
3 11576 8267 10086 12130 55620 55620 55620
4 12155 8040 10483 13392 55620 55620 55620
5 12762 7911 10988 14872 55620 55620 55620
6 13400 7830 11551 16532 55620 55620 55620
7 14071 7846 12221 18434 55620 55620 55620
8 14774 7758 12799 20393 55620 55620 55620
9 15513 7465 13184 22325 55620 55620 55620
10 16288 7168 13577 24449 55620 55620 55620
15 20789 5554 15624 38617 55620 55620 73758
20 26532 3581 17735 61008 55620 55620 95783
Ages
60 33863 935 19736 96629 55620 55620 129482
65 43219 0* 21653 153586 0* 55620 187376
70 55160 0* 22854 244202 0* 55620 283274
75 70399 0* 22080 389470 0* 55620 416732
* In the absence of an additional premium, the Policy would lapse.
1) Assumes a minimum first year premium of $10,000 is paid at issue with no
additional premium payment. Values would be different if premiums are paid with
a different frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value. Should a policy
lapse with loans outstanding the portion of the loans attributable to earnings
will become taxable.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY AVLIC OR THE FUNDS
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
Single Endowment at Age 95
Male Issue Age: 35 Non-Smoker Standard Underwriting Class
MINIMUM FIRST YEAR PREMIUM: $10,000
INITIAL SPECIFIED AMOUNT: $55,593
DEATH BENEFIT OPTION: A
USING MAXIMUM ALLOWABLE COST OF INSURANCE RATES
Cash Value Less Any
Cash Surrender Charge (1)(2) Death Benefit (1)(2)
----------------------------------------- ------------------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
End Of Accumulated Annual Investment Rate of Return Of: Annual Investment Rate of Return Of:
Policy At 5% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-2.02% net) (3.98% net) (9.98% net) (-2.02% net) (3.98% net)(9.98% net)
- -------- -------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8571 9169 9767 55620 55620 55620
2 11025 8394 9598 10875 55620 55620 55620
3 11576 8217 10036 12080 55620 55620 55620
4 12155 8040 10483 13392 55620 55620 55620
5 12762 7911 10988 14872 55620 55620 55620
6 13400 7830 11551 16532 55620 55620 55620
7 14071 7846 12221 18434 55620 55620 55620
8 14774 7758 12799 20393 55620 55620 55620
9 15513 7465 13184 22325 55620 55620 55620
10 16288 7168 13577 24449 55620 55620 55620
15 20789 5554 15624 38617 55620 55620 73758
20 26532 3570 17727 61001 55620 55620 95773
Ages
60 33863 782 19614 96527 55620 55620 129346
65 43219 0* 20820 152907 0* 55620 186547
70 55160 0* 20329 242035 0* 55620 280761
75 70399 0* 15907 384716 0* 55620 411646
* In the absence of an additional premium, the Policy would lapse.
1) Assumes a minimum first year premium of $10,000 is paid at issue with no additional premium payment.
Values would be different if premiums are paid with a different frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may cause this policy to lapse
because of insufficient cash value. Should a policy lapse with loans outstanding the portion of the loans attributable to
earnings will become taxable.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY AVLIC OR THE FUNDS
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
Single Endowment at Age 95
Male Issue Age: 35 Non-Smoker Standard Underwriting Class
MINIMUM FIRST YEAR PREMIUM: $10,000
INITIAL SPECIFIED AMOUNT: $55,593
DEATH BENEFIT OPTION: B
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
Cash Value Less Any
Cash Surrender Charge (1)(2) Death Benefit (1)(2)
----------------------------------------- ------------------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
End Of Accumulated Annual Investment Rate of Return Of: Annual Investment Rate of Return Of:
Policy At 5% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-2.02% net) (3.98% net) (9.98% net) (-2.02% net) (3.98% net) (9.98% net)
- -------- -------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8804 9402 10000 65325 65922 66520
2 11025 8510 9712 10985 65031 66232 67506
3 11576 8217 10028 12063 64737 66548 68583
4 12155 7972 10400 13291 64443 66870 69761
5 12762 7826 10876 14729 64146 67197 71049
6 13400 7727 11408 16336 63848 67528 72457
7 14071 7724 12042 18175 63545 67862 73995
8 14774 7618 12579 20056 63239 68200 75677
9 15513 7306 12918 21894 62927 68539 77514
10 16288 6989 13259 23903 62610 68879 79523
15 20789 5272 14928 37122 60893 70548 92743
20 26532 3193 16354 57743 58814 71974 113364
Ages
60 33863 477 17131 89932 56098 72751 145553
65 43219 0* 17099 140794 0* 72719 196414
70 55160 0* 14964 220820 0* 70585 276441
75 70399 0* 8450 346687 0* 64070 402307
* In the absence of an additional premium, the Policy would lapse.
1) Assumes a minimum first year premium of $10,000 is paid at issue with no additional premium payment. Values would be different
if premiums are paid with different frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may cause this policy to lapse because of insufficient
cash value. Should a policy lapse with loans outstanding the portion of the loans attributable to earnings will become taxable.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND
RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY AVLIC OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
Single Endowment at Age 95
Male Issue Age: 35 Non-Smoker Standard Underwriting Class
MINIMUM FIRST YEAR PREMIUM: $10,000
INITIAL SPECIFIED AMOUNT: $55,593
DEATH BENEFIT OPTION: B
USING MAXIMUM ALLOWABLE SCHEDULE OF COST OF INSURANCE RATES
Cash Value Less Any
Cash Surrender Charge (1)(2) Death Benefit (1)(2)
----------------------------------------- ------------------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
End Of Accumulated Annual Investment Rate of Return Of: Annual Investment Rate of Return Of:
Policy At 5% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-2.02% net) (3.98% net) (9.98% net) (-2.02% net) (3.98% net) (9.98% net)
- -------- -------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8554 9152 9750 65325 65922 66520
2 11025 8360 9562 10835 65031 66232 67506
3 11576 8167 9978 12013 64737 66548 68583
4 12155 7972 10400 13291 64443 66870 69761
5 12762 7826 10876 14729 64146 67197 71049
6 13400 7727 11408 16336 63848 67528 72457
7 14071 7724 12042 18175 63545 67862 73995
8 14774 7618 12579 20056 63239 68200 75677
9 15513 7306 12918 21894 62927 68539 77514
10 16288 6989 13259 23903 62610 68879 79523
15 20789 5272 14928 37122 60893 70548 92743
20 26532 3182 16342 57732 58802 71962 113352
Ages
60 33863 321 16950 89734 55941 72571 145354
65 43219 0* 15833 139400 0* 71453 195020
70 55160 0* 11239 216412 0* 66859 272032
75 70399 0* 212 336238 0* 55833 391858
* In the absence of an additional premium, the Policy would lapse.
1) Assumes a minimum first year premium of $10,000 is paid at issue with no additional premium payment. Values would be
different if premiums are paid with a different frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may cause this policy to lapse because of insufficient
cash value. Should a policy lapse with loans outstanding the portion of the loans attributable to earnings will become taxable.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND
RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY AVLIC OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below covering the period of 1926-1995 is an examination of the
basic relationship between risk and return among the different asset classes,
and between nominal and real (inflation adjusted) returns. The information is
provided because the Policyowners have varied investment portfolios available
which have different investment objectives and policies. The chart generally
demonstrates how different classes of investments have performed during the
period. The study of asset returns provides a period long enough to include most
of the major types of events that investors have experienced in the past . This
is a historical record and is not intended as a projection of future
performance.
The graph depicts the growth of a dollar invested in common stocks, small
company stocks, long-term government bonds, Treasury bills, and a hypothetical
asset returning the inflation rate over the period from the end of 1925 to the
end of 1995. All results assume reinvestment of dividends on stocks or coupons
on bonds and no taxes. Transaction costs are not included, except in the small
stock index starting in 1982. Charges associated with a variable insurance
policy are not reflected in the chart.
Each of the cumulative index values is initiated at $1.00 at year-end 1925. The
graph illustrates that common stocks and small stocks gained the most over the
entire 70-year period: investments of one dollar would have grown to $1,113.92
and $3,822.40 respectively, by year-end 1995. This growth, however, was earned
by taking substantial risk. In contrast, long-term government bonds (with an
approximate 20-year maturity), which exposed the holder to less risk, grew to
only $34.04. Note that the return and principal value of an investment in stocks
will fluctuate with changes in market conditions. Prices of small company stocks
are generally more volatile than those of large company stocks. Government bonds
and Treasury Bills are guaranteed by the U.S. Government and, if held to
maturity, offer a fixed rate of return and a fixed principal value.
The lowest risk strategy over the past 70 years was to buy U.S. Treasury bills.
Since Treasury bills tended to track inflation, the resulting real
(inflation-adjusted) returns were near zero for the entire 1926-1995 period.
Omitted graph illustrates long term market trends as described in the narrative
above.
Year End 1925 = $1.00
Source: Stocks, Bonds, Bills, and Inflation 1996 Yearbook
(C)Ibbotson Associates, Chicago. All Rights Reserved.
<PAGE>
APPENDIX C
STANDARD & POOR'S 500
The Standard and Poor's (S & P 500) is a weighted index of 500 widely held
stocks: 400 Industrials, 40 Financial Company Stocks, 40 Public Utilities, and
20 Transportation stocks, most of which are traded on the New York Stock
Exchange. This information is provided because the Policyowners have varied
investment options available. The investment options, except the Fixed Account
and the Money Market Account, involve investments in the stock market. The S & P
500 is generally regarded as an accurate composite of the overall stock market.
<TABLE>
<CAPTION>
PERCENT CHANGE OF TOTAL RETURN
STANDARD & POOR'S 500 INDEX
%
Year Change
- -----------------------------------------
<S> <C> <C>
1 1971 14.56 Omitted graph depicts the activity
2 1972 18.90 of the S&P 500 Index for the years
3 1973 -14.77 1971-1995.
4 1974 -26.39
5 1975 37.16
6 1976 23.57
7 1977 -7.42
8 1978 6.38
9 1979 18.20
10 1980 32.27
11 1981 -5.01
12 1982 21.44
13 1983 22.38
14 1984 6.10
15 1985 31.57
16 1986 18.56
17 1987 5.10
18 1988 16.61
19 1989 31.69
20 1990 -3.14
21 1991 30.45
22 1992 7.61
23 1993 10.08
24 1994 1.32
25 1995 37.58
</TABLE>
THE CHART ASSUMES THE RETURN EXPERIENCED BY THE STANDARD & POOR'S 500 INDEX FOR
THE LAST 25 YEARS. FUTURE RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS
MADE BY AN OWNER. THE INFORMATION IN THE CHART IS NOT NECESSARILY INDICATIVE OF
FUTURE PERFORMANCE.
INDEX PERFORMANCE IS NOT ILLUSTRATIVE OF POLICY SUBACCOUNT PERFORMANCE, AND
INVESTMENTS ARE NOT MADE IN THE INDEX.
