AMERITAS VARIABLE LIFE INSURANCE COMPANY LOGO
PROSPECTUS
FLEXIBLE PREMIUM One Ameritas Way/5900 "O" Street
VARIABLE UNIVERSAL LIFE P.O. Box 82550/Lincoln, NE 68501
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This Prospectus describes a flexible premium variable universal life insurance
policy ("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC"),
a stock life insurance company. The Policy is designed to provide insurance
protection until the Policy Anniversary nearest the Insured's 100th birthday. It
also provides flexibility to vary the frequency and amount of premium payments
and to change the level of death benefits payable under the Policy. This
flexibility allows a Policyowner to provide for changing insurance needs under a
single insurance policy.
The Policy guarantees the Death Benefit as long as the Policy remains in force.
The Policyowner may choose death benefit Option A (generally, a level benefit
that equals the Specified Amount of the Policy) or Option B (a variable benefit
that generally equals the Specified Amount plus the Policy's Accumulation
Value). The minimum Specified Amount for a policy is generally $500,000 for
Insureds ages 20-49 and $250,000 for those who are 50 or older. The Policy
provides for a Net Cash Surrender Value that can be obtained through partial
withdrawals, Surrender of the Policy, or through policy loans. There is no
minimum guaranteed Accumulation Value. AVLIC agrees to keep the Policy in force
and provide a Guaranteed Death Benefit during the Guaranteed Death Benefit
Period, so long as the Net Policy Funding is equal to or greater than the
cumulative monthly pro rata Guaranteed Death Benefit Premiums.
The Policyowner has the right to examine the Policy and return it for a refund
for a limited time. (See "Free Look Privilege" page 23.) The initial premium
payment will be allocated to the money market Subaccount as of the issue date,
for 13 days. After the 13-day period (see page 25), the Accumulation Value will
be reallocated to the Investment Options selected by the Policyowner. The
Accumulation Value, the duration of the Death Benefit and, if Option B is
selected, the amount of the Death Benefit above the Specified Amount, will vary
with the investment experience of the selected Investment Options. The
Accumulation Value will also be adjusted for other factors, including the amount
of charges imposed and the premium payments made. The Policy will continue in
force so long as the Net Cash Surrender Value is sufficient to pay certain
monthly charges imposed in connection with the Policy or if the Guaranteed Death
Benefit is in effect.
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: the 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, Alger American Income and Growth, Alger
American Small Capitalization, Alger American Balanced, Alger American MidCap
Growth, and Alger American 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. This prospectus is accompanied by
prospectuses for each of the Funds, which describe the investment objectives,
policies and risk considerations relating to the respective portfolios. The
investment gains or losses of the monies placed in the various portfolio
Subaccounts will be experienced by the Policyowner.
Replacing existing insurance with a Policy or purchasing a Policy as a means to
obtain additional insurance protection if the purchaser already owns another
flexible premium variable life insurance policy may not be advantageous.
This Prospectus Must Be Accompanied or Preceded By Current Prospectuses For
VIPF, VIPF II, Alger American Fund, MFS Trust and Morgan Stanley Fund.
These securities are not deposits with, or obligations of, or guaranteed or
endorsed by, any financial institution; and the securities are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency. These securities involve investment risk, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY 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.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date of This Prospectus is January 31, 1997.
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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.......................................... 14
Addition, Deletion or Substitution of Investments............. 16
Fixed Account................................................. 16
Policy Benefits........................................................ 16
Purposes of the Policy........................................ 16
Death Benefit Proceeds........................................ 17
Death Benefit Options......................................... 17
Methods of Affecting Insurance Protection..................... 19
Duration of Policy............................................ 19
Accumulation Value............................................ 19
Net Cash Surrender Value Bonus................................ 20
Benefits at Maturity.......................................... 20
Payment of Policy Benefits.................................... 20
Policy Rights.......................................................... 21
Loan Benefits................................................. 21
Surrenders.................................................... 22
Partial Withdrawals........................................... 22
Transfers..................................................... 22
Systematic Programs........................................... 23
Free Look Privilege........................................... 23
Exchange Privilege............................................ 23
Payment and Allocation of Premiums..................................... 24
Issuance of a Policy.......................................... 24
Premiums...................................................... 24
Allocation of Premiums and Accumulation Value................. 25
Policy Lapse and Reinstatement................................ 25
Charges and Deductions................................................. 26
Deductions From Premium Payments.............................. 26
Charges from Accumulation Value............................... 26
Surrender Charge.............................................. 27
Daily Charges Against the Account............................. 28
General Provisions..................................................... 29
Distribution of the Policies........................................... 31
Federal Tax Matters.................................................... 31
Safekeeping of the Account's Assets.................................... 33
Voting Rights.......................................................... 33
State Regulation of AVLIC.............................................. 34
Executive Officers and Directors of AVLIC.............................. 34
Legal Matters.......................................................... 35
Legal Proceedings...................................................... 35
Experts................................................................. 35
Additional Information................................................. 36
Financial Statements................................................... 36
Ameritas Variable Life Insurance Company Separate Account V............ 37
Ameritas Variable Life Insurance Company............................... 47
Appendices............................................................. 64
The Policy, certain funds, and/or certain riders are not available in all
States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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DEFINITIONS
ACCOUNT - 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 19.)
ADMINISTRATIVE EXPENSE CHARGE - A charge, which is part of the Monthly
Deduction, to cover the cost of administering the Policy. (See page 26.)
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 28.)
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 29 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 27.)
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 27.)
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 26.)
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
16.)
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 17.)
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 16.)
GENERAL ACCOUNT - The General Account of AVLIC includes all of AVLIC's assets
except those assets segregated into separate accounts, such as the Account.
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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
25.)
GUARANTEED DEATH BENEFIT 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. This benefit
is provided without an additional policy charge. (See page 17.)
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 17.)
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 20.)
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 26.)
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 28.)
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 24.)
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 21.)
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 Premium Charge for Taxes. (See Deductions From Premium Payment,
page 26.)
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
24.)
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.
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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 24.)
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.
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 27.)
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.
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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
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 $5.00 per month.**
Daily charge, at an annual rate of .90%*** 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 22).
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 5.0%
** maximum charge $9.00/mo.
*** maximum charge 1.15%
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THE ISSUER
The Policy is issued by Ameritas Variable Life Insurance Company ("AVLIC"), a
Nebraska stock life insurance company. Separate Account V has been established
to hold the assets supporting the Policy. The Account has twenty-six Subaccounts
which correspond to, and are invested in, the portfolios of the Funds discussed
at page 12 of this Prospectus. (See Ameritas Variable Life Insurance Company and
the Account, page 10, and The Funds, page 11.) The financial statements for
AVLIC and the Account can be found beginning on page 37.
THE POLICY
The Policy, a flexible premium variable universal life insurance policy, allows
the Policyowner, within limitations, to choose: (a) the amount and frequency of
premium payments; (b) the manner in which the Policyowner's Accumulation Values
are invested; and (c) a choice of two Death Benefit options unless the Extended
Maturity Option is in effect.
As long as the Policy remains in force, it will provide for: (1) life insurance
coverage on the Insured up to age 100; (2) an Accumulation Value; (3) Surrender
rights (including partial withdrawals and total Surrenders); (4) policy loan
privileges; and (5) a variety of optional benefits and riders that may be added
to the Policy for an additional charge or without charge if certain minimum
premiums are paid.
PREMIUMS
This Policy differs in two important respects from a conventional life insurance
policy. First, the failure to pay a planned periodic premium will not in itself
cause the Policy to lapse. Second, a Policy can lapse even if planned periodic
premiums have been paid unless the Guaranteed Death Benefit Premium requirements
have been met. (See Payment and Allocation of Premiums, page 24.)
AMOUNTS. An initial premium of at least 1/12 of the first year Guaranteed Death
Benefit Premium times the number of months between the policy date and issue
date, plus one, must be paid in order to put the Policy in force. After the
initial premium is paid, unscheduled premiums may be paid in any amount and at
any frequency, subject only to the maximum and minimum limitations set by AVLIC
and the maximum limitations set by Federal Income Tax Law. 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. A Policyowner may also choose a Planned Periodic Premium which may
include the minimum cumulative premiums necessary to keep the Guaranteed Death
Benefit provision in effect.
A Policy will lapse when the Net Cash Surrender Value is insufficient to pay the
Monthly Deduction unless the Guaranteed Death Benefit provision is in effect. A
Grace Period of 61 days from the date written notice of lapse is mailed to the
Policyowner's last known address will be allowed for the Policyowner to make
sufficient payment to keep the Policy in force.
ALLOCATION OF NET PREMIUMS
The Policyowner may select the manner in which the Net Premiums are allocated
between the Fixed Account (See Fixed Account, page 16) and to one or more of the
Subaccounts. On the Issue Date, Net Premiums are first allocated for 13 days to
the Subaccount that invests in VIPF's Money Market Portfolio (See The Funds,
page 11.) After the expiration of the refund period, the Accumulation Value will
be reallocated to the selected Investment Options. The Policyowner may change
the allocation instructions for premiums and may also make a special designation
for unscheduled premiums. Subject to certain charges and restrictions, a
Policyowner may also transfer amounts among the Investment Options. (See
Allocation of Premiums and Accumulation Value, page 25.)
The various Subaccounts available invest in a corresponding portfolio of the
Funds. 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: the 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, Alger American Income and Growth,
Alger American Small Capitalization, Alger American Balanced, Alger American
MidCap Growth, Small Capitalization, Alger American 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. A summary of
the investment objectives for these portfolios is set forth at page 12 of this
Prospectus, and detailed objectives of these portfolios are described in the
accompanying prospectuses for the Funds. There is no assurance that these
objectives will be met. The Policyowner bears the entire investment risk for
amounts allocated to the Subaccounts.
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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.
DEATH BENEFIT PROCEEDS While the Policy remains in force, AVLIC will pay the
Death Benefit Proceeds to the Beneficiary upon receipt of Proof of Death of the
Insured. Death Benefit Proceeds may be paid in a lump sum or in accordance with
an optional payment plan.
DEATH BENEFIT OPTIONS
The Policy provides for two Death Benefit options. Under either option, so long
as the Policy remains in force, the Death Benefit will not be less than the
current Specified Amount of the Policy adjusted for any policy indebtedness. The
Death Benefit may, however, exceed the Specified Amount, depending upon the
investment experience of the Policy. Death Benefit Option A provides for a level
benefit equal to the current Specified Amount of the Policy, unless the
Accumulation Value of the Policy on the date of the Insured's death multiplied
by the applicable percentage set forth in the Policy is greater, in which case
the Death Benefit is equal to that larger amount. Death Benefit Option B
provides for a variable Death Benefit equal to the current Specified Amount of
the Policy plus the Policy's Accumulation Value on the date of the Insured's
death, or if greater, the Accumulation Value of the Policy on the date of the
Insured's death multiplied by the applicable percentage set forth in the Policy.
(See Death Benefit Options, page 17.)
OPTIONAL INSURANCE BENEFITS
Optional insurance benefits offered under the Policy include: Accelerated
Benefit Rider for Terminal Illness (Living Benefit Rider); Accidental Death
Benefit Rider; Disability Benefit Rider; Children's Protection Rider; Waiver of
Monthly Deductions on Disability Rider; Term Rider for Covered Insured and
Guaranteed Insurability Rider. The cost, if any, of these additional insurance
riders/benefits will be deducted from the Policy's Accumulation Value as a part
of the Monthly Deduction. In addition, the Guaranteed Death Benefit provision is
provided without additional cost but requires the described premium payment. The
Extended Maturity Option is also provided as part of the Policy and without
additional cost. The foregoing riders/benefits are not all available in every
state.(See Additional Insurance Benefits, page 30.)
BENEFITS AT MATURITY.
On the Maturity Date of the Policy, if the Insured is still living, the
Policyowner will be paid the Net Cash Surrender Value. An Extended Maturity
Option is available under the Policy. 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. There is no additional premium for
this option, but it must be elected by the Policyowner during the 90 days prior
to Maturity Date. (See, Benefits at Maturity, page 20.)
ACCUMULATION VALUE
The Policy's Accumulation Value in the Account will reflect the amount and
frequency of premium payments, the investment experience of the chosen
Investment Options, policy loans, any partial withdrawals, and any charges
imposed in connection with the Policy. The entire investment risk of the Account
is borne by the Policyowner. AVLIC does not guarantee a minimum Accumulation
Value in the Account. (See Accumulation Value, page 19.) It does guarantee the
Fixed Account.
The Policyowner may Surrender the Policy at any time and receive its Net Cash
Surrender Value. Subject to certain limitations, the Policyowner may also make a
partial withdrawal from the Policy and obtain a portion of the Accumulation
Value at any time prior to the Maturity Date. Partial withdrawals will reduce
both the Accumulation Value and the Death Benefit payable under the Policy. (See
Partial Withdrawals, page 22.) A charge will be deducted from the amount paid
upon partial withdrawal. (See Partial Withdrawal Charge, page 28.)
POLICY LOANS. Policy loans, secured by the Accumulation Value of the Policy, are
available. After the first Policy Anniversary, the Policyowner may obtain a loan
at "regular" loan interest rates, currently 5.5% and which shall not exceed 6%
annually.
After the tenth Policy Anniversary, the Policyowner can borrow against a limited
amount of the Net Cash Surrender Value of the Policy at the reduced loan rate.
This rate is currently 3.5% and shall not exceed 4.0% annually. While the loan
is outstanding, the Policyowner earns 3.5% interest on the Accumulation Values
securing the loans. (For details concerning policy loan provisions, see page
21.) Policy loans may have tax consequences and will affect earnings and
Accumulation Values. (See Federal Tax Matters, page 31.)
8 ENCORE!
<PAGE>
CHARGES
PERCENT OF PREMIUM CHARGES. A Premium Charge for Taxes of up to 5% will be
deducted from each premium before placing Net Premium in a Subaccount or the
Fixed Account. Currently, the Premium Charge for Taxes is 3.5%. (See Deductions
From Premium Payments, page 26.)
MONTHLY CHARGES AGAINST THE ACCUMULATION VALUE.
The following monthly charges will be made against the Accumulation Value in the
Account:
a) A monthly Administrative Expense Charge of up to $9.00 may be charged to
compensate AVLIC for the continuing administrative costs of the Policy.
Currently AVLIC is charging $5.00 per month ($60.00 per year.)
b) A monthly charge for the Cost of Insurance, including the cost for any
riders, is also deducted. (See Charges from Accumulation Value, page 26.)
SURRENDER CHARGE. If a Policy is Surrendered prior to the 15th Policy
Anniversary Date, or within 15 years of any increase in the Specified Amount,
AVLIC will assess a Surrender Charge consisting of the Contingent Deferred Sales
Charge and the Contingent Deferred Administrative Charge. In no event shall the
Surrender Charge exceed $40 for every $1,000 of Specified Amount. The Contingent
Deferred Administrative Charge is an amount per $1,000 of Specified Amount that
varies by Issue Age and Sex. (See Surrender Charge, page 27.) 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.
TRANSFER CHARGE. Fifteen transfers per Policy Year will be permitted free of
charge. A $10 administrative charge may be assessed for each additional transfer
in that Policy Year. The transfer charge will be deducted from the Accumulation
Value, on a pro rata basis. (See Transfer Charge, page 28.)
PARTIAL WITHDRAWAL CHARGE. A maximum charge, not to exceed the lesser of $50 or
2% of the amount withdrawn may be deducted for each partial withdrawal.
(Currently, the charge is the lesser of $25 or 2%.) The charge will be deducted
from the Accumulation Value as a result of the withdrawal and will compensate
AVLIC for the administrative costs of partial withdrawals. No Surrender Charge
is assessed on a partial withdrawal and a partial withdrawal charge is not
assessed when a Policy is Surrendered. (See Partial Withdrawal Charge, page
28.)
DAILY CHARGES AGAINST THE ACCOUNT. A daily charge at an annual rate not to
exceed 1.15% (currently .90% for Policy Years 1-20 and .65% for later Policy
Years) of the average daily net assets of each Subaccount, but not the Fixed
Account. (See Daily Charges Against the Account, page 28.)
No charges are currently made against the Account for Federal, state or local
taxes (which are charged in addition to state premium taxes.) If there is a
material change from the expected treatment of AVLIC under Federal, state or
local tax laws, AVLIC may determine to make deductions from the Account to pay
those taxes. (See Daily Charges Against the Account, page 28.)
In addition, because the Account purchases shares of the Funds, the value of the
units in each Subaccount will reflect the net asset value of shares of the
various Funds held therein, and therefore, the management fee and other expenses
incurred by the Funds. (See The Funds, page 11.)
TAX TREATMENT OF THE POLICY
Like Death Benefits payable under conventional life insurance policies, life
insurance proceeds payable under the Policy are generally excludable from the
taxable income of the Beneficiary. Should the Policy be deemed a modified
endowment contract (see Federal Tax Matters-Tax Status of the Policy, page 32),
partial or full Surrenders, assignments, policy pledges, and loans under the
Policy will be taxable to the Policyowner to the extent of any gain under the
Policy. Generally, a 10% penalty tax also applies to the taxable portion of any
distribution prior to the Insured reaching age 59 1/2. (For further detail
regarding taxation, see Federal Tax Matters, page 31.)
"FREE-LOOK PRIVILEGE"
The Policyowner is granted a period of time (a "free look period") to examine
the Policy and return it for a refund. The Policyowner may cancel the Policy
within 45 days after Part I of the application is signed, within 10 days after
the Policyowner receives the Policy, or 10 days after AVLIC delivers a notice
concerning cancellation, whichever is later. (See Free Look Privilege, page 23.)
ENCORE! 9
<PAGE>
EXCHANGE PRIVILEGE
During the first 24 months after the Policy Date of the Policy, subject to
certain restrictions, the Policyowner may exchange the Policy for a flexible
premium adjustable life insurance policy issued and made available for exchange
by AVLIC or its affiliates. The policy provisions and applicable charges for the
new policy will be based on the same Policy Date and Issue Date as under this
Policy. (See Exchange Privilege, page 23.)
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 47.
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 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 will initially be
66% owned by Ameritas and 34% owned by AmerUs Life. AmerUs Life has options to
purchase an additional 15% interest over the next five years if certain
production requirements are met.
Ameritas and its subsidiaries had total assets at December 31, 1995 of over $2.4
billion. AmerUs Life and its subsidiaries had total assets as of December 31,
1995 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.
10 ENCORE!
<PAGE>
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.
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. Each Subaccount of the Account will invest
only in the shares of a corresponding portfolio of the VIPF, VIPF II, the Alger
American Fund, the MFS Fund and the Morgan Stanley Universal Funds (collectively
the "Funds".) 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.
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.
ENCORE! 11
<PAGE>
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.
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
12 ENCORE!
<PAGE>
<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 periods, income to the extent consistent with prudent
it is a fundamental policy of the Portfolio to investment management. Capital appreciation
invest, at least 65% of its total assets in dividend is a secondary objective of the Portfolio.
paying equity securities.
Small Capitalization Except during temporary defensive periods, the Seeks long-term capital appreciation.
Portfolio invest 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, 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 the Russell 2000 Growth Index and in
excess of that amount (up to 100% of its assets)
during temporary defensive periods.
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.)
ENCORE! 13
</TABLE>
<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 appreciation.
market countries with a focus on those 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 appreciation.
issuers through out 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 appreciation.
non-U.S. issuers, generally in accordance with 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 appreciation.
Asian issuers, excluding Japan, using an
approach that is oriented to the selection of
individual stocks, traded on recognized stock
exchanges of Asian countries and whose business is
conducted principally in Asia, believed by the
portfolio's adviser to be undervalued.
U.S. Real Estate Invests primarily in equity securities of U.S. and Above-average current income and long
non-U.S. companies primarily engaged in the U.S. term capital appreciation.
real estate industry, 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, 1995, was as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSE TOTAL
MANAGEMENT
FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED MAY REFLECT
EXPENSE REIMBURSEMENT EXPENSE REIMBURSEMENT EXPENSE REIMBURSEMENT
FIDELITY
<S> <C> <C> <C>
Money Market .24% .09% .33%
Equity-Income .51% .10% .61%
Growth .61% .09% .70%
High Income .60% .11% .71% (1)
Overseas .76% .15% .91%
Asset Manager .71% .08% .79% (1)
Investment Grade Bond .45% .14% .59%
Asset Manager: Growth .71% .29% 1.00% (1, 2)
Index 500 .00% .28% .28% (2)
Contrafund .61% .11% .72% (1)
ALGER AMERICAN (3)
Growth .75% .10% .85%
Income and Growth .625% .125% .75%
Small Capitalization .85% .07% .92%
Balanced .75% .25% 1.00%
MidCap Growth .80% .10% .90%
Leveraged AllCap .85% .71% 1.56%
</TABLE>
14 ENCORE!
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSE TOTAL
MANAGEMENT
FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED MAY REFLECT
EXPENSE REIMBURSEMENT EXPENSE REIMBURSEMENT EXPENSE REIMBURSEMENT
MFS
<S> <C> <C> <C>
Emerging Growth .75% .25% 1.00% (4)
Utilities .75% .25% 1.00% (4)
World Governments .75% .25% 1.00% (5)
Research .75% .25% 1.00% (4)
Growth With Income .75% .25% 1.00% (4)
MORGAN STANLEY (6)
Emerging Markets Equity 1.25% .50% 1.75%
Global Equity .80% .35% 1.15%
International Magnum .80% .35% 1.15%
Asian Equity .80% .40% 1.20%
U.S. Real Estate .80% .30% 1.10%
</TABLE>
(1) A portion of the brokerage commissions the fund paid was used to reduce
its expenses. Without this reduction total operating expenses would have
been, for High Income: 0.71% (please note there were brokerage
commissions paid, but it did not affect the ratio); for Asset Manager
0.81%; for Asset Manager: Growth 1.13%; and for Contrafund: 0.73%.
(2) The fund's expenses were voluntarily reduced by the fund's investment
adviser. Absent reimbursement, management fee, other expenses, and total
expenses would have been (Index 500 Portfolio) 0.28%, 0.19% and 0.47%,
respectively; and (Asset Manager: Growth) 0.71%, 0.42% and 1.13%,
respectively.
(3) Alger Management has agreed to reimburse the portfolios to the extent
that the annual operating expenses (excluding interest, taxes, fees for
brokerage services and extraordinary expenses) exceed respectively; Alger
American Income and Growth, and Alger American Balanced, 1.25%; Alger
American Small-Cap, Alger American MidCap, Alger American Leveraged All
Cap, and the Alger American Growth, 1.50%. As long as the expense
limitations continue for a portfolio, if a reimbursement occurs, it has
the effect of lowering the portfolio's expense ratio and increasing its
total return.
(4) MFS Co. has agreed to bear, subject to reimbursement, expenses for each
of the Emerging Growth Series, Utilities Series. Research Series, and
Growth With Income Series such that each Series' aggregate operating
expenses shall not exceed, on an annualized basis, 1.00% of the average
daily net assets of the Series from November 2, 1994 through December 31,
1998, and 1.50% of the average daily net assets of the Series from
January 1, 1999 through December 31, 2004; provided however, that this
obligation may be terminated or revised at any time. Absent this expense
arrangement, "Other Expenses" and "Total Operating Expenses" would be
2.16% and 2.91%, respectively, for the Emerging Growth Series; 2.33% and
3.08%, respectively, for the Utilities Series; 3.15% and 3.90%,
respectively, for the Research Series; and 20.69% and 21.44%,
respectively, for the Growth With Income Series.
(5) MFS Co. has agreed to bear, subject to reimbursement, until December 31,
2004, expenses of the World Governments Series such that the Series'
aggregate operating expenses do not exceed 1.00%, on an annualized basis,
of its average daily net assets. Absent this expense arrangement, "Other
Expenses" and "Total Operating Expenses" for the World Governments Series
would be 1.24% and 1.99%, respectively.
(6) This is an estimate of expenses for the fiscal year ending December 31,
1996. 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.
---------------
ENCORE! 15
<PAGE>
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 22.)
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.
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.
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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 20.)
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 20.) 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 25.) The minimum initial Specified Amount is generally
$500,000 for Insureds ages 20-49 and $250,000 for those who are 50 or older.
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.
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%,
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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 26 and Federal Tax Matters, page 31.)
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
26 and Federal Tax Matters, page 31.)
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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, may not be less than $500,000
for Insureds with an Issue Age of 49 or less and $250,000 for those with an
Issue Age of 50 or more in the first three Policy Years. In later Policy Years,
the Specified Amount remaining in force following a decrease must be at least
$400,000 for Insureds with an Issue Age 20-49 and $200,000 for those with Issue
Ages of 50-80. 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 24.)
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 25.)
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 26.)
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 26.) 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 25.)
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 22.) 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 25.) 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; plus
(e) Any amounts credited as Net Cash Surrender Value Bonus; less
(f) Any partial withdrawal, and its charge, made on that Valuation Date; less
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(g) Any Monthly Deduction to be made on that Valuation Date; less
(h) Any federal or state income taxes charged against the Accumulation Value.
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.
NET CASH SURRENDER VALUE BONUS
Beginning with the twenty-first Policy Anniversary, a bonus equal to .25% of the
Net Cash Surrender Value will be credited to the Fixed Account and/or the
Subaccounts on each policy anniversary, provided that the Net Cash Surrender
Value of the Policy on the Policy Anniversary is at least $500,000. This bonus
is not guaranteed. The bonus will be credited to the Fixed Account and/or the
Subaccounts based on the premium allocation percentages in effect at that time.
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 .25% 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 28.)
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
30.) 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
20 ENCORE!
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Account. AVLIC may make other payment options available in the future. For
additional information concerning these options, see the Policy itself. The
following payment options are currently available:
OPTION AI--INTEREST PAYMENT OPTION. AVLIC will hold any amount applied under
this option. Interest on the unpaid balance will be paid or credited each month
at a rate determined by AVLIC.
OPTION AII--FIXED AMOUNT PAYABLE OPTION. Each payment will be for an agreed
fixed amount. Payments continue until the amount AVLIC holds runs out.
OPTION B--FIXED PERIOD PAYMENT OPTION. Equal payments will be made for any
period selected up to 20 years.
OPTION C--LIFETIME PAYMENT OPTION. Equal monthly payments are based on the life
of a named person. Payments will continue for the lifetime of that person.
Variations provide for guaranteed payments for a period of time.
OPTION D--JOINT LIFETIME PAYMENT OPTION. Equal monthly payments are based on the
lives of two named persons. While both are living, one payment will be made each
month. When one dies, the same payment will continue for the lifetime of the
other.
As an alternative to the above payment options, 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 31.)
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
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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
25.)
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 30.) Surrenders may have tax
consequences. Once a policy is Surrendered, it may not be reinstated. (See Tax
Treatment of Policy Proceeds, page 32.)
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 26 and Death Benefit Options--Methods of Affecting
Insurance Protection, page 19.) 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 $500,000 for Insureds with an Issue Age of 49 or less, and $250,000
for those with an Issue Age of 50 or more in the first three Policy Years. In
later Policy Years, the Specified Amount remaining in force following a partial
withdrawal must be at least $400,000 for Insureds with an Issue Age of 20-49 and
$200,000 for those with Issue Ages of 50-80. 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 28.)
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
22 ENCORE!
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the Accumulation Value on a pro rata basis. (See Transfer Charge, page 28.)
Additional restrictions on transfers may be imposed at the fund level. Transfers
resulting from policy loans or exercise of the exchange privilege will not be
subject to a transfer charge.
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.
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. 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). When dollar
cost averaging is permitted from the Fixed Account, no more than 1/36th of the
value of the Fixed Account at the time dollar cost averaging is established may
be 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 30.)
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
ENCORE! 23
<PAGE>
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.
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
20-80 years of age 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.
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
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 19.) 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 25.)
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
24 ENCORE!
<PAGE>
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 32.)
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 or to the Fixed Account.
Allocations will be automatically allocated to the Money Market Subaccount
unless the Policyowner specifies in the application that allocations are to be
made to other Subaccounts. 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 26.)
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);
b. Any Outstanding Policy Debt on the date of lapse will be reinstated with
interest due and accrued;
ENCORE! 25
<PAGE>
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 19.
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. There are no sales charges deducted from premium payments in
connection with the Policy. The Policy is, however, subject to a Contingent
Deferred Sales Charge if the Policy is surrendered. (See "Surrender Charge" on
page 27.)
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 31.) 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 $5.00.) 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.
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
26 ENCORE!
<PAGE>
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 and Issue Age.
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 and sex. It is 60% of the maximum
Surrender Charge not to exceed $24 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 $16 per $1000
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.
<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>
1-5 100% 11 40%
6 90% 12 30%
7 80% 13 20%
8 70% 14 10%
9 60% 15+ 0%
10 50%
</TABLE>
ENCORE! 27
<PAGE>
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.
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.
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 0.00245% (equivalent to an annual rate of .90%) for
Policy Years 1-4 and 0.001775% (equivalent to an annual rate of .65%) for Policy
Years 5-20. After the twentieth year the daily charge will be applied at the
rate of 0.001366% (equivalent to an annual rate of .50%) 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 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, there is no
charge applied for Policy Years 1-4. Thereafter, this charge is applied at a
rate of 0.000683% (equivalent to .25% annually) for Policy Years 5-20 and at a
rate of 0.000409% (equivalent to .15% annually) for each Policy Year thereafter.
The rate of this charge will never exceed .25% 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.
28 ENCORE!
<PAGE>
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.
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.
ENCORE! 29
<PAGE>
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 26.)
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.
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.
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.
30 ENCORE!
<PAGE>
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.
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.
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 2% for premiums paid in excess of the first year target premium. For Policy
Years two through four, the commission may equal an amount up to 2% 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 fifth 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 26 )
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.
(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.
ENCORE! 31
<PAGE>
(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 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 above, "Tax Status of the Policy."
32 ENCORE!
<PAGE>
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 29), and the provision for partial
withdrawals (See Surrenders, page 22) 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.
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.
ENCORE! 33
<PAGE>
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.
D T DOAN, DIRECTOR AND EXECUTIVE VICE PRESIDENT****
Vice Chairman and President-Insurance Operations: AmerUs Life Insurance Company
(formerly known as ("f.k.a.") American Mutual Life Insurance Company, f.k.a.
Central Life Assurance Company *****); also serves as officer and/or director of
other affiliates of AVLIC; also serves as officer and/or director of other
affiliates of AmerUs Life Insurance Company.
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.
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*****).
34 ENCORE!
<PAGE>
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*****).
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 D T Doan, Joseph Haggerty, Sandra K.
Holmes, Michael E. Sproule, Ashok K. Chawla, Thomas C. Godlasky, Sheila E.
Sandy, Linda S. Streck, and Kevin Wagoner is: 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, 1995, and 1994, and for
each of the three years in the period ended December 31, 1995 and the financial
statements of the Account as of December 31, 1995 and for each of the three
years in the period then ended, included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein (which report on AVLIC expresses an unqualified opinion and
includes an explanatory paragraph referring to a change in a reserving
practice), and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
ENCORE! 35
<PAGE>
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.
36 ENCORE!
<PAGE>
Independent Auditors' Report
Board of Directors
Ameritas Variable Life
Insurance Company
Lincoln, Nebraska
We have audited the accompanying statement of net assets of Ameritas Variable
Life Insurance Company Separate Account V as of December 31, 1995, and the
related statements of operations and changes in net assets for each of the three
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1995. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company
Separate Account V as of December 31, 1995, and the results of its operations
and changes in its net assets for each of the three years in the period then
ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
February 1, 1996
ENCORE! 37
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
ASSETS
INVESTMENTS AT NET ASSET VALUE:
<S> <C>
Variable Insurance Products Fund:
Money Market Portfolio - 5,613,527.070 shares at
$1.00 per share (cost $5,613,527) $ 5,613,527
Equity-Income Portfolio - 652,438.732 shares at
$19.27 per share (cost $9,667,592) 12,572,494
Growth Portfolio - 702,196.341 shares at
$29.20 per share (cost $14,143,041) 20,504,133
High Income Portfolio - 358,988.159 shares at
$12.05 per share (cost $3,703,023) 4,325,807
Overseas Portfolio - 438,914.420 shares at
$17.05 per share (cost $6,616,181) 7,483,491
Variable Insurance Products Fund II:
Asset Manager Portfolio - 1,221,448.421 shares at
$15.79 per share (cost $16,521,707) 19,286,671
Investment Grade Bond Portfolio - 171,189.054 shares at
$12.48 per share (cost $2,013,214) 2,136,439
Contrafund Portfolio - 9,382.665 shares at
$13.78 per share (cost $129,565) 129,293
Index 500 Portfolio - 61.274 shares at
$75.71 per share (cost $4,403) 4,639
Asset Manager: Growth Portfolio - 1,153.239 shares at
$11.78 per share (cost $14,071) 13,585
Alger American Fund:
Small Capitalization Portfolio - 263,321.551 shares at
$39.41 per share (cost $8,012,444) 10,377,502
Growth Portfolio - 150,146.226 shares at
$31.16 per share (cost $3,672,555) 4,678,557
Income and Growth Portfolio - 51,644.863 shares at
$17.79 per share (cost $790,984) 918,762
Midcap Growth Portfolio - 138,005.038 shares at
$19.44 per share (cost $2,229,077) 2,682,818
Balanced Portfolio - 32,000.820 shares at
$13.64 per share (cost $391,329) 436,491
Leveraged Allcap Portfolio - 5,780.602 shares at
$17.43 per share (cost $99,893) 100,756
Dreyfus Stock Index Fund:
Stock Index Fund Portfolio - 127,452.178 shares at
$17.20 per share (cost $1,880,387) 2,192,178
MFS Variable Insurance Trust:
Emerging Growth Series Portfolio -10,355.688 shares at
$11.41 per share (cost $119,796) 118,158
World Governments Series Portfolio - 1,555.043 shares at
$10.17 per share (cost $16,700) 15,815
Utilities Series Portfolio - 1,475.513 shares at
$12.57 per share (cost $19,793) 18,547
---------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 93,609,663
===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
38 ENCORE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSET
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
------------ ------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 1,293,935 $ 799,210 $ 499,740
EXPENSE
Charges to policyowners for assuming
mortality and expense risk (Note B) 723,000 465,706 260,944
----------- ----------- -----------
INVESTMENT INCOME - NET 570,935 333,504 238,796
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NET
Capital gain distributions received 403,845 1,403,280 292,625
Unrealized increase/(decrease) 14,755,373 (2,469,056) 3,683,814
----------- ------------ ----------
NET GAIN/(LOSS) ON INVESTMENTS 15,159,218 (1,065,776) 3,976,439
----------- ------------ ----------
NET (DECREASE)/INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS 15,730,153 (732,272) 4,215,235
NET INCREASE IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS (Note B) 19,763,147 21,904,104 14,840,992
----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS 35,493,300 21,171,832 19,056,227
NET ASSETS
Beginning of period 58,116,363 36,944,531 17,888,304
----------- ----------- -----------
End of period $ 93,609,663 $ 58,116,363 $ 36,944,531
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
ENCORE! 39
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
A. ORGANIZATION AND ACCOUNTING POLICIES:
-------------------------------------
Ameritas Variable Life Insurance Company Separate Account V (the Account)
was established on August 28, 1985, under Nebraska law by Ameritas Variable
Life Insurance Company (AVLIC), a wholly-owned subsidiary of Ameritas Life
Insurance Corp. (ALIC). The assets of the Account are segregated from
AVLIC's other assets and are used only to support variable life products
issued by AVLIC.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. At December 31, 1995, there are twenty
subaccounts within the Account. Five of the subaccounts invest only in a
corresponding Portfolio of Variable Insurance Products Fund and five invest
only in a corresponding Portfolio of Variable Insurance Products Fund II.
Both funds are diversified open-end management investment companies and are
managed by Fidelity Management and Research Company. Six of the subaccounts
invest only in a corresponding Portfolio of Alger American Fund which is a
diversified open-end management investment company managed by Fred Alger
Management, Inc. One subaccount invests only in a corresponding Portfolio
of Dreyfus Stock Index Fund which is a non-diversified open-end management
investment company managed by Dreyfus Service Corporation. Three of the
subaccounts invest only in a corresponding Portfolio of MFS Variable
Insurance Trust which is a diversified open-end management investment
company managed by Massachusetts Financial Services Company. All five funds
are registered under the Investment Company Act of 1940, as amended. Each
Portfolio pays the manager a monthly fee for managing its investments and
business affairs. The assets of the Account are carried at the net asset
value of the underlying Portfolios of the Funds. The value of the
policyowners' units corresponds to the Account's investment in the
underlying subaccounts. The availability of investment portfolio and
subaccount options may vary between products.
AVLIC currently does not expect to incur any federal income tax liability
attributable to the Account with respect to the sale of the variable life
insurance policies. If, however, AVLIC determines that it may incur such
taxes attributable to the Account, it may assess a charge for such taxes
against the Account.
B. POLICYHOLDER CHARGES:
---------------------
AVLIC charges the Account for mortality and expense risks assumed. A daily
charge is made on the average daily value of the net assets representing
equity of policyowners held in each subaccount per each product's current
policy provisions. Additional charges are made at intervals and in amounts
per each product's current policy provisions. These charges are prorated
against the balance in each investment option of the policyholder,
including the Fixed Account option which is not reflected in this separate
account. The withdrawal of these charges are included as other operating
transfers.
40 ENCORE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
C. INFORMATION BY FUND:
<TABLE>
<CAPTION>
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
-------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance 12-31-94 $ 6,247,662 $ 6,295,945 $ 12,362,890 $ 2,970,211 $ 4,954,650
Distributed earnings 330,031 558,647 71,777 214,996 39,788
Mortality risk charge (57,621) (89,161) (160,505) (40,007) (60,098)
Unrealized increase/(decrease) --- 2,148,654 4,664,368 542,261 616,308
Net premium transferred (906,545) 3,658,409 3,565,603 638,346 1,932,843
------------- ------------ ------------- ------------- ------------
Balance 12-31-95 $ 5,613,527 $ 12,572,494 $ 20,504,133 $ 4,325,807 $ 7,483,491
============= ============ ============= ============= ============
Variable Insurance Products Fund II
------------------------------------------------------------------------------
Asset Investment Contrafund Asset Mgr.: Index 500
Manager Grade Bond (1) Growth (2) (3)
------------- ------------- ------------ -------------- -------------
Balance 12-31-94 $ 16,158,059 $ 907,159 $ --- $ --- $ ---
Distributed earnings 346,679 34,269 1,284 564 ---
Mortality risk charge (164,848) (13,893) (119) (25) (7)
Unrealized increase/(decrease) 2,471,611 183,723 (273) (486) 236
Net premium transferred 475,170 1,025,181 128,401 13,532 4,410
------------- ----------- ------------ -------------- ------------
Balance 12-31-95 $ 19,286,671 $ 2,136,439 $ 129,293 $ 13,585 $ 4,639
============= =========== ============ ============== ============
Alger American Fund
------------------------------------------------------------------------------------
Small Income and Midcap Leveraged
Capitalization Growth Growth Growth Balanced Allcap(4)
--------------- ------------ ----------- ----------- ----------- -----------
Balance 12-31-94 $ 4,264,367 $ 2,012,571 $ 307,350 $ 545,887 $ 126,178 $ ---
Distributed earnings --- 34,885 5,186 142 3,039 ---
Mortality risk charge (67,150) (32,981) (5,765) (14,362) (2,251) (57)
Unrealized increase/(decrease) 2,184,006 924,176 146,805 430,138 45,544 863
Net premium transferred 3,996,279 1,739,906 465,186 1,721,013 263,981 99,950
------------- ------------ ----------- ----------- ----------- -----------
Balance 12-31-95 $ 10,377,502 $ 4,678,557 $ 918,762 $ 2,682,818 $ 436,491 $ 100,756
============= ============ =========== =========== =========== ===========
MFS Variable Insurance Trust Dreyfus
---------------------------------------------- -------------
Emerging World (6) Utilities Stock
Growth(5) Governments (7) Index Fund TOTAL
------------- --------------- ------------- ------------- ---------------
Balance 12-31-94 $ --- $ --- $ --- $ 963,434 $ 58,116,363
Distributed earnings 2,634 1,440 1,745 50,674 1,697,780
Mortality risk charge (118) (37) (10) (13,985) (723,000)
Unrealized increase/(decrease) (1,638) (885) (1,246) 401,208 14,755,373
Net premium transferred 117,280 15,297 18,058 790,847 19,763,147
------------- -------------- ------------ ----------- ---------------
Balance 12-31-95 $ 118,158 $ 15,815 $ 18,547 $ 2,192,178 $ 93,609,663
============= ============== ============ =========== ===============
(1) Commenced business 09/05/95. (5) Commenced business 09/12/95.
(2) Commenced business 09/13/95. (6) Commenced business 09/13/95.
(3) Commenced business 10/17/95. (7) Commenced business 10/18/95.
(4) Commenced business 09/13/95.
</TABLE>
ENCORE! 41
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
C. INFORMATION BY FUND:
Alger American Fund
--------------------------------------------------------------------------------
Small Income Midcap
Capitalization Growth and Growth Growth Balanced
--------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance 12-31-93 $ 2,431,108 $ 513,578 $ 155,544 $ 91,469 $ 12,416
Distributed earnings 197,447 56,309 12,250 805 1,173
Mortality risk charge (28,810) (10,955) (2,338) (2,777) (667)
Unrealized increase/(decrease) (212,648) 11,388 (27,043) 15,802 (793)
Net premium transferred 1,877,270 1,442,251 168,937 440,588 114,049
--------------- ------------- -------------- ------------- -------------
Balance 12-31-94 $ 4,264,367 $ 2,012,571 $ 307,350 $ 545,887 $ 126,178
=============== ============= ============== ============= =============
Variable Insurance Products Fund
--------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
--------------- ------------- ------------- ------------- -------------
Balance 12-31-93 $ 3,302,391 $ 4,081,214 $ 8,666,232 $ 2,112,409 $ 2,627,460
Distributed earnings 227,947 343,291 540,322 192,676 16,253
Mortality risk charge (53,086) (50,692) (97,597) (24,422) (41,486)
Unrealized increase/(decrease) --- (10,817) (430,322) (216,500) (57,561)
Net premium transferred 2,770,410 1,932,949 3,684,255 906,048 2,409,984
------------- ------------ ------------ ------------ ------------
Balance 12-31-94 $ 6,247,662 $ 6,295,945 $ 12,362,890 $ 2,970,211 $ 4,954,650
============= ============ =========== ============ ============
Variable Insurance
Products Fund II Dreyfus
----------------------------- -------------
Asset Investment Stock
Manager Grade Bond Index Fund TOTAL
-------------- ------------ ------------- -------------
Balance 12-31-93 $ 11,412,386 $ 1,069,216 $ 469,108 $ 36,944,531
Distributed earnings 589,342 2,944 21,731 2,202,490
Mortality risk charge (133,984) (12,468) (6,424) (465,706)
Unrealized increase/(decrease) (1,465,271) (53,875) (21,416) (2,469,056)
Net premium transferred 5,755,586 (98,658) 500,435 21,904,104
------------- ------------- ------------ -------------
Balance 12-31-94 $ 16,158,059 $ 907,159 $ 963,434 $ 58,116,363
============= ============= ============ =============
</TABLE>
42 ENCORE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
C. INFORMATION BY FUND:
Alger American Fund
--------------------------------------------------------------------------------
Small Income Midcap
Capitalization Growth and Growth Growth (1) Balanced (2)
--------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance 12-31-92 $ 596,677 $ 56,046 $ 37,708 $ --- $ ---
Distributed earnings --- 189 218 922 ---
Mortality risk charge (12,717) (2,485) (775) (191) (42)
Unrealized increase/(decrease) 298,611 64,901 6,462 7,801 411
Net premium transferred 1,548,537 394,927 111,931 82,937 12,047
--------------- ------------- ------------- -------------- ------------
Balance 12-31-93 $ 2,431,108 $ 513,578 $ 155,544 $ 91,469 $ 12,416
=============== ============= ============= ============== ============
Variable Insurance Products Fund
--------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
--------------- ------------- ------------- ------------- -------------
Balance 12-31-92 $ 2,600,260 $ 2,476,762 $ 5,152,469 $ 857,133 $ 586,673
Distributed earnings 84,138 89,586 125,620 82,061 15,219
Mortality risk charge (26,767) (33,306) (67,253) (17,034) (13,317)
Unrealized increase/(decrease) --- 430,027 1,063,056 215,584 333,367
Net premium transferred 644,760 1,118,145 2,392,340 974,665 1,705,518
-------------- -------------- ------------ ----------- -----------
Balance 12-31-93 $ 3,302,391 $ 4,081,214 $ 8,666,232 $ 2,112,409 $ 2,627,460
============== ============== ============ =========== ===========
Variable Insurance
Products Fund II Dreyfus
----------------------------- -------------
Asset Investment Stock
Manager Grade Bond Index Fund TOTAL
-------------- ------------ ------------- -------------
Balance 12-31-92 $ 4,852,263 $ 510,803 $ 161,510 $ 17,888,304
Distributed earnings 237,544 60,677 96,191 792,365
Mortality risk charge (74,672) (9,236) (3,149) (260,944)
Unrealized increase/(decrease) 1,317,267 15,527 (69,200) 3,683,814
Net premium transferred 5,079,984 491,445 283,756 14,840,992
------------- ------------ ------------ -------------
Balance 12-31-93 $ 11,412,386 $ 1,069,216 $ 469,108 $ 36,944,531
============= ============ ============ =============
(1) Commenced business 06/17/93.
(2) Commenced business 06/28/93.
</TABLE>
ENCORE! 43
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENT OF NET ASSETS
------------------------
SEPTEMBER 30, 1996
------------------
(UNAUDITED)
ASSETS
INVESTMENTS AT NET ASSET VALUE:
Variable Insurance Products Fund:
Money Market Portfolio - 7,743,563.320 shares at
$1.00 per share (cost $7,743,563) $ 7,743,563
Equity-Income Portfolio - 777,430.918 shares at
$19.72 per share (cost $12,071,439) 15,330,938
Growth Portfolio - 817,224.766 shares at
$30.51 per share (cost $17,490,984) 24,933,528
High Income Portfolio - 526,132.104 shares at
$12.26 per share (cost $5,656,914) 6,450,380
Overseas Portfolio - 560,690.020 shares at
$17.99 per share (cost $8,756,540) 10,086,813
Variable Insurance Products Fund II:
Asset Manager Portfolio - 1,323,342.414 shares at
$15.96 per share (cost $18,073,208) 21,120,545
Investment Grade Bond Portfolio - 191,476.587 shares at
$11.89 per share (cost $2,259,607) 2,276,657
Contrafund Portfolio - 124,964.505 shares at
$15.25 per share (cost $1,814,345) 1,905,709
Index 500 Portfolio - 13,260.424 shares at
$82.31 per share (cost $1,041,414) 1,091,464
Asset Manager: Growth Portfolio - 27,598.720 shares at
$12.68 per share (cost $338,922) 349,952
Alger American Fund:
Small Capitalization Portfolio - 331,916.674 shares at
$42.45 per share (cost $10,843,270) 14,089,863
Growth Portfolio - 212,178.400 shares at
$33.15 per share (cost $5,684,258) 7,033,714
Income and Growth Portfolio - 216,640.738 shares at
$7.83 per share (cost $2,259,434) 1,696,297
Midcap Growth Portfolio - 237,423.652 shares at
$21.00 per share (cost $4,268,578) 4,985,897
Balanced Portfolio - 88,150.169 shares at
$9.04 per share (cost $937,734) 796,878
Leveraged Allcap Portfolio - 43,648.022 shares at
$19.35 per share (cost $824,393) 844,589
Dreyfus Stock Index Fund:
Stock Index Fund Portfolio - 112,723.528 shares at
$18.99 per share (cost $1,606,495) 2,140,620
MFS Variable Insurance Trust:
Emerging Growth Series Portfolio - 117,237.864 shares at
$13.58 per share (cost $1,482,150) 1,592,090
World Governments Series Portfolio - 15,215.708 shares at
$10.34 per share (cost $154,878) 157,330
Utilities Series Portfolio - 19,335.967 shares at
$13.30 per share (cost $250,353) 257,168
------------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 124,883,995
==================
The accompanying notes are an integral part of these financial statements.
44 ENCORE!
<PAGE>
<TABLE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
--------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
(UNAUDITED)
1996 1995 1994
--------------------- -------------------- -------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 1,704,985 $ 1,129,947 $ 675,044
EXPENSE
Charges to policyowners for assuming
mortality and expense risk 772,686 510,590 331,853
--------------------- -------------------- -------------------
INVESTMENT INCOME - NET 932,299 619,357 343,191
--------------------- -------------------- -------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NET
Capital gain distributions received 4,074,160 382,368 1,399,228
Unrealized increase/(decrease) 3,375,136 15,004,742 (2,184,207)
--------------------- -------------------- -------------------
NET GAIN/(LOSS) ON INVESTMENTS 7,449,296 15,387,110 (784,979)
--------------------- -------------------- -------------------
NET INCREASE/(DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS 8,381,595 16,006,467 (441,788)
NET INCREASE IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS 22,892,737 14,059,343 17,740,888
--------------------- -------------------- -------------------
TOTAL INCREASE IN NET ASSETS 31,274,332 30,065,810 17,299,100
NET ASSETS
Beginning of period 93,609,663 58,116,363 36,944,530
--------------------- -------------------- -------------------
End of period $ 124,883,995 $ 88,182,173 $ 54,243,630
===================== ==================== ===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
ENCORE! 45
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1996
------------------
(UNAUDITED)
A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT 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 a newly formed holding company, AMAL Corporation, a
majority-owned affiliate of Ameritas Life Insurance Corp. (ALIC).
The assets of the Account are segregated from AVLIC's other assets
and are used only to support variable life products issued by AVLIC.
The Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. At September 30, 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.
AVLIC currently does not expect to incur any federal income tax
liability attributable to the Account with respect to the sale of
the variable life insurance policies. If, however, AVLIC determines
that it may incur such taxes attributable to the Account, it may
assess a charge for such taxes against the Account.
B. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS:
----------------------------------------------------------------
Management believes that all adjustments, consisting of only normal
recurring accruals, considered necessary for a fair presentation of
the unaudited interim financial statements have been included. The
results of operations for any interim period are not necessarily
indicative of results for the full year. The unaudited interim
financial statements should be read in conjunction with the audited
financial statements and notes thereto for the years ended December
31, 1995, 1994, and 1993.
46 ENCORE!
<PAGE>
Independent Auditors' Report
Board of Directors
Ameritas Variable Life
Insurance Company
Lincoln, Nebraska
We have audited the accompanying balance sheets of Ameritas Variable Life
Insurance Company as of December 31, 1995 and 1994, and the related statements
of operations, changes in stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with statutory accounting principles which are considered generally
accepted accounting principles for mutual life insurance companies and their
insurance subsidiaries.
As discussed in Note A to the financial statements, effective December 31, 1995,
the Company changed a reserving practice.
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
February 1, 1996
ENCORE! 47
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except shares)
December 31,
---------------------------
1995 1994
------------ ------------
ASSETS
<S> <C> <C>
Investments:
Bonds, at amortized cost ( fair value of $40,344
and $34,021) (Note C) $ 38,753 $ 34,607
Short-term investments 4,289 7,714
Loans on life insurance policies 2,639 1,597
------------- -------------
Total investments 45,681 43,918
Cash 1,371 431
Accrued investment income 790 774
Reinsurance recoverable - affiliates (Note E) 57 467
Other assets 76 129
Separate Accounts (Note F) 682,482 462,886
------------- ------------
$ 730,457 $ 508,605
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Life and annuity reserves $ 28,740 $ 30,578
Funds left on deposit with the company 87 142
Interest maintenance reserve 41 36
Accounts payables - affiliates (Note E) 1,926 884
Income tax payable-affiliates 1,221 36
Accrued professional fees 20 11
Sundry current liabilities -
Cash with applications 1,305 562
Other 662 692
Valuation reserve 193 163
Separate Accounts (Note F) 682,482 462,886
------------- -----------
716,677 495,990
------------- -----------
STOCKHOLDER'S EQUITY:
Common stock, par value $100 per share; 4,000 4,000
authorized 50,000 shares, issued and
outstanding 40,000 shares
Additional paid-in capital 29,700 29,700
Deficit (19,920) (21,085)
------------- -----------
13,780 12,615
------------- -----------
$ 730,457 $ 508,605
============ ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
48 ENCORE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(in thousands)
Year Ended December 31,
--------------------------------------------------------
1995 1994 1993
-------------- --------------- ---------------
<S> <C> <C> <C>
INCOME:
Premium income $ 158,436 $ 174,085 $ 155,166
Less reinsurance: (Note E)
Yearly renewable term (5,110) (1,333) (843)
-------------- --------------- ---------------
Net premium income 153,326 172,752 154,323
Miscellaneous insurance income 4,482 1,398 459
Net investment income (Note D) 3,507 3,050 2,897
-------------- --------------- ---------------
161,315 177,200 157,679
-------------- --------------- ---------------
EXPENSES:
Increase (decrease) in reserves (296) (637) 1,717
Benefits to policyowners 31,094 19,012 8,128
Commissions 14,813 15,799 13,080
General insurance expenses (Note E) 6,641 6,403 4,216
Taxes, licenses and fees 1,275 1,183 829
Net premium transferred to
Separate Accounts (Note F) 106,053 139,974 136,451
------------- --------------- ---------------
159,580 181,734 164,421
------------- --------------- ---------------
Income(loss) before income taxes
and realized capital gains 1,735 (4,534) (6,742)
Income taxes (benefit)-current 1,752 (611) (1,501)
-------------- --------------- ---------------
(Loss) before realized capital gains (17) (3,923) (5,241)
Realized capital gains(losses) (net of tax
of $12, $11 and $19 and $18, $12 and
$32 transfers to interest maintenance
reserve for 1995, 1994 and 1993,
respectively) (2) (2) 1
-------------- --------------- ---------------
Net (loss) $ (19) $ (3,925) $ (5,240)
============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
ENCORE! 49
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands, except shares)
Additional
Common Stock Paid in
Shares Amount Capital Deficit Total
------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 40,000 $ 4,000 $ 18,200 $ (11,793) $ 10,407
Transfer to valuation reserve - - - (62) (62)
Capital contribution from
Ameritas Life Insurance Corp. - - 5,500 - 5,500
Net (loss) - - - (5,240) (5,240)
------------ ----------- ------------- ------------ ------------
BALANCE, December 31, 1993 40,000 4,000 23,700 (17,095) 10,605
Increase in non-admitted assets (2) (2)
Transfer to valuation reserve - - - (63) (63)
Capital contribution from
Ameritas Life Insurance Corp. - - 6,000 - 6,000
Net (loss) - - - (3,925) (3,925)
------------ ------------ ------------- ------------ ------------
BALANCE, December 31, 1994 40,000 4,000 29,700 (21,085) 12,615
Decrease in non-admitted assets - - - 5 5
Transfer to valuation reserve - - - (30) (30)
Release of reserves (Note A) - - - 1,618 1,618
Settlement/intercompany taxes - - - (409) (409)
Net (loss) - - - (19) (19)
----------- ----------- ------------- ------------ ------------
BALANCE, December 31, 1995 40,000 $ 4,000 $ 29,700 $ (19,920) $ 13,780
=========== =========== ============= ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
50 ENCORE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993
-------------- --------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net premium income received $ 153,867 $ 172,701 $ 154,408
Miscellaneous insurance income 4,201 1,398 459
Net investment income received 3,405 2,899 2,848
Net premium transferred to Separate Accounts (105,654) (140,161) (136,451)
Benefits paid to policyowners (31,200) (18,944) (8,207)
Commissions (12,343) (15,799) (13,080)
Expenses and taxes (10,664) (7,547) (4,939)
Net increase in policy loans (1,041) (576) (592)
Income taxes (987) 527 1,630
Other operating income and disbursements 1,978 (2,222) 270
-------------- --------------- -----------------
Net cash provided by (used in) operating activities 1,562 (7,724) (3,654)
-------------- --------------- -----------------
INVESTING ACTIVITIES:
Maturity of bonds 3,713 5,108 8,266
Purchase of investments (7,760) (15,673) (1,460)
-------------- --------------- -----------------
Net cash (used in) provided by investing activities (4,047) (10,565) 6,806
-------------- --------------- -----------------
FINANCING ACTIVITIES:
Capital contribution - 6,000 5,500
-------------- --------------- -----------------
NET (DECREASE) INCREASE IN CASH AND
SHORT TERM INVESTMENTS (2,485) (12,289) 8,652
CASH AND SHORT TERM INVESTMENTS -
BEGINNING OF PERIOD 8,145 20,434 11,782
-------------- --------------- -----------------
CASH AND SHORT TERM INVESTMENTS -
END OF PERIOD $ 5,660 $ 8,145 $ 20,434
============== =============== =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
ENCORE! 51
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------------------------
Ameritas Variable Life Insurance Company (the Company), a stock life
insurance company domiciled in the State of Nebraska, is a wholly-owned
subsidiary of Ameritas Life Insurance Corp.(ALIC), a mutual life insurance
company. The Company began issuing variable life insurance and variable
annuity policies in 1987. The variable life and variable annuity policies
are not participating with respect to dividends.
The accompanying financial statements have been prepared in accordance with
life insurance accounting practices prescribed by the Insurance Department
of the State of Nebraska. While appropriate for mutual life insurance
companies, such accounting practices differ in certain respects from
generally accepted accounting principles followed by other business
enterprises. The Financial Accounting Standards Board (FASB) has undertaken
consideration of changing those methods constituting generally accepted
accounting principles applicable to mutual life insurance companies. In
accordance with pronouncements issued by the FASB in 1993 and 1994,
financial statements prepared on the basis of statutory accounting practices
will no longer be described as prepared in conformity with generally
accepted accounting principles for fiscal years beginning after December 15,
1995.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The principal accounting and reporting practices followed are:
INVESTMENTS - Bonds and short-term investments earning interest are carried
at amortized cost which, for short-term investments, approximates market.
Separate account assets are carried at market. Realized gains and losses are
determined on the basis of specific identification.
ACQUISITION COSTS - Commissions, reinsurance ceded allowances, underwriting
and other costs of issuing new policies as well as maintenance and
settlement costs are reported as costs of insurance operations in the period
incurred.
PREMIUMS - Premiums are reported as income when collected over the premium
paying periods of the policies. Premium income consists of:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C>
Life $ 32,020 $ 31,980 $ 20,591
Annuity 126,416 142,105 134,575
-------------- -------------- --------------
$ 158,436 $ 174,085 $ 155,166
============== ============== ==============
</TABLE>
POLICY RESERVES - Generally, reserves for variable life and annuity policies
are established and maintained on the basis of each policyholder's interest
in the account values of Separate Accounts V and VA-2. However, reserves
established for certain annuity products are determined on the basis of the
Commissioner's Annuity Reserve Valuation Method (CARVM) reserving method
which approximates surrender values. The account values are net of
applicable cost of insurance and other expense charges. The cost of
insurance has been developed by actuarial methods. The Company uses the
mortality rates from the Commissioners 1980 Standard Ordinary Smoker and
Non- Smoker, Male and Female Mortality Tables in computing minimum values
and reserves. Policy reserves are also provided for amounts held in the
general accounts consistent with requirements of the Nebraska Department of
Insurance.
52 ENCORE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------------------------
(Continued)
-----------
INTEREST MAINTENANCE RESERVE - The interest maintenance reserve is
calculated based on the prescribed methods developed by the NAIC. This
reserve is used to accumulate realized gains and losses resulting from
interest rate changes on fixed income investments. These gains and losses
are then amortized into investment income over what would have been the
remaining years to maturity of the underlying investment.
VALUATION RESERVE - Valuation reserves are a required appropriation of
Stockholder's Equity to provide for possible losses that may occur on
certain investments held by the Company. The appropriation (Asset Valuation
Reserve) is based on the holdings of bonds, stocks, mortgages, real estate
and short-term investments. Realized and unrealized gains and losses, other
than those resulting from interest rate changes, are added or charged to the
reserve (subject to certain maximums).
INCOME TAXES - The Company files a consolidated life/non-life tax return
with Ameritas Life Insurance Corp. and its subsidiaries. An agreement among
the members of the consolidated group provides for distribution of
consolidated tax results as if filed on a separate return basis. The current
income tax expense or benefit (including effects of capital gains and losses
and net operating losses) is apportioned generally on a sub-group
(life/non-life) basis. As a result of differences in accounting between book
and tax purposes for certain items, primarily deferred acquisition costs and
certain reserve calculations, taxes are provided in excess of the 35%
statutory corporate rate.
CHANGE IN ACCOUNTING - Effective December 31, 1995 the Company released the
voluntary mortality fluctuation reserve through a credit to stockholder's
equity. The increase in reserve included in the statements of operations for
the years ended 1995, 1994 and 1993 were $659, $421 and $135, respectively.
B. FINANCIAL INSTRUMENTS:
----------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to
estimate a value:
Bonds
For publicly traded securities, fair value is determined using an
independent pricing source. For securities without a readily ascertainable
fair value, fair value has been determined using an interest rate spread
matrix based upon quality, weighted average maturity, and Treasury yields.
Short-term Investments
The carrying amount approximates fair value because of the short maturity of
these instruments.
Loans on Life Insurance Policies
Fair values for policy loans are estimated using discounted cash flow
analyses at interest rates currently offered for similar loans. Policy loans
with similar characteristics are aggregated for purposes of the
calculations.
Cash
The carrying amounts reported in the balance sheet equals fair value.
Accrued Investment Income
Fair value on accrued investment income equals book value.
Funds left on Deposit
Funds on deposit which do not have fixed maturities are carried at the
amount payable on demand at the reporting date.
ENCORE! 53
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
B. FINANCIAL INSTRUMENTS: (Continued)
----------------------------------
The estimated fair values, as of December 31, 1995 and 1994, of the
Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Financial Assets:
Bonds $ 38,753 $ 40,344 $ 34,607 $ 34,021
Short-term investments 4,289 4,289 7,714 7,714
Loans on life insurance policies 2,639 2,346 1,597 1,190
Cash 1,371 1,371 431 431
Accrued investment income 790 790 774 774
Financial Liabilities:
Funds left on deposit 87 87 142 142
These fair values do not necessarily represent the value for which the financial instrument could be sold.
</TABLE>
C. BONDS:
------
The table below provides additional information relating to bonds held by
the Company as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Fair Unrealized Unrealized Carrying
Cost Value Gains Losses Value
-------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
LONG TERM BONDS:
Corporate-U.S. $ 20,667 $ 21,597 $ 930 $ - $ 20,667
Mortgage-Backed 3,628 3,742 114 - 3,628
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies 14,458 15,005 551 4 14,458
-------------- ------------- ------------ ------------- ------------
$ 38,753 $ 40,344 $ 1,595 $ 4 $ 38,753
============== ============= ============ ============= ============
</TABLE>
The comparative data as of December 31, 1994 is summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Fair Unrealized Unrealized Carrying
Cost Value Gains Losses Value
-------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
LONG TERM BONDS:
Corporate-U.S. $ 19,634 $ 19,396 $ 160 $ 398 $ 19,634
Corporate-Foreign 1,000 1,008 8 - 1,000
Mortgage-Backed 1,149 1,184 35 - 1,149
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies 12,824 12,433 47 438 12,824
-------------- ------------- ------------ ------------- -------------
$ 34,607 $ 34,021 $ 250 $ 836 $ 34,607
============== ============= ============ ============= =============
</TABLE>
54 ENCORE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
C. BONDS: (Continued)
------------------
The carrying value and fair value of bonds at December 31, 1995 by
contractual maturity are shown below:
<TABLE>
<CAPTION>
Fair Carrying
Value Value
--------------- ----------------
<S> <C> <C>
Due in one year or less $ 10,731 $ 10,429
Due after one year through five years 25,368 24,200
Due after five years through ten years 503 496
Due after ten years - -
Mortgage-Backed Securities 3,742 3,628
--------------- ----------------
$ 40,344 $ 38,753
=============== ================
Investments in securities of one issuer other than United States Government
and United States Government Agencies which exceed 10% of total
stockholder's equity as of December 31, 1995 are as follows:
</TABLE>
<TABLE>
<CAPTION>
Included in Bonds: Carrying
ISSUER Value
------ --------------
<S> <C>
Leggett & Platt Inc Medium Term Notes $ 1,500
Sears, Roebuck & Co 1,499
Included in Short-Term Investments:
ISSUER
------
GTE Northwest Inc Discount Note $ 1,500
Goldman Sachs Money Market Treasury Obligations 1,539
Investments in securities of one issuer other than United States Government
and United States Government Agencies which exceed 10% of total
stockholder's equity as of December 31, 1994 are as follows:
Included in Bonds: Carrying
ISSUER Value
------ -------------
Leggett & Platt Inc Medium Term Notes $ 1,500
Sears, Roebuck & Co 1,499
Included in Short-Term Investments:
ISSUER
------
GTE Northwest Inc Discount Note $ 1,397
Potomac Electric Power Co Disc Note 1,499
AT&T Corp Disc Note 1,299
Cargill Inc Disc Note 1,496
At December 31, 1995, the Company had securities with a market value of $3,356
on deposit with various State Insurance Departments.
</TABLE>
ENCORE! 55
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
D. INVESTMENT INCOME:
------------------
Net investment income for the years ended December 31, 1995, 1994 and 1993
is comprised as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
Bonds $ 2,819 $ 2,410 $ 2,384
Short-term investments 597 609 529
IMR amortization 15 5 1
Loans on life insurance policies 128 82 39
--------------- ---------------- ---------------
Gross investment income 3,559 3,106 2,953
Less investment expenses 52 56 56
--------------- ---------------- ---------------
Net investment income $ 3,507 $ 3,050 $ 2,897
=============== ================ ===============
</TABLE>
E. RELATED PARTY TRANSACTIONS:
---------------------------
Ameritas Life Insurance Corp. provides technical, financial and legal
support to the Company under an administrative service agreement. The cost
of these services to the Company for years ended December 31, 1995, 1994 and
1993 was $4,858, $4,029 and $1,915, respectively. The Company also leases
office space and furniture and equipment from Ameritas Life Insurance Corp.
The cost of these leases to the Company for the years ended December 31,
1995, 1994 and 1993 was $37, $40 and $54, respectively.
Under the terms of an investment advisory agreement, the Company paid $44,
$43 and $44 for the years ended December 31, 1995, 1994 and 1993 to Ameritas
Investment Advisors Inc., an indirect wholly-owned subsidiary of Ameritas
Life Insurance Corp.
The Company entered into a reinsurance agreement (yearly renewable term)
with Ameritas Life Insurance Corp. Under this agreement, Ameritas Life
Insurance Corp. assumes life insurance risk in excess of the Company's $50
retention limit. The Company recorded $5,085 of gross reinsurance premiums
for the year ended December 31, 1995 which includes reinsurance ceded
commission allowances of $2,805 resulting in net reinsurance ceded premiums
of $2,280. In 1994 and 1993 the Company reported reinsurance ceded premiums
net of reinsurance ceded commission allowances. The Company paid $1,333 and
$843 of net reinsurance premiums for the years ended December 31, 1994 and
1993, respectively.
The Company has entered into a guarantee agreement with Ameritas Life
Insurance Corp., whereby, Ameritas Life Insurance Corp. guarantees the full,
complete and absolute performance of all duties and obligations of the
Company.
The Company's products are distributed through Ameritas Investment Corp., an
indirect wholly-owned subsidiary of Ameritas Life Insurance Corp. The
Company received $192, $272 and $23 for the years ended December 31, 1995,
1994 and 1993, respectively, from this affiliate to partially defray the
costs of materials and prospectuses. Policies placed by this affiliate
generated commission expense of $14,028, $15,223 and $12,621 for the years
ended December 31, 1995, 1994 and 1993, respectively.
56 ENCORE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
F. SEPARATE ACCOUNTS:
------------------
The Company is currently marketing variable life and variable annuity
products which have separate accounts as an investment option. Separate
Account V (Account V) was formed to receive and invest premium receipts from
variable life insurance policies issued by the Company. Separate Account
VA-2 (Account VA-2) was formed to receive and invest premium receipts from
variable annuity policies issued by the Company. Both Separate Accounts are
registered under the Investment Company Act of 1940, as amended, as unit
investment trusts. Account V and VA-2's assets and liabilities are
segregated from the other assets and liabilities of the Company.
Amounts in the Separate Accounts are:
December 31,
---------------------------
1995 1994
------------ ------------
Separate Account V $ 93,610 $ 58,117
Separate Account VA-2 588,872 404,769
------------ ------------
$ 682,482 $ 462,886
============ ============
The assets of Account V are invested in shares of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, Alger American Fund,
Dreyfus Stock Index Fund and MFS Variable Insurance Trust. Each fund is
registered with the SEC under the Investment Company Act of 1940, as
amended, as an open-end diversified management investment company.
The Variable Insurance Products Fund and the Variable Insurance Products
Fund II are managed by Fidelity Management and Research Company. Variable
Insurance Products Fund has five portfolios: the Money Market Portfolio, the
High Income Portfolio, the Equity Income Portfolio, the Growth Portfolio and
the Overseas Portfolio. The Variable Insurance Fund II has five portfolios:
the Investment Grade Bond Portfolio, Asset Manager Portfolio, Contrafund
Portfolio (effective August 25, 1995), Asset Manager Growth Portfolio(
effective September 15, 1995) and the Index 500 Portfolio (September 21,
1995). The Alger American Fund is managed by Fred Alger Management, Inc. and
has six portfolios: Income and Growth Portfolio, Small Capitalization
Portfolio, Growth Portfolio, MidCap Growth Portfolio (effective June 17,
1993), Balanced Portfolio (effective June 28, 1993) and the Leveraged Allcap
Portfolio (effective August 30, 1995). The Dreyfus Stock Index Fund is
managed by Wells Fargo Nikko Investment Advisors and has the Stock Index
Fund Portfolio. The MFS Variable Insurance Trust is managed by Massachusetts
Financial Services Company. The MFS Variable Insurance Trust has three
portfolios: the Emerging Growth Portfolio (effective August 25, 1995), World
Governments Portfolio (effective August 24, 1995) and the Utilities
Portfolio (effective September 18, 1995)
Separate Account VA-2 allows investment in the Variable Insurance Products
Fund, Variable Insurance Products Fund II, Alger American Fund, Dreyfus
Stock Index Fund and the MFS Variable Insurance Trust with the same
portfolios as described above.
ENCORE! 57
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(in thousands)
G. BENEFIT PLANS:
--------------
The Company is included in the noncontributory defined-benefit pension plan
that covers substantially all full-time employees of Ameritas Life Insurance
Corp. and its subsidiaries. Pension costs include current service costs,
which are accrued and funded on a current basis, and past service costs,
which are amortized over the average remaining service life of all employees
on the adoption date. The assets and liabilities of this plan are not
segregated. The Company had no full time employees during 1995. Total
Company contributions for the years ended December 31, 1994 and 1993 were
$47 and $51, respectively.
The Company's employees also participate in a defined contribution thrift
plan that covers substantially all full-time employees of Ameritas Life
Insurance Corp. and its subsidiaries. Company matching contributions under
the plan range from 1% to 3% of the participant's compensation. The Company
had no full time employees during 1995. Total Company contributions for the
years ended December 31, 1994 and 1993 were $20 and $22, respectively.
The Company is also included in the postretirement benefit plan providing
group medical coverage to retired employees of Ameritas Life Insurance Corp.
and its subsidiaries. These benefits are a specified percentage of premium
until age 65 and a flat dollar amount thereafter. Employees become eligible
for these benefits upon the attainment of age 55, 15 years of service and
participation in the plan for the immediately preceding 5 years. Benefit
costs include the expected cost of postretirement benefits for newly
eligible employees, interest cost, and gains and losses arising from
differences between actuarial assumptions and actual experience. The assets
and liabilities of this plan are not segregated. The Company had no full
time employees during 1995. Total Company contributions for the years ended
December 31, 1994 and 1993 were $7 and $2, respectively.
Expenses for the defined benefit pension plan and postretirement group
medical plan are allocated to the Company based on a percentage of payroll.
H. REGULATORY MATTERS:
-------------------
Under statutes of the Insurance Department of the State of Nebraska, the
Company is limited in the amount of dividends it can pay to its stockholder.
No dividends are to be paid in 1996 without approval of the Insurance
Department.
I. SUBSEQUENT EVENTS - UNAUDITED:
------------------------------
On April 1, 1996 Ameritas Life consummated an agreement with American
Mutual Life Insurance Company whereby AVLIC became a wholly-owned subsidiary
of a newly formed holding company, AMAL Corporation. The agreement was
announced March 11, 1996. The holding company will contribute
approximately $18 million of additional paid-in capital to AVLIC. Under
terms of the agreement the AMAL Corporation will initially be 66% owned by
Ameritas Life and 34% owned by American Mutual. American Mutual has
options to purchase an additional 15% interest over the next five years if
certain production requirements are met. Ameritas Life, American Mutual
and AMAL Corporation guarantee the obligations of AVLIC. This guarantee
will continue until AVLIC is recognized by a National Rating Agency as
having a financial rating equal to or greater than Ameritas Life, or until
AVLIC is acquired by another insurance company who has a financial rating
by a National Rating Agency equal to or greater than Ameritas Life and who
agrees to assume the guarantee; provided that if AML sells its interest in
AMAL Corporation to another insurance company who has a financial rating by
a National Rating Agency equal to or greater than that of AML, and the
purchaser assumes the guarantee, AML will be relieved of its obligations
under the Guarantee.
Effective January 1, 1996, with the approval of the State of Nebraska
Insurance Department, AVLIC changed reserving methods used for most
existing products resulting in an increase in statutory surplus of
approximately $23.4 million.
On February 28, 1996 the Board of Directors declared a return of paid-in
capital of $15 million paid by a note due on or before August 15, 1996.
This action was approved by the State of Nebraska Insurance Department
(Insurance Department). Any additional distributions of capital or surplus
would require approval of the Insurance Department.
58 ENCORE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
BALANCE SHEETS
--------------
(in thousands, except shares)
(UNAUDITED)
September 30, December 31,
1996 1995
---------------- ---------------
ASSETS
Investments:
<S> <C> <C>
Bonds, at amortized cost $ 46,419 $ 38,753
Short-term investments 5,740 4,289
Loans on life insurance policies 3,786 2,639
---------------- ---------------
Total investments 55,945 45,681
Cash 929 1,371
Accrued investment income 877 790
Reinsurance recoverable - affiliates 148 57
Other assets 833 76
Separate Accounts 884,817 682,482
---------------- ---------------
$ 943,549 $ 730,457
================ ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Life and annuity reserves $ 9,290 $ 28,740
Funds left on deposit with the company 114 87
Interest maintenance reserve 41 41
Accounts payables - affiliates 2,515 1,926
Income tax payable-affiliates 2,135 1,221
Accrued professional fees 28 20
Sundry current liabilities -
Cash with applications 1,943 1,305
Other 2,215 662
Valuation reserve 228 193
Separate Accounts 884,817 682,482
---------------- ---------------
903,326 716,677
---------------- ---------------
STOCKHOLDER'S EQUITY:
Common stock, par value $100 per share; 4,000 4,000
authorized 50,000 shares, issued and
outstanding 40,000 shares
Additional paid-in capital 32,370 29,700
Retained Earnings (Deficit) 3,853 (19,920)
---------------- ---------------
40,223 13,780
---------------- ---------------
$ 943,549 $ 730,457
================ ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
ENCORE! 59
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
-----------------------------------------------------
(in thousands)
--------------
(UNAUDITED)
1996 1995
------------ ------------
INCOME:
<S> <C> <C>
Premium income $ 206,818 $ 108,212
Less reinsurance:
Yearly renewable term (4,866) (3,780)
------------ ------------
Net premium income 201,952 104,432
Miscellaneous insurance income 4,103 3,389
Net investment income 2,471 2,628
------------ ------------
208,526 110,449
------------ ------------
EXPENSES:
Increase in reserves 3,406 1,279
Benefits to policyowners 34,317 23,313
Commissions 18,137 10,095
General insurance expenses 7,166 4,921
Taxes, licenses and fees 1,123 930
Net premium transferred to
Separate Accounts 140,562 68,609
------------ ------------
204,711 109,147
------------ ------------
Income before income taxes
and realized capital gains 3,815 1,302
Income taxes 2,316 947
------------ ------------
Income before realized capital gains 1,499 355
Realized capital loss, net (8) -
------------ ------------
Net income $ 1,491 $ 355
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
60 ENCORE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------
AND THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
(in thousands, except shares)
-----------------------------
(UNAUDITED)
Additional Retained
Common Stock Paid in Earnings/
------------------------------
Shares Amount Capital (Deficit) Total
-------------- ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 40,000 $ 4,000 $ 29,700 $ (21,085) $ 12,615
Decrease in non-admitted assets - - - 5 5
Transfer to valuation reserve - - - (30) (30)
Change in reserving method - - - 1,618 1,618
Income Tax charged to surplus - - - (409) (409)
Net loss - - - (19) (19)
-------------- ------------ -------------- -------------- ----------------
BALANCE, December 31, 1995 40,000 4,000 29,700 (19,920) 13,780
Increase in non-admitted assets - - - (10) (10)
Transfer to valuation reserve - - - (35) (35)
Capital contribution from
AMAL Corporation - - 17,670 - 17,670
Change in reserving method - - - 22,840 22,840
Income Tax charged to surplus - - - (513) (513)
Return of capital - - (15,000) - (15,000)
Net gain - - - 1,491 1,491
-------------- ------------ -------------- -------------- ----------------
BALANCE, September 30, 1996 40,000 $ 4,000 $ 32,370 $ 3,853 $ 40,223
============== ============ ============== ============== ================
The accompanying notes are an integral part of these financial statements.
</TABLE>
ENCORE! 61
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(in thousands)
(UNAUDITED)
Nine months
ended Year ended
9/30/96 12/31/95
---------------- ---------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net premium income received $ 201,786 $ 153,867
Miscellaneous insurance income 4,135 4,201
Net investment income received 2,312 3,405
Net premium transferred to Separate Accounts (141,404) (105,654)
Benefits paid to policyowners (34,091) (31,200)
Commissions (15,412) (12,343)
Expenses and taxes (9,654) (10,664)
Net increase in policy loans (1,147) (1,041)
Income taxes (1,930) (987)
Other operating income and disbursements 1,325 1,978
---------------- ---------------
Net cash provided by (used in) operating activities 5,920 1,562
---------------- ---------------
INVESTING ACTIVITIES:
Maturity of bonds 7,418 3,713
Purchase of investments (14,999) (7,760)
---------------- ---------------
Net cash (used in) provided by investing activities (7,581) (4,047)
---------------- ---------------
FINANCING ACTIVITIES:
Capital contribution 17,670 -
Return of capital (15,000) -
---------------- ---------------
Net cash provided by financing activities 2,670 -
---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
SHORT TERM INVESTMENTS 1,009 (2,485)
CASH AND SHORT TERM INVESTMENTS -
BEGINNING OF PERIOD 5,660 8,145
---------------- ---------------
CASH AND SHORT TERM INVESTMENTS -
END OF PERIOD $ 6,669 $ 5,660
================ ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
62 ENCORE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------
(in thousands)
(UNAUDITED)
A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------------------------
Ameritas Variable Life Insurance Company (the Company), a stock life
insurance company domiciled in the State of Nebraska, is a wholly-owned
subsidiary of a newly formed holding company, AMAL Corporation, a
majority-owned affiliate of Ameritas Life Insurance Corp.(ALIC), a mutual
life insurance company. The Company began issuing variable life insurance
and variable annuity policies in 1987. The variable life and variable
annuity policies are not participating with respect to dividends.
The accompanying financial statements have been prepared in accordance with
life insurance accounting practices prescribed by the Insurance Department
of the State of Nebraska. While appropriate for mutual life insurance
companies, such accounting practices differ in certain respects from
generally accepted accounting principles followed by other business
enterprises. The Financial Accounting Standards Board (FASB) has undertaken
consideration of changing those methods constituting generally accepted
accounting principles applicable to mutual life insurance companies. In
accordance with pronouncements issued by the FASB in 1993 and 1994,
financial statements prepared on the basis of statutory accounting
practices will no longer be described as prepared in conformity with
generally accepted accounting principles for fiscal years beginning after
December 15, 1995.
B. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS:
----------------------------------------------------------------
Management believes that all adjustments, consisting of only normal
recurring accruals, considered necessary for a fair presentation of the
unaudited interim financial statements have been included. The results of
operations for any interim period are not necessarily indicative of results
for the full year. The unaudited interim financial statements should be
read in conjunction with the audited financial statements and notes thereto
for the years ended December 31, 1995, 1994, and 1993.
ENCORE! 63
<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 65 through 68 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
65 and 67 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 66 and 68 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 (.23%), and the daily charge by AVLIC to each Subaccount
for assuming mortality and expense risks (which is equivalent to a charge at an
annual rate of .90% for policy years 1-20 and 0.65% thereafter on pages 65 and
67 and at an annual rate of 1.15% on pages 66 and 68 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 portfolio's may exclude certain items) were in
excess of an annual rate of 1.00% for the High Income, Contrafund and Asset
Manager: Growth Portfolios, 1.50% for the Equity-Income, Growth and Overseas
Portfolios, .80% for the Investment Grade Bond Portfolio, 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, 1.00% for the
MFS Emerging Growth, MFS Utilities, MFS World Governments, MFS Research, and MFS
Growth With Income Portfolios of daily net assets. These agreements are expected
to continue in future years. 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
- -1.82%, 4.18%, and 10.18% respectively, for years 1-20 and -1.57%, 4.43% and
10.43% for the years thereafter respectively, on pages 65 and 67 and -2.07%,
3.93% and 9.93% respectively, on pages 66 and 68.
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 31).
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. 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.
64 ENCORE!
<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:$500,000
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
(-1.82% Net) (4.18% Net) (10.18% 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 4404 0 500000 4710 0 500000 5016 0 500000
2 12915 8622 1907 500000 9509 2794 500000 10434 3719 500000
3 19861 12655 5940 500000 14398 7683 500000 16292 9577 500000
4 27154 16506 9791 500000 19385 12670 500000 22639 15924 500000
5 34811 20177 13462 500000 24470 17755 500000 29527 22812 500000
6 42852 23672 17628 500000 29662 23619 500000 37015 30972 500000
7 51295 26985 21613 500000 34959 29587 500000 45163 39791 500000
8 60159 30126 25426 500000 40372 35672 500000 54049 49348 500000
9 69467 33090 29061 500000 45902 41873 500000 63748 59719 500000
10 79241 35876 32519 500000 51552 48195 500000 74348 70990 500000
15 135945 47092 47092 500000 81761 81761 500000 144758 144758 500000
20 208316 52818 52818 500000 115017 115017 500000 258248 258248 500000
Ages
60 135945 47092 47092 500000 81761 81761 500000 144758 144758 500000
65 208316 52818 52818 500000 115017 115017 500000 258248 258248 500000
70 300681 47142 47142 500000 148349 148349 500000 450028 450028 522032
75 418565 19808 19808 500000 174525 174525 500000 776358 776358 830703
</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.
ENCORE! 65
<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:$500000
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
(-2.07% Net) (3.93% Net) (9.93% 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 3854 0 500000 4140 0 500000 4427 0 500000
2 12915 7511 796 500000 8323 1608 500000 9171 2456 500000
3 19861 10964 4249 500000 12541 5826 500000 14257 7542 500000
4 27154 14211 7496 500000 16789 10074 500000 19712 12997 500000
5 34811 17238 10523 500000 21053 14338 500000 25560 18845 500000
6 42852 20041 13998 500000 25325 19281 500000 31836 25792 500000
7 51295 22593 17221 500000 29576 24204 500000 38555 33183 500000
8 60159 24866 20166 500000 33776 29075 500000 45736 41036 500000
9 69467 26840 22811 500000 37898 33869 500000 53408 49379 500000
10 79241 28480 25122 500000 41901 38544 500000 61591 58234 500000
15 135945 30737 30737 500000 58949 58949 500000 111616 111616 500000
20 208316 18993 18993 500000 65962 65962 500000 182147 182147 500000
Ages
60 135945 30737 30737 500000 58949 58949 500000 111616 111616 500000
65 208316 18993 18993 500000 65962 65962 500000 182147 182147 500000
70 300681 0* 0* 0* 49247 49247 500000 286274 286274 500000
75 418565 0* 0* 0* 0* 0* 0* 461433 461433 500000
</TABLE>
*In the absence of an additional premium, the Policy would lapse.
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.
66 ENCORE!
<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: $20000
INITIAL SPECIFIED AMOUNT:$500,000
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
(-1.82% Net) (4.18% Net) (10.18% 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 21000 17655 10940 517655 18771 12056 518771 19888 13173 519888
2 43050 34871 28156 534871 38205 31490 538205 41674 34959 541674
3 66203 51650 44935 551650 58323 51608 558323 65546 58831 565546
4 90513 68001 61286 568001 79155 72440 579155 91718 85003 591718
5 116038 83926 77211 583926 100726 94011 600726 120418 113703 620418
6 142840 99433 93389 599433 123067 117023 623067 151903 145860 651903
7 170982 114519 109147 614519 146198 140826 646198 186447 181075 686447
8 200531 129198 124498 629198 170160 165459 670160 224366 219665 724366
9 231558 143467 139438 643467 194975 190946 694975 265993 261964 765993
10 264136 157329 153972 657329 220676 217319 720676 311701 308344 811701
15 453150 220582 220582 720582 363588 363588 863588 617340 617340 1117340
20 694385 272974 272974 772974 532899 532899 1032899 1106697 1106697 1606697
Ages
60 453150 220582 220582 720582 363588 363588 863588 617340 617340 1117340
65 694385 272974 272974 772974 532899 532899 1032899 1106697 1106697 1606697
70 1002269 311508 311508 811508 743120 743120 1243120 1929105 1929105 2429105
75 1395216 324414 324414 824414 981359 981359 1481359 3267079 3267079 3767079
</TABLE>
1) Assumes an annual $20,000 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.
ENCORE! 67
<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: $20000
INITIAL SPECIFIED AMOUNT:$500000
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
(-2.07% Net) (3.93% Net) (9.93% 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 21000 16863 10148 516863 17946 11231 517946 19030 12315 519030
2 43050 33245 26530 533245 36461 29746 536461 39809 33094 539809
3 66203 49144 42429 549144 55555 48840 555555 62498 55783 562498
4 90513 64562 57847 564562 75243 68528 575243 87279 80564 587279
5 116038 79489 72774 579489 95526 88811 595526 114336 107621 614336
6 142840 93924 87881 593924 116418 110375 616418 143887 137844 643887
7 170982 107844 102472 607844 137909 132537 637909 176142 170770 676142
8 200531 121225 116525 621225 159984 155284 659984 211333 206633 711333
9 231558 134048 130019 634048 182638 178609 682638 249721 245692 749721
10 264136 146282 142924 646282 205846 202489 705846 291575 288217 791575
15 453150 197816 197816 697816 329703 329703 829703 564739 564739 1064739
20 694385 229858 229858 729858 463402 463402 963402 984431 984431 1484431
Ages
60 453150 197816 197816 697816 329703 329703 829703 564739 564739 1064739
65 694385 229858 229858 729858 463402 463402 963402 984431 984431 1484431
70 1002269 234001 234001 734001 597133 597133 1097133 1625799 1625799 2125799
75 1395216 197099 197099 697099 712810 712810 1212810 2602878 2602878 3102878
</TABLE>
1) Assumes an annual $20,000 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.
68 ENCORE!
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below covering the period of 1926-1995 is an examination of the
basic relationship between risk and return among the different asset classes,
and between nominal and real (inflation adjusted) returns. The information is
provided because the Policyowners have varied investment portfolios available
which have different investment objectives and policies. The chart generally
demonstrates how different classes of investments have performed during the
period. The study of asset returns provides a period long enough to include most
of the major types of events that investors have experienced in the past. This
is a historical record and is not intended as a projection of future
performance.
The graph depicts the growth of a dollar invested in common stocks, small
company stocks, long-term government bonds, Treasury bills, and a hypothetical
asset returning the inflation rate over the period from the end of 1925 to the
end of 1995. All results assume reinvestment of dividends on stocks or coupons
on bonds and no taxes. Transaction costs are not included, except in the small
stock index starting in 1982. Charges associated with a variable insurance
policy are not reflected in the chart.
Each of the cumulative index values is initiated at $1.00 at year-end 1925. The
graph illustrates that common stocks and small stocks gained the most over the
entire 70-year period: investments of one dollar would have grown to $1,113.92
and $3,822.40 respectively, by year-end 1995. This growth, however, was earned
by taking substantial risk. In contrast, long-term government bonds (with an
approximate 20-year maturity), which exposed the holder to less risk, grew to
only $34.04. Note that the return and principal value of an investment in stocks
will fluctuate with changes in market conditions. Prices of small company stocks
are generally more volatile than those of large company stocks. Government bonds
and Treasury Bills are guaranteed by the U.S. Government and, if held to
maturity, offer a fixed rate of return and a fixed principal value.
The lowest risk strategy over the past 70 years was to buy U.S. Treasury bills.
Since Treasury bills tended to track inflation, the resulting real
(inflation-adjusted) returns were near zero for the entire 1926-1995 period.
(Omitted graph illustrates long term market trends as described in the narrative
above.)
ENCORE! 69
<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 1971 14.56
2 1972 18.90
3 1973 -14.77 (Omitted graph depicts the
4 1974 -26.39 activity of the S&P 500 Index
5 1975 37.16 for the years 1970-1995.)
6 1976 23.57
7 1977 -7.42
8 1978 6.38
9 1979 18.20
10 1980 32.27
11 1981 -5.01
12 1982 21.44
13 1983 22.38
14 1984 6.10
15 1985 31.57
16 1986 18.56
17 1987 5.10
18 1988 16.61
19 1989 31.69
20 1990 -3.14
21 1991 30.45
22 1992 7.61
23 1993 10.08
24 1994 1.32
25 1995 37.58
THE CHART ASSUMES THE RETURN EXPERIENCED BY THE STANDARD & POOR'S 500 INDEX FOR
THE LAST 25 YEARS. FUTURE RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS
MADE BY AN OWNER. THE INFORMATION IN THE CHART IS NOT NECESSARILY INDICATIVE OF
FUTURE PERFORMANCE.
INDEX PERFORMANCE IS NOT ILLUSTRATIVE OF POLICY SUBACCOUNT PERFORMANCE, AND
INVESTMENTS ARE NOT MADE IN THE INDEX.
70 ENCORE!
