Supplement to Prospectus
By Supplement to Prospectus ("sticker") dated March 13, 1996, Ameritas Variable
Life Insurance Company discloses the following:
On February 27, 1996, AVLIC determined to postpone the merger with Ameritas Life
Insurance Corp. ("Ameritas Life") indefinitely.
On March 11, 1996, Ameritas Life and American Mutual Life Insurance Company
("American Mutual"), an Iowa mutual life insurance company, announced an
Agreement of Joint Venture ("Agreement").
The terms of the Agreement, which has a closing date of March 29, 1996, require
a holding company (AMAL Corporation) to be formed. Also pursuant to the terms of
the Agreement, the stock of AVLIC and Ameritas Investment Corp. will be
transferred to AMAL Corporation on the closing date. AMAL Corporation will then
issue a controlling ownership of the stock to Ameritas Life and a minority
ownership of the stock to American Mutual.
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.
PROSPECTUS COMPANY LOGO
AMERITAS VARIABLE LIFE INSURANCE COMPANY
One Ameritas Way/5900 "O" Street
VARIABLE UNIVERSAL LIFE POLICY P.O. Box 81889/Lincoln, Nebraska 68501-1889
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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 that is a wholly-owned subsidiary of Ameritas Life
Insurance Corp. ("Ameritas Life"). 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, MFS Variable Insurance Trust, and/or
the Dreyfus Stock Index Fund (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 Dreyfus Stock Index Fund has one
portfolio. The accompanying prospectuses for the Funds describe the investment
objectives and policies and the risks of the portfolios of the Funds.
* New funds are only available under newly issued policies. Availability is
expected by May 1, 1996, for all policyholders.
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, MFS Variable Insurance Trust, and Dreyfus Stock Index Fund.
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 September 1, 1995.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
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.......................................................... 8
Investment Objectives and Policies of the Funds' Portfolios........ 9
Fixed Account...................................................... 14
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............................................... 17
Payment of Policy Benefits......................................... 17
Policy Rights.............................................................. 18
Loan Benefits...................................................... 18
Surrenders......................................................... 18
Transfers.......................................................... 19
Refund Privilege................................................... 19
Exchange Privilege................................................. 20
Payment and Allocation of Premiums......................................... 20
Issuance of a Policy............................................... 20
Premiums........................................................... 20
Allocation of Premiums and Cash Value.............................. 21
Policy Lapse and Reinstatement..................................... 22
Charges and Deductions..................................................... 22
Premium Charge..................................................... 22
Monthly Deduction.................................................. 23
Daily Charges Against the Account.................................. 23
Fund Investment Advisory Fee and Expenses.......................... 24
Cash Surrender Charge.............................................. 24
Transfer Charge.................................................... 24
Partial Withdrawal Charge.......................................... 25
General Provisions......................................................... 25
Distribution of the Policies............................................... 27
Federal Tax Matters........................................................ 27
Safekeeping of the Account's Assets........................................ 29
Voting Rights.............................................................. 29
State Regulation of AVLIC.................................................. 30
Executive Officers and Directors of AVLIC.................................. 30
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........................... 43
Appendices................................................................. 60
</TABLE>
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.
<PAGE>
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 wholly-owned subsidiary of
Ameritas Life Insurance Corp.
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"), the MFS Variable Insurance Trust ("MFS Fund"), and/or the
Dreyfus Stock Index Fund ("Dreyfus Index Fund" or "Dreyfus 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 PREMIUM - 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
26).
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
<PAGE>
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 14). 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, the MFS Variable Insurance Trust, or
the Dreyfus Index Fund, which are mutual fund companies with separate investment
portfolios, each intended to pursue different investment objectives. (See The
Funds, page 8).
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 23
and Rate Class, page 23).
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 27).
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 investment advisory fee and other
expenses incurred by the Funds. (See The Funds, page 8).
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
<PAGE>
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
24).
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 25).
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 twenty Subaccounts that support the Policies which
correspond to, and invest in, the portfolios of the Funds. For more detailed
information about AVLIC, Ameritas Life 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 after
the second policy year 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 19). A charge will be deducted from the amount paid
upon partial withdrawal. (See Partial Withdrawal Charge, page 25).
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 28).
<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 18).
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
16).
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 27).
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 27).
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 20).
<PAGE>
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 43.
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
81889, Lincoln, Nebraska 68501. Ameritas Life and its subsidiaries had total
assets at December 31, 1994 of over $2.0 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 been rated
A ("Excellent") by Weiss Research, Inc., and 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. The effective date of the
merger is currently postponed until May 1, 1996.
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, 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 any SEC
supervision of the management or investment policies or practices of the
Account. For state law purposes, the Account is treated as a Division of AVLIC.
THE FUNDS
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, the
MFS Fund, and/or the Dreyfus Index Fund. The Funds are each registered with the
SEC under the 1940 Act as an open-end diversified 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.
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.
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,
<PAGE>
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, the MFS
Fund and the Dreyfus Index 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).
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.
<PAGE>
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 respresented 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: Focuses on stocks for high Seeks to maximize total
Growth2 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.
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 total objective of the Port-
assets in dividend paying folio.
equity securities that are
listed on a national ex-
change 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 The Portfolio will invest Seeks long-term capital
its assets in equity appreciation.
securities of companies
whose securities are traded
on domestic stock exchanges
or in the over-the-counter
market. These companies may
still be in the develop-
mental stage. The Portfolio
will invest at least 65% of
its total assets in the
securities of companies who
have total market capital-
ization of less than $1
billion. The Portfolio may
also purchase restricted
securities, lend its sec-
urities or sell securities
short. Investing in small,
newer issues generally
involves greater risk than
investing in larger, more
established issues. Accord-
ingly, an investment in the
Portfolio may not be appro-
priate for all investors.
<PAGE>
MidCap The Portfolio will invest Seeks long-term capital
Growth its assets in equity sec- appreciation.
urities of companies whose
securities are traded on
domestic exchanges or in
the over-the-counter market.
These companies may still
be in the developmental
stage, they may also be
older companies that appear
to be entering a new stage
of growth. The Portfolio
will invest at least 85% of
its net assets in equity
securities and at least 65%
of its total assets in
securities of companies who
have total market capital-
ization of between $750
million and $3.5 billion.
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.
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 on
securities indexes and pur-
chase 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 common term capital growth. Div-
stocks of small and medium idend and interest income
sized emerging growth com- is incidental.
panies. From 10% to 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.
<PAGE>
DREYFUS FUND
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------ ---------------------------- -------------------------
Dreyfus The Fund attempts to dupli- Seeks to provide invest-
Index Fund cate the investment results ment results that cor-
of the Standard & Poor's 500 respond to the price and
Composite Stock Price Index yield performance of
(the "Index"). The Fund publicly traded common
attempts to be fully invest- stocks in the aggregate,
ed at all times and, in any as represented by the
event, at least 80% of the Standard & Poor's 500
Fund's net assets will be Composite Stock Index.
invested, in stocks that
comprise the Index.
1 Variable Insurance Products Fund Portfolio.
2 Variable Insurance Products Fund II Portfolio.
FUND MANAGEMENT AND FEES
FIDELITY FUNDS EXPENSES
Fidelity Management & Research Company ("FMR") is the Manager for the Fidelity
Funds. It maintains a large staff of experienced investment personnel and a full
compliment of related support facilities. Each portfolio pays FMR a monthly fee
for managing its investment and business affairs. FMR has voluntarily agreed to
temporarily limit the total expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses) of the Equity-Income, Growth and
Overseas Portfolios to an annual rate of 1.50%, respectively; the High Income,
Contrafund and Asset Manager: Growth Portfolios to an annual rate of 1.00%,
respectively; the Asset Manager Portfolio to an annual rate of 1.25%; and the
Investment Grade Bond Portfolio to an annual rate of .80% of the Portfolio's
average net assets. FMR has voluntarily agreed to temporarily limit Index 500
Portfolio's total operating expenses to 0.28%. If a Portfolio's expenses exceed
the specified amount, FMR will waive all or a portion of its fees and reimburse
the Portfolio for its other expenses to the extent necessary to reduce expenses
to the applicable limit. As long as this expense limitation continues for a
Portfolio, if a reimbursement occurs, it has the effect of lowering the
portfolio's expense ratio and increasing its total return.
The Money Market Portfolio's fee is calculated as follows: (a) the sum of a
group fee rate and an individual fund fee rate of .03%, and (b) the addition of
an income component of 6% of the Portfolio's gross income in excess of 5% annual
yield. The result is multiplied by the Portfolio's average net assets. The group
fee rate, which is based on the average net assets of all of the mutual funds
advised by FMR, cannot rise above .37%, and it drops as total assets under
management increase. The income component cannot rise above .24%.
THE HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS' fee has two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. On an annual basis this rate cannot rise
above .37%, and it drops as the group assets rise.
2. An individual portfolio fee rate of their average net assets of .45% for
the High Income Portfolio, and .30% for the Investment Grade Bond
Portfolio.
THE EQUITY-INCOME, GROWTH, OVERSEAS, ASSET MANAGER, CONTRAFUND AND ASSET
MANAGER: GROWTH PORTFOLIOS' fees have two components:
1. The group fee rate is based on the monthly average net assets of all the
mutual funds advised by FMR. On an annual basis, this rate cannot rise
above .52%, and drops as the group assets rise.
2. An individual Portfolio fee rate of their average net assets of .20% for
the Equity-Income Portfolio, .30% for the Growth Portfolio, .45% for the
Overseas Portfolio, .40% for the Asset Manager Portfolio, .30% for the
Contrafund Portfolio, and .40% for the Asset Manager: Growth Portfolio.
Each portfolio's total operating expenses will include fees for management,
shareholder services and other expenses, such as custodial, legal, and other
miscellaneous fees. The total expenses for the period ending December 31, 1994
of each Fund, including management fees and after any applicable expense
limitations were: Money Market, .27%; High Income, .71%; Equity-Income, .58%*;
Growth, .69%*; Overseas, .92%; Investment Grade Bond, .67%; Asset Manager,
.80%*; Index 500, .28%**.
* 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
the Equity-Income - .60%; Growth - .70%; and for Asset Manager .81%.
** Prior to applying expense reimbursements by FMR, total expenses for the year
ending December 31, 1994 were .81%.
<PAGE>
Asset Manager: Growth and Contrafund Portfolios did not commence operations
until January 3, 1995. Estimated expenses for the year ending December 31, 1995
for Asset Manager: Growth and Contrafund Portfolios are .93% and .89%,
respectively.
ALGER AMERICAN FUND EXPENSES
Fred Alger Management, Inc. (Alger Management) serves as the Alger American Fund
investment manager. Alger Management stresses proprietary research by its large
research team that follows approximately 1400 companies. 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 as follows: Alger American Income and Growth, .625%; Alger American
Small-Capitalization, .85%; Alger American Growth, .75%; Alger American
Balanced, .75%; and Alger American MidCap Growth, .80%.
Each portfolio will bear its own expenses which will include management,
shareholders services and other expenses. 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, Alger American
Balanced, 1.25%; Alger American Small-Capitalization, Alger American MidCap
Growth, Alger American Leveraged AllCap, and the Alger American Growth, 1.50%.
As long as the expense limitation continues for a Portfolio, if a reimbursement
occurs, it has the effect of lowering the portfolio's expense ratio and
increasing its total return.
The total expenses for the period ending December 31, 1994 of each fund,
including management fees were: Alger American Income-Growth, .75%; Alger
American Balanced, 1.08%; Alger American Small-Capitalization, .96%; Alger
American Growth, .86%; and Alger American MidCap Growth, .97%.
Alger American Leveraged AllCap's inception date was January 25, 1995. Estimated
expenses for this portfolio for the year ending December 31, 1995, are 1.79%.
MFS FUND EXPENSES
Massachusetts Financial Services Company ("MFS Co."), a Delaware Corporation, is
the investment adviser to each series of the MFS Variable Insurance Trust.
EXPENSE SUMMARY
Annual Operating Expenses of each Series (as percentage of average net assets):
Management Fee . . . . . . . . . . . . . . . . . . . . . . . .75%
Other Expenses (after fee reduction)*. . . . . . . . . . . . .25%
Total Operating Expenses (after fee reduction)*. . . . . . . 1.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
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 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 1.00% and 1.75%, respectively, for the Emerging Growth Series
and 0.93% and 1.68%, respectively, for the Utilities Series, based upon
estimated expenses for the series' current fiscal year.
MFS Co. has agreed to bear, subject to reimbursement, 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 0.63% and 1.38%, respectively.
DREYFUS INDEX FUND EXPENSES
WELLS FARGO NIKKO INVESTMENT ADVISORS (WFNIA) serves as Dreyfus Index Fund
Manager. It is one of the world's largest managers of Index Funds. The Fund has
agreed to pay the manager a monthly fee at an annual rate of .30% of the value
of the Fund's average daily net assets. The total expenses were reduced pursuant
to an undertaking by WFNIA and Dreyfus Index Fund that they would reimburse the
Fund for those total expenses exceeding .40%. As long as the expense limitation
continues for a Portfolio, if a reimbursement occurs, it has the effect of
lowering the portfolio's expense ratio and increasing its total return. Without
reimbursement, the total expenses for the period ending December 31, 1994, were
.56%.
<PAGE>
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 19).
Payments allocated to the Fixed Account and transfers from the Separate Account
to the Fixed Account are placed in the general account of AVLIC, which supports
insurance and annuity obligations. The general account includes all of AVLIC's
assets, except those assets segregated in the separate accounts. AVLIC has the
sole discretion to invest the assets of the general account, subject to
applicable law. AVLIC bears an investment risk for all amounts allocated or
transferred to the Fixed Account and interest credited thereto, less any
deduction for charges and expenses, whereas the owner bears the investment risk
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
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
<PAGE>
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.
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 22). 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.
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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 23).
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 23).
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 $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 23).
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 22).
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.
<PAGE>
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.
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 26). 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.
<PAGE>
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 28).
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
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
22).
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. After the second policy year, 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 26).
SURRENDERS AND PARTIAL WITHDRAWALS MAY HAVE ADVERSE TAX CONSEQUENCES.
(See
Modified Endowment Contract; Tax Penalty on Early Withdrawals page 28).
<PAGE>
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. A partial withdrawal may be made only after the second
policy year, and only one partial withdrawal is allowed per policy year. 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
three 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 23; 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 25).
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 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 28).
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.
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
<PAGE>
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 26).
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.
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 81889,
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
<PAGE>
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 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 22).
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.
<PAGE>
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 REINSTATMEENT
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 in (b) above,
plus that part of the deferred sales load (i.e., cash surrender charge) which
would apply if the Policy were surrendered 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 24). The charges for premium
taxes represent an amount AVLIC considers necessary to pay all premium taxes
imposed by the states and their subdivisions.
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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 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
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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 27).
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 8).
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 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
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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.
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.
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.
<PAGE>
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 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
<PAGE>
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.
(a) Taxation of AVLIC. After AVLIC issues the Policies, AVLIC believes it
will be taxed as a life insurance company under Part I of Subchapter L
of the Internal Revenue Code of 1986 (the "Code"). At that 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.
<PAGE>
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 7702 A) 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 decreased, 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 definitional limitations on premiums
and cash values, the Policyowners 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 are expected in the near
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 reduce 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 20), may have tax consequences and,
the right to change owners (see General Provisions, page 25), 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 & 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: 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, PRESIDENT & CHEIF OPERATING OFFICER
President and Chief Operating Officer: ALIC; 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.
NORMAN M. KRIVOSHA, DIRECTOR, SECRETARY
Executive Vice President, Secretary & Corporate General Counsel: ALIC; 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.
JON C. HEADRICK, TREASURER
Executive Vice President-Investments and Treasurer: ALIC; Treasurer to: 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, President, Chief Executive Officer, and Treasurer:
Ameritas Investment Corp.; Director, President and Chief Executive Officer:
Ameritas Investment Advisors Inc.
JAMES R. HAIRE, DIRECTOR, VICE PRESIDENT
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.
<PAGE>
JOANN MARTIN, DIRECTOR, COMPTROLLER
Senior Vice President-Controller and Chief Financial Officer: ALIC; Director:
Ameritas Managed Dental Plan, Inc., Ameritas Investment Advisors, Inc., Ameritas
Investment Corp., BLN Financial Services, Inc., FMA Realty, Inc.; Comptroller
to: Veritas Corp., Bankers Life Nebraska Company, Pathmark Assurance Company;
Director, Treasurer: Lincoln Gateway Shopping Center Inc.; Director,
Comptroller, Assistant Secretary: Ameritas Bankers Assurance Company; Vice
President, Comptroller: First Ameritas Life Insurance Corp. of New York.
THOMAS D. HIGLEY, VICE PRESIDENT AND ACTUARY
Vice President - Individual Financial Operations and Actuarial, ALIC; Vice
President and Actuary: First Ameritas Life Insurance Corp. of New York;
Director, Vice President and Actuary, Ameritas Bankers Assurance Company.
WAYNE E. BREWSTER, VICE PRESIDENT-VARIABLE SALES
Vice President-Variable Sales: ALIC.
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.
* The principal business address of each person listed is Ameritas Variable
Life Insurance Company, One Ameritas Way, 5900 "O" Street, P.O. Box 81889
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.
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, Director and Secretary 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, 1994 and 1993, and for each
of the three years in the period ended December 31, 1994 and the financial
statements of the Account as of December 31, 1994 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 1, 1994, 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, 1994. 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, 1994, 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.
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
February 1, 1995
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
ASSETS
<S> <C>
INVESTMENTS AT NET ASSET VALUE:
Variable Insurance Products Fund:
Money Market Portfolio - 6,247,661.970 shares at
$1.00 per share (cost $6,247,662) $ 6,247,662
Equity Income Portfolio - 410,159.302 shares at
$15.35 per share (cost $5,539,697) 6,295,945
Growth Portfolio - 569,981.087 shares at
$21.69 per share (cost $10,666,166) 12,362,890
High Income Portfolio - 276,041.963 at
$10.76 per share (cost $2,889,687) 2,970,211
Overseas Portfolio - 316,186.952 shares at
$15.67 per share (cost $4,703,647) 4,954,650
Variable Insurance Products Fund II:
Asset Manager Portfolio - 1,171,722.945 shares at
$13.79 per share (cost $15,864,705) 16,158,059
Investment Grade Bond Portfolio - 82,319.293 shares at
$11.02 per share (cost $967,658) 907,159
Alger American Fund:
Small Capitalization Portfolio - 156,146.723 shares at
$27.31 per share (cost $4,083,316) 4,264,367
Growth Portfolio - 87,011.270 shares at
$23.13 per share (cost $1,930,745) 2,012,571
Income and Growth Portfolio - 23,109.060 shares at
$13.30 per share (cost $326,379) 307,350
Midcap Growth Portfolio - 40,556.228 shares at
$13.46 per share (cost $522,284) 545,887
Balanced Portfolio - 11,683.157 shares at
$10.80 per share (cost $126,560) 126,178
Dreyfus Stock Index Fund:
Stock Index Fund Portfolio - 74,453.907 shares at
$12.94 per share (cost $1,052,851) 963,434
-------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 58,116,363
=============
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 ASSETS
FOR THE YEAR ENDED DECEMBER 31,
1994 1993 1992
-------------- ------------ -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend Distributions received $ 799,210 $ 499,740 $ 270,834
EXPENSE
Charges to policyowners for assuming
mortality and expense risk (Note B) 465,706 260,944 121,652
-------------- ------------- -------------
INVESTMENT INCOME - NET 333,504 238,796 149,182
-------------- ------------- -------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NET
Capital Gain Distributions received 1,403,280 292,625 121,808
Unrealized increase/(decrease) (2,469,056) 3,683,814 983,400
-------------- ------------- -------------
NET GAIN/(LOSS) ON INVESTMENTS (1,065,776) 3,976,439 1,105,208
-------------- ------------- -------------
NET (DECREASE)/INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS (732,272) 4,215,235 1,254,390
NET INCREASE IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS (NOTE B) 21,904,104 14,840,992 8,433,982
-------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS 21,171,832 19,056,227 9,688,372
NET ASSETS
Beginning of period 36,944,531 17,888,304 8,199,932
-------------- ------------- -------------
End of period $ 58,116,363 $ 36,944,531 $ 17,888,304
============== ============= ===========
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, 1994
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 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, 1994, there are
thirteen subaccounts within the Account. Five of the subaccounts invest
only in a corresponding Portfolio of Variable Insurance Products Fund and
two 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.
Five 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 Wells Fargo
Nikko Investment Advisors. All four 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, 1994
C. DISSOLUTION OF ZERO COUPON BOND PORTFOLIO:
------------------------------------------
The Zero Coupon Bond Portfolio managed by Fidelity Management and Research
Company was closed by the fund manager effective December 30, 1992. These
funds had been unavailable to new policyowners or for transfers since
May 1, 1991. A substitution order from the Securities and Exchange
Commission allowed the transfer of accumulated values invested in the 1993
Zero Coupon Bond subaccount to the Money Market subaccount of the Variable
Insurance Products Fund and the transfer of accumulated values in the 1998
and 2003 Zero Coupon Bond subaccounts to the Investment Grade Bond
subaccount of the Variable Insurance Products Fund II on December 30, 1992.
D. PLAN FOR MERGER:
----------------
In December 1994 the Board of Directors for AVLIC and ALIC approved a plan
of statutory merger of the companies. The merger, which will combine
the assets and liabilities of the companies, has an effective date of
May 1, 1995, or at such later date as all required regulatory approvals
can be obtained. The plan of merger has been approved by the Insurance
Department of the State of Nebraska.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
E. INFORMATION BY FUND:
--------------------
Alger American Fund
-----------------------------------------------------------------------------------------
Income and Midcap
Small Cap Growth 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, 1994
E. INFORMATION BY FUND:
--------------------
Alger American Fund
-----------------------------------------------------------------------------------------
Income and Midcap
Small Cap Growth 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>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
E. INFORMATION BY FUND:
--------------------
Variable Insurance Products Fund
-----------------------------------------------------------------------------------------
Money Equity High
Market Income Growth Income Overseas
---------------- ----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance 12-31-91 $ 1,221,511 $ 1,553,786 $ 2,947,040 $ 290,693 $ 250,623
Distributed earnings 84,230 63,812 72,609 29,542 3,800
Mortality risk charge (24,206) (18,988) (36,300) (5,602) (3,749)
Realized gain/(loss)
on distribution --- --- --- --- ---
Unrealized increase/(decrease --- 243,041 394,360 65,738 (48,827)
Net premium transferred 1,318,725 635,111 635,111 476,762 384,826
---------------- ----------------- ----------------- --------------- ---------------
Balance 12-31-92 $ 2,600,260 $ 2,476,762 $ 5,152,469 $ 857,133 $ 586,673
================ ================= ================= =============== ===============
Variable Insurance
Products Fund II Zero Coupon Bond Fund (5)
---------------------------------- ----------------------------------------------------
Asset Investment
Manager Grade Bond 1993 1998 2003
---------------- ----------------- ----------------- --------------- ---------------
Balance 12-31-91 $ 1,679,178 $ 40,920 $ 44,420 $ 85,185 $ 86,576
Distributee earnings 97,937 31,832 2,437 1,254 1,306
Mortality risk charge (27,359) (1,848) (347) (550) (691)
Realized gain/(loss)
on distribution --- --- (724) 10,008 12,062
Unrealized increase/(decrease) 246,506 (22,909) (152) (8,710) (10,369)
Net premium transferred 2,856,001 462,808 (45,634) (87,187) (88,884)
---------------- ----------------- ----------------- --------------- ---------------
Balance 12-31-92 $ 4,852,263 $ 510,803 $ --- $ --- $ ---
================ ================= ================= =============== ===============
Alger American Fund Dreyfus
----------------------------------------------------- ---------------------------------
Income and Stock
Small Cap(1) Growth(2) Growth (3) Index Fund(4) TOTAL
---------------- ----------------- ----------------- --------------- ---------------
Balance 12-31-91 $ --- $ --- $ --- $ --- $ 8,199,932
Distributed earnings --- --- --- 3,883 392,642
Mortality risk charge (1,586) (114) (45) (267) (121,652)
Realized gain/(loss)
on distribution --- --- --- --- 21,346
Unrealized increase/(Decrease) 95,088 5,537 1,552 1,199 962,054
Net premium transferred 503,175 50,623 36,201 156,695 8,433,982
---------------- ----------------- ----------------- --------------- ---------------
Balance 12-31-92 $ 596,677 $ 56,046 $ 37,708 $ 161,510 $ 17,888,304
================ ================= ================= =============== ===============
(1) Commenced business 06/05/92. (4) Commenced business 05/19/92.
(2) Commenced business 05/29/92. (5) Zero Coupon Bond funds closed by fund
(3) Commenced busniess 05/20/92. manager effective 12/30/92.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF NET ASSETS
JUNE 30, 1995
ASSETS
<S> <C>
INVESTMENTS AT NET ASSET VALUE:
Variable Insurance Products Fund:
---------------------------------
Money Market Portfolio - 6,551,977.180 shares at
$1.00 per share (cost $6,551,977) $ 6,551,977
Equity Income Portfolio - 535,943.192 shares at
$16.89 per share (cost $7,538,628) 9,052,081
Growth Portfolio - 630,456.322 shares at
$26.70 per share (cost $12,061,809) 16,833,184
High Income Portfolio - 398,014.509 at
$11.19 per share (cost $4,157,689) 4,453,782
Overseas Portfolio - 367,670.267 shares at
$16.19 per share (cost $5,440,713) 5,952,582
Variable Insurance Products Fund II:
------------------------------------
Asset Manager Portfolio - 1,237,166.357 shares at
$14.33 per share (cost $16,751,909) 17,728,594
Investment Grade Bond Portfolio - 102,502.882 shares at
$11.76 per share (cost $1,192,088) 1,205,434
Alger American Fund:
--------------------
Small Capitalization Portfolio - 194,281.254 shares at
$36.02 per share (cost $5,252,336) 6,998,011
Growth Portfolio - 126,367.792 shares at
$28.60 per share (cost $2,923,647) 3,614,119
Income and Growth Portfolio - 36,704.822 shares at
$16.84 per share (cost $521,606) 618,109
Midcap Growth Portfolio - 82,090.271 shares at
$17.12 per share (cost $1,133,877) 1,405,385
Balanced Portfolio - 16,746.949 shares at
$12.59 per share (cost $185,566) 210,844
Dreyfus Stock Index Fund:
-------------------------
Stock Index Fund Portfolio - 94,791.022 shares at
$15.34 per share (cost $1,346,721) 1,454,094
-----------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 76,078,196
===========
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 ASSETS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
1995 1994
--------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 984,106 $ 566,381
EXPENSE
Charges to policyowners for assuming
mortality and expense risk (Note B) 313,108 206,755
--------------- --------------
INVESTMENT INCOME - NET 670,998 359,626
--------------- --------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NET
Capital gain distributions received 382,049 1,398,987
Unrealized increase/(decrease) 7,824,624 (4,231,961)
--------------- --------------
NET GAIN/(LOSS) ON INVESTMENTS 8,206,673 (2,832,974)
--------------- --------------
NET (DECREASE)/INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS 8,877,671 (2,473,348)
NET INCREASE IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS (Note B) 9,084,162 13,033,162
--------------- --------------
TOTAL INCREASE IN NET ASSETS 17,961,833 10,559,814
NET ASSETS
Beginning of period 58,116,363 36,944,530
--------------- --------------
End of period $ 76,078,196 $ 47,504,344
=============== ==============
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
JUNE 30, 1995
(UNAUDITED)
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 products issued
by AVLIC.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. At June 30, 1995, there are thirteen
subaccounts within the Account. Five of the subaccounts invest only in a
corresponding Portfolio of Variable Insurance Products Fund and two 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. Five 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 Wells Fargo Nikko Investment
Advisors. All four funds are registered under the Investment Company Act of
l940, 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. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS:
----------------------------------------------------------------
Management believes that all adjustments, consisting of only normal
recurring accruals, considered necessary for a fair presentation of the
unaudited interim financial statements have been included. The results of
operations for any interim peirod are not necessarily indicative of results
for the full year. The unaudited interim financial statements should be
read in conjunction with the audited financial statements and notes thereto
for the years ended December 31, 1994 and 1993.
C. PLAN FOR MERGER:
----------------
In December 1994 the Board of Directors for AVLIC and ALIC approved a plan
of statutory merger of the companies. The merger, which will combine the
assets and liabilities of the companies, has an effective date of May 1,
1995, or at such later date as all required regulatory approvals can be
obtained. The plan of merger has been approved by the Insurance Department
of the State of Nebraska. The merger was subsequently postponed until
May 1, 1996.
<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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with statutory accounting principles which are considered generally
accepted accounting principles for mutual life insurance companies and their
insurance subsidiaries.
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
February 1, 1995
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
BALANCE SHEET
(Columnar amounts in thousands)
December 31,
--------------------------
1994 1993
ASSETS ----------- ----------
------
<S> <C> <C>
Investments:
Bonds (Note C) $ 34,607 $ 23,974
Short-term investments 7,714 19,273
Loans on life insurance policies 1,597 1,021
--------- ---------
Total investments 43,918 44,268
Cash 431 1,161
Accrued investment income 774 676
Reinsurance Recoverable - affiliates (Note E) 467 -
Other assets 129 97
Separate Accounts (Note F) 462,886 325,088
--------- ---------
$ 508,605 $ 371,290
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Life and annuity reserves $ 30,578 $ 31,261
Funds left on deposit with the company 142 97
Interest maintenance reserve 36 31
Accounts payables - affiliates (Note E) 884 1,570
Income tax payable-affiliates 36 109
Accrued professional fees 11 40
Sundry current liabilities -
Cash with applications 562 1,995
Other 692 394
Valuation Reserve 163 100
Separate Accounts (Note F) 462,886 325,088
--------- ---------
495,990 360,685
--------- ---------
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 23,700
Deficit (21,085) (17,095)
---------- ----------
12,615 10,605
---------- ----------
$ 508,605 $ 371,290
========== ==========
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,
--------------------------------------
1994 1993 1992
------------ ----------- ----------
<S> <C> <C> <C>
INCOME:
Premium income $ 174,085 $ 155,166 $ 84,181
Less reinsurance: (Note E)
Yearly renewable term (1,333) (843) (293)
Fixed account - - (3,840)
------------ ----------- ---------
Net premium income 172,752 154,323 80,048
Net investment income (Note D) 3,050 2,897 1,732
Miscellaneous insurance income 1,398 459 596
------------ ----------- ---------
177,200 157,679 82,376
------------ ----------- ---------
EXPENSES:
Increase (Decrease) in reserves (637) 1,717 28,671
Benefits to policyowners 19,012 8,128 3,902
Redemptions from fixed account - - (25,831)
Commissions 15,799 13,080 7,733
General insurance expenses (Note E) 6,403 4,216 3,583
Taxes, licenses and fees 1,183 829 447
Net premium transferred to
Separate Accounts (Note F) 139,974 136,451 71,043
------------ ----------- ----------
181,734 164,421 89,548
(Loss) before income taxes ------------ ----------- ----------
and realized capital gains (4,535) (6,742) (7,172)
Income Taxes (benefit)-current (611) (1,501) (1,844)
------------ ----------- ---------
(Loss) before realized capital gains (3,923) (5,241) (5,328)
Realized capital gains (net of tax of $11, $19 and $0
and $12, $32 and $0 transfers to interest maintenance
reserve for 1994, 1993 and 1992 , respectively) (2) 1 -
------------ ---------- --------
Net (loss) $ (3,925) $ (5,240) $ (5,328)
============ ========== ========
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, 1994, 1993 AND 1992
(in thousands, except shares)
Additional
Common Stock Paid in
Shares Amount Capital Deficit Total
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1992 40,000 $ 4,000 $ 13,200 $ (6,492) $ 10,708
Decrease in non-admitted assets - - - 65 65
Transfer to Valuation Reserve - - - (38) (38)
Capital Contribution from
Ameritas Life Insurance Corp. - - 5,000 - 5,000
Net (loss) - - - (5,328) (5,328)
--------- ----------- ---------- ----------- ----------
BALANCE, December 31, 1992 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
========== ============ ========== ========== ==========
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,
-----------------------
1994 1993 1992
---------------- ---------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net premium income received $ 172,701 $ 154,408 $ 80,037
Miscellaneous insurance income 1,398 459 596
Net investment income received 2,899 2,848 1,714
Net premium transferred to Separate Accounts (140,161) (136,451) (71,043)
Benefits paid to policyowners (18,944) (8,207) (3,823)
Redemptions from fixed account - - 1,931
Commissions (15,799) (13,080) (7,659)
Expenses and taxes (7,547) (4,939) (3,950)
Net increase in policy loans (576) (592) (99)
Income taxes 527 1,630 1,805
Other operating income and disbursements (2,222) 270 2,496
--------------- --------------- -------------
Net cash (used in) provided by operating activities (7,724) (3,654) 2,005
--------------- --------------- -------------
INVESTING ACTIVITIES:
Maturity of bonds 5,108 8,266 3,069
Purchase of Investments (15,673) (1,460) (448)
--------------- --------------- -------------
Net cash (used in) provided by investing activities (10,565) 6,806 2,621
--------------- --------------- -------------
FINANCING ACTIVITIES:
Capital Contribution 6,000 5,500 5,000
--------------- --------------- -------------
NET INCREASE (DECREASE) IN CASH AND
SHORT TERM INVESTMENTS (12,289) 8,652 9,626
CASH AND SHORT TERM INVESTMENTS -
BEGINNING OF YEAR 20,434 11,782 2,156
--------------- --------------- -------------
CASH AND SHORT TERM INVESTMENTS -
END OF YEAR $ 8,145 $ 20,434 $ 11,782
=============== =============== =============
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, 1994, 1993 AND 1992
(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.
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. It is
management's intent to hold fixed maturity securities to maturity; thus,
adjustment to market value is not considered appropriate. Separate account
assets are carried at market. Realized gains and losses are determined on the
basis of specific identification. At December 31, 1994, the Company had
securities with a book value of $3,278 and market value of $3,149 on deposit
with various State Insurance Departments.
ACQUISITION COSTS - Commissions, 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,
1994 1993 1992
---------- ----------- -----------
<S> <C> <C> <C>
Life $ 31,980 $ 20,591 $ 11,693
Annuity 142,105 134,575 72,488
---------- ----------- -----------
$ 174,085 $ 155,166 $ 84,181
========== =========== ===========
</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.
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. Amortization for the years ended December 31, 1994
and 1993 was $5 and $1, respectively. There was no amortization for the year
ended December 31, 1992.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------------------------
(Continued)
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 con-
solidated 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 deferred acquisition costs, current
tax benefits are less than the statutory corporate rate of 35%.
B. FINANCIAL INSTRUMENTS:
----------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments 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, 1994, 1993 AND 1992
(in thousands)
B. FINANCIAL INSTRUMENTS: (Continued)
The estimated fair values, as of December 31, 1994 and 1993, of the
Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Bonds $ 34,607 $ 34,021 $ 23,974 $ 25,803
Short-term investments 7,714 7,714 19,273 19,273
Cash 431 431 1,161 1,161
Accrued investment income 774 774 676 676
Loans on life insurance 1,597 1,190 1,021 905
policies
Financial Liabilities:
Funds left on deposit 142 142 97 97
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, 1994:
<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
========== =========== ============
============ ============
The comparative data as of December 31, 1993 is summarized as follows:
Gross Gross
Amortized Fair Unrealized Unrealized Carrying
Cost Value Gains Losses Value
----------- ----------- ------------ ------------ ------------
LONG TERM BONDS:
Corporate-U.S. $ 13,511 $ 14,801 $ 1,290 $ - $ 13,511
Mortgage-Backed 2,486 2,613 127 - 2,486
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies 7,977 8,389 427 15 7,977
----------- ------------ ----------- ------------ ------------
$ 23,974 $ 25,803 $ 1,844 $ 15 $ 23,974
=========== ============ =========== ============ ============
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(in thousands)
C. BONDS: (Continued)
------
The carrying value and fair value of bonds at December 31, 1994 by
contractual maturity are shown below:
<TABLE>
<CAPTION>
Fair Carrying
Value Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 1,512 $ 1,501
Due after one year through five years 22,306 22,655
Due after five years through ten years 8,517 8,806
Due after ten years 502 496
Mortgage-Backed Securities 1,184 1,149
---------- -----------
$ 34,021 $ 34,607
========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
Included in Bonds: Carrying
ISSUER Value
------ ------------
<S> <C>
Legget & Platt Inc Medi um 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
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, 1993 are as follows:
Included in Bonds: Carrying
ISSUER Value
------ ------------
Carlisle Company $ 1,200
Pep Boys 1,198
Sears, Roebuck & Co. 1,498
Included in Short-Term Investments:
ISSUER
------
American Tel & Tel $ 1,490
Bell South 1,495
Cargill 1,493
Congra 1,394
Cox Enterprises 1,492
Kmart 1,495
Nynex 1,494
Pepsico 1,494
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSUANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(in thousands)
D. INVESTMENT INCOME:
------------------
Net investment income for the years ended December 31, 1994, 1993 and 1992 is
comprised as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1993 1992
---------- ----------- ------------
<S> <C> <C> <C>
Bonds $ 2,410 $ 2,384 $ 1,645
Short-term Investments 609 529 105
IMR Amortization 5 1 -
Loans on Life Insurance Policies 82 39 26
---------- ----------- ------------
Gross Investment Income 3,106 2,953 1,776
Less investment expenses 56 56 44
---------- ----------- ------------
Net Investment Income $ 3,050 $ 2,897 $ 1,732
========== =========== ============
</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, 1994, 1993 and 1992
was $4,029, $1,915 and $1,285, 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, 1994,
1993 and 1992 was $40, $54 and $48, respecitively.
Under the terms of an investment advisory agreement, the Company paid $43,
$44 and $32 for the years ended December 31, 1994, 1993 and 1992 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 paid $1,333, $843 and $293 of reinsurance premiums for
the years ended December 31, 1994, 1993 and 1992, respectively.
The Company ceded premium designated for the Fixed Account of $3,840 for the
year ended December 31, 1992. The reinsurance agreement on thee Fixed
Account between Ameritas Life Insurance Corp. and the Company provided either
party with the option to cancel the agreement when the Fixed Account reached
$20 million. The two parties cancelled the agreement as of July 31, 1992.
Starting July 1, 1992 all Fixed Account Activity is held and invested by the
Company. The value of the Fixed Account at July 31, 1992 ($24,900) was
transferred from ALIC to the Company during August, 1992 via participaiton
certificates.
The Company has entered into a guarantee agreement with Ameritas Life
Insurance Corp., whereby, Ameritas Life Insurance Corp. guarantees absolutely
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 $266 and $23 for the years ended December 31, 1994 and 1993,
respectively, from this affiliate to partially defray the costs of materials,
prospectuses, etc.. In 1992 there were no reimbursements from this affiliate
for these purposes. Policies placed by this affiliate generated commission
expense of $15,223, $12,621 and $7,454 for the years ended December 31, 1994,
1993 and 1992, respectively.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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:
<TABLE>
<CAPTION>
December 31, 1994
---------------------------
1994 1993
----------- ------------
<S> <C> <C>
Separate Account V $ 58,117 $ 36,945
Separate Account VA-2 404,769 288,143
----------- ------------
$ 462,886 $ 325,088
=========== ============
</TABLE>
The assets of Account V are invested in shares of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, Alger American Fund
and Dreyfus Stock Index Fund. 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 two portfolios:
the Investment Grade Bond Portfolio and the Asset Manager Portfolio. The
Alger American Fund is managed by Fred Alger Management, Inc. and has five
portfolios: Income and Growth Portfolio, Small Capitalization Portfolio,
Growth Portfolio, MidCap Growth Portfolio (effective June 17, 1993) and the
Balanced Portfolio (effective June 28, 1993). The Dreyfus Stock Index Fund
is managed by Wells Fargo Nikko Investment Advisors and has the Stock Index
Fund Portfolio.
Prior to December 30, 1992 the Company offered Fidelity Management and
Research Company's Zero Coupon Bond Fund and its three portfolios, Zero
coupon 1993 Portfolio, Zero Coupon 1998 Portfolio and Zero Coupon 2003
Portfolio, as an investment option in Separate Account V. On December 31,
1992 Fidelity Management and Research Company liquidated and closed the Fund.
All remaining shares were transferred into other portfolios pursuant to a
substitution program approved by the Securities and Exchange Commission as of
the close of business December 30, 1992 Separate Account VA-2 allows
investment in the Variable Insurance Products Fund, Variable Insurance
Products Fund II, Alger American Fund and Dreyfus Stock Index Fund with the
same portfolios as described above.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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 fundedon 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 of this plan are not segregated.
Total Company contributions for the years ended December 31, 1994, 1993 and
1992 were $47, $51 and $32, respectively.
The Company's employees also participate in a defined contribution thrift
plan that covers substantially all full-time employees of Ameritas Life
Insurance Corp. and its subsidiaries. Company matching contributions under
the plan range from 1% to 3% of the participant's compensation. Total Company
contributions for the years ended December 31, 1994, 1993 and 1992 were $20,
$22 and $21, respectively.
The Company is also included in the postretirement benefit plans provided to
retired employees of Ameritas Life Insurance Corp. and its subsidiaries.
These benefits are a specified percentage of premium until age 65 and a flat
dollar amount thereafter. Employees become eligible for these benefits upon
the attainment of age 55, 15 years of service and participation in the plan
for the immediately preceding 5 years. Benefit costs include the expected
cost of postretirement benefits for newly eligible employees, interest cost,
and gains and losses arising from differences between actuarial assumptions
and actual experience.
The liabilities of this plan are not segregated. Total Company contributions
for the years ended December 31, 1994 and 1993 were $7 and $2, respectively.
In 1992 there was no cost charged for postretirement benefits.
H. PLAN FOR MERGER:
----------------
In December 1994 the Board of Directors for AVLIC and ALIC approved a plan
of statutory merger of the companies. The merger, which will combine the
assets and liabilities of the companies, has an effective date of May 1,
1995, or at such later date as all required regulatory approvals can be
obtained. The plan of merger has been approved by the Insurance Department
of the State of Nebraska.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
BALANCE SHEET
(Columnar amounts in thousands)
(Unaudited)
June 30, 1995
---------------
ASSETS
------
<S> <C>
Investments:
Bonds $ 36,163
Short-term investments 12,406
Loans on life insurance policies 2,059
-------------
Total investments 50,628
Cash 774
Accrued investment income 713
Other assets 120
Separate Accounts 561,343
------------
$ 613,578
============
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
Life and annuity reserves $ 33,793
Funds left on deposit with the company 155
Interest maintenance reserve 52
Accounts payables - affiliates 2,273
Income tax payable-affiliates 766
Other liabilities 2,054
Asset valuation reserve 194
Separate Accounts 561,343
-----------
600,630
-----------
STOCKHOLDER'S EQUITY:
Common stock, par value $100 per share; 4,000
authorized 50,000 shares, issued and
outstanding 40,000 shares
Additional paid-in capital 29,700
Deficit (20,752)
-----------
12,948
-----------
$ 613,578
===========
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)
(Unaudited)
Six Months End
----------------------------
1995 1994
------------- ------------
<S> <C> <C>
INCOME: Premium income $ 66,949 $ 113,836
Less reinsurance:
Yearly renewable term (2,607) (547)
------------ -----------
Net premium income 64,342 113,289
Net investment income 1,737 1,444
Miscellaneous insurance income 2,481 580
----------- ----------
68,560 115,313
----------- ----------
EXPENSES:
Increase (Decrease) in reserves 3,215 (844)
Benefits to policyowners 16,747 8,347
Commissions 6,450 9,721
General insurance expenses 3,156 3,080
Taxes, licenses and fees 645 687
Net premium transferred to
Separate Accounts 37,268 98,452
---------- --------
67,481 119,443
Income/(loss) before income taxes ---------- --------
and realized capital gains 1,079 (4,130)
Income Taxes (benefit)-current 720 (845)
---------- ---------
Income/(loss) before realized capital gains 359 (3,285)
Realized capital gains (net of tax of $11, and $11
and $18 and $8 transfers to interest maintenance
reserve for 1995 and 1994 , respectively) - -
---------- --------
Net income/(loss) $ 359 $ (3,285)
==========
=========
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 SIX MONTHS ENDED JUNE 30, 1995 AND THE YEAR ENDED DECEMBER 31,
1994
(in thousands, except shares)
(Unaudited)
Additional
Common Stock Paid in
Shares Amount Capital Deficit Total
------------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 40,000 $ 4,000 $ 23,700 $ (17,095) $ 10,605
Decrease in non-admitted assets - - - (2) (2)
Transfer to asset 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
Increase in non-admitted assets - - - 5 5
Transfer to asset valuation reserve - - - (31) (31)
Net income - - - 359 359
----------- ---------- ----------- ---------- --------
BALANCE, June 30, 1995 40,000 $ 4,000 $ 29,700 $ (20,752) $ 12,948
=========== ========== ===========
========== ========
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)
Unaudited
Six Months Ended June 30,
---------------------------------
1995 1994
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net premium income received $ 64,705 $ 113,254
Miscellaneous insurance income 1,033 37
Net investment income received 1,760 1,465
Net premium transferred to Separate Accounts (36,859) (98,118)
Benefits paid to policyowners (16,802) (8,143)
Commissions (5,230) (9,692)
Expenses and taxes (4,063) (3,782)
Net increase in policy loans (462) (206)
Other operating income and disbursements 2,448 76
------------ ------------
Net cash (used in) provided by operating activities 6,530 (5,109)
------------ ------------
INVESTING ACTIVITIES:
Maturity of bonds 2,501 3,402
Purchase of Investments (3,996) (7,216)
------------ ------------
Net cash (used in) provided by investing activities (1,495) (3,814)
------------ ------------
FINANCING ACTIVITIES:
Capital Contribution - 6,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
SHORT TERM INVESTMENTS 5,035 (2,923)
CASH AND SHORT TERM INVESTMENTS -
BEGINNING OF PERIOD 8,145 20,430
------------ ------------
CASH AND SHORT TERM INVESTMENTS -
END OF PERIOD $ 13,180 $ 17,507
============
===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(in thousands)
(Unaudited)
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 or permitted 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.
B. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS:
----------------------------------------------------------------
Management believes that all adjustments, consisting of only normal
recurring accruals, considered necessary for a fair presentation of the
unaudited interim financial statements have been included. The results
of operations for any interim period are not necessarily indicative of
results for the full year. The unaudited interim financial statements
should be read in conjunction with the audited financial statements and
notes thereto for the years ended December 31, 1994 and 1993.
C. PLAN OF MERGER
--------------
In December, 1994 the Board of Directors for the company and ALIC approved
a plan of statutory merger of the companies. The merger, which will
combine the assets and liabilities fo the companies, had an effective date
of May 1, 1995, or at such later date as all required regulatory approvals
can be obtained. The plan of merger has been approved by the Insurance
Department of the State of Nebraska. The merger was subsequently postponed
until May 1, 1996.
<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 61 through 64 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
61 and 63 are based on the current cost of insurance rates, current expense
deductions and the guaranteed percent of premium loads. These reflect the basis
on which AVLIC currently sells its Policies. The maximum cost of insurance rates
allowable 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 guaranteed
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 62 and 64 are based on the assumption that the maximum
allowable cost of insurance rates as described above ("guaranteed cost") 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 investment advisory
fee paid by each portfolio available for investment (the equivalent to an annual
rate of .62% of the aggregate average daily net assets of the Fund), the other
expenses incurred by the Fund (0.21%), 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 -2.03%, 3.97%, 9.97% 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 and .40% for the Dreyfus Index
Fund 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 27).
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 nine 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.
<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 (-2.03% net) (3.97% net) ( 9.97% net) (-2.03% net) (3.97% net) (9.97% net)
- --------- ----------------- ----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8820 9418 10016 55593 55593 55593
2 11025 8542 9746 11023 55593 55593 55593
3 11576 8264 10083 12127 55593 55593 55593
4 12155 8036 10479 13387 55593 55593 55593
5 12762 7906 10982 14865 55593 55593 55593
6 13400 7825 11544 16523 55593 55593 55593
7 14071 7840 12213 18422 55593 55593 55593
8 14774 7752 12789 20378 55593 55593 55593
9 15513 7458 13173 22307 55593 55593 55593
10 16288 7160 13564 24427 55593 55593 55593
15 20789 5545 15601 38564 55593 55593 73658
20 26532 3571 17698 60897 55593 55593 95608
Ages
60 33863 925 19680 96409 55593 55593 129188
65 43219 0* 21570 153167 0* 55593 186864
70 55160 0* 22735 243423 0* 55593 282371
75 70399 0* 21902 388048 0* 55593 415211
* 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 GUARANTEED 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 (-2.03% net) (3.97% net) ( 9.97% net) (-2.03% net) (3.97% net) (9.97% net)
- --------- ----------------- ----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8570 9168 9766 55593 55593 55593
2 11025 8392 9596 10873 55593 55593 55593
3 11576 8214 10033 12077 55593 55593 55593
4 12155 8036 10479 13387 55593 55593 55593
5 12762 7906 10982 14865 55593 55593 55593
6 13400 7825 11544 16523 55593 55593 55593
7 14071 7840 12213 18422 55593 55593 55593
8 14774 7752 12789 20378 55593 55593 55593
9 15513 7458 13173 22307 55593 55593 55593
10 16288 7160 13564 24427 55593 55593 55593
15 20789 5545 15601 38564 55593 55593 55593
20 26532 3560 17690 60890 55593 55593 95598
Ages
60 33863 773 19557 96307 55593 55593 129051
65 43219 0* 20737 152489 0* 55593 186037
70 55160 0* 20207 241263 0* 55593 279865
75 70399 0* 15719 383309 0* 55593 410141
* 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 (-2.03% net) (3.97% net) ( 9.97% net) (-2.03% net) (3.97% net) (9.97% net)
- --------- ----------------- ----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8803 9401 9999 65296 65894 66492
2 11025 8509 9710 10983 65002 66203 67476
3 11576 8214 10025 12059 64707 66518 68552
4 12155 7969 10395 13286 64412 66839 69729
5 12762 7821 10871 14722 64115 67164 71015
6 13400 7722 11401 16327 63815 67494 72421
7 14071 7719 12034 18163 63512 67827 73956
8 14774 7612 12570 20042 63205 68163 75635
9 15513 7300 12907 21876 62893 68500 77469
10 16288 6982 13246 23881 62575 68839 79474
15 20789 5263 14905 37071 60857 70499 92664
20 26532 3184 16319 57635 58777 71912 113228
Ages
60 33863 469 17081 89717 56062 72674 145310
65 43219 0* 17031 140384 0* 72624 195977
70 55160 0* 14876 220059 0* 70469 275652
75 70399 0* 8340 345295 0* 63933 400888
* 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 GUARANTEED 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 (-2.03% net) (3.97% net) ( 9.97% net) (-2.03% net) (3.97% net) (9.97% net)
- --------- ----------------- ----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8553 9151 9749 65296 65894 66492
2 11025 8359 9560 10833 65002 66203 67476
3 11576 8164 9975 12009 64707 66518 68552
4 12155 7969 10395 13286 64412 66839 69729
5 12762 7821 10871 14722 64115 67164 71015
6 13400 7722 11401 16327 63815 67494 72421
7 14071 7719 12034 18163 63512 67827 73956
8 14774 7612 12570 20042 63205 68163 75635
9 15513 7300 12907 21876 62893 68500 77469
10 16288 6982 13246 23881 62575 68839 79474
15 20789 5263 14905 37071 60857 70499 92664
20 26532 3172 16307 57623 58766 71900 113216
Ages
60 33863 313 16901 89519 55906 72494 145112
65 43219 0* 15766 138991 0* 71359 194584
70 55160 0* 11154 215652 0* 66747 271245
75 70399 0* 112 334852 0* 55705 390445
* 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 1926-1994 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 and may
experience in the future. 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 1994. 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 69-year period: investments of one dollar would have grown to $810.54
and $2,842.77 respectively, by year-end 1994. 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 $25.86.
The lowest risk strategy over the past 69 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 1926-1994 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 1995 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
STANDARD & POOR'S 500 INDEX
%
Year Change
- ----------------------------------
<S> <C> <C>
1 1970 3.93
2 1971 14.56 (OMITTED GRAPH DEPICTS THE ACTIVITY
3 1972 18.90 OF THE S&P 500 INDEX FOR THE YEARS
4 1973 -14.77 1970-1994.)
5 1974 -26.39
6 1975 37.16
7 1976 23.57
8 1977 -7.42
9 1978 6.38
10 1979 18.20
11 1980 32.27
12 1981 -5.01
13 1982 21.44
14 1983 22.38
15 1984 6.10
16 1985 31.57
17 1986 18.56
18 1987 5.10
19 1988 16.61
20 1989 31.69
21 1990 -3.14
22 1991 30.45
23 1992 7.61
24 1993 10.08
25 1994 -1.32
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.
</TABLE>
