PROSPECTUS
AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO
APPLAUSE! II -- A Flexible Premium Variable One Ameritas Way/5900 "O" Street
Universal Life Insurance Policy issued P.O. Box 82550/Lincoln, NE 68501
by Ameritas Variable Life Insurance Company
- --------------------------------------------------------------------------------
APPLAUSE! II represents a type of insurance known as a flexible premium variable
universal life insurance policy. Like traditional life insurance policies, an
APPLAUSE! II Policy provides death benefits to beneficiaries designated by the
Policyowner and the opportunity to increase the cash value of the insurance
Policy itself. Unlike such traditional policies, APPLAUSE! II also allows
Policyowners to vary the frequency and amount of premium payments rather than
follow a fixed premium payment schedule. It also permits Policyowners to change
the level of Death Benefits as often as once each year.
An APPLAUSE! II Policy is different from traditional life insurance policies in
another important respect: Policyowners are responsible for selecting the manner
in which premiums paid on the Policy will be invested. Although each Policyowner
is guaranteed a minimum death benefit, the cash value of the Policy, as well as
the actual death benefit payable under the Policy, will vary with the
performance of investments selected by the Policyowner over the life of the
Policy.
The investment options available through APPLAUSE! II include investment
portfolios managed by Fidelity Management, Fred Alger Management, Massachusetts
Financial Services and Morgan Stanley Asset Management. Each of these portfolios
has its own investment objective and policies. These are described in the
prospectuses relating to each investment portfolio which must accompany this
APPLAUSE! II prospectus. Policyowners may also choose to allocate premium
payments to the Fixed Account managed by Ameritas Variable Life Insurance
Company ("AVLIC").
An APPLAUSE! II policy will be established following the acceptance of a
prospective Policyowner's application. Generally, an application must specify a
minimum Death Benefit of $100,000 (or $50,000 if the individual named as the
Insured under the policy is 50 or older), but lower minimums may be requested.
An APPLAUSE! II Policy, once purchased, may be returned for a full refund for 13
days after the Issue Date.
This APPLAUSE! II prospectus is designed to assist you in understanding the
opportunity and risks associated with the purchase of an APPLAUSE! II Policy.
Prospective Policyowners are urged to read the prospectus carefully and retain
it for future reference.
The prospectus includes a summary of the most important features of the
APPLAUSE! II policy, as well as a detailed description of the APPLAUSE! II
Policy, including a listing of the several investment portfolios to which
Policyowners may allocate premium payments and information about AVLIC. Several
appendices follow the prospectus narrative; these include tables designed to
illustrate how cash values and Death Benefits may change with the investment
experience of the investment options available to Policyowners. Historical
trends in the securities markets are also illustrated.
This prospectus must be accompanied by a prospectus relating to each of the
investment portfolios available through APPLAUSE! II.
Although it is designed to provide life insurance, an APPLAUSE! II Policy is
nevertheless considered to be a security. It is not a deposit with, an
obligation of, or guaranteed or endorsed by any banking institution through
which it may be purchased, nor is it insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. The purchase of an
APPLAUSE! II Policy thus involves investment risk, including the possible loss
of principal. For this reason, APPLAUSE! II may not be suitable for all
individuals and it may not be advantageous to replace an existing insurance
Policy with an APPLAUSE! II Policy or to use APPLAUSE! II as a means to obtain
additional insurance protection.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE SECURITIES REGULATORY AUTHORITY, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1997
APPLAUSE! II 1
<PAGE>
TABLE OF CONTENTS
Definitions............................................................ 3
Summary................................................................ 6
Ameritas Variable Life Insurance Company and the Account .............. 10
Ameritas Variable Life Insurance Company...................... 10
Ameritas Variable Life Insurance Company Separate Account V... 10
Performance Information....................................... 11
The Funds..................................................... 11
Investment Objectives and Policies Of The Funds' Portfolios... 12
Fund Expense Summary.......................................... 15
Addition, Deletion or Substitution of Investments............. 17
Fixed Account................................................. 17
Policy Benefits........................................................ 18
Purposes of the Policy........................................ 18
Death Benefit Proceeds........................................ 18
Death Benefit Options......................................... 18
Methods of Affecting Insurance Protection..................... 20
Duration of Policy............................................ 20
Accumulation Value............................................ 20
Benefits at Maturity.......................................... 21
Payment of Policy Benefits.................................... 21
Policy Rights.......................................................... 22
Loan Benefits................................................. 22
Surrenders.................................................... 23
Partial Withdrawals........................................... 23
Transfers..................................................... 23
Systematic Programs........................................... 24
Free Look Privilege........................................... 24
Exchange Privilege............................................ 24
Payment and Allocation of Premiums..................................... 25
Issuance of a Policy.......................................... 25
Premiums...................................................... 25
Allocation of Premiums and Accumulation Value................. 26
Policy Lapse and Reinstatement................................ 26
Charges and Deductions................................................. 27
Deductions From Premium Payment............................... 27
Charges from Accumulation Value............................... 27
Surrender Charge.............................................. 28
Daily Charges Against the Account............................. 29
General Provisions..................................................... 30
Distribution of the Policies........................................... 32
Federal Tax Matters.................................................... 32
Safekeeping of the Account's Assets.................................... 34
Third Party Services................................................... 34
Voting Rights.......................................................... 35
State Regulation of AVLIC.............................................. 35
Executive Officers and Directors of AVLIC.............................. 35
Legal Matters.......................................................... 37
Legal Proceedings...................................................... 37
Experts................................................................ 37
Additional Information................................................. 37
Financial Statements................................................... 37
Ameritas Variable Life Insurance Company Separate Account V............ 38
Ameritas Variable Life Insurance Company............................... 45
Appendices............................................................. 57
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.
2 APPLAUSE! II
<PAGE>
DEFINITIONS
ACCOUNT - This term refers to 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. The Account is
segregated from the General Account and all other assets of AVLIC. (See page
10.)
ACCRUED EXPENSE CHARGES - Any Monthly Deductions that are due and unpaid.
ACCUMULATION VALUE - The total amount that the Policy provides for investment at
any time. It is equal to the total of the Accumulation Value held in the
Account, the Fixed Account, and any Accumulation Value held in the General
Account which secures Outstanding Policy Debt. (See page 20.)
ADMINISTRATIVE EXPENSE CHARGE - A charge, which is part of the Monthly
Deduction, to cover the cost of administering the Policy. (See page 27.)
ASSET-BASED ADMINISTRATIVE EXPENSE CHARGE - A daily charge that is deducted from
the overall assets of the Account to provide for expenses of ongoing
administrative services to the Policyowners as a group. (See page 30.)
ATTAINED AGE - The Issue Age of the Insured plus the number of complete Policy
Years that the Policy has been in force.
AVLIC - Ameritas Variable Life Insurance Company, a Nebraska stock company.
AVLIC's Home Office is located at One Ameritas Way (5900 "O" Street) P.O. Box
82550, Lincoln, NE 68501
BENEFICIARY - The person or persons to whom the Death Benefit Proceeds are
payable upon the death of the Insured. (See page 30 for "Beneficiary" and
"Change of Beneficiary".)
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE - An administrative charge for the
underwriting, issuance and initial administration of the Policy that is deducted
upon Surrender of the Policy. This charge is part of the Surrender Charge. (See
page 28.)
CONTINGENT DEFERRED SALES CHARGE - A sales charge, calculated based on a
percentage of premiums received, is deducted upon Surrender of the Policy. This
charge is part of the Surrender Charge. (See page 28.)
COST OF INSURANCE - A charge deducted monthly from the Accumulation Value to
provide the life insurance protection; this charge may also include a Flat Extra
Rating Charge. The Cost of Insurance is calculated with reference to an annual
Cost of Insurance Rate. This rate is based on the Insured's sex, Issue Age,
policy duration, Specified Amount, and risk class. The Cost of Insurance is part
of the Monthly Deduction. (See page 28.)
DECLARED RATE - The interest rate declared by AVLIC to be earned on amounts in
the Fixed Account, which AVLIC guarantees to be no less than 3.5%. (See page
17.)
DEATH BENEFIT - The amount of insurance coverage provided under the selected
Death Benefit option of the Policy.
DEATH BENEFIT PROCEEDS - The proceeds payable to the Beneficiary upon receipt by
AVLIC of Satisfactory Proof of Death of the Insured while the Policy is in
force. It is equal to: (l) the Death Benefit; (2) plus additional life insurance
proceeds provided by any riders; (3) minus any Outstanding Policy Debt; (4)
minus any Accrued Expense Charges, including the Monthly Deduction for the month
of death. (See page 18.)
FLAT EXTRA RATING CHARGE - A charge that will be applicable if an Insured is
placed into a class that involves a higher mortality risk. Any applicable Flat
Extra Rating Charge will be added to the Cost of Insurance Rate and, thus, will
be deducted as part of the Monthly Deduction on each Monthly Activity Date.
FIXED ACCOUNT - An account that is a part of AVLIC's General Account to which
all or a portion of Net Premiums and transfers may be allocated for accumulation
at fixed rates of interest. (See page 17.)
GENERAL ACCOUNT - The General Account of AVLIC includes all of AVLIC's assets
except those assets segregated into separate accounts, such as the Account.
APPLAUSE! II 3
<PAGE>
GRACE PERIOD - A 61 day period from the date written notice of lapse is mailed
to the Policyowner's last known address. If the Policyowner makes a payment
during the Grace Period such that the Net Cash Surrender Value of the Policy is
sufficient to pay the Monthly Deduction, the Policy will not lapse. (See page
26.)
GUARANTEED DEATH BENEFIT (IN MARYLAND, "GUARANTEED DEATH BENEFIT TO PREVENT
LAPSE") PERIOD - The number of years the Guaranteed Death Benefit provision
will apply. The period will vary based upon the Insured's Issue Age and
rating class. The period ranges from 3 to 25 years, and may be restricted as a
result of state law. This benefit is provided without an additional policy
charge. (See page 18.)
GUARANTEED DEATH BENEFIT PREMIUM - A specified premium which, if paid in advance
on a monthly prorated basis, will keep the Policy in force during the Guaranteed
Death Benefit Period so long as other policy provisions are met, even if the Net
Cash Surrender Value is zero or less. (See page 18.)
INSURED - The person whose life is insured under the Policy.
INVESTMENT OPTIONS - Refers to the Subaccounts and/or the Fixed Account offered
under this Policy.
ISSUE AGE - The age of the Insured at the Insured's birthday nearest the Policy
Date.
ISSUE DATE - The date that all financial, contractual and administrative
requirements have been met and processed for the Policy.
MATURITY BENEFITS - The amount payable to the Policyowner, if the Insured is
living, on the Maturity Date. The Maturity Benefit is the Accumulation Value
less any Outstanding Policy Debt. (See page 21.)
MATURITY DATE - The date AVLIC pays any Maturity Benefit to the Policyowner, if
the Insured is still living.
MONTHLY ACTIVITY DATE - The same date in each succeeding month as the Policy
Date except should such Monthly Activity Date fall on a date other than a
Valuation Date, the Monthly Activity Date will be the next Valuation Date.
MONTHLY DEDUCTION - The deductions taken from the Accumulation Value on the
Monthly Activity Date. These deductions are equal to: (1) the current Cost of
Insurance; (2) the Administrative Expense Charge; and (3) rider charges, if any.
(See page 27.)
MORTALITY AND EXPENSE RISK CHARGE - a daily charge that is deducted from the
overall assets of the Account to provide for the risk that mortality and expense
costs may be greater than expected. (See page 29.)
NET CASH SURRENDER VALUE - The Accumulation Value of the Policy on any Valuation
Date (including for this purpose, the date of Surrender), less any Surrender
Charges and any Outstanding Policy Debt.
NET POLICY FUNDING - Net Policy Funding is the sum of all premiums paid, less
any partial withdrawals and less any Outstanding Policy Debt. (See page 25.)
NET PREMIUM - Premium paid less the Percent of Premium Charge (See page 26.)
OUTSTANDING POLICY DEBT - The sum of all unpaid policy loans and accrued
interest on policy loans. (See page 22.)
PERCENT OF PREMIUM CHARGE - The amount deducted from each premium received to
cover certain expenses, expressed as a percentage of the premium. This charge
may include a Sales Load Charge and/or a Premium Charge for Taxes. (See
Deductions From Premium Payment, page 27.)
PLANNED PERIODIC PREMIUMS - A selected schedule of equal premiums payable at
fixed intervals. The Policyowner is not required to follow this schedule, nor
does following this schedule ensure that the Policy will remain in force unless
the payments meet the requirements of the Guaranteed Death Benefit. (See page
25.)
POLICY - The Flexible Premium Variable Universal 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.
4 APPLAUSE! II
<PAGE>
POLICY ANNIVERSARY DATE - The same day as the Policy Date for each year the
Policy remains in force.
POLICY DATE - The effective date for all coverage provided in the application.
The Policy Date 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) unless there are additional premiums or
application amendments at time of delivery. (See Issuance of a Policy, page 25.)
POLICY YEAR - The period from one Policy Anniversary Date until the next Policy
Anniversary Date. A "Policy Month" is measured from the same date in each
succeeding month as the Policy Date.
PREMIUM CHARGE FOR TAXES - This charge, which is part of the Percent of Premium
Charge, represents the amount AVLIC considers necessary to pay all premium taxes
imposed by the states and their subdivisions and to defray the tax cost due to
capitalizing certain policy acquisition expenses as required under applicable
Federal tax laws. AVLIC does not expect to derive a profit from the Premium
Charge for Taxes.
SALES LOAD CHARGE - This charge, which is part of the Percent of Premium Charge,
is designed to compensate AVLIC for expenses associated with distributing the
Policy; no sales load charge is currently in effect.
SATISFACTORY PROOF OF DEATH - Means 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 claim.
SPECIFIED AMOUNT - The minimum Death Benefit under the Policy, as selected by
the Policyowner.
SUBACCOUNT - A subdivision of the Account. Each Subaccount invests exclusively
in the shares of a specified portfolio of the Funds.
SURRENDER - The termination of the Policy before the Maturity Date during the
Insured's life for the Net Cash Surrender Value.
SURRENDER CHARGE - This charge is assessed against the Accumulation Value of the
Policy if the Policy is Surrendered before the 15th Policy Anniversary Date or,
in the case of an increase in the Specified Amount, the 15th anniversary of the
increase. The Surrender Charge is comprised of the Contingent Deferred
Administrative Charge and the Contingent Deferred Sales Charge (See page 28).
VALUATION DATE - Any day on which the New York Stock Exchange is open for
trading.
VALUATION PERIOD - The period between two successive valuation dates, commencing
at the close of the New York Stock Exchange ("NYSE") on one valuation date and
ending at the close of the NYSE on the next succeeding valuation date.
APPLAUSE! II 5
<PAGE>
SUMMARY
The following summary of Prospectus information and diagram of the Policy 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 force and that there is no
Outstanding Policy Debt.
Diagram of Policy
PREMIUM PAYMENTS
You can vary amount and frequency.
|
DEDUCTIONS FROM PREMIUMS
Sales load and distribution expense - 0%*
Premium Charge for Taxes - 3.5% **
|
NET PREMIUM
You direct the net premium to be invested in the Fixed Account or to the
separate account which offers twenty six different subaccounts. The twenty six
subaccounts invest in the corresponding portfolios (Funds) of the Fidelity
Variable Insurance Product Fund, the Fidelity Variable Insurance Products Fund
II, the Alger American Fund, the MFS Variable Insurance Trust, or Morgan Stanley
Universal Trust.
|
DEDUCTIONS FROM ASSETS
Monthly charge for cost of insurance and cost of any riders. Monthly charge for
administrative expenses $9.00 per month the first year, $4.50*** per month
thereafter.
Daily charge, at an annual rate of 1.00%**** for Policy Years 1-20, and
0.65%**** thereafter, from the subaccounts for mortality and expense risks and
administrative expenses. This charge is not deducted from Fixed Account assets.
| | |
LIVING BENEFITS RETIREMENT BENEFITS DEATH BENEFITS
Partial withdrawals can Loans may be taken at a net Generally income tax
be made (subject to zero interest rate after free to beneficiary.
certain restrictions). The ten years.
death benefit will be Available as lump
reduced by the amount Should the policy lapse sum or under the
of the partial withdrawal. while loans are outstanding five payment meth-
the portion of the loan ods available as
Up to fifteen free trans- attributable to earnings retirement benefits.
fers can be made each will become taxable dist-
year between the Invest- ributions. (See page 21).
ment Options.
Payment can be taken under
Accelerated payment of up one or more of five dif-
to 50% of the lowest ferent payment options.
scheduled death benefit
is available under cer-
tain conditions to insur-
eds suffering from termi-
nal illness.
The policy may be sur-
rendered at any time for
its net cash surrender
value.
Because the company
incurs expenses imme-
diately upon the issuance
of the policy that are
recovered over a period
of years, a policy sur-
render prior to the fif-
teenth anniversary date
will be assessed a sur-
render charge consisting
of the contingent defer-
red sales charge and the
contingent deferred ad-
ministrative charge. The
charge decreases each year
until no surrender charge
is applied after the
fifteenth policy year.
Increases in coverage
after issue will also have
a surrender charge
associated with them. (See
pages 22 and 27).
* maximum charge 2.5%
** maximum charge 5.0%
*** maximum charge $9.00/mo.
**** maximum charge 1.25%
6 APPLAUSE! II
<PAGE>
SUMMARY
The following summary is intended to highlight the most important features of an
APPLAUSE! II Policy that you, as a prospective Policyowner, should consider.
More detailed information is contained in the main portion of the prospectus;
cross-references are provided for your convenience. As you review this Summary,
take note of those terms that appear in italics. A definition of each of these
italicized terms is included in the glossary that appears on page ____ of this
prospectus. Both this summary and the prospectus of which it is a part, are
qualified in their entirety by the terms of the APPLAUSE! II Policy, which is
available upon request from AVLIC.
WHO IS THE ISSUER OF AN APPLAUSE! II POLICY?
AVLIC is the issuer of each APPLAUSE! II Policy. AVLIC enjoys a rating of A
(Excellent) from A.M. Best Company, a firm that analyzes insurance carriers and
a rating of AA (Excellent) from Standard & Poor's Corporation for claims-paying
ability. A stock life insurance company organized in Nebraska, AVLIC is a
wholly-owned subsidiary of AMAL Corporation which is, in turn, owned by Ameritas
Life Insurance Corp. ("Ameritas") and AmerUs Life Insurance Company ("AmerUs").
Ameritas, AmerUs Life and AMAL Corporation guarantee the obligations of AVLIC,
including the obligations of AVLIC under each APPLAUSE! II Policy; taken
together, these companies have aggregate assets of over $7.2 billion as of
December 31, 1996. (page 10)
WHY SHOULD I CONSIDER PURCHASING AN APPLAUSE! II POLICY?
The primary purpose of an APPLAUSE! II Policy is to provide life insurance
protection on the Insured named in the Policy. This means that, so long as the
Policy is in force, it will provide for:
|X| payment of a Death Benefit, which will never be less than the Specified
Amount selected by the Policyowner (page 18)
|X| policy loan, Surrender and withdrawal features (page 23)
|X| the payment of Maturity Benefits to the Policyowner, if living, on the
Maturity Date (page 21).
An APPLAUSE! II Policy also includes an investment component. This means that,
so long as the Policy is in force, you will be responsible for selecting the
manner in which Net Premiums paid will be invested. Thus, the value of an
APPLAUSE! II Policy will reflect your investment choices over the life of the
Policy.
HOW DOES THE INVESTMENT COMPONENT OF MY APPLAUSE! II POLICY WORK?
AVLIC has established an Account, which is separate from all other assets of
AVLIC, as a vehicle to receive and invest premiums received from APPLAUSE! II
Policyowners and owners of certain other variable universal life products
offered by AVLIC. The Account is divided into separate Subaccounts. Each
Subaccount invests exclusively in shares of one of the investment portfolios
available through APPLAUSE! II. Each Policyowner may allocate Net Premiums to
one or more Subaccounts, or to AVLIC's Fixed Account in the initial application
and these allocations may be changed, without charge, by notifying AVLIC's Home
Office. The aggregate value of your interests in the Subaccounts and the Fixed
Account will represent the cash or Accumulation Value of your APPLAUSE! II
Policy. (page 20)
WHAT INVESTMENT OPTIONS ARE AVAILABLE THROUGH THE APPLAUSE! II POLICY?
The investment options available through APPLAUSE! II include 26 investment
portfolios, each of which is a separate series of a mutual fund managed by
Fidelity Management, Fred Alger Management, Massachusetts Financial Services or
Morgan Stanley Asset Management. These portfolios are:
|X|FIDELITY MANAGEMENT:
Money Market Portfolio
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
Asset Manager Portfolio
Investment Grade Bond Portfolio
Asset Manager: Growth Portfolio
Index 500 Portfolio
Contrafund Portfolio
|X|FRED ALGER MANAGEMENT:
Growth Portfolio
Income and Growth Portfolio
Small Capitalization Portfolio
Balanced Portfolio
MidCap Growth Portfolio
Leveraged AllCap Portfolio
APPLAUSE! II 7
<PAGE>
|X|MASSACHUSETTS FINANCIAL SERVICES:
Emerging Growth Portfolio
Utilities Portfolio
World Governments Portfolio
Research Portfolio
Growth With Income
|X|MORGAN STANLEY ASSET MANAGEMENT:
Emerging Markets Equity
Global Equity
International Magnum
Asian Equity
U.S. Real Estate
Details about the investment objectives and policies of each of the available
investment portfolios, including management fees and expenses, appear on page
12 of this prospectus. In addition to the listed portfolios, Policyowners may
also elect to allocate Net Premiums to AVLIC's Fixed Account (page 17).
HOW DOES THE LIFE INSURANCE COMPONENT OF AN APPLAUSE! II POLICY WORK?
An APPLAUSE! II Policy provides for the payment of a minimum Death Benefit upon
the death of the Insured. The amount of the minimum Death Benefit ---sometimes
referred to as the Specified Amount of your APPLAUSE! II Policy --- is chosen by
you at the time your APPLAUSE! II Policy is established. However, Death Benefit
Proceeds -- the actual amount that will be paid after receipt by AVLIC of
Satisfactory Proof of Death of the Insured -- will vary over the life of your
APPLAUSE! II Policy, depending on which of the two available coverage options
you select.
If you choose Option A, Death Benefit Proceeds payable under your APPLAUSE! II
Policy will be the Specified Amount of your APPLAUSE! II Policy OR the
applicable percentage of its Accumulation Value, whichever is greater. If you
choose Option B, Death Benefit Proceeds payable under your APPLAUSE! II Policy
will be the Specified Amount of your APPLAUSE! II Policy PLUS the Accumulation
Value of your APPLAUSE! II Policy, or if it is higher, the applicable percentage
of the Accumulation Value on the date of death. In either case, the applicable
percentage is established based on the age of the Insured at the date of death
(page 18).
ARE THERE ANY RISKS INVOLVED IN OWNING AN APPLAUSE! II POLICY?
Yes. Over the life of your APPLAUSE! II Policy, the Subaccounts to which you
allocate your premiums will fluctuate in response to movements in the stock
market and overall economic factors. These fluctuations will be reflected in the
Accumulation Value of your APPLAUSE! II Policy and may result in loss of
principal. For this reason, the purchase of an APPLAUSE! II Policy may not be
suitable for all individuals and it may not be advantageous to replace or
augment your existing insurance arrangements with an APPLAUSE! II Policy.
Appendix A includes tables illustrating the impact that hypothetical market
returns would have on Accumulation Values under an APPLAUSE! II Policy (page
57).
WHAT IS THE PREMIUM THAT MUST BE PAID TO KEEP AN APPLAUSE! II POLICY IN FORCE?
Like traditional life insurance policies, an APPLAUSE! II Policy requires the
payment of periodic premiums in order to keep the Policy in force. You will be
asked to establish a payment schedule before your APPLAUSE! II Policy becomes
effective.
The distinction between traditional life policies and an APPLAUSE! II Policy is
that an APPLAUSE! II Policy will not lapse simply because premium payments are
not made in accordance with that payment schedule. However, an APPLAUSE! II
Policy will lapse, even if scheduled premium payments are made, if the Net Cash
Surrender Value of your APPLAUSE! II Policy falls below zero or premiums paid do
not, in the aggregate, equal the premium necessary to maintain the Guaranteed
Death Benefit (page 26).
HOW ARE PREMIUMS PAID, PROCESSED AND CREDITED TO ME?
Your APPLAUSE! II Policy will be issued after a completed application is
accepted, and the initial premium payment is received, by AVLIC at its Home
Office. AVLIC's Home Office is located at One Ameritas Way, 5900 "O" Street,
P.O. Box 82550, Lincoln, NE 68501. Your initial premium will be allocated to the
Money Market Subaccount for 13 days following the Issue Date, and thereafter
will be allocated to the Subaccounts and/or the Fixed Account, in accordance
with selections made by you in your application. You have the right to examine
your APPLAUSE! II Policy and return it for a refund for a limited time, even
after the Issue Date (page 25).
Subsequent premium payments may be made in accordance with your Planned Periodic
Premium schedule; although you are not required to do so. AVLIC will send
premium payment notices to you, however, in accordance with any schedule you
select. When your premium payment is received by AVLIC at its Home Office, AVLIC
will deduct any applicable premium charges and allocate the Net Premium to the
Subaccounts and/or the Fixed Account, in accordance with selections made by you
(page 26).
8 APPLAUSE! II
<PAGE>
As already noted, APPLAUSE! II provides Policyowners considerable flexibility in
determining the frequency and amount of premium payments. This flexibility is
not, however, unlimited and you should keep certain factors in mind in
determining the payment schedule that is best suited to your needs. These
include the amount of the Guaranteed Death Benefit Premium and/or Net Policy
Funding requirement needed to keep your APPLAUSE! II Policy in force (page 25);
maximum premium limitations established under the Federal tax laws (page 26);
and the impact that reduced premium payments may have on the Net Cash Surrender
Value of your APPLAUSE! II Policy (page 21).
IS THE ACCUMULATION VALUE OF MY APPLAUSE! II POLICY AVAILABLE BEFORE THE
MATURITY DATE WITHOUT SURRENDER? Yes. You may access the value of your APPLAUSE!
II Policy in one of two ways. First, you may obtain a loan, secured by the
Accumulation Value of your APPLAUSE! II Policy following its first Policy
Anniversary. The maximum interest rate on any such loan is 6% annually; the
current rate is 5.5% annually. After the tenth Policy Anniversary, you may
borrow against a limited amount of the Net Cash Surrender Value of your
APPLAUSE! II Policy at a maximum annual interest rate of 4%; the current rate
for such loans is 3.5% annually (page 22).
You may also access the value of your APPLAUSE! II Policy by making a partial
withdrawal. A partial withdrawal is not subject to Surrender Charges, but is
subject to a maximum charge not to exceed the lesser of $50 or 2% of the amount
withdrawn (currently, the partial withdrawal charge is the lesser of $25 or 2%)
(page 23).
ARE THERE ANY OTHER CHARGES ASSOCIATED WITH OWNERSHIP OF AN APPLAUSE! II POLICY?
AVLIC is authorized to deduct a Percent of Premium Charge, which includes both a
sales charge and a Premium Charge for Taxes. The sales charge, of up to 2.5%,
may be deducted from each premium payment made on an APPLAUSE! II Policy. As of
the date of this prospectus, however, this sales charge is not being applied.
Certain states impose premium and other taxes in connection with insurance
policies such as APPLAUSE! II. AVLIC may deduct up to 5% of each premium paid as
a Premium Charge for Taxes. Currently, 3.5% is deducted for this purpose.
Charges are also deducted against Accumulation Value to cover the Cost of
Insurance under the Policy and to compensate AVLIC for administering each
individual APPLAUSE! II Policy. These charges, which are part of the Monthly
Deduction, are calculated and paid on each Monthly Activity Date. The Cost of
Insurance is calculated based on risk factors relating to the Insured as
reflected in relevant actuarial tables. The Monthly Deduction also includes a
flat Administrative Expense Charge. This charge, currently fixed at $9 per
policy per month for the first Policy Year and $4.50 for later Policy Years, may
be increased during the life of your APPLAUSE! II Policy, up to a guaranteed $9
maximum (page 27).
For its services in administering the Account and Subaccounts and as
compensation for bearing certain mortality and expense risks, AVLIC is also
entitled to receive fees, which are calculated daily during the first 20 years
of each APPLAUSE! II Policy, at a combined current annual rate of 1.00% of the
value of the net assets of the Account. After the 20th Policy Anniversary Date,
the combined current annual rate is expected to decrease to .65% of the daily
net assets of the Account. No Mortality and Expense Risk Charges will be
deducted from the amount in the Fixed Account. (page 29).
Finally, because AVLIC incurs expenses immediately upon the issuance of an
APPLAUSE! II Policy that are recovered over a period of years, an APPLAUSE! II
Policy that is Surrendered before its 15th Policy Anniversary Date is subject to
a Surrender Charge. The maximum Surrender Charge is $48 per $1000 of Specified
Amount; additional Surrender Charges may apply if you increase the Specified
Amount of your APPLAUSE! II Policy. Because the Surrender Charge may be
significant upon early Surrender, you should purchase an APPLAUSE! II Policy
only if you intend to maintain your APPLAUSE! II Policy for a substantial period
(page 28).
Policyowners who choose to allocate Net Premiums to one or more of the
Subaccounts will also bear a pro rata share of the management fees and expenses
paid by each of the investment portfolios in which the various Subaccounts
invest. No such management fees are assessed against Net Premiums allocated to
the Fixed Account (page 30).
WHEN DOES MY APPLAUSE! II POLICY TERMINATE?
You may terminate your APPLAUSE! II Policy by surrendering the policy during the
lifetime of the Insured for its Net Cash Surrender Value (page 23). As noted
above, your APPLAUSE! II Policy will terminate if you fail to pay required
premiums or maintain sufficient Net Cash Surrender Value to cover policy charges
(page 20).
Finally, your APPLAUSE! II Policy will terminate on its Maturity Date if the
named Insured is living on that date unless you have elected the Extended
Maturity Option (page 21). The Maturity Date is the Policy Anniversary nearest
to the Insured's 100th birthday. On the Maturity Date, AVLIC will pay to the
Policyowner an amount -- referred to as the Maturity Benefit -- equal to the
Accumulation Value of your APPLAUSE! II Policy, less any Outstanding Policy Debt
(page 21).
APPLAUSE! II 9
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY 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 45.
AVLIC is a wholly-owned subsidiary of AMAL Corporation, a Nebraska stock
company. AMAL Corporation is a joint venture of Ameritas Life Insurance Corp.
("Ameritas"), which owns a majority interest in AMAL Corporation; and AmerUs
Life Insurance Company ("AmerUs Life", formerly known as American Mutual Life
Insurance Company), an Iowa stock life insurance company, which owns a minority
interest in AMAL Corporation. The Home Offices of both AVLIC and Ameritas are at
One Ameritas Way, 5900 "O" Street, P.O. Box 82550, Lincoln, Nebraska 68501.
On April 1, 1996 Ameritas Life consummated an agreement with AmerUs Life whereby
AVLIC became a wholly-owned subsidiary of a newly formed holding company, AMAL
Corporation. Under terms of the agreement the AMAL Corporation is 66% owned by
Ameritas Life and 34% owned by AmerUs Life. AmerUs Life has options to purchase
an additional interest in AMAL Corporation if certain conditions are met. There
are no other owners of 5% or more of the outstanding voting securities of AVLIC.
Ameritas and its subsidiaries had total assets at December 31, 1996 of over $2.9
billion. AmerUs Life had total assets as of December 31, 1996 of over $ 4.3
billion.
AVLIC has a rating of A (Excellent) from A.M. Best Company, a firm that analyzes
insurance carriers, and a rating of AA ("Excellent") from Standard & Poor's for
claims-paying ability. Ameritas enjoys a long standing A+ (Superior) rating from
A.M. Best.
Ameritas, AmerUs Life and AMAL Corporation guarantee the obligations of AVLIC.
This guarantee will continue until AVLIC is recognized by a national rating
agency as having a financial rating equal to or greater than Ameritas Life, or
until AVLIC is acquired by another insurance company who has a financial rating
by a national rating agency equal to or greater than Ameritas and who agrees to
assume the guarantee; provided that if AmerUs Life sells its interest in AMAL
Corporation to another insurance company who has a financial rating by a
national rating agency equal to or greater than that of AmerUs Life, and the
purchaser assumes the guarantee, AmerUs Life will be relieved of its obligations
under the Guarantee.
Ameritas Investment Corp., the principal underwriter of the policies, may
publish in advertisements and reports to Policyowners, the ratings and other
information assigned to Ameritas and AVLIC by one or more independent rating
services and charts and other information concerning dollar cost averaging,
portfolio rebalancing, earnings sweep, tax-deference, asset allocations and
other investment methods. 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 Account.
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 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 Accumulation Values invested in
the 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.
10 APPLAUSE! II
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Account and the Funds
available for investment by the Account may appear in advertisements, sales
literature, or reports to Policyowners or prospective purchasers. AVLIC may also
provide a hypothetical illustration of Accumulation Value, Net Cash Surrender
Value and Death Benefit based on historical investment returns of the Funds for
a sample insured based on assumptions as to age, sex, and other policy specific
assumptions.
AVLIC may also provide individualized hypothetical illustrations of Accumulation
Value, Net Cash Surrender Value and Death Benefit based on historical investment
returns of the Funds. These illustrations will reflect deductions for fund
expenses and Policy and Account charges, including the Monthly Deduction,
Percent of Premium Charge, and the Surrender Charge. These hypothetical
illustrations will be based on the actual historical experience of the funds as
if the Subaccounts had been in existence and a Policy issued for the same
periods as those indicated for the funds.
THE FUNDS
There are currently twenty-six Subaccounts within the Account available to
Policyowners for new allocations. The assets of each Subaccount are invested in
shares of a corresponding portfolio of one of the following mutual funds
(collectively, the "Funds"): Variable Insurance Products Fund and the Variable
Insurance Products Fund II, (respectively, "VIPF" and "VIPF II"; collectively
"Fidelity Funds"); the Alger American Fund ("Alger American Fund"); MFS Variable
Insurance Trust ("MFS Trust"); and Morgan Stanley Universal Funds, Inc. ("Morgan
Stanley Fund"). VIPF, which is managed by Fidelity Management & Research Company
("Fidelity"), offers the following portfolios: Money Market, Equity-Income,
Growth, High Income and Overseas Portfolios. VIPF II, also managed by Fidelity,
offers the following portfolios: Asset Manager, Investment Grade Bond, Asset
Manager: Growth, Index 500, and Contrafund Portfolios. The Alger American Fund,
which is managed by Fred Alger Management, Inc. ("Alger Management"), offers the
following portfolios: Alger American Growth ("Growth"), Alger American Income
and Growth ("Income and Growth"), Alger American Small Capitalization ("Small
Capitalization"), Alger American Balanced ("Balanced"), Alger American MidCap
Growth ("MidCap Growth"), and Alger American Leveraged AllCap ("Leveraged
AllCap") Portfolios. The MFS Trust, managed by Massachusetts Financial Services
Company ("MFS Co."), offers the following portfolios or series in connection
with this Policy: MFS Emerging Growth, MFS Utilities, MFS World Governments, MFS
Research and MFS Growth With Income. The Morgan Stanley Fund offers the
following portfolios in connection with the Policy, all of which are managed by
Morgan Stanley Asset Management Inc. ("MSAM"): Emerging Markets Equity, Global
Equity, International Magnum, Asian Equity and U.S. Real Estate Portfolios. Each
Fund is registered with the SEC under the Investment Company Act of 1940 as an
open-end management investment company.
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 investment
objectives, policies, restrictions, expenses and risks, is in the prospectuses
for each of the Funds, which must accompany or precede this Prospectus. All
underlying fund information, including Fund prospectuses, has been provided to
AVLIC by the underlying Funds. AVLIC has not independently verified this
information. One or more of the Portfolios may employ investment techniques that
involve certain risks, including investing in non-investment grade, high risk
debt securities, entering into repurchase agreements and reverse repurchase
agreements, lending portfolio securities, engaging in "short sales against the
box," investing in instruments issued by foreign banks, entering into firm
commitment agreements and investing in warrants and restricted securities. In
addition, certain of the portfolios may invest in securities of foreign issuers.
The Leveraged AllCap Portfolio may borrow 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.
Certain of the portfolios are permitted to invest a portion of their assets in
non-investment grade, high risk debt securities; these portfolios include The
High Income, Equity-Income, Asset Manager: Growth, Asset Manager Portfolios of
the Fidelity Funds, and the Research Portfolio of the MFS Fund. Certain
portfolios are designed to invest a substantial portion of their assets
overseas, such as the Overseas Portfolio of VIPF and the International Magnum
Portfolio of the Morgan Stanley Fund. Other portfolios invest primarily in the
securities markets of emerging nations. Investments of this type involve
different risks than investments in more established economies, and will be
affected by greater volatility of currency exchange rates and overall economic
and political factors. Such portfolios include the Emerging Markets Equity and
Asian Equity Portfolios of the Morgan Stanley Fund. The Emerging Markets Equity
Portfolio may also invest in non-investment grade, high risk debt securities and
securities of Russian companies. Investment in Russian companies may involve
risks associated with that nation's system of share registration and custody.
Securities of non-U.S. issuers (including issuers in emerging nations) may also
be purchased by each of the portfolios of the MFS Trust and the Global Equity
Portfolio of the Morgan Stanley Fund. Investments acquired by the U.S. Real
Estate Portfolio of the Morgan Stanley Fund may be subject to the risks
associated with the direct ownership of real estate and direct investments in
real estate investment trusts. Further information about the risks associated
with investments in each of the Funds and their respective portfolios is
contained in the prospectus relating to that Fund. These prospectuses, together
with this Prospectus, should be read carefully and retained.
APPLAUSE! II 11
<PAGE>
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.
The Account will purchase and redeem shares from the Funds at net asset value.
Shares will be redeemed to the extent necessary for AVLIC to collect charges,
pay the Surrender Values, partial withdrawals, and make policy loans or to
transfer assets among Investment Options as requested by Policyowners. Any
dividend or capital gain distribution received from a portfolio of the Funds
will be reinvested immediately at net asset value in shares of that portfolio
and retained as assets of the corresponding Subaccount.
Since each of the Funds is 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.
<TABLE>
<CAPTION>
FIDELITY FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Money Market1 High-quality U.S. dollar denominated money market Seeks to obtain as high a level of current
instruments of domestic and foreign Issuers. income as is consistent with preserving
(Commercial Paper, Certificate of Deposit.) capital and providing liquidity.
Equity-Income1 At least 65% in income producing common or preferred Seeks reasonable income by investing primarily
stock. The remainder will normally be invested in in income producing equity securities. The goal
convertible and non-convertible debt obligations. is to achieve a yield in excess of the composite
yield of the Standard & Poor's 500 Composite
Stock Price Index.
Growth1 Portfolio purchases normally will be common stocks of Seeks to achieve capital appreciation by
both well-known established companies and smaller, investing primarily in common stocks.
less-known companies, although the investments are
not restricted to any one type of security.
Dividend income will only be considered if it might
have an effect on stock values.
High Income1 At least 65% in income producing debt Seeks to obtain a high level of current income
securities and preferred stocks, up to 20% in common by investing in high income producing lower-
stocks and other equity securities, and up to 15% rated debt securities (sometimes called "junk
in securities subject to restriction on resale. bonds"), preferred stocks including covertible
securities and restricted securities.
Overseas1 At least 65% invested in securities of issuers Seeks long-term growth of capital primarily
outside of North America. Most issuers will be through investments in foreign securities.
located in developed countries 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 Dividends, Utility), bonds Seeks to obtain high total return with reduced
(Government, Agency, Mortgage backed, Convertible risk over the long term by allocating its assets
and Zero Coupon) and money market instruments. among domestic and foreign stocks, bonds, and
short-term fixed-income securities.
12 APPLAUSE! II
<PAGE>
Investment A portfolio of investment grade fixed-income Seeks as high a level of current income as is
Grade Bond2 securities with a dollar weighted average maturity consistent with the preservation of capital.
of less than ten years.
Asset Manager: Focuses on stocks for high potential returns but also Seeks to maximize total return by allocating its
Growth2 purchases bonds and short-term instruments. assets among foreign and domestic stocks, bonds,
short-term instruments and other investments.
Index 500 2 At least 80% (65% if fund assets are below Seeks investment results that correspond to the
$20 million) in equity securities of companies that total return of common stocks of companies that
compose the Standard & Poor's 500. Also purchases compose the Standard & Poor's 500.
short-term debt securities for cash management
purposes and uses various investment techniques, such
as futures contracts, to adjust its exposure to the
Standard & Poor's 500.
Contrafund2 Portfolio purchases will normally be common stock or Seeks long-term capital appreciation.
securities convertible into common stock of companies
believed to be undervalued due to an overly
pessimistic appraisal by the public.
</TABLE>
1 VIPF
2 VIPF II
<TABLE>
<CAPTION>
ALGER
AMERICAN FUND
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Growth The Portfolio will invest its assets in companies Seeks long-term capital appreciation.
whose securities are traded on domestic stock
exchanges or in the over-the-counter market. Except
during temporary defensive periods, the Portfolio
will invest at least 65% of its total assets in the
securities of companies that have a total market
capitalization of $1 billion or greater.
Income and The Portfolio attempts to invest 100% of its Seeks to provide a high level of dividend
Growth assets, and except during temporary defensive income to the extent consistent with prudent
periods, it is a fundamental policy of the Portfolio investment management. Capital appreciation
to invest, at least 65% of its total assets in is a secondary objective of the Portfolio.
dividend paying equity securities.
Small Capitalization Except during temporary defensive periods, the Seeks long-term capital appreciation.
Portfolio invests at least 65% of its total assets
in equity securities of companies that, at the time
of purchase of the securities, have total market
capitalization within the range of companies
included in the Russell 2000 Growth Index or the S&P
SmallCap 600 Index, updated quarterly. The Portfolio
may invest up to 35% of its total assets in equity
securities of companies that, at the time of
purchase, have total market capitalization outside
the range of companies included in those Indexes and
in excess of that amount (up to 100% of its assets)
during temporary defensive periods.
APPLAUSE! II 13
<PAGE>
Balanced The Portfolio will invest its assets in common stocks Seeks current income and long-term capital
and investment grade preferred stock and debt appreciation by investment in common stocks
securities as well as securities convertible and fixed income securities, with emphasis
into common stocks. Except during defensive periods, on income producing securities which appear to
it is anticipated that 25% of the portfolio assets have some potential for capital appreciation.
will be invested in fixed income senior securities.
MidCap Growth Except during temporary defensive periods, the Seeks long-term capital appreciation.
Portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of
purchase of the securities, have total market
capitalization within the range of companies included
in the S&P MidCap 400 Index, updated quarterly.
The S&P MidCap 400 Index is designed to track the
performance of medium capitalization companies. The
Portfolio may invest up to 35% of its total assets
in securities that, at the time of purchase, have
total market capitalization outside the range of
companies included in the S&P MidCap 400 Index and in
excess of that amount (up to 100% of its assets)
during temporary defensive periods.
Leveraged AllCap Invests at least 85% of net assets in equity Seeks long-term capital appreciation.
securities of companies of any size, except during
defensive periods. May purchase put and call
options and sell covered options to increase gain
and to hedge. May enter into futures contracts and
purchase and sell options on these futures
contracts. May also borrow money for purchase of
additional securities.
MFS FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
Emerging Growth Series At least 80% normally will be invested in equity Seeks to provide long-term capital growth;
securities of emerging growth companies. Up to 25% dividend and interest income is incidental.
may be invested in foreign securities not including
ADRs.
Utilities Series At least 65%, but up to 100% normally will be Seeks capital growth and current income (above
invested in equity and debt securities of both that available from a portfolio invested
domestic and foreign companies in the utilities entirely in equity securities).
industry. Normally, not more than 35% will be
invested in equity and debt securities of
issuers in other industries, including foreign
securities, emerging market securities and non-dollar
denominated securities.
World Governments Series At least 80% normally will be invested in debt Seeks to provide long-term growth of capital and
securities. May invest up to 100% of assets in future income.
foreign securities, including emerging market
securities.
Research Series Invests in common stocks or securities convertible Seeks to provide long-term growth of capital
into common stocks of companies believed to possess and future income.
better than average prospects for long-term growth.
Up to 10% may be invested in non-investment
grade debt; up to 20% may be invested in foreign
securities (including emerging market issues.)
Growth With Income Series At least 65% will normally be invested in common Seeks to provide reasonable current income and
stocks or securities convertible into common stocks long-term growth of capital and income.
of companies believed to have long-term prospects
for growth and income. Expects to invest not more
than 15% in foreign securities (including emerging
market issues.)
</TABLE>
14 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
MORGAN STANLEY
FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Emerging Markets Equity Invests primarily in equity securities of emerging Long-term capital appreciation.
market country issuers with a focus on those countries
whose economies the portfolio's adviser believes to
be developing strongly and in which markets are
becoming more sophisticated.
Global Equity Invests primarily in equity securities of Long-term capital appreciation.
issuers throughout the world, including U.S.
issuers and emerging market countries, using an
approach that is oriented to the selection of
individual stocks that the portfolio's adviser
believes are undervalued.
International Magnum Invests primarily in equity securities of Long-term capital appreciation.
non-U.S. issuers, generally in accordance with
weightings determined by the portfolio's adviser, in
countries comprising the Morgan Stanley Capital
International Europe, Australia, Far East Index,
commonly known as the "EAFE Index."
Asian Equity Invests primarily in equity securities of Long-term capital appreciation.
Asian issuers, excluding Japan, using an
approach that is oriented to the selection of
individual stocks believed by the portfolio's
adviser to be undervalued.
U.S. Real Estate Invests primarily in equity securities of companies Above-average current income and long
primarily engaged in the U.S. real estate industry, term capital appreciation.
including real estate investment trusts.
</TABLE>
FUND EXPENSE SUMMARY
The information shown below relating to the Funds was provided to AVLIC by the
Funds and AVLIC has not independently verified such information. Each of the
Funds is managed by an investment advisory organization that is not affiliated
with AVLIC. Each such organization is entitled to receive a fee for its services
based on the value of the relevant portfolio's net assets. The amount of
expenses, including the asset based advisory fee referred to above, borne by
each portfolio for the fiscal year ended December 31, 1996, was as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSES TOTAL
MANAGEMENT
Figures presented may reflect Figures presented may reflect Figures presented
expense reimbursement expense reimbursement may reflect expense
reimbursement
<S> <C> <C> <C>
FIDELITY
Money Market .21% .09% .30%
Equity-Income .51% .05% .56%(1)
Growth .61% .06% .67%(1)
High Income .59% .12% .71%
Overseas .76% .16% .92%(1)
Asset Manager .64% .09% .73%(1)
Investment Grade Bond .45% .13% .58%
Asset Manager: Growth .65% .20% .85%(1)
Index 500 .13% .15% .28%(2)
Contrafund .61% .10% .71%(1)
APPLAUSE! II 15
<PAGE>
ALGER AMERICAN (3)
Growth .75% .04% .79%
Income and Growth .625% .185% .81%
Small Capitalization .85% .03% .88%
Balanced .75% .39% 1.14%
MidCap Growth .80% .04% .84%
Leveraged AllCap .85% .24% 1.09%
MFS
Emerging Growth .75% .25%(4) 1.00%(5)
Utilities .75% .25%(4) 1.00%(5)
World Governments .75% .25%(4) 1.00%(5)
Research .75% .25%(4) 1.00%(5)
Growth With Income .75% .25%(4) 1.00%(5)
MORGAN STANLEY
Emerging Markets Equity(6) 1.25% .50% 1.75%
Global Equity(7) .80% .35% 1.15%
International Magnum(7) .80% .35% 1.15%
Asian Equity(7) .80% .40% 1.20%
U.S. Real Estate(7) .80% .30% 1.10%
</TABLE>
(1) A portion of the brokerage commissions that certain funds pay was used
to reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Without these reductions, the total operating
expenses presented in the table would have been .58% for Equity-Income
Portfolio, .69% for Growth Portfolio, .93% for Overseas Portfolio, .74%
for Asset Manager Portfolio, .74% for Contrafund Portfolio, and .87%
for Asset Manger: Growth Portfolio.
(2) Fidelity agreed to reimburse a portion of Index 500 Portfolio's
expenses during the period. Without this reimbursement, the fund's
management fee, other expenses and total expenses would have been .28%,
.15% and .43% respectively, on an annualized basis.
(3) Alger Management has agreed to reimburse the portfolios to the extent
that the aggregate annual expenses (excluding interest, taxes, fees for
brokerage services and extraordinary expenses) exceed respectively:
Alger American Income and Growth, and Alger American Balanced, 1.25%;
Alger American Small Capitalization, Alger American MidCap Growth,
Alger American Leveraged All Cap, and the Alger American Growth, 1.50%.
As long as the expense limitations continue for a portfolio, if a
reimbursement occurs, it has the effect of lowering the portfolio's
expense ratio and increasing its total return. Included in "Other
Expenses" of Leveraged AllCap is .03% of interest expense.
(4) MFS has agreed to bear expenses for each series, subject to
reimbursement by each series, such that each series "Other Expenses"
shall not exceed .25% of the average daily net assets of the series
during the current fiscal year. Absent this expense arrangement, "Other
Expenses" and "Total" expenses would be .41% and 1.16%, respectively,
for the Emerging Growth Series; 2.00% and 2.75%, respectively, for the
Utilities Series; 1.28% and 2.03%, respectively, for the World
Governments Series; .73% and 1.48%, respectively, for the Research
Series; and 1.32% and 2.07%, respectively, for the Growth With Income
Series.
(5) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series
with its custodian and dividend disbursing agent, and may enter into
other such arrangements and directed brokerage arrangements (which
would also have the effect of reducing the series' expenses). Any such
fee reductions are not reflected under "Other Expenses."
(6) The fund's expenses were voluntarily reduced by the fund's investment
adviser. Absent reimbursement, the management fee, other expenses, and
total expenses would have been 1.25%, 4.92%, and 6.17%, respectively.
18 APPLAUSE! II
<PAGE>
(7) This is an estimate of expenses for the fiscal year ending December 31,
1997. MSAM has agreed to a reduction in management fees and to
reimburse each portfolio if necessary, if such fees would cause the
total annual operating expenses to exceed the percentage indicated.
Expense reimbursement agreements are expected to continue in future years but
may be terminated at any time. As long as the expense limitations continue for a
portfolio, if a reimbursement occurs, it has the effect of lowering the
portfolio's expense ratio and increasing its total return.
- ---------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
AVLIC reserves the right, subject to applicable law, and, if necessary, after
notice to and prior approval from the SEC and/or state insurance authorities to
make 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, each of which would invest in shares corresponding to a new portfolio
of the Funds or in shares of another investment company having a specified
investment objective. AVLIC may, in its sole discretion, establish new
subaccounts 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 Policyowner has an interest.
FIXED ACCOUNT
Policyowners may elect to allocate all or a portion of their Net Premium
payments to the Fixed Account, and they may also transfer monies between the
Account and the Fixed Account. (See Transfers, page 23.)
Payments allocated to the Fixed Account and transferred from the Account to the
Fixed Account are placed in the General Account. 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 Policyowner bears the
investment risk that the declared rate described below, will fall to a lower
rate after the expiration of a declared rate period. Because of exemptive and
exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 (the "1933 Act") nor is the
General Account registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the General Account nor any interest therein
is generally subject to the provisions of the 1933 or 1940 Act. We understand
that the staff of the SEC has not reviewed the disclosures in this Prospectus
relating to the Fixed Account portion of the Policy; however, disclosures
regarding the Fixed Account portion of the Policy 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 a Declared Rate of at least
3.5%. AVLIC may, at its discretion, set a higher Declared Rate(s.) Each month
AVLIC will establish the Declared Rate for the monies transferred or allocated
to the Fixed Account that month. Each month is assumed to have 30 days, and each
year to have 360 days for purposes of crediting interest on the Fixed Account.
The Policyowner will earn interest on the amounts transferred or allocated to
the Fixed Account at the Declared Rate effective for the month in which the
Policy was issued, which rate is guaranteed for the remainder of the Policy
Year. During later Policy Years, all amounts in the Fixed Account will earn
interest at the Declared Rate in effect in the month of the last Policy
Anniversary. Declared interest rates may increase or decrease from previous
periods, but will not fall below 3.5%. AVLIC reserves the right to change the
declaration practice, and the period for which a Declared Rate will apply.
APPLAUSE! II 17
<PAGE>
POLICY BENEFITS
The rights and benefits under the Policy are summarized in this prospectus;
however prospectus disclosure regarding the Policy is qualified in its entirety
by the Policy itself, a copy of which is available upon request from AVLIC.
PURPOSES OF THE POLICY
The Policy is designed to provide the Policyowner with both lifetime insurance
protection to the Policy Anniversary nearest the Insured's 100th birthday and
flexibility in connection with the amount and frequency of premium payments and
with the level of life insurance proceeds payable under the Policy.
The Policyowner is not required to pay scheduled premiums to keep the Policy in
force, but may, subject to certain limitations, vary the frequency and amount of
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 increasing (with evidence of insurability) or decreasing the Specified
Amount. An increase in the Specified Amount will increase the Guaranteed Death
Benefit Premium required. If the Specified Amount is decreased, however, the
Guaranteed Death Benefit Premium will not decrease. 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 Accumulation Value will, vary with the investment
experience of the chosen Subaccounts of the Account. Thus the Policyowner
benefits from 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. AVLIC agrees to keep the Policy in force during the
Guaranteed Death Benefit Period and provide a Guaranteed Death Benefit so long
as Net Policy Funding is equal to or greater than the cumulative monthly pro
rata Guaranteed Death Benefit Premium. In certain instances, this Net Policy
Funding will not, after the payment of Monthly Deductions, generate positive Net
Cash Surrender Values.
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, AVLIC will, upon Satisfactory Proof of
Death, pay the Death Benefit Proceeds of the 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 21.)
Death Benefit Proceeds will be paid to the surviving Beneficiary or
Beneficiaries specified in the application or as subsequently changed. If no
Beneficiary is chosen, the proceeds will be paid to the Policyowner or the
Policyowner's estate.
DEATH BENEFIT OPTIONS
The Policy provides two Death Benefit options, unless the Extended Maturity
Option is in effect. If the Extended Maturity Option is in effect, the Death
Benefit will be the Accumulation Value. (See Benefits at Maturity, page 21.) 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 26.) The minimum initial Specified Amount is generally
$100,000. Defined differences, illustrated by graphic illustrations are as
follows:
OPTION A.
(Omitted graph illustrates payout under Death Benefit Option A, specifically by
showing the relationships over time, between the Specified Amount and the
Accumulation Value.)
Death Benefit Option A. Pays a Death Benefit equal to the Specified
Amount or the Accumulation Value multiplied by the Death Benefit
percentage (as illustrated at Point A) whichever is greater.
18 APPLAUSE! II
<PAGE>
Under Option A, the Death Benefit is the current Specified Amount of the Policy
or, if greater, the applicable percentage of Accumulation 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 105%, 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 Accumulation Value exceeds the current Specified
Amount, in which case the amount of the Death Benefit will vary as the
Accumulation Value varies. Policyowners who prefer to have favorable investment
performance, if any, reflected in higher Accumulation Value, rather than
increased insurance coverage, generally should select Option A.
OPTION B.
(Omitted graph illustrates payout under Death Benefit Option B, specifically by
showing the relationships over time, between the Specified Amount and the
Accumulation Value.)
Death Benefit Option B. Pays a Death Benefit equal to the Specified Amount
plus the Policy's Accumulation Value or the Accumulation Value multiplied
by the Death Benefit percentage, whichever is greater.
Under Option B, the Death Benefit is equal to the current Specified Amount plus
the Accumulation Value of the Policy or, if greater, the applicable percentage
of the Accumulation 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.
Accordingly, under Option B the amount of the Death Benefit will always vary as
the Accumulation Value varies (but will never be less than the Specified
Amount.) Policyowners who prefer to have favorable investment performance, if
any, reflected in increased insurance coverage, rather than higher Accumulation
Values, generally should select Option B.
CHANGE IN DEATH BENEFIT OPTION. The Death Benefit Option may be changed once per
year after the first policy year by sending AVLIC a written request. The
effective date of such a change will be the Monthly Activity Date on or
following the date the change is approved by AVLIC. A change may have Federal
Tax consequences.
If the Death Benefit option is changed from Option A to Option B, the Specified
Amount after the change will equal the Specified Amount before the change less
the Accumulation Value as of the date of the change. If the Death Benefit option
is changed from Option B to Option A, the Specified Amount under Option A after
the change will equal the Death Benefit under Option B on the effective date of
change.
No charges will be imposed upon a change in Death Benefit option, nor will such
a change in and of itself result in an immediate change in the amount of a
Policy's Accumulation Value. However, a change in the Death Benefit option may
affect the Cost of Insurance because this charge varies depending on net amount
at risk (i.e. the amount by which the Death Benefit as calculated on a Monthly
Activity Date exceeds the Accumulation Value on that date). Changing from Option
B to Option A will generally decrease the net amount at risk in the future, and
will therefore decrease the Cost of Insurance. Changing from Option A to Option
B will generally result in an increase in the Cost of Insurance over time
because the Cost of Insurance Rate will increase with the Insured's age, and the
net amount at risk will generally remain level. If, however, the change was from
Option B to Option A, the Cost of Insurance Rate may be different for the
increased Death Benefit. On a change from Option A to Option B, the Specified
Amount will decrease so that the Cost of Insurance Rate may be different. (See
Charges and Deductions, page 27 and Federal Tax Matters, page 32.)
CHANGE IN SPECIFIED AMOUNT. Subject to certain limitations, after the first
policy year, a Policyowner may increase or decrease the Specified Amount of a
Policy. A change 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 and have Federal Tax consequences. (See Charges and Deductions, page
27 and Federal Tax Matters, page 32.)
APPLAUSE! 19
<PAGE>
Any increase or 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, for other than preferred
Insureds, may not be less than $50,000 in the first three Policy Years and
$35,000 in later Policy Years. For preferred Insureds, the Specified Amount
after decrease may not be less than $100,000. In addition, if following the
decrease in Specified Amount, the Policy would not comply with the maximum
premium limitations required by Federal Tax Law the decrease may be limited or
Accumulation Value may be returned to the Policyowner at the Policyowner's
election, to the extent necessary to meet these requirements. (See Premiums,
page 25.)
Increases in the Specified Amount will be allowed after the first Policy Year.
For an increase in the Specified Amount, a written supplemental application must
be submitted. AVLIC may also require additional evidence of insurability.
Although an increase need not necessarily be accompanied by an additional
premium, in certain cases an additional premium will be required to effect the
requested increase. (See Premiums upon Increases in Specified Amount, page 26.)
The minimum amount of any increase is $25,000, and an increase cannot be made if
the Insured's attained age is over 80. An increase in the Specified Amount will
also increase Surrender Charges. An increase in the Specified Amount during the
time the Guaranteed Death Benefit provision is in effect will increase the
respective premium requirements. (See Charges and Deductions, page 27.)
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 Accumulation Value -
in several ways as insurance needs change. These ways include increasing or
decreasing the Specified Amount of insurance, changing the level of premium
payments, and making a partial withdrawal of the Policy's Accumulation Value.
Certain of these changes may have Federal Tax consequences. The consequences of
each of these methods will depend upon the individual circumstances.
DURATION OF THE POLICY
The duration of the Policy generally depends upon the Accumulation Value. The
Policy will remain in force so long as the Net Cash Surrender Value is
sufficient to pay the Monthly Deduction or if the Guaranteed Death Benefit
provision is in effect. (See Charges from Accumulation Value, page 27.) Where,
however, the Net 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 26.)
ACCUMULATION VALUE
The Accumulation Value will reflect the investment performance of the chosen
Investment Options, 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 Net Cash Surrender Value. (See
Surrenders, page 23.) There is no guaranteed minimum Accumulation Value.
Accumulation Value is determined on each Valuation Date. On the Issue Date, the
Accumulation Value will equal the portion of any Net Premium allocated to the
Investment Options, reduced by the portion of the first Monthly Deduction
allocated to the Investment Options. (See Allocation of Premiums and
Accumulation Value, page 26.) Thereafter, on each Valuation Date, the
Accumulation Value of a Policy will equal:
(a) 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
(b) The value of the Fixed Account; plus
(c) Any Accumulation Value impaired by Outstanding Policy Debt held in the
General Account; plus
(d) Any Net Premiums received on that Valuation Date; less
(e) Any partial withdrawal, and its charge, made on that Valuation Date; less
(f) Any Monthly Deduction to be made on that Valuation Date; less
(g) Any federal or state income taxes charged against the Accumulation Value.
20 APPLAUSE! II
<PAGE>
In computing the Policy's Accumulation Value, the number of Subaccount units
allocated to the Policy is determined after any transfers among Investment
Options (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 Accumulation Value is dependent upon a number of
variables, a Policy's Accumulation Value cannot be predetermined.
THE UNIT VALUE. The unit value of each Subaccount reflects the investment
performance of that Subaccount. The unit value of each Subaccount shall be
calculated by (i) multiplying the per share net asset value of the corresponding
Fund portfolio on the Valuation Date times the number of shares held by the
Subaccount, before the purchase or redemption of any shares on that Valuation
Date; minus (ii) a charge not exceeding an annual rate of .90% for mortality and
expense risk; minus (iii) a charge not exceeding an annual rate of .35% for
administrative service expenses; and (iv) 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 Valuation Date. (See Daily Charges
Against the Account, page 29.)
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 Accumulation Value of the Policy,
less Outstanding Policy Debt ("Maturity Benefits") on the Maturity Date to the
Policyowner. The Policy will mature on the Policy Anniversary Date nearest the
Insured's 100th birthday, if living, unless the maturity has been extended by
election of the Extended Maturity Option. The Extended Maturity Option, if
elected, has the effect of continuing the Policy in force for purposes of
providing a benefit at the time of the Insured's death. The Death Benefit will
be the Accumulation Value. The Extended Maturity Option does not, however,
extend the Maturity Date for purposes of determining benefits under any other
option or rider. Once the Extended Maturity Option becomes effective, no further
premium payments will be accepted and no deduction will be made for Cost of
Insurance or riders. As long as the policy continues in force, all other policy
provisions will remain in effect. Interest on policy loans will continue to
accrue and become part of the Outstanding Policy Debt.
There is no extra premium for the Extended Maturity Option, but it must be
elected by submitting a written request to AVLIC during the 90 days prior to
Maturity Date. The Extended Maturity Option is not available in all states.
Further, the Internal Revenue Service has not issued a ruling regarding its tax
consequences.
PAYMENT OF POLICY BENEFITS
Death Benefit Proceeds under the Policy will usually be paid within seven days
after AVLIC receives Satisfactory Proof of Death. Maturity 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
31.) The Policyowner may decide the form in which Death Benefit Proceeds or
Maturity 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. Changes must be in
writing and will revoke all prior elections. If no election is made, AVLIC will
pay Death Benefit Proceeds or Accumulation Value Benefit in a lump sum. When
Death Benefit Proceeds 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. 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 FOR DEATH BENEFIT PROCEEDS OR MATURITY BENEFITS ("POLICY
PROCEEDS".) The minimum amount of each payment is $100. If a payment would be
less than $100, AVLIC has the right to make payments less often so that the
amount of each payment is at least $100. Once a payment option is in effect,
Policy 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.
APPLAUSE! II 21
<PAGE>
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, Death Benefits Proceeds or
Maturity Benefits 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 request of the
Policyowner using the rules set out above.
POLICY RIGHTS
LOAN BENEFITS
LOAN PRIVILEGES. After the first Policy Anniversary Date, the Policyowner may
borrow an amount up to the current Net Cash Surrender Value less twelve times
the most recent Monthly Deduction, at regular or, as described below, reduced
loan rates. Loans usually are funded within seven days after receipt of a
written request. The loan may be repaid at any time while the Insured is living,
prior to the Maturity Date. Policyowners in certain states may borrow 100% of
the Net Cash Surrender Value after deducting Monthly Deductions and any interest
on policy loans that will be due for the remainder of the Policy Year. Loans may
have a tax consequence. (See Federal Tax Matters, page 32.)
INTEREST. AVLIC charges interest to Policyowners at regular and reduced rates.
Regular loans will accrue interest on a daily basis at a rate of up to 6% per
year; currently the interest rate on regular policy loans is 5.5%. After the
tenth Policy Anniversary Date, the Policyowner may borrow each year a limited
amount of the Net Cash Surrender Value of the Policy at a reduced interest rate.
Interest will accrue on a daily basis at a rate of up to 4% per year; the
current reduced loan rate is 3.5%. The amount available at the reduced loan rate
is 10% of the Net Cash Surrender Value as of the most recent Policy Anniversary
Date, plus any loan previously made at a reduced loan rate. If unpaid when due,
interest will be added to the amount of the loan and bear interest at the same
rate. The Policyowner earns 3.5% interest on the Accumulation Values securing
the loans.
EFFECT OF POLICY LOANS. When a loan is made, Accumulation Value equal to the
amount of the loan will be transferred from the Investment Options to the
General Account as security for the indebtedness. The Accumulation Value
transferred will be allocated from the Investment Options in accordance with the
instructions given when the loan is requested. The minimum amount which can
remain in a Subaccount or the Fixed Account as a result of a loan is $100. If no
instructions are given the amounts will be withdrawn in proportion to the
various Accumulation Values in the Investment Options. If loan interest is not
paid when due in any Policy Year, on the Policy Anniversary thereafter, AVLIC
will add the interest due to the principal amount of the Policy loan. This loan
interest due will be transferred from the Investment Options as set out above.
No charge will be imposed for these transfers. A policy loan will permanently
affect the Accumulation Value and may permanently affect the amount of the Death
Benefits, even if the loan is repaid. Policy loans will also affect Net Policy
Funding for determining whether the Guaranteed Death Benefit provision is met.
Interest earned on amounts held in the General Account will be allocated to the
Investment Options on each Policy Anniversary in the same proportion that Net
Premiums are being allocated to those Investment Options at the time. Upon
repayment of indebtedness, the portion of the repayment allocated in accordance
with the repayment of indebtedness provision (see below) will be transferred to
increase the Accumulation Value in that Investment Option.
OUTSTANDING POLICY DEBT. The Outstanding Policy Debt equals the total of all
policy loans and accrued interest on policy loans. If the Outstanding Policy
Debt exceeds the Accumulation Value less any Surrender Charge and any Accrued
Expense Charges, 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 ("lapse".) Should the policy lapse while policy loans
are outstanding, the portion of the loans attributable to earnings will become
taxable. A Policyowner may lower the risk of a Policy lapsing while loans are
outstanding as a result of a reduction in the market value of investments in the
Subaccounts by investing in a diversified group of lower risk investment
portfolios and/or transferring the funds to the Fixed Account and receiving a
guaranteed rate of return. Should a substantial reduction be experienced, the
Policyowner may need to lower anticipated withdrawals and loans, repay loans,
make additional premium payments, or take other action to avoid policy lapse. A
lapsed Policy may later be reinstated. (See Policy Lapse and Reinstatement, page
26.)
22 APPLAUSE! II
<PAGE>
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 Accumulation 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 at the time of repayment.
SURRENDERS
At any time during the lifetime of the Insured and prior to the Maturity Date,
the Policyowner may partially withdraw a portion of the Accumulation Value or
Surrender the Policy by sending a written request to AVLIC. The amount available
for Surrender is the Net Cash Surrender Value at the end of the Valuation Period
during which the Surrender request is received at AVLIC's Home Office.
Surrenders will generally be paid within seven days of receipt of the written
request. (See Postponement of Payments, page 31.) Surrenders may have tax
consequences. Once a policy is Surrendered, it may not be reinstated. (See Tax
Treatment of Policy Proceeds, page 34.)
If the Policy is being Surrendered in its entirety, the Policy itself must be
returned to AVLIC along with the request. AVLIC will pay the Net Cash Surrender
Value. 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 20.)
PARTIAL WITHDRAWALS
Partial withdrawals are irrevocable. The amount of a partial withdrawal may not
be less than $500. The Net Cash Surrender Value after a partial withdrawal must
be at least $1,000 or an amount sufficient to maintain the Policy in force for
the remainder of the Policy Year.
The amount paid will be deducted from the Investment Options 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 amounts will be withdrawn in proportion
to the various Accumulation Values in the Investment Options.
The Death Benefit will 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 28 and Death Benefit Options - Methods of Affecting
Insurance Protection, page 20.) If Option B is in effect, the Specified Amount
will not change, but the Accumulation Value will be reduced.
The Specified Amount remaining in force after a partial withdrawal may not be
less than $50,000 in the first three Policy Years, and $35,000 thereafter. The
Specified Amount remaining in force after a partial withdrawal for preferred
Insureds may not be less than $100,000. 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 or 2% of the amount withdrawn
is deducted from the Accumulation Value. Currently, the charge is the lesser of
$25 or 2% of the amount withdrawn. (See Partial Withdrawal Charge, page 29.)
Partial withdrawals will also affect Net Policy Funding for determining whether
the Guaranteed Death Benefit provision is met.
TRANSFERS
Accumulation Value may be transferred among the Subaccounts of the Account and
to the Fixed Account as often as desired. Transfers out of the Fixed Account may
only be made during the 30 day period following the Policy Anniversary Date, as
noted below. The transfers may be ordered in person, by mail or by telephone.
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 or
the Fixed Account after a transfer is $100. The first fifteen transfers per
Policy Year will be permitted free of charge. Thereafter, a transfer charge of
$10 may be imposed each additional time amounts are transferred and will be
deducted from the Accumulation Value on a prorata basis. (See Transfer Charge,
page 29.) Additional restrictions on transfers may be imposed at the fund level.
Specifically, fund managers may have the right to refuse sales, or suspend or
terminate the offering of portfolio shares, if they determine that such action
is necessary in the best interests of the portfolio's shareholders. If a fund
manager refuses a transfer for any reason, the transfer will not be allowed.
AVLIC will not be able to process the transfer if the fund manager refuses.
Transfers resulting from policy loans or exercise of the exchange privilege will
not be subject to a transfer charge and will not be counted towards the fifteen
free transfers per policy year.
Transfers out of the Fixed Account, unless part of the dollar cost averaging
systematic program described below, may be made only during the 30 day period
following the Policy Anniversary Date in any Policy Year. However, transfers out
of the Fixed Account are limited to the greater of (i) 25% of the Fixed Account
attributable to the Policy; (ii) the largest transfer made by the Policyowner
out of the Fixed Account during the last 13 months; or (iii) $1,000. This
provision is not available while dollar cost averaging from the Fixed Account.
APPLAUSE! II 23
<PAGE>
The privilege to initiate transactions by telephone will be made available to
Policyowners automatically. The registered representative designated on the
application will have the authority to initiate telephone transfers.
Policyowners who do not wish to authorize AVLIC to accept telephone transactions
from their registered representative must so specify on the application. 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.
SYSTEMATIC PROGRAMS
AVLIC may offer systematic programs as discussed below. These programs will be
subject to administrative guidelines established by AVLIC from time to time.
Transfers of Accumulation Value made pursuant to these programs will be counted
in determining whether the transfer fee applies. Lower minimum amounts may
be allowed to transfer as part of a systematic program. No other separate fee is
assessed when one of these options is chosen. All other normal transfer
restrictions, as described above, also apply.
PORTFOLIO REBALANCING. Under the Portfolio Rebalancing program, the Policyowner
can instruct AVLIC to reallocate Accumulation Value among the Subaccounts (but
not the Fixed Account) on a systematic basis, in accordance with allocation
instructions specified by the Policyowner.
DOLLAR COST AVERAGING. Under the Dollar Cost Averaging program, the Policyowner
can instruct AVLIC to automatically transfer, on a systematic basis, a
predetermined amount or percentage specified by the Policyowner from the Fixed
Account or the Money Market Subaccount to any other Subaccount(s). Dollar cost
averaging is permitted from the Fixed Account, if no more than 1/36th of the
value of the Fixed Account at the time dollar cost averaging is established is
transferred each month.
EARNINGS SWEEP. Permits systematic redistribution of earnings among Investment
Options.
The Policyowner can request participation in the available programs when
purchasing the Policy or at a later date. The Policyowner can change the
allocation percentage or discontinue any program by sending written notice or
calling the Home Office. Other scheduled programs may be made available. AVLIC
reserves the right to modify, suspend or terminate such programs at any time.
Use of Systematic Programs may not be advantageous, and does not guarantee
success.
FREE-LOOK PRIVILEGE
The Policyowner may cancel the Policy within 10 days after the Policyowner
receives it, within 10 days after AVLIC delivers a notice of the Policyowner's
right of cancellation, or within 45 days of completing Part I of the
application, whichever is later. The amount of the refund is the sum of all
charges deducted from premiums paid, plus the net premiums allocated to the
Investment Options adjusted by investment gains and losses, if allowed by state
law. Otherwise, the amount of the refund will equal the gross premiums paid. 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 31.)
EXCHANGE PRIVILEGE
During the first 24 Policy Months after the Policy Date of the Policy, the
Policyowner may exchange the Policy for a flexible premium adjustable life
insurance policy approved for exchange and issued by AVLIC or an affiliate. No
new evidence of insurability will be required.
The Policy Date, Issue Age and rate class 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. Accumulation 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 Accumulation 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.
24 APPLAUSE! II
<PAGE>
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and submit
it to AVLIC's Home Office (One Ameritas Way, 5900 "O" Street, P.O. Box 82550,
Lincoln, Nebraska 68501.) A Policy will generally be issued only to individuals
80 years of age or less on their nearest birthday who supply satisfactory
evidence of insurability to AVLIC. 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 Issue Date is the date
that all financial, contractual and administrative requirements have been met
and processed for the Policy. 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.
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, Federal Funds
(monies of member banks within the Federal Reserve System which are held on
deposit at a Federal Reserve Bank) are received and available to AVLIC, and the
application amendments are received and reviewed in AVLIC's Home Office. On the
Issue Date, the initial premium payment will be allocated to the Money Market
Subaccount for 13 days. After the expiration of the 13-day period, the
Accumulation Value will be reallocated to the Investment Options as selected by
the Policyowner.
Subject to approval, a Policy may be backdated, but the Policy Date may not be
more than six months prior to the date of the application. Backdating can be
advantageous if the Insured's lower Issue Age results in lower cost of insurance
rates. If a Policy is backdated, the minimum initial premium required will
include sufficient premium to cover the backdating period. Monthly deductions
will be made for the period the Policy Date is backdated.
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 the required premium at the time of the application. The
amount of the interim coverage is limited to the smaller of (a) the amount of
insurance applied for, (b) $100,000, or (c) $25,000 if the proposed Insured is
under age 10 or over age 60 at his nearest birthday.
PREMIUMS
No insurance will take effect before the initial premium payment is received by
AVLIC in Federal Funds. The initial premium payment must be at least 1/12 of the
first year Guaranteed Death Benefit Premium times the number of months between
the Policy Date and the Issue Date, plus one. Subsequent premiums are payable at
AVLIC's Home Office. A Policyowner has flexibility in determining the frequency
and amount of premiums. However, unless the Policyowner has paid sufficient
premiums to pay the Monthly Deduction and Percent of Premium Charges, the Policy
may have a zero Net Cash Surrender Value and lapse. AVLIC agrees to keep the
Policy in force during the Guaranteed Death Benefit Period and provide a
Guaranteed Death Benefit so long as Net Policy Funding is equal to or greater
than the cumulative monthly pro rata Guaranteed Death Benefit Premium. In
certain instances, this Net Policy Funding will not, after the payment of
Monthly Deductions, generate positive Net Cash Surrender Values.
PLANNED PERIODIC PREMIUMS. At the time the Policy is issued each Policyowner may
determine a Planned Periodic Premium schedule that provides for the payment of
level premiums at selected intervals. The Planned Periodic Premium schedule may
include the Guaranteed Death Benefit Premium. 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. AVLIC does
reserve the right to limit the number and amount of additional or unscheduled
premium payments.
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 unless the Guaranteed Death Benefit
provision is in effect. Instead, the duration of the Policy depends upon the
Policy's Net Cash Surrender Value. (See Duration of the Policy, page 20.) Unless
the Guaranteed Death Benefit provision is in effect, even if Planned Periodic
Premiums are paid by the Policyowner, the Policy will lapse any time the Net
Cash Surrender Value is insufficient to pay the Monthly Deduction, and the Grace
Period expires without a sufficient payment. (See Policy Lapse and
Reinstatement, page 26.)
APPLAUSE! II 25
<PAGE>
PREMIUM LIMITATIONS. AVLIC's current minimum limitation is $45, $15 if paid by
automatic bank draft. AVLIC currently has no maximum limitation, other than the
current maximum premium limitations established by federal tax laws. AVLIC
reserves the right to change any limitation. 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. (See Tax Status of the Policy 33.)
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 require additional evidence of
insurability if any premium payment would result in an increase in the Policy's
net amount at risk on the date the premium is received.
PREMIUMS UPON INCREASES IN SPECIFIED AMOUNT. Depending upon the Accumulation
Value of the Policy at the time of an increase in the Specified Amount of the
Policy and the amount of the increase requested by the Policyowner, an
additional premium payment may be required. AVLIC will notify the Policyowner of
any premium required to fund the increase, which premium must be made in a
single payment. The Accumulation Value of the Policy will be immediately
increased by the amount of the payment, less the applicable Percent of Premium
Charge.
ALLOCATION OF PREMIUMS AND ACCUMULATION VALUE
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the Policyowner
allocates Net Premiums to one or more Subaccounts and/or to the Fixed Account.
Allocations must be whole number percentages and must total 100%. The allocation
of future Net Premiums may be changed without charge by providing proper
notification to the Home Office. If there is any Outstanding Policy Debt at the
time of a payment, AVLIC will treat the payment as a premium payment unless
otherwise instructed in proper written notice.
On the Issue Date, the initial premium payment will be allocated to the Money
Market Subaccount for 13 days. Thereafter, the Accumulation Value will be
reallocated to the Investment Options as selected by the Policyowner. Premium
payments received by AVLIC prior to the Issue Date are held in the General
Account until the Issue Date 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 and is available to AVLIC. In no event will interest be credited
prior to the Policy Date.
The Accumulation Value of the Subaccounts will vary with the investment
performance of these Subaccounts and the Policyowner bears the entire investment
risk. This will affect the Policy's Accumulation Value, and may affect the Death
Benefit as well. Policyowners should periodically review their allocations of
premiums and values in light of market conditions and overall financial planning
requirements.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make a
Planned Periodic Premium payment will not itself cause the Policy to lapse.
Lapse will occur when the Net Cash Surrender Value is insufficient to cover the
Monthly Deduction and a Grace Period expires without a sufficient payment unless
the Guaranteed Death Benefit provision is in effect. 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. The
required premium will be equal to the greater of the amount necessary to cover
the Monthly Deductions and Percent of Premium Charges for the three Policy
Months after commencement of the Grace Period, or the amount necessary to raise
the Net Cash Surrender Value as of the date of reinstatement above zero. Failure
to pay the required premium 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 Death Benefit
Proceeds. (See Charges and Deductions, page 27.)
REINSTATEMENT. A lapsed Policy may be reinstated any time within three years
(five years in Missouri) after the beginning of the Grace Period, but before the
Maturity Date. Reinstatement will be effected based on the Insured's rating
class at the time of the reinstatement.
Reinstatement is subject to the following:
a. Evidence of insurability of the Insured satisfactory to AVLIC (including
evidence of insurability of any person covered by a rider to reinstate the
rider);
26 APPLAUSE! II
<PAGE>
b. Any Outstanding Policy Debt on the date of lapse will be reinstated with
interest due and accrued;
c. The Policy cannot be reinstated if it has been Surrendered for its full Net
Cash Surrender Value;
d. The minimum premium required at reinstatement is the greater of:
(1) the amount necessary to raise the Net Cash Surrender Value as of the
date of reinstatement to equal to or greater than zero; or
(2) three times the current Monthly Deduction.
The amount of Accumulation Value on the date of reinstatement will be equal to
the amount of the Net Cash Surrender Value on the date of lapse, increased by
the premium paid at reinstatement, less the Percent of Premium Charges and the
amounts stated above, plus that part of the Contingent Deferred Sales Charge and
Contingent Deferred Administrative Charge that would apply if the Policy were
Surrendered on the date of reinstatement. The last addition to the Accumulation
Value is designed to avoid duplicate Surrender Charges. The original Policy
Date, and the dates of increases in the Specified Amount (if applicable), will
be used for purposes of calculating the Surrender Charge. If any Outstanding
Policy Debt was reinstated, that debt will be held in AVLIC's General Account.
Accumulation Value calculations will then proceed as described under
"Accumulation Value" on page 20.
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 and payment of
applicable taxes; (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.
DEDUCTIONS FROM PREMIUM PAYMENTs
SALES CHARGE. A front-end sales load will be deducted from each premium payment
upon receipt and prior to allocation of Net Premium to any Investment Option.
AVLIC is authorized to deduct such a sales charge of up to 2.5% of the amount of
each premium; currently, no such sales charge is being applied. The Policy is
also subject to a Contingent Deferred Sales Charge, which is part of the
Surrender Charge. (See "Surrender Charge" on page 28.)
The sales charges applied in any Policy Year are 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. To the extent
that sales and distribution expenses exceed sales charges in any year, AVLIC
will pay such expenses from its other assets or surplus in its General Account,
including 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.
PREMIUM CHARGE FOR TAXES. A deduction of up to 5% of the premium is made from
each premium payment to pay applicable taxes; currently the charge is 3.5%. The
deduction represents an amount AVLIC considers necessary to pay all premium
taxes imposed by the states and their subdivisions, and to defray the tax cost
due to capitalizing certain policy acquisition expenses as required under
applicable Federal tax laws. (See Federal Tax Matters page 32.) AVLIC does not
expect to derive a profit from the Premium Charge for Taxes.
CHARGES FROM ACCUMULATION VALUE
MONTHLY DEDUCTION. Charges will be deducted as of the Policy Date and on each
Monthly Activity Date thereafter from the Accumulation Value of the Policy to
compensate AVLIC for administrative expenses and insurance provided. These
charges will be allocated among the Subaccounts, and the Fixed Account on a pro
rata basis. Each of these charges is described in more detail below.
ADMINISTRATIVE EXPENSE CHARGE. To compensate AVLIC for the ordinary
administrative expenses expected to be incurred in connection with a Policy, the
Monthly Deduction includes a $9.00 per policy charge (currently $9.00 the first
year and $4.50 during each year thereafter.) The Administrative Expense Charge
is levied throughout the life of the Policy and is guaranteed not to increase
above $9.00 per month. AVLIC does not expect to make any profit from the
Administrative Expense Charge.
APPLAUSE! II 27
<PAGE>
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 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 based on the amount by which the Death
Benefit which would have been payable on that Monthly Activity Date exceeds the
Accumulation Value on that date.
COST OF INSURANCE RATE. The Annual Cost of Insurance Rate is based on the
Insured's sex, Issue Age, policy duration, Specified Amount, and rating class.
The rate will vary depending upon tobacco use and other risk factors. 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
Attained Age and are equal to the 1980 Insurance Commissioners Standard Ordinary
Smoker and Non-Smoker, Male and Female Mortality Tables. The current rates range
between 40% and 100% of the rates based on the 1980 Commissioners Standard
Ordinary Tables, based on AVLIC's own mortality experience. Policies issued on a
unisex basis are based upon the 1980 Insurance Commissioners Standard Ordinary
Table B assuming 80% male and 20% female lives. The Cost of Insurance Rates,
Surrender Charges, and payment options for policies issued in 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, Specified
Amount and rating class and whose policies have been in effect for the same
length of time.
If the rating class for any increase in the Specified Amount is not the same as
the rating 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 rating classes. Decreases may 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.
RATING CLASS. The rating class of an Insured will affect the Cost of Insurance
Rate. AVLIC currently places Insureds into both standard rating classes and
substandard rating classes that involve a higher mortality risk. In an otherwise
identical policy, an Insured in the standard rating class will have a lower Cost
of Insurance Rate than an Insured in a rating class with higher mortality risks.
If, when issued, a Policy is rated 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, and may be from 1.18
to 4 times the guaranteed rate for a standard issue.
Insureds may also be assigned a Flat Extra Rating Charge if appropriate to
reflect certain additional risks. The Flat Extra Rating Charge will be added to
the Cost of Insurance Rate and thus will be deducted as part of the Monthly
Deduction on each Monthly Activity Date.
SURRENDER CHARGE
If a Policy is Surrendered prior to the 15th Policy Anniversary Date, AVLIC will
assess a Surrender Charge based upon percentages of the premiums actually paid
and a charge per $1,000 of insurance issued based upon sex, Issue Age and
tobacco use.
The total Surrender Charge on the initial Specified Amount is made up of two
parts, the Contingent Deferred Administrative Charge and Contingent Deferred
Sales Charge.
The Contingent Deferred Administrative Charge is an amount per $1,000 of
Specified Amount that varies by Issue Age, sex and tobacco use. It is 60% of the
maximum Surrender Charge not to exceed $28.80 per $1,000 of Specified Amount.
The Contingent Deferred Sales Charge will be based upon the actual premiums
received. It will be calculated as the lesser of (i) 30% of the premiums
received up to the SEC Guideline Premium, plus 10% of the premiums received in
excess of the SEC Guideline, up to an amount equal to twice the SEC Guideline
Premium, plus 9% of the premiums received in excess of the second SEC Guideline
Premium; or (ii)40% of the maximum Surrender Charge not to exceed $19.20 per
$1,000 of Specified Amount.
The Surrender Charge, if applicable, will be applied in accordance with the
following schedule. Because the 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.
28 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
Policy Year Percent of Surrender Policy Year Percent of Surrender
Charge maximum that Charge maximum that will
will apply during Policy apply during Policy Year
Year
<S> <C> <C> <C>
1 100% 9 50%
2 96% 10 42%
3 92% 11 33%
4 88% 12 25%
5 83% 13 17%
6 75% 14 8%
7 67% 15+ 0%
8 58%
</TABLE>
No Surrender Charge will be assessed upon decreases in the Specified Amount of
the Policy or partial withdrawals of Accumulation Value. AVLIC will, however,
assess Surrender Charges due to increases in Specified Amount. The Contingent
Deferred Sales Charge component of the Surrender Charge on such increases will
be assessed based on the premiums allocated to the increase, at the lesser of
(i) 15% of the allocated premiums received up to the SEC Guideline Premium, plus
5% of the allocated premiums received in excess of the SEC Guideline Premium for
the increase, up to an amount equal to twice the SEC Guideline Premium for the
increase, plus 4.5% of the allocated premiums received in excess of two SEC
Guideline Premium(s) for the increase; or (ii) 40% of the maximum Surrender
Charge applicable to the increase. The Contingent Deferred Administrative Charge
component of the Surrender Charge on increases in the Specified Amount will be
assessed as noted above with respect to the initial Specified Amount. It will be
based on the Attained Age at the time of the increase and the amount of the
increase in the Specified Amount. Surrender Charges in increases in the initial
Specified Amount will be applied with respect to Surrenders within 15 years of
the date of the increase.
TRANSFER CHARGE. A transfer charge of $10 (guaranteed not to increase) may be
imposed for each additional transfer among the Investment Options 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,
AVLIC does not expect to make any profit from the transfer charge. This charge
will be deducted pro rata from each Subaccount (and, if applicable, the Fixed
Account) in which the Policyowner is invested. The transfer charge will not be
imposed on transfers that occur as a result of policy loans or the exercise of
exchange rights.
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. This charge is
currently the lesser of $25 or 2% of the amount withdrawn (guaranteed not to be
greater than the lesser of $50 or 2% of the amount withdrawn). No Surrender
Charge is assessed on a partial withdrawal and a partial withdrawal charge is
not assessed when a Policy is Surrendered.
DAILY CHARGES AGAINST THE ACCOUNT
A daily Mortality and Expense Risk Charge will be deducted from the value of the
net assets of the Account to compensate AVLIC for mortality and expense risks
assumed in connection with the Policy. This daily charge from the Account is
currently at the rate of 0.001775% (equivalent to an annual rate of 0.65%) for
Policy Years 1-20 and at the rate of 0.001366% (equivalent to an annual rate of
0.50%) for the years thereafter, and will not exceed .90% 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 the applicable daily rate multiplied by the number of
days since the last Valuation Date. No Mortality and Expense Risk Charges will
be deducted from the amounts in the Fixed Account.
AVLIC believes that this level of charge is within the range of industry
practice for comparable flexible premium variable universal life policies. The
mortality risk assumed by AVLIC is that Insureds may live for a shorter time
than assumed, and
APPLAUSE! II 29
<PAGE>
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.
An Asset Based Administrative Expense Charge will also be deducted from the
value of the net assets of the Account on a daily basis. Currently, this charge
is .000956% (equivalent to .35% annually for Policy Years 1-20 and at a rate of
.000409% (equivalent to .15% annually) for each Policy Year thereafter. The rate
of this charge will never exceed .35% annually. No Asset Based Administrative
Expense Charge will be deducted from the amounts in the Fixed Account.
In addition to the charges against the Account described just above, management
fees and expenses will be assessed by Fidelity, Alger, MFS Co. and MSAM against
the amounts invested in the various portfolios. No portfolio fees will be
assessed against amounts placed in the Fixed Account.
AVLIC may receive administrative fees from the investment advisers of certain
Funds. AVLIC currently does not assess a separate charge against the Account or
the Fixed Account for any 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.
GENERAL PROVISIONS
THE CONTRACT. The Policy, the application, any supplemental applications, and
any riders, amendments or endorsements make up the entire contract. Only the
President, Vice President, Secretary or Assistant Secretary can modify the
Policy. Any changes must be made in writing, and approved by AVLIC. No agent has
the authority to alter or modify any of the terms, conditions or agreements of
the Policy or to waive any of its provisions. The rights and benefits under the
Policy are summarized in this prospectus; however prospectus disclosure
regarding the policy is qualified in its entirety by the policy itself, a copy
of which is available upon request from AVLIC.
CONTROL OF POLICY. The Policyowner is as shown in the application or subsequent
written endorsement. Subject to the rights of any irrevocable beneficiary and
any assignee of record, all rights, options, and privileges belong to the
Policyowner, if living; otherwise to any successor-owner or owners, if living;
otherwise to the estate of the last owner to die.
BENEFICIARY. Policyowners 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
Policyowner; otherwise to the estate of the Policyowner.
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 OF 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. Any such assignment is subject to
Outstanding Policy Debt. 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 Death Benefit
Proceeds is subject to the rights of any assignee of record. A collateral
assignment is not a change of ownership.
PAYMENT OF PROCEEDS. The Death Benefit 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 designated
beneficiary unless an Optional Method of Payment is selected. If no beneficiary
survives the Insured, the Death Benefit Proceeds shall be paid in one sum to the
Policyowner, if living; otherwise to any successor-owner, if living; otherwise
to the Policyowner's estate. Any Death Benefit Proceeds payable on the Maturity
Date or upon Surrender shall be paid in one sum unless an Optional Method of
Payment is elected.
INCONTESTABILITY. The Policy or reinstated Policy is incontestable after it has
been in force for two years from the Policy Date (or reinstatement effective
date) during the lifetime of the Insured. An increase in the Specified Amount or
addition of a rider after the Policy Date shall be incontestable after such
increase or addition has been in force for two years from its effective date
during the lifetime of the Insured. However, this two year provision shall not
apply to riders with their own contestability provision.
30 APPLAUSE! II
<PAGE>
MISSTATEMENT OF AGE AND SEX. If the age or sex of the Insured or any person
insured by rider has been misstated, the amount of the Death Benefit and any
added riders provided will those that would be purchased by the most recent
deduction for the Cost of Insurance and the cost of any additional riders at the
Insured's correct age or sex. The Death Benefit Proceeds will be adjusted
correspondingly.
SUICIDE. Suicide within two years of the Policy Date is not covered by the
Policy unless otherwise provided by a state's Insurance 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, the cost
for riders and any outstanding policy debt. If the Insured, while sane or
insane, commits suicide within two years after the effective date of any
increase in the Specified Amount, AVLIC's liability with respect to such
increase will only be its total cost of insurance applicable to the increase.
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 may be considered an
accidental death.
POSTPONEMENT OF PAYMENTS. Payment of any amount upon 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 weekend 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, loans 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.
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
Accumulation Value, Net 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.
ADDITIONAL INSURANCE BENEFITS (RIDERS.) Subject to certain requirements, one or
more of the following additional insurance benefits may be added to a Policy by
rider. All riders are not available in all states. The cost, if any, of
additional insurance benefits will be deducted as part of the Monthly Deduction.
(See Charges From Accumulation Value - Monthly Deduction, page 27.)
ACCELERATED BENEFIT RIDER FOR TERMINAL ILLNESS (LIVING BENEFIT RIDER.) Upon
satisfactory proof of terminal illness 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 coverages,
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 an expense 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 any Outstanding Policy Debt,
and will also affect future loans, partial withdrawals, and Surrenders. The
accelerated benefit will be treated as a lien against the policy Death Benefit
and will thus reduce the Death Benefit Proceeds. Interest on the lien will be
charged at the policy loan interest rate. There is no extra premium for this
rider.
ACCIDENTAL DEATH BENEFIT RIDER. Provides additional insurance if the Insured's
death results from accidental death, as defined in the rider. Under the terms of
the rider, the additional benefits provided in the Policy will be paid upon
receipt of proof by AVLIC that death resulted directly and independently of all
other causes from accidental bodily injuries incurred before the rider
terminates and within 91 days after such injuries were incurred.
APPLAUSE! II 31
<PAGE>
CHILDREN'S PROTECTION RIDER. Provides for term insurance on the Insured's
children, as defined in the rider. Under the terms of the rider, the Death
Benefit will be payable to the named beneficiary upon the death of any insured
child. Upon receipt of proof of the Insured's death before the rider terminates,
the rider will be considered paid up for the term of the rider.
WAIVER OF MONTHLY DEDUCTIONS ON DISABILITY RIDER. Provides for the waiver of
Monthly Deductions for the Policy and all riders while the Insured is disabled.
PAYOR WAIVER OF MONTHLY DEDUCTIONS ON DISABILITY. Provides for the waiver of
Monthly Deductions for the Policy and all riders while the covered person is
disabled. This rider is available for Insureds ages 0 to 14.
GUARANTEED INSURABILITY RIDER. Provides that the Policyowner can purchase
additional insurance for the Insured by increasing the Specified Amount of the
Policy at certain future dates without evidence of insurability.
DISABILITY BENEFIT PAYMENT RIDER. Provides for the payment by AVLIC of a
disability benefit in the form of premiums while the Insured is disabled. The
benefit amount may be chosen by the Policyowner at the issue of the rider. In
addition, while the Insured is totally disabled, the Cost of Insurance for the
rider will not be deducted from Accumulation Value.
PAYOR DISABILITY RIDER. Provides for the payment by AVLIC of a disability
benefit in the form of premiums while the Covered Person as defined in the rider
is totally disabled. The benefit amount may be chosen by the Policyowner when
the rider is issued. In addition, while the Covered Person is totally disabled,
the Cost of Insurance for the rider will not be deducted from Accumulation
Value.
TERM RIDER FOR COVERED INSURED. Provides the rider specified amount of insurance
to the Beneficiary upon receipt of Satisfactory Proof of Death of any Covered
Insured, as identified in the rider.
DISTRIBUTION OF THE POLICIES
The principal underwriter for the policies is AIC, a wholly owned subsidiary of
AMAL Corporation and an affiliate of AVLIC. AIC is registered as a broker-dealer
with the SEC and is a member of the National Association of Securities Dealers
("NASD"). AVLIC pays AIC for acting as the principal underwriter under an
Underwriting Agreement. In 1996, AIC received gross variable universal life
compensation of $10,227,584, and retained $376,122 in underwriting fees, and
$3,222 in brokerage commissions on AVLIC's variable universal life policies.
The Policies are sold through Registered Representatives of AIC or other
broker-dealers which have entered into selling agreements with AVLIC or AIC.
These Registered Representatives are also licensed by state insurance officials
to sell AVLIC's variable life policies. Each of the broker-dealers with a
selling agreement is registered with the SEC and is a member of the NASD.
Under these selling agreements, AVLIC pays commission to the broker-dealers,
which in turn pay commissions to the Registered Representative who sells this
Policy. During the first Policy Year, the commission may equal an amount up to
95% of the first year target premium paid plus the first year cost of any
riders and 4% for premiums paid in excess of the first year target premium. For
Policy Years two through seven, the commission may equal an amount up to 4% of
premiums paid. Broker-dealers may also receive a service fee up to an annualized
rate of .25% of the Accumulation Value beginning in the eighth Policy Year.
Compensation arrangements may vary among broker-dealers. In addition, AVLIC may
also pay override payments, expense allowances, bonuses, wholesaler fees, and
training allowances. Registered Representatives who meet certain production
standards may receive additional compensation. AVLIC may reduce or waive the
sales charge and/or other charges on any Policy sold to directors, officers or
employees of AVLIC or any of its affiliates, employees and registered
representatives of any broker dealer that has entered into a sales agreement
with AVLIC or AIC and the spouses or children of the above persons. In no event
will any such reduction or waiver be permitted where it would be unfairly
discriminatory to any person.
FEDERAL TAX MATTERS
The following discussion provides a general description of the federal income
tax considerations associated with the Policy and does not purport to be
complete or cover all situations. This discussion is not intended as tax advice.
No attempt has been made to consider in detail any applicable state or other tax
(except premium taxes, see discussion "Premium Charge for Taxes," page 27)
laws. This discussion is based upon AVLIC's understanding of the relevant laws
at the time of filing. Counsel and other competent tax advisors should be
consulted for more complete information before a Policy is purchased. AVLIC
makes no representation as to the likelihood of the continuation of present
federal income tax laws nor of the interpretations by the Internal Revenue
Service. Federal tax laws are subject to change and thus tax consequences to the
Insured, Policyowner or Beneficiary may be altered.
32 APPLAUSE! II
<PAGE>
(a) TAXATION OF AVLIC. AVLIC is taxed as a life insurance company under Part I
of Subchapter L of the Internal Revenue Code of 1986, (the "Code".) At this
time, since the Account is not an entity separate from AVLIC, and its
operations form a part of AVLIC, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Net
investment income and realized net capital gains on the assets of the
Account are reinvested and automatically retained as a part of the reserves
of the Policy and are taken into account in determining the Death Benefit
and Accumulation Value of 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.) At present, they
are not charges against the Account. 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) 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 Accumulation Value to the Death Benefit. AVLIC
believes that the Policy meets the statutory definition of a life
insurance contract. If the Death Benefit of a Policy is changed, the
applicable definitional limitations may change. In the case of a decrease
in the Death Benefit, a partial Surrender, a change in Death Benefit
option, 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 Accumulation Values, such distributions will be taxable as
ordinary income to the Policyowner (to the extent of any gain in the
Policy) as prescribed in Section 7702.
The Code (Section 7702A) also defines a "modified endowment contract" for
federal tax purposes which causes distributions to be taxed as ordinary
income to the extent of any gain. This Policy will become a "modified
endowment contract" if the premiums paid into the Policy fail to meet a
7-pay premium test as outlined in Section 7702A of the Code.
Certain benefits the Insured may elect under this Policy may be material
changes affecting the 7-pay premium test. These include changes in Death
Benefits and changes in the Specified Amount. Should the Policy become a
"modified endowment contract" partial or full Surrenders, assignments,
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
Insured's age 59 1/2. The 10% penalty tax does not apply if the Insured 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 Insured or the joint lives of
the Insured and Beneficiary. One may avoid a Policy becoming a modified
endowment contract by, among other things, not making excessive payments or
reducing benefits. Should one deposit excessive premiums during a policy
year, that portion that is returned by the insurance company within 60 days
after the policy anniversary will reduce the premiums paid to avoid the
Policy becoming a modified endowment contract. A Policyowner should contact
a competent tax professional before paying additional premiums or making
other changes to the Policy to determine whether such payments or changes
would cause the Policy to become a modified endowment contract.
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 Fund's assets may
be invested.
AVLIC does not have control over the Funds or their investments. However,
AVLIC believes that the Funds will be operated in compliance with the
diversification requirements of the Internal Revenue Code. 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
APPLAUSE! II 33
<PAGE>
particular divisions of a separate account. Regulations in this regard may
be issued in the future. It is not clear what these regulations will
provide nor whether they will be prospective only. It is possible that
when regulations are issued, the Policy may need to be modified to comply
with such regulations. For these reasons, the Company reserves the right
to modify the Policy as necessary to prevent the Policyowner from being
considered the owner of the assets of the Account or otherwise to qualify
the Policy for favorable tax treatment.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal tax purposes.
(c) 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 Death
Benefit payable prior to the original maturity date 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
Accumulation Value under the Policy until its actual Surrender. However,
in the event of certain cash distributions under the Policy resulting from
any change which reduces future benefits under the Policy, the distribution
will be taxed in whole or in part as ordinary income (to the extent of
gain in the Policy.) See discussion page 33, "Tax Status of the Policy."
AVLIC also believes that loans received under a Policy will be treated as
indebtedness of the Policyowner and that no part of any loan under a Policy
will constitute income to the Policyowner so long as the Policy remains in
force, unless the Policy becomes a Modified Endowment Contract. Should the
policy lapse while policy loans are outstanding the portion of the loans
attributable to earnings will become taxable. Generally, interest paid on
any loan under a Policy owned by an individual will not be tax-deductible.
Except for Policies with respect to a limited number of key persons of an
employer (both as defined in the Internal Revenue Code), and subject to
applicable interest rate caps, the Health Insurance Portability and
Accountability Act of 1996 (the "Health Insurance Act") generally repeals
the deduction for interest paid or accrued after October 13, 1995 on loans
from corporate owned life insurance Policies. Certain transitional rules
for existing indebtedness are included in the Health Insurance Act. The
transitional rules include a phase-out of the deduction for indebtedness
incurred (1) before January 1, 1996, (or) (2) before January 1, 1997, for
Policies entered into in 1994 or 1995. The phase-out of the interest
expense deduction occurs over a transition period between October 13, 1995
and January 1, 1999. There is also a special rule for pre-June 21, 1986
Policies. Policyowners should consult a competent tax advisor concerning
the tax implications of these changes for their Policies.
The right to exchange the Policy for a flexible premium adjustable life
insurance policy (See Exchange Privilege, page 23), the right to change
owners (See General Provisions, page 30), and the provision for partial
withdrawals (See Surrenders, page 23) may have tax consequences depending
on the circumstances of such exchange, change, or withdrawal. Upon complete
Surrender or when Maturity Benefits are paid, if the amount received plus
any Outstanding Policy Debt exceeds the total premiums paid (the "basis"),
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 Death Benefit 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 Internal Revenue 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, except for the
Fixed Account. AVLIC maintains records of all purchases and redemptions of
Funds' shares by each of the Subaccounts.
THIRD PARTY SERVICES
AVLIC is aware that certain third parties are offering investment advisory,
asset allocation, money management and timing services in connection with the
contracts. AVLIC does not engage any such third parties to offer such services
of any type. In certain cases, AVLIC has agreed to honor transfer instructions
from such services where it has received powers of attorney, in a form
acceptable to it, from the contract owners participating in the service. Firms
or persons offering such services do so independently from any agency
relationship they may have with AVLIC for the sale of contracts. AVLIC takes
34 APPLAUSE! II
<PAGE>
no responsibility for the investment allocations and transfers transacted on a
contract owner's behalf by such third parties or any investment allocation
recommendations made by such parties. Contract owners should be aware that fees
paid for such services are separate and in addition to fees paid under the
contracts.
VOTING RIGHTS
AVLIC is the legal holder of the shares held in the Subaccounts of the Account
and as such has the right to vote the shares; to elect Directors of the Funds,
to vote on matters that are required by the Investment Company Act of 1940 and
upon any other matter that may be voted upon at a shareholders's meeting. To the
extent required by law, AVLIC will vote all shares of each of the Funds held in
the Account at regular and special shareholder meetings of the Funds in
accordance with instructions received from Policyowners based on the number of
shares held as of the record date for such meeting.
The number of Fund shares in a Subaccount for which instructions may be given by
a Policyowner is determined by dividing the Accumulation 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 Fund in its own right.
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 the Funds, if AVLIC reasonably
disapproves those changes in accordance with applicable federal regulations. If
AVLIC does disregard voting instructions, it will advise Policyowners of that
action and its reasons for the action in the next annual report or proxy
statement to Policyowners.
STATE REGULATION OF AVLIC
AVLIC, a stock life insurance company organized under the laws of Nebraska, is
subject to regulation by the Nebraska Department of Insurance. On or before
March 1 of each year an NAIC convention blank covering the operations and
reporting on the financial condition of AVLIC and the Account as of December 31
of the preceding year must be filed with the Nebraska Department of Insurance.
Periodically, the Nebraska Department of Insurance examines the liabilities and
reserves of AVLIC and the Account and certifies their adequacy.
In addition, AVLIC is subject to the insurance laws and regulations of other
states within which it is licensed or may become licensed to operate. The
policies offered by the Prospectus are available in the various states as
approved. Generally, the Insurance Department of any other state applies the
laws of the state of domicile in determining permissible investments.
EXECUTIVE OFFICERS AND DIRECTORS OF AVLIC
Shows name and position(s) with AVLIC followed by the principal occupations for
the last five years.***
LAWRENCE J. ARTH, DIRECTOR, CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER*
Director, Chairman of the Board, and Chief Executive Officer: ALIC**, also
serves as officer and/or director of other subsidiaries and/or affiliates of
ALIC.
KENNETH C. LOUIS, DIRECTOR, EXECUTIVE VICE PRESIDENT*
Director, President and Chief Operating Officer: ALIC; also serves as officer
and/or director of other subsidiaries and/or affiliates of ALIC.
ROBERT W. BUSH, DIRECTOR, SENIOR VICE PRESIDENT-VARIABLE OPERATIONS AND
ADMINISTRATION*
Executive Vice President-Individual Insurance: ALIC; also serves as officer
and/or director of other subsidiaries and/or affiliates of ALIC; Senior Vice
President, CUNA Mutual Insurance Group; also served as officer and/or director
of other subsidiaries and/or affiliates of CUNA.
APPLAUSE! 35
<PAGE>
WAYNE E. BREWSTER, SENIOR VICE PRESIDENT-VARIABLE SALES*
Vice President-Variable Sales: ALIC.
ASHOK CHAWLA, VICE PRESIDENT-FIXED ANNUITY INVESTMENTS****
Senior Vice President - Fixed Income Group: AmerUs Life Insurance Company
(f.k.a. American Mutual Life Insurance Company); Director-Risk Management:
Providian Corp.; Assistant Vice President: Lincoln National Corp.
THOMAS C. GODLASKY, DIRECTOR****
Executive Vice President and Chief Investment Officer: AmerUs Life Holdings,
Inc.; Executive Vice President and Chief Investment Officer: AmerUs Life
Insurance Company (f.k.a. American Mutual Life Insurance Company); Manager-Fixed
Income and Derivatives Department: Providian Corporation; also serves as
director of an affiliate of AVLIC; also serves as officer and/or director of
other affiliates of AmerUs Life Insurance Company.
JOSEPH K. HAGGERTY, ASSISTANT GENERAL COUNSEL****
Senior Vice President and General Counsel: AmerUs Life Holdings, Inc.; Senior
Vice President and General Counsel: AmerUs Life Insurance Company (f.k.a.
American Mutual Life Insurance Company f.k.a. Central Life Assurance
Company*****); Senior Vice President, Deputy General Counsel: I.C.H.
Corporation; also serves as an officer to an affiliate of AVLIC, and served as
officer and/or director of other subsidiaries and/or affiliates of I.C.H.
Corporation; also serves as officer of other affiliates of AmerUs Life Insurance
Company.
JAMES R. HAIRE, VICE PRESIDENT AND ACTUARY*
Vice President-Corporate Actuary: ALIC; also serves as officer and/or director
of other subsidiaries and/or affiliates of ALIC.
JON C. HEADRICK, TREASURER*
Executive Vice President-Investments and Treasurer: ALIC; also serves as officer
and/or director of other subsidiaries and/or affiliates of ALIC.
SANDRA K. HOLMES, VICE PRESIDENT-FIXED ANNUITY CUSTOMER SERVICE****
Senior Vice President: AmerUs Life Insurance Company (f.k.a. American Mutual
Life Insurance Company, f.k.a. Central Life Assurance Company*****).
KENNETH R. JONES, VICE PRESIDENT-CORPORATE COMPLIANCE AND ASSISTANT SECRETARY*
Vice President, Corporate Compliance & Assistant Secretary: ALIC; also serves as
officer of other subsidiaries and/or affiliates of ALIC.
NORMAN M. KRIVOSHA, SECRETARY AND GENERAL COUNSEL*
Executive Vice President, Secretary & Corporate General Counsel: ALIC; also
serves as officer and/or director of other subsidiaries and/or affiliates of
ALIC.
JOANN M. MARTIN, CONTROLLER*
Senior Vice President-Controller and Chief Financial Officer: ALIC; also serves
as officer and/or director of other subsidiaries and/or affiliates of ALIC.
SHEILA SANDY, ASSISTANT SECRETARY****
Manager Annuity Services: AmerUs Life Insurance Company (f.k.a. American Mutual
Life Insurance Company).
MICHAEL E. SPROULE, DIRECTOR****
Executive Vice President and Chief Financial Officer: AmerUs Life Holdings,
Inc.; Executive Vice President and Chief Financial Officer: AmerUs Life
Insurance Company (f.k.a. American Mutual Life Insurance Company, f.k.a. Central
Life Assurance Company*****); I.C.H. Corporation; also serves as director of an
affiliate of AVLIC; also serves as officer and/or director of other affiliates
of AmerUs Life Insurance Company.
LINDA S. STRECK, VICE PRESIDENT-FIXED ANNUITY PRODUCT DEVELOPMENT****
Actuarial Vice President - Product Development and Management: AmerUs Life
Insurance Company (f.k.a. American Mutual Life Insurance Company, f.k.a. Central
Life Assurance Company*****).
36 APPLAUSE! II
<PAGE>
KEVIN WAGONER, ASSISTANT TREASURER****
Director Investment Accounting: AmerUs Life Insurance Company (f.k.a. American
Mutual Life Insurance Company, f.k.a. Central Life Assurance Company*****);
Senior Financial Analyst: Target Stores.
*Principal business address: Ameritas Variable Life Insurance Company,
One Ameritas Way, 5900 "O" Street,
P.O. Box 82550, Lincoln, Nebraska 68501.
**Ameritas Life Insurance Corp.
***Where an individual has held more than one position with an organization
during the last 5-year period, the last position held has been given.
**** Principal business address for Joseph Haggerty, Sandra K. Holmes,
Michael E. Sproule, Ashok K. Chawla, Thomas C. Godlasky, Sheila E. Sandy,
Linda S. Streck, and Kevin Wagoner is: AmerUs Life Insurance Company,
611 Fifth Avenue, Des Moines, Iowa 50309.
***** Central Life Assurance Company merged with American Mutual Life
Insurance Company on December 31, 1994. Central Life Assurance Company was
the survivor of the merger. Contemporaneous with the merger, Central Life
Assurance Company changed its name to American Mutual Life Insurance
Company. (American Mutual Life Insurance Company changed its name to AmerUs
Life Insurance Company on July 1, 1996.)
LEGAL MATTERS
All matters of Nebraska law pertaining to the Policy, including the validity of
the Policy and AVLIC's right to issue the Policy under Nebraska Insurance Law,
have been passed upon by Norman M. Krivosha, Secretary and General Counsel of
AVLIC.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Account is a party or to which the
assets of the Account are subject. AVLIC is not involved in any litigation that
is of material importance in relation to its total assets or that relates to the
Account.
EXPERTS
The financial statements of AVLIC as of December 31, 1996 and 1995, and for each
of the three years in the period ended December 31, 1996, and the financial
statements of the Account as of December 31, 1996 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 and 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.
APPLAUSE! II 37
<PAGE>
Independent Auditors' Report
Board of Directors
Ameritas Variable Life
Insurance Company
Lincoln, Nebraska
We have audited the accompanying statement of net assets of Ameritas
Variable Life Insurance Company Separate Account V as of December 31, 1996, 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 as of December 31, 1996. 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, 1996, and the results of its operations
and changes in its net assets for each of the three years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 1, 1997
38 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
ASSETS
INVESTMENTS AT NET ASSET VALUE:
<S> <C>
Variable Insurance Products Fund:
Money Market Portfolio - 7,637,767.850 shares at
$1.00 per share (cost $7,637,768) $ 7,637,768
Equity-Income Portfolio - 817,109.096 shares at
$21.03 per share (cost $12,890,674) 17,183,804
Growth Portfolio - 841,043.772 shares at
$31.14 per share (cost $18,237,669) 26,190,103
High Income Portfolio - 558,109.727 shares at
$12.52 per share (cost $6,060,955) 6,987,534
Overseas Portfolio - 565,907.403 shares at
$18.84 per share (cost $8,863,172) 10,661,695
Variable Insurance Products Fund II:
Asset Manager Portfolio - 1,326,763.623 shares at
$16.93 per share (cost $18,129,171) 22,462,108
Investment Grade Bond Portfolio - 192,186.776 shares at
$12.24 per share (cost $2,269,043) 2,352,366
Contrafund Portfolio - 176,606.628 shares at
$16.56 per share (cost $2,654,228) 2,924,606
Index 500 Portfolio - 21,656.138 shares at
$89.13 per share (cost $1,776,480) 1,930,212
Asset Manager: Growth Portfolio - 42,445.800 shares at
$13.10 per share (cost $537,009) 556,040
Alger American Fund:
Small Capitalization Portfolio - 345,335.196 shares at
$40.91 per share (cost $11,394,354) 14,127,663
Growth Portfolio - 233,042.387 shares at
$34.33 per share (cost $6,402,061) 8,000,345
Income and Growth Portfolio - 234,654.249 shares at
$8.42 per share (cost $2,405,858) 1,975,789
Midcap Growth Portfolio - 263,959.188 shares at
$21.35 per share (cost $4,851,056) 5,635,529
Balanced Portfolio - 98,800.487 shares at
$9.24 per share (cost $1,036,004) 912,916
Leveraged Allcap Portfolio - 61,392.043 shares at
$19.36 per share (cost $1,169,774) 1,188,550
Dreyfus Stock Index Fund:
Stock Index Fund Portfolio - 109,123.387 shares at
$20.28 per share (cost $1,534,631) 2,213,022
MFS Variable Insurance Trust:
Emerging Growth Series Portfolio - 193,700.823 shares at
$13.24 per share (cost $2,533,503) 2,564,599
World Governments Series Portfolio - 17,336.705 shares at
$10.58 per share (cost $176,945) 183,422
Utilities Series Portfolio - 28,672.191 shares at
$13.66 per share (cost $383,098) 391,662
-------------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 136,079,733
===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! II 39
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
---------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 1,837,028 $ 1,293,935 $ 799,210
EXPENSES
Charges to policyowners for assuming
mortality and expense risk 1,085,616 723,000 465,706
---------------- ---------------- ---------------
INVESTMENT INCOME - NET 751,412 570,935 333,504
---------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NET
Capital gain distributions received 4,152,296 403,845 1,403,280
Unrealized increase/(decrease) 7,185,902 14,755,373 (2,469,056)
---------------- ---------------- ---------------
NET GAIN/(LOSS) ON INVESTMENTS 11,338,198 15,159,218 (1,065,776)
---------------- ---------------- ---------------
NET INCREASE/(DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS 12,089,610 15,730,153 (732,272)
NET INCREASE IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS 30,380,460 19,763,147 21,904,104
---------------- ---------------- ---------------
TOTAL INCREASE IN NET ASSETS 42,470,070 35,493,300 21,171,832
NET ASSETS
Beginning of period 93,609,663 58,116,363 36,944,531
---------------- ---------------- ---------------
End of period $ 136,079,733 $ 93,609,663 $ 58,116,363
================ ================ ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
40 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
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
AMAL Corporation, a holding company 66% owned by Ameritas Life Insurance
Corp (ALIC) and 34% owned by AmerUs Life Insurance Company (AmerUs). The
assets of the Account are segregated from AVLIC's other assets and are
used only to support variable life products issued by AVLIC.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. At December 31, 1996, there are
twenty subaccounts within the Account. Five of the subaccounts invest
only in a corresponding Portfolio of Variable Insurance Products Fund and
five invest only in a corresponding Portfolio of Variable Insurance
Products Fund II. Both funds are diversified open-end management
investment companies and are managed by Fidelity Management and Research
Company. Six of the subaccounts invest only in a corresponding Portfolio
of Alger American Fund which is a diversified open-end management
investment company managed by Fred Alger Management, Inc. One subaccount
invests only in a corresponding Portfolio of Dreyfus Stock Index Fund
which is a non-diversified open-end management investment company managed
by Dreyfus Service Corporation. Three of the subaccounts invest only in a
corresponding Portfolio of MFS Variable Insurance Trust which is a
diversified open-end management investment company managed by
Massachusetts Financial Services Company. All five funds are registered
under the Investment Company Act of 1940, as amended. Each Portfolio pays
the manager a monthly fee for managing its investments and business
affairs. The assets of the Account are carried at the net asset value of
the underlying Portfolios of the Funds. The value of the policyowners'
units corresponds to the Account's investment in the underlying
subaccounts. The availability of investment portfolio and subaccount
options may vary between products. Share transactions and security
transactions are accounted for on a trade date basis.
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.
APPLAUSE! II 41
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
C: INFORMATION BY FUND:
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
-------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 5,613,527 $ 12,572,494 $ 20,504,133 $ 4,325,807 $ 7,483,491
Distributed earnings 383,333 586,341 1,480,529 414,864 201,300
Mortality risk charge (71,053) (141,453) (223,387) (52,366) (87,506)
Unrealized increase/(decrease) --- 1,388,228 1,591,342 303,796 931,213
Net premium transferred 1,711,961 2,778,194 2,837,486 1,995,433 2,133,197
-------------- ---------------- -------------- ------------- -- -----------
Balance 12-31-96 $ 7,637,768 $ 17,183,804 $ 26,190,103 $ 6,987,534 $ 10,661,695
============== ================ ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
-------------------------------------------------------------------------------
Asset Investment Asset Mgr.:
Manager Grade Bond Contrafund Index 500 Growth
------------- ------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 19,286,671 $ 2,136,439 $ 129,293 $ 4,639 $ 13,585
Distributed earnings 1,280,712 110,640 1,845 1,869 22,368
Mortality risk charge (192,161) (22,366) (12,082) (6,403) (2,489)
Unrealized increase/(decrease) 1,567,972 (39,903) 270,650 153,497 19,517
Net premium transferred 518,914 167,556 2,534,900 1,776,610 503,059
------------ ------------- ------------- ------------ ----------------
Balance 12-31-96 $ 22,462,108 $ 2,352,366 $ 2,924,606 $ 1,930,212 $ 556,040
============ ============= ============= ============ ================
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
----------------------------------------------------------------------------------------------
Small Income and Midcap Leveraged
Capitalization Growth Growth Growth Balanced Allcap
-------------- ---------------- -------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 10,377,502 $ 4,678,557 $ 918,762 $ 2,682,818 $ 436,491 $ 100,756
Distributed earnings 51,224 169,099 837,514 74,978 229,557 4,125
Mortality risk charge (118,508) (58,005) (13,912) (38,781) (6,215) (5,432)
Unrealized increase/(decrease) 368,251 592,282 (557,847) 330,732 (168,250) 17,914
Net premium transferred 3,449,194 2,618,412 791,272 2,585,782 421,333 1,071,187
-------------- ---------------- -------------- ------------- ---------------- -------------
Balance 12-31-96 $ 14,127,663 $ 8,000,345 $ 1,975,789 $ 5,635,529 $ 912,916 $ 1,188,550
============== ================ ============== ============= ================ =============
</TABLE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Dreyfus
------------------------------------------------ -------------
Emerging World Stock
Growth Governments Utilities Index Fund TOTAL
-------------- ---------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 118,158 $ 15,815 $ 18,547 $ 2,192,178 $ 93,609,663
Distributed earnings 21,561 --- 32,602 84,863 5,989,324
Mortality risk charge (9,549) (913) (1,520) (21,515) (1,085,616)
Unrealized increase/(decrease) 32,735 7,363 9,810 366,600 7,185,902
Net premium transferred 2,401,694 161,157 332,223 (409,104) 30,380,460
-------------- ---------------- -------------- ------------- -----------------
Balance 12-31-96 $ 2,564,599 $ 183,422 $ 391,662 $ 2,213,022 $ 136,079,733
============== ================ ============== ============= =================
</TABLE>
42 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
C: INFORMATION BY FUND:
<TABLE>
<CAPTION>
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
-------------- ---------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 6,247,662 $ 6,295,945 $ 12,362,890 $ 2,970,211 $ 4,954,650
Distributed earnings 330,031 558,647 71,777 214,996 39,788
Mortality risk charge (57,621) (89,161) (160,505) (40,007) (60,098)
Unrealized increase/(decrease) --- 2,148,654 4,664,368 542,261 616,308
Net premium transferred (906,545) 3,658,409 3,565,603 638,346 1,932,843
-------------- ---------------- -------------- ------------- ----------------
Balance 12-31-95 $ 5,613,527 $ 12,572,494 $ 20,504,133 $ 4,325,807 $ 7,483,491
============== ================ ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
-------------------------------------------------------------------------------
Asset Investment Contrafund Index 500 Asset Mgr.:
Manager Grade Bond (1) (2) Growth (3)
-------------- ---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 16,158,059 $ 907,159 $ --- $ --- $ ---
Distributed earnings 346,679 34,269 1,284 --- 564
Mortality risk charge (164,848) (13,893) (119) (7) (25)
Unrealized increase/(decrease) 2,471,611 183,723 (273) 236 (486)
Net premium transferred 475,170 1,025,181 128,401 4,410 13,532
-------------- ---------------- -------------- ------------- ----------------
Balance 12-31-95 $ 19,286,671 $ 2,136,439 $ 129,293 $ 4,639 $ 13,585
============== ================ ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
-----------------------------------------------------------------------------------------------
Small Income and Midcap Leveraged
Capitalization Growth Growth Growth Balanced Allcap (4)
-------------- ---------------- -------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 4,264,367 $ 2,012,571 $ 307,350 $ 545,887 $ 126,178 $ ---
Distributed earnings --- 34,885 5,186 142 3,039 ---
Mortality risk charge (67,150) (32,981) (5,765) (14,362) (2,251) (57)
Unrealized increase/(decrease) 2,184,006 924,176 146,805 430,138 45,544 863
Net premium transferred 3,996,279 1,739,906 465,186 1,721,013 263,981 99,950
-------------- ---------------- -------------- ------------- ---------------- ---------------
Balance 12-31-95 $ 10,377,502 $ 4,678,557 $ 918,762 $ 2,682,818 $ 436,491 $ 100,756
============== ================ ============== ============= ================ ==============
</TABLE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Dreyfus
------------------------------------------------ -------------
Emerging World (6) Utilities Stock
Growth (5) Governments (7) Index Fund TOTAL
-------------- ---------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ --- $ --- $ --- $ 963,434 $ 58,116,363
Distributed earnings 2,634 1,440 1,745 50,674 1,697,780
Mortality risk charge (118) (37) (10) (13,985) (723,000)
Unrealized increase/(decrease) (1,638) (885) (1,246) 401,208 14,755,373
Net premium transferred 117,280 15,297 18,058 790,847 19,763,147
-------------- ---------------- -------------- ------------- -----------------
Balance 12-31-95 $ 118,158 $ 15,815 $ 18,547 $ 2,192,178 $ 93,609,663
============== ================ ============== ============= =================
</TABLE>
(1) Commenced business 09/05/95. (5) Commenced business 09/12/95.
(2) Commenced business 10/17/95. (6) Commenced business 09/13/95.
(3) Commenced business 09/13/95. (7) Commenced business 10/18/95.
(4) Commenced business 09/13/95.
APPLAUSE! II 43
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
C. INFORMATION BY FUND:
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity High
Market Income Growth Income Overseas
-------------- ---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-94 $ 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
============== ================ ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
-------------------------------------------------------------------------------
Income and Midcap
Small Cap Growth Growth Growth Balanced
-------------- ---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-94 $ 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
============== ================ ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund II Dreyfus
-------------- ---------------- --------------
Asset Investment Stock
Manager Grade Bond Index Fund TOTAL
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Balance 01-01-94 $ 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>
44 APPLAUSE! II
<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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 1, 1997
APPLAUSE! II 45
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
BALANCE SHEETS
--------------
(in thousands, except per share data)
-------------------------------------
December 31,
-------------------------------------------------
1996 1995
---------------------- --------------------
<S> <C> <C>
ASSETS
- ------
Investments:
Fixed maturity securities, available for sale (amortized cost
$62,048 - 1996 and $38,753 - 1995) $ 62,621 $ 40,343
Loans on insurance policies 4,309 2,639
---------------------- --------------------
Total investments 66,930 42,982
Cash and cash equivalents 10,684 5,660
Accrued investment income 1,096 790
Reinsurance recoverable-affiliates 9 57
Prepaid reinsurance premium-affiliates 2,156 1,506
Deferred policy acquisition costs 79,272 57,664
Other 483 106
Separate Accounts 947,580 682,482
---------------------- --------------------
$ 1,108,210 $ 791,247
====================== ====================
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
Policy and contract reserves $ 749 $ 609
Accumulated contract values 77,560 44,568
Unearned policy charges 1,243 964
Unearned reinsurance ceded allowance 3,139 2,279
Federal income taxes--
Current 875 685
Deferred 9,921 11,398
Other 8,134 4,266
Separate Accounts 947,580 682,482
---------------------- --------------------
Total Liabilities 1,049,201 747,251
---------------------- --------------------
STOCKHOLDER'S EQUITY:
Common stock, par value $100 per share;
authorized 50,000 shares, issued and
outstanding 40,000 shares 4,000 4,000
Additional paid-in capital 40,370 29,700
Retained earnings 14,510 9,860
Net unrealized investment gain 129 436
---------------------- --------------------
Total Stockholder's Equity 59,009 43,996
---------------------- --------------------
$ 1,108,210 $ 791,247
====================== ====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
46 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF OPERATIONS
------------------------
(in thousands)
--------------
Years Ended December 31,
-----------------------------------------------------------------
1996 1995 1994
------------------- ------------------- --------------------
<S> <C> <C> <C>
INCOME:
Insurance revenues:
Contract charges $ 26,345 $ 18,350 $ 13,528
Premium-reinsurance ceded (5,895) (4,289) (2,009)
Reinsurance ceded allowance 2,235 1,859 502
Investment revenues:
Investment income, net 3,603 3,492 3,046
Realized gains, net 19 28 19
Other 567 261 337
------------------- ------------------- --------------------
26,874 19,701 15,423
------------------- ------------------- --------------------
BENEFITS AND EXPENSES:
Policy Benefits:
Death benefits 716 268 417
Interest credited 2,736 1,995 1,524
Increase in policy and contract reserves 140 183 195
Other 52 32 46
Sales and operating expenses 10,041 6,815 5,940
Amortization of deferred policy acquisition costs 5,531 3,057 2,521
------------------- ------------------- --------------------
19,216 12,350 10,643
------------------- ------------------- --------------------
Income before federal income taxes 7,658 7,351 4,780
------------------- ------------------- --------------------
Income taxes - current 3,819 1,685 (608)
Income taxes - deferred (811) 902 2,278
------------------- ------------------- --------------------
Total income taxes 3,008 2,587 1,670
------------------- ------------------- --------------------
NET INCOME $ 4,650 $ 4,764 $ 3,110
=================== =================== ====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! II 47
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
(in thousands, except shares)
-----------------------------
Net
Common Stock Additional Unrealized
------------------------------- Paid-in Retained Investment
Shares Amount Capital Earnings Gain(Loss) Total
--------------- ------------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 40,000 $ 4,000 $ 23,700 $ 1,986 $ - $ 29,686
Capital contribution from
Ameritas Life Insurance Corp. - - 6,000 - - 6,000
Net unrealized investment loss, net - - - - (173) (173)
Net income - - - 3,110 - 3,110
--------------- ------------ -------------- ----------- ---------- ------------
BALANCE, December 31, 1994 40,000 4,000 29,700 5,096 (173) 38,623
Net unrealized investment gain, net - - - - 609 609
Net income - - - 4,764 - 4,764
--------------- ------------- -------------- ------------ --------- ------------
BALANCE, December 31, 1995 40,000 4,000 29,700 9,860 436 43,996
Return of capital - - (15,000) - - (15,000)
Capital contribution from
AMAL Corporation - - 25,670 - - 25,670
Net unrealized investment loss, net - - - - (307) (307)
Net income - - - 4,650 - 4,650
--------------- ------------- ------------- ------------ --------- ----------
BALANCE, December 31, 1996 40,000 $ 4,000 $ 40,370 $ 14,510 $ 129 $ 59,009
=============== ============= ============= ============ ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
48 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(in thousands)
December 31,
----------------------------------------------------
1996 1995 1994
---------------- ----------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Income $ 4,650 $ 4,764 $ 3,110
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs 5,531 3,057 2,521
Policy acquisition costs deferred (26,596) (16,020) (17,481)
Interest credited to contract values 2,736 1,995 1,524
Amortization of discounts or premiums (83) (70) (49)
Net realized gains on investment transactions (19) (28) (19)
Deferred income taxes (811) 902 2,278
Change in assets and liabilities:
Accrued investment income (306) (15) (98)
Reinsurance recoverable-affiliates 48 412 (469)
Prepaid reinsurance premium (650) (487) (451)
Other assets (377) (18) (16)
Policy and contract reserves 140 183 195
Unearned policy charges 279 234 247
Federal income tax payable-current (310) 698 (81)
Unearned reinsurance ceded allowance 860 610 595
Other liabilities 3,868 1,939 (1,823)
------------- ------------------ --------------
Net cash used in operating activities (11,040) (1,844) (10,017)
------------- ------------------ --------------
INVESTING ACTIVITIES
- --------------------
Purchase of fixed maturity securities available for sale (31,514) (7,760) (15,673)
Proceeds from maturities or repayment of fixed maturity securities
available for sale 5,307 3,738 5,108
Proceeds from sales of fixed maturity securities available for sale 3,014 - -
Net change in loans on insurance policies (1,670) (1,042) (576)
------------- ------------------ --------------
Net cash used in investing activities (24,863) (5,064) (11,141)
------------- ------------------ --------------
FINANCING ACTIVITIES
- --------------------
Return of capital (15,000) - 6,000
Capital contribution 25,670 - -
Net change in accumulated contract values 30,257 4,448 2,873
------------- ------------------ --------------
Net cash from financing activities 40,927 4,448 8,873
------------- ------------------ --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,024 (2,460) (12,285)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,660 8,120 20,405
============= ================== ==============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,684 $ 5,660 $ 8,120
============= ================== ==============
Supplemental cash flow information:
- ----------------------------------
Net cash paid (received) on income taxes $ 4,129 $ 987 $ (527)
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! II 49
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------
Ameritas Variable Life Insurance Company (the Company), a stock life insurance
company domiciled in the State of Nebraska, was a wholly-owned subsidiary of
Ameritas Life Insurance Corp. (ALIC), a mutual life insurance company, until
April of 1996 when it became a wholly-owned subsidiary of AMAL Corporation, a
holding company 66% owned by ALIC and 34% owned by AmerUs Life Insurance
Company (AmerUs). The Company began issuing variable life insurance and
variable annuity policies in 1987 and fixed premium annuities in 1996. The
variable life, variable annuity and fixed premium annuity policies are not
participating with respect to dividends.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The principal accounting and reporting practices followed are:
INVESTMENTS
The Company classifies its securities into categories based upon the Company's
intent relative to the eventual disposition of the securities. The first
category, held-to-maturity securities, is composed of debt securities which a
company has the positive intent and ability to hold-to-maturity. These
securities are carried at amortized cost. The second category,
available-for-sale securities, may be sold to address the liquidity and other
needs of a company. Debt and equity securities classified as available-for-sale
are carried at fair value on the balance sheet with unrealized gains and losses
excluded from income and reported as a separate component of stockholder's
equity, net of related deferred acquisition costs and income tax effects. The
third category, trading securities, is for debt and equity securities acquired
for the purpose of selling them in the near term. The Company has classified all
of its securities as available-for-sale. Realized investment gains and losses on
sales of securities are determined on the specific identification method.
The Company records write-offs or allowances for its investments based upon an
evaluation of specific problem investments. The Company reviews, on a continual
basis, all invested assets to identify investments where the Company has credit
concerns. Investments with credit concerns include those the Company has
identified as experiencing a deterioration in financial condition. The Company
has no write-offs or allowances recorded as of December 31, 1996, 1995 and 1994.
CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with a
remaining maturity of less than three months to be cash equivalents.
SEPARATE ACCOUNTS
The Company operates separate accounts on which the earnings or losses accrue
exclusively to contractholders. The assets (mutual fund investments) and
liabilities of each account are clearly identifiable and distinguishable from
other assets and liabilities of the Company. Assets are reported at fair value.
PREMIUM REVENUE AND BENEFITS TO POLICYHOLDERS
RECOGNITION OF UNIVERSAL LIFE-TYPE CONTRACTS REVENUE AND BENEFITS TO
POLICYHOLDERS
Universal life-type policies are insurance contracts with terms that are not
fixed and guaranteed. The terms that may be changed could include one or more of
the amounts assessed the policyholder, premiums paid by the policyholder or
interest accrued to policyholder balances. Amounts received as payments for such
contracts are reflected as deposits and are not reported as premium revenues.
Revenues for universal life-type policies consist of charges assessed against
policy account values for deferred policy loading, mortality risk expense, the
cost of insurance and policy administration. Policy benefits and claims that are
charged to expense include interest credited to contracts under the fixed
account investment option and benefit claims incurred in the period in excess of
related policy account balances.
50 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------
(Continued):
- -------------
RECOGNITION OF INVESTMENT CONTRACT REVENUE AND BENEFITS TO POLICYHOLDERS
Contracts that do not subject the Company to risks arising from policyholder
mortality or morbidity are referred to as investment contracts. Certain deferred
annuities are considered investment contracts. Amounts received as payments for
such contracts are reflected as deposits and are not reported as premium
revenues.
Revenues for investment products consist of investment income and policy
administration charges. Contract benefits that are charged to expense include
benefit claims incurred in the period in excess of related contract balances,
and interest credited to contract balances.
POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are primarily
related to the production of new business, have been deferred to the extent that
such costs are deemed recoverable from future premiums. Such costs include
commissions, certain costs of policy issuance and underwriting, and certain
variable distribution expenses.
Costs deferred related to universal life-type policies and investment-type
contracts are amortized over the lives of the policies, in relation to the
present value of estimated gross profits from mortality, investment and expense
margins. The estimated gross profits are reviewed annually based on actual
experience and changes in assumptions.
An analysis of the costs carried in the balance sheets as deferred acquisition
costs is as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $57,664 $45,940 $30,659
Acquisition costs deferred 26,596 16,020 17,481
Amortization of deferred policy acquisition costs (5,531) (3,057) (2,521)
Adjustment for unrealized investment (gain) loss 543 (1,239) 321
- -------------------------------------------------------------------------------------------------------------------------
Ending balance $79,272 $57,664 $45,940
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
To the extent that unrealized gains or losses on available-for-sale securities
would result in an adjustment of deferred policy acquisition costs had those
gains or losses actually been realized, the related unamortized deferred policy
acquisition costs are recorded as an adjustment of the unrealized gains or
losses included in stockholder's equity.
FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy and contract benefits left with the Company on
variable universal life and annuity-type contracts are based on the policy
account balance, and are shown as accumulated contract values. In addition the
Company carries as future policy benefits a liability for additional coverages
offered under policy riders.
INCOME TAXES
The provision for income taxes includes amounts currently payable and
deferred income taxes resulting from the cumulative differences in assets and
liabilities determined on a tax return and financial statement basis at the
current enacted tax rates.
APPLAUSE! II 51
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
2. INVESTMENTS
- ---------------
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $3,308 $2,819 $2,411
Cash equivalents 618 597 609
Loans on insurance policies 214 128 82
- ---------------------------------------------------------------------------------------------------------------------------------
Gross investment income 4,140 3,544 3,102
Investment expenses 537 52 56
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income $3,603 $3,492 $3,046
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net pretax realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net gains on disposals of fixed maturity securities available for sale $19 $28 $19
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed maturity securities available for sale and gross
gains and losses realized on those sales were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------
Proceeds Gains Losses
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$3,014 $30 $ -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no disposals of fixed maturity securities available for sale during
1995 or 1994 other than calls or maturities.
The amortized cost and fair value of investments in fixed maturity securities
available for sale by type of investment were as follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------
Amortized Gross Unrealized Fair
----------------------------
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Corporate $33,690 $437 $114 $34,013
Mortgage-backed 13,407 209 22 13,594
U.S. Treasury securities and obligations of
U.S. government agencies 14,951 158 95 15,014
- ---------------------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale $62,048 $804 $231 $62,621
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The December 31, 1996 balance of stockholder's equity was decreased by $307
(comprised of a decrease in the carrying value of the securities of $1,017
reduced by $545 of related adjustments to deferred acquisition costs and $165 in
deferred income taxes) to reflect the net unrealized gain on securities
classified as available-for-sale.
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Amortized Gross Unrealized Fair
----------------------------
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Corporate $20,667 $930 $ - $21,597
Mortgage-backed 3,628 114 - 3,742
U.S. Treasury securities and obligations of
U.S. government agencies 14,458 550 4 15,004
- ---------------------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale $38,753 $1,594 $4 $40,343
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
52 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
2. INVESTMENTS (continued)
- ---------------------------
The December 31, 1995 balance of stockholder's equity was increased by $609
(comprised of an increase in the carrying value of the securities of $2,177,
reduced by $1,240 of related adjustments to deferred acquisition costs and $328
in deferred income taxes) to reflect the net unrealized gain on securities
classified as available-for-sale.
The amortized cost and fair value of fixed maturity securities available for
sale by contractual maturity at December 31, 1996 are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $7,582 $7,652
Due after one year through five years 17,266 17,568
Due after five years through ten years 22,264 22,303
Due after ten years 1,529 1,504
Mortgage-backed securities 13,407 13,594
- --------------------------------------------------------------------------------------------------------------------------
Total $62,048 $62,621
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. INCOME TAXES
- ----------------
The items that give rise to deferred tax assets and liabilities relate to the
following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized investment gains $277 $606
Deferred policy acquisition costs 23,727 17,276
Prepaid expenses 172 118
Other 0 500
- -------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 24,176 18,500
- -------------------------------------------------------------------------------------------------------------
Future policy and contract benefits 12,620 5,939
Deferred future revenues 1,534 1,039
Other 101 124
- -------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 14,255 7,102
- -------------------------------------------------------------------------------------------------------------
Net deferred tax liability $9,921 $11,398
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The difference between the U.S. federal income tax rate and the consolidated
tax provision rate is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Other 4.3 0.2 (0.1)
- ---------------------------------------------------------------------------------------------------------------------
Provision for income taxes 39.3% 35.2% 34.9%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
APPLAUSE! II 53
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
4. RELATED PARTY TRANSACTIONS
- ------------------------------
Affiliates provide technical, financial and legal support to the Company under
administrative service agreements. The cost of these services to the Company for
years ended December 31, 1996, 1995 and 1994 was $8,907, $4,858 and $4,029
respectively. The Company also leased office space and furniture and equipment
from affiliates during 1995 and 1994. The cost of these leases to the Company
for the years ended December 31, 1995, and 1994 was $37 and $40, respectively.
Under the terms of investment advisory agreements, the Company paid $73, $44 and
$43 for the years ended December 31, 1996, 1995 and 1994 to Ameritas Investment
Advisors Inc., an indirect wholly-owned subsidiary of Ameritas Life Insurance
Corp.
The Company entered into reinsurance agreements (yearly renewable term) with
affiliates. Under this agreement, these affiliates assume life insurance risk in
excess of the Company's $100 retention limit. The Company paid $3,301, $2,280
and $1,333 of net reinsurance premiums to affiliates for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company has received
reinsurance recoveries from affiliates of $659, $1,472 and $519 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The Company has entered into guarantee agreements with ALIC, AmerUs and AMAL
Corporation whereby, they guarantee the full, complete and absolute performance
of all duties and obligations of the Company.
The Company's variable life and variable annuity products are distributed
through Ameritas Investment Corp., a wholly-owned subsidiary of AMAL
Corporation. The Company received $54, $192 and $272 for the years ended
December 31, 1996, 1995 and 1994 respectively, from this affiliate to partially
defray the costs of materials and prospectuses. Policies placed by this
affiliate generated commission expense of $20,373, $14,028 and $15,223 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Transactions with related parties are not necessarily indicative of revenues and
expenses which would have occurred had the parties not been related.
5. EMPLOYEE AND AGENT BENEFIT PLANS
- ------------------------------------
The Company is included in the noncontributory defined-benefit pension plan that
covers substantially all full-time employees of ALIC and its subsidiaries.
Pension costs include current service costs, which are accrued and funded on a
current basis, and past service costs, which are amortized over the average
remaining service life of all employees on the adoption date. The assets and
liabilities of this plan are not segregated. The Company had no full time
employees during 1996 or 1995. Total Company contributions for the year ended
December 31, 1994 was $47.
The Company's employees also participate in a defined contribution thrift plan
that covers substantially all full-time employees of Ameritas Life Insurance
Corp. and its subsidiaries. Company matching contributions under the plan range
from 1% to 3% of the participant's compensation. The Company had no full time
employees during 1996 or 1995. Total Company contributions for the year ended
December 31, 1994 was $20.
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 assets and liabilities of this plan are not segregated. The
Company had no full time employees during 1996 or 1995. Total Company
contribution for the year ended December 31, 1994 was $7.
Expenses for the defined benefit pension plan and postretirement group medical
plan are allocated to the Company based on percentage of payroll.
54 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
6. STOCKHOLDER'S EQUITY
- ------------------------
Net income(loss), as determined in accordance with statutory accounting
practices, was $855, $(19), and $(3,900) for 1996, 1995 and 1994, respectively.
The Company's statutory surplus was $44,100, $13,800, and $12,600 at December
31, 1996, 1995 and 1994, respectively. Effective January 1, 1996 the Company
changed reserving methods used for most existing products resulting in an
increase in statutory surplus of approximately $20,601.
Under statutes of the Insurance Department of the State of Nebraska, the Company
is limited in the amount of dividends it can pay to its stockholder. On February
28, 1996 the Board of Directors declared a return of paid-in-capital of $15,000
payable by way of a note due on or before August 15, 1996. The note was retired
on August 15, 1996. This action was approved by the State of Nebraska Insurance
Department and any additional distributions of capital or surplus will require
approval of the Insurance Department.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
The following disclosures are made regarding fair value information about
certain financial instruments for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates, in many cases, may not be realized in immediate settlement
of the instrument. All nonfinancial instruments are excluded from disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31 of each year. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date; therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for each class of financial instrument for which it
is practicable to estimate a value:
Fixed maturity securities available for sale
For publicly traded securities, fair value is determined using an
independent pricing source. For securities without a readily ascertainable
fair value, fair value has been determined using an interest rate spread
matrix based upon quality, weighted average maturity and Treasury yields.
Loans on insurance policies
Fair values for policy loans are estimated using discounted cash flow
analyses at interest rates currently offered for similar loans with similar
remaining terms. Policy loans with similar characteristics are aggregated
for purposes of the calculations.
Cash and cash equivalents, accrued investment income and reinsurance
recoverable
The carrying amounts reported in the balance sheet equals fair value due to
the nature of these instruments.
Accumulated contract values
Funds on deposit which do not have fixed maturities are carried at the
amount payable on demand at the reporting date.
APPLAUSE! II 55
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued):
- ----------------------------------------------------
<TABLE>
<CAPTION>
Estimated fair values as of December 31, are as follows:
December 31
--------------------------------------------------------
1996 1995
--------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturity securities available for sale $62,621 $62,621 $40,343 $40,343
Loans on insurance policies 4,309 3,843 2,639 2,346
Cash and cash equivalents 10,684 10,684 5,660 5,660
Accrued investment income 1,096 1,096 790 790
Reinsurance recoverable - affiliates 9 9 57 57
Financial Liabilities:
Accumulated contract values excluding amounts held under
insurance contracts $70,640 $70,640 $39,283 $39,283
</TABLE>
8. SEPARATE ACCOUNTS
- ---------------------
The Company is currently marketing variable life and variable annuity products
which have separate accounts as an investment option. Separate Account V
(Account V) was formed to receive and invest premium receipts from variable life
insurance policies issued by the Company. Separate Account VA-2 (Account VA-2)
was formed to receive and invest premium receipts from variable annuity policies
issued by the Company. Both Separate Accounts are registered under the
Investment Company Act of 1940, as amended, as unit investment trusts. Account V
and VA-2's assets and liabilities are segregated from the other assets and
liabilities of the Company.
<TABLE>
<CAPTION>
Amounts in the Separate Accounts are:
December 31
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Separate Account V $136,079 $93,610
Separate Account VA-2 811,501 588,872
- ---------------------------------------------------------------------------------------------------------------------------------
$947,580 $682,482
- ---------------------------------------------------------------------------------------------------------------------------------
</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,
Dreyfus Stock Index Fund and MFS Variable Insurance Trust. Each fund is
registered with the SEC under the Investment Company Act of 1940, as amended, as
an open-end diversified management investment company.
The Variable Insurance Products Fund and the Variable Insurance Products Fund II
are managed by Fidelity Management and Research Company. The Variable Insurance
Products Fund has five portfolios: the Money Market Portfolio, the High Income
Portfolio, the Equity Income Portfolio, the Growth Portfolio and the Overseas
Portfolio. The Variable Insurance Fund II has five portfolios: the Investment
Grade Bond Portfolio, Asset Manager Portfolio, Contrafund Portfolio (effective
August 25, 1995), Asset Manager Growth Portfolio( effective September 15, 1995)
and the Index 500 Portfolio (effective September 21, 1995). The Alger American
Fund is managed by Fred Alger Management, Inc. and has six portfolios: Income
and Growth Portfolio, Small Capitalization Portfolio, Growth Portfolio, MidCap
Growth Portfolio (effective June 17, 1993), Balanced Portfolio (effective June
28, 1993) and the Leveraged Allcap Portfolio (effective August 30, 1995). The
Dreyfus Stock Index Fund is managed by Wells Fargo Nikko Investment Advisors and
has the Stock Index Fund Portfolio. The MFS Variable Insurance Trust is managed
by Massachusetts Financial Services Company. The MFS Variable Insurance Trust
has three portfolios: the Emerging Growth Portfolio (effective August 25, 1995),
World Governments Portfolio (effective August 24, 1995) and the Utilities
Portfolio (effective September 18, 1995)
Separate Account VA-2 allows investment in the Variable Insurance Products Fund,
Variable Insurance Products Fund II, Alger American Fund, Dreyfus Stock Index
Fund and the MFS Variable Insurance Trust with the same portfolios as described
above.
56 APPLAUSE! II
<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 58 through 62 illustrate a Policy issued
to a male, age 45, under a Preferred rate non-tobacco underwriting risk
classification. This policy provides for a standard tobacco use and non-tobacco
use, and preferred non-tobacco 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
58 and 60 are based on the current cost of insurance rates, current expense
deductions and the maximum percent of premium loads. These reflect the basis on
which AVLIC currently sells its Policies. The maximum allowable cost of
insurance rates under the Policy are based upon the 1980 Commissioner's Standard
Ordinary Smoker and Non-Smoker, Male and Female Mortality Tables (Smoker is
referenced for tobacco use rates; Non-Smoker is referenced for non-tobacco use
rates). Since these are recent tables and are split to reflect tobacco use and
sex, the current cost of insurance rates used by AVLIC are at this time equal to
the maximum cost of insurance rates for many ages. AVLIC anticipates reflecting
future improvements in actual mortality experience through adjustments in the
current cost of insurance rates actually applied. AVLIC also anticipates
reflecting any future improvements in expenses incurred by applying lower
percent of premiums of loads and other expense deductions. The death benefits
and cash values shown in the tables on pages 59 and 61 are based on the
assumption that the maximum allowable cost of insurance rates as described above
and maximum allowable expense deductions are made throughout the life of the
Policy.
The amounts shown for the death benefits, surrender values and accumulation
values reflect the fact that the net investment return of the Subaccounts is
lower than the gross, after-tax return of the assets held in the Funds as a
result of expenses paid by the Fund and charges levied against the Subaccounts.
The values shown take into account an average of the daily management fee paid
by each portfolio available for investment (the equivalent to an annual rate of
.69% of the aggregate average daily net assets of the Fund), the other expenses
incurred by the Fund (.20%), and the daily charge by AVLIC to each Subaccount
for assuming mortality and expense risks and administrative expenses which is
equivalent to a charge at an annual rate of 1.00% for policy years 1-20 and
0.65% thereafter on pages 58 and 60 and at an annual rate of 1.25% on pages 59
and 61 of the average net assets of the Subaccounts). 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 portfolios 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,
1.25% for the Asset Manager Portfolio, .28% for the Index 500 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 All Cap, and Alger American Growth Portfolios,
1.75% for the Morgan Stanley Emerging Markets Equity, 1.20% for the Morgan
Stanley Asian Equity, 1.15% for the Morgan Stanley Global Equity and Morgan
Stanley International Magnum, 1.10% for the Morgan Stanley U.S. Real Estate
Portfolios of daily net assets. MFS has agreed to bear expenses for each series,
subject to reimbursement by each series, such that each series "Other Expenses"
shall not exceed .25% of the average daily net assets of the series during the
current fiscal year. These agreements are expected to continue in future years
but may be terminated at any time. As long as the expense limitations continue
for a portfolio, if a reimbursement occurs, it has the effect of lowering the
portfolio's expense ratio and increasing its total return. The illustrated gross
annual investment rates of return of 0%, 6%, and 12% were computed after
deducting fund expenses and correspond to approximate net annual rates of
- -1.89%, 4.11%, and 10.11% respectively, for years 1-20 and -1.54%, 4.46% and
10.46% for the years thereafter respectively, on pages 58 and 60 and -2.14%,
3.86% and 9.86% respectively, on pages 59 and 61.
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 32).
The tables illustrate the policy values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated, if
all net premiums are allocated to the Account, and if no policy loans have been
made. The tables are also based on the assumptions that the policyowner has not
requested an increase or decrease in the initial Specified Amount, that no
partial withdrawals have been made, and that no more than fifteen transfers have
been made in any policy year so that no transfer charges have been incurred.
Illustrated values would be different if the proposed Insured were female, a
tobacco user, in substandard risk classification, or were another age, or if a
higher or lower premium was illustrated.
Upon request, AVLIC will provide comparable illustration based upon the proposed
Insured's age, sex and underwriting classification, the Specified Amount, the
death benefit option, and planned periodic premium schedule requested, and any
available riders requested. In addition, upon client request, illustrations may
be furnished reflecting allocation of premiums to specified Subaccounts. Such
illustrations will reflect the expenses of the portfolio in which the Subaccount
invests.
APPLAUSE! II 57
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 100
Male Issue Age: 45 Nontobacco Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $2500
INITIAL SPECIFIED AMOUNT:$150,000
DEATH BENEFIT OPTION: A
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-1.89% Net) (4.11% Net) (10.11% Net)
----------------------------- ----------------------------- -----------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2625 1789 0 150000 1915 0 150000 2041 0 150000
2 5381 3597 1276 150000 3964 1643 150000 4347 2025 150000
3 8275 5364 3139 150000 6091 3866 150000 6880 4655 150000
4 11314 7084 4956 150000 8293 6165 150000 9658 7530 150000
5 14505 8752 6745 150000 10567 8560 150000 12702 10695 150000
6 17855 10366 8552 150000 12915 11101 150000 16036 14222 150000
7 21373 11920 10300 150000 15333 13713 150000 19685 18065 150000
8 25066 13412 12009 150000 17821 16419 150000 23682 22279 150000
9 28945 14838 13629 150000 20380 19171 150000 28059 26850 150000
10 33017 16197 15181 150000 23010 21994 150000 32857 31841 150000
15 56644 21885 21885 150000 37270 37270 150000 64934 64934 150000
20 86798 25552 25552 150000 53676 53676 150000 117461 117461 150000
Ages
60 56644 21885 21885 150000 37270 37270 150000 64934 64934 150000
65 86798 25552 25552 150000 53676 53676 150000 117461 117461 150000
70 125284 26590 26590 150000 73609 73609 150000 206659 206659 239724
75 174402 21509 21509 150000 96606 96606 150000 351496 351496 376101
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
1) Assumes an annual $2,500 premium is paid at the beginning of each policy
year. Values would be different if premiums 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.
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, DEATH BENEFIT OPTION SELECTED,
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.
58 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 100
Male Issue Age: 45 Nontobacco Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $2500
INITIAL SPECIFIED AMOUNT:$150,000
DEATH BENEFIT OPTION: A
USING MAXIMUM ALLOWABLE SCHEDULE OF COST OF INSURANCE RATES
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-2.14% Net) (3.86% Net) (9.86% Net)
----------------------------- ----------------------------- ------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2625 1783 0 150000 1909 0 150000 2036 0 150000
2 5381 3384 1063 150000 3741 1420 150000 4114 1793 150000
3 8275 4915 2690 150000 5608 3383 150000 6362 4137 150000
4 11314 6375 4247 150000 7509 5381 150000 8795 6667 150000
5 14505 7760 5754 150000 9442 7435 150000 11428 9421 150000
6 17855 9071 7258 150000 11406 9593 150000 14280 12467 150000
7 21373 10300 8680 150000 13395 11775 150000 17368 15748 150000
8 25066 11440 10037 150000 15402 14000 150000 20709 19307 150000
9 28945 12484 11275 150000 17422 16213 150000 24325 23116 150000
10 33017 13424 12409 150000 19445 18430 150000 28238 27222 150000
15 56644 16325 16325 150000 29398 29398 150000 53425 53425 150000
20 86798 15155 15155 150000 38139 38139 150000 92704 92704 150000
Ages
60 56644 16325 16325 150000 29398 29398 150000 53425 53425 150000
65 86798 15155 15155 150000 38139 38139 150000 92704 92704 150000
70 125284 6975 6975 150000 43190 43190 150000 157707 157707 182940
75 174402 0 0 0 39566 39566 150000 261272 261272 279561
</TABLE>
*In the absence of an additional premium, the Policy would lapse.
1) Assumes an annual $2,500 premium is paid at the beginning of each policy
year. Values would be different if premiums 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.
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, DEATH BENEFIT OPTION SELECTED,
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.
APPLAUSE! II 59
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 100
Male Issue Age: 45 Nontobacco Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $6000
INITIAL SPECIFIED AMOUNT:$150,000
DEATH BENEFIT OPTION: B
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-1.89% Net) (4.11% Net) (10.11% Net)
----------------------------- ---------------------------- -----------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6300 5096 2678 155096 5424 3006 155424 5752 3334 155752
2 12915 10142 7821 160142 11120 8798 161120 12137 9816 162137
3 19861 15081 12856 165081 17036 14811 167036 19153 16928 169153
4 27154 19905 17777 169905 23174 21046 173174 26856 24729 176856
5 34811 24611 22604 174611 29537 27530 179537 35310 33303 185310
6 42852 29197 27384 179197 36129 34316 186129 44586 42772 194586
7 51295 33659 32039 183659 42953 41333 192953 54758 53138 204758
8 60159 37993 36591 187993 50013 48611 200013 65914 64511 215914
9 69467 42197 40988 192197 57313 56104 207313 78145 76936 228145
10 79241 46267 45252 196267 64858 63843 214858 91557 90541 241557
15 135945 64542 64542 214542 106435 106435 256435 180730 180730 330730
20 208316 79175 79175 229175 155004 155004 305004 322441 322441 472441
Ages
60 135945 64542 64542 214542 106435 106435 256435 180730 180730 330730
65 208316 79175 79175 229175 155004 155004 305004 322441 322441 472441
70 300681 90454 90454 240454 213864 213864 363864 555941 555941 705941
75 418565 93770 93770 243770 278910 278910 428910 930680 930680 1080680
</TABLE>
1) Assumes an annual $6,000 premium is paid at the beginning of each policy
year. Values would be different if premiums 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.
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, DEATH BENEFIT OPTION SELECTED,
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.
60 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 100
Male Issue Age: 45 Nontobacco Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $6000
INITIAL SPECIFIED AMOUNT:$150,000
DEATH BENEFIT OPTION: B
USING MAXIMUM ALLOWABLE SCHEDULE OF COST OF INSURANCE RATES
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-2.14% Net) (3.86% Net) (9.86% Net)
----------------------------- ---------------------------- ------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6300 5082 2664 155082 5410 2992 155410 5739 3321 155739
2 12915 9767 7446 159767 10725 8404 160725 11723 9402 161723
3 19861 14309 12084 164309 16201 13976 166201 18252 16027 168252
4 27154 18708 16580 168708 21840 19713 171840 25375 23248 175375
5 34811 22961 20954 172961 27645 25638 177645 33147 31140 183147
6 42852 27069 25255 177069 33617 31803 183617 41626 39813 191626
7 51295 31024 29404 181024 39752 38132 189752 50872 49252 200872
8 60159 34819 33416 184819 46046 44644 196046 60950 59548 210950
9 69467 38448 37239 188448 52497 51288 202497 71933 70724 221933
10 79241 41903 40887 191903 59096 58081 209096 83894 82879 233894
15 135945 56318 56318 206318 94135 94135 244135 161698 161698 311698
20 208316 64951 64951 214951 131541 131541 281541 280560 280560 430560
Ages
60 135945 56318 56318 206318 94135 94135 244135 161698 161698 311698
65 208316 64951 64951 214951 131541 131541 281541 280560 280560 430560
70 300681 65294 65294 215294 168241 168241 318241 461062 461062 611062
75 418565 53430 53430 203430 198665 198665 348665 734153 734153 884153
</TABLE>
1) Assumes an annual $6,000 premium is paid at the beginning of each policy
year. Values would be different if premiums 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.
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, DEATH BENEFIT OPTION SELECTED,
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.
APPLAUSE! II 61
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below covering the period of 1926-1996 is an examination of the
basic relationship between risk and return among the different asset classes,
and between nominal and real (inflation adjusted) returns. The information is
provided because the Policyowners have varied investment portfolios available
which have different investment objectives and policies. The chart generally
demonstrates how different classes of investments have performed during the
period. The study of asset returns provides a period long enough to include most
of the major types of events that investors have experienced in the past. This
is a historical record and is not intended as a projection of future
performance.
The graph depicts the growth of a dollar invested in common stocks, small
company stocks, long-term government bonds, Treasury bills, and a hypothetical
asset returning the inflation rate over the period from the end of 1925 to the
end of 1996. 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 71-year period: investments of one dollar would have grown to $1,370.95
and $4,495.99 respectively, by year-end 1995. This growth, however, was earned
by taking substantial risk. In contrast, long-term government bonds (with an
approximate 20-year maturity), which exposed the holder to less risk, grew to
only $33.73. Note that the return and principal value of an investment in stocks
will fluctuate with changes in market conditions. Prices of small company stocks
are generally more volatile than those of large company stocks. Government bonds
and Treasury Bills are guaranteed by the U.S. Government and, if held to
maturity, offer a fixed rate of return and a fixed principal value.
The lowest risk strategy over the past 71 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 1926-1996 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 1997 Yearbook
(c)Ibbotson Associates, Chicago. All Rights Reserved.
62 APPLAUSE! II
<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.
PERCENT CHANGE OF TOTAL RETURN
STANDARD & POOR'S 500 INDEX
%
YEAR CHANGE
- -----------------------------------------
1 1972 18.90
2 1973 -14.77 (Omitted graph depicts the
3 1974 -26.39 activity of the S&P 500 Index
4 1975 37.16 for the years 1970-1996.)
5 1976 23.57
6 1977 -7.42
7 1978 6.38
8 1979 18.20
9 1980 32.27
10 1981 -5.01
11 1982 21.44
12 1983 22.38
13 1984 6.10
14 1985 31.57
15 1986 18.56
16 1987 5.10
17 1988 16.61
18 1989 31.69
19 1990 -3.14
20 1991 30.45
21 1992 7.61
22 1993 10.08
23 1994 1.32
24 1995 37.58
25 1996 22.96
THE CHART ASSUMES THE RETURN EXPERIENCED BY THE STANDARD & POOR'S 500 INDEX FOR
THE LAST 25 YEARS. THE CHART ASSUMES THAT DIVIDENDS ARE REINVESTED INTO THE
INDEX. FUTURE RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER. THE INFORMATION IN THE CHART IS NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE.
INDEX PERFORMANCE IS NOT ILLUSTRATIVE OF POLICY SUBACCOUNT PERFORMANCE, AND
INVESTMENTS ARE NOT MADE IN THE INDEX. THE POLICY IS NOT SPONSORED, ENDORSED,
SOLD OR PROMOTED BY STANDARD & POOR'S.
APPLAUSE! II 63
