COMPANY LOGO
AMERITAS VARIABLE LIFE INSURANCE COMPANY
PROSPECTUS
One Ameritas Way/5900 "O" Street
VARIABLE UNIVERSAL LIFE POLICY P.O. Box 82550/Lincoln, Nebraska 68501
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This Prospectus describes a flexible premium variable life insurance policy
("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC"), a
stock life insurance company. The Policy is designed to operate generally as a
single premium policy but provides the flexibility to make additional premium
payments. The Policy also provides the flexibility to change the level of death
benefits payable under the Policy. This flexibility allows a Policyowner to
provide for changing insurance needs under a single insurance policy.
The minimum required premium is $10,000, except for Insureds who have an age
nearest birthday of 0 to 15, for which the minimum premium is $5,000. The Policy
is available only to persons who have an age nearest birthday of 80 or less at
the time the Policy is purchased.
The Policy guarantees a death benefit payable at the Insured's death for as long
as the Policy remains in force. The Policyowner may choose either death benefit
Option A (generally, a level benefit that equals the Specified Amount of the
Policy) or Option B (a variable benefit that generally equals the Specified
Amount plus the Policy's cash value). The minimum Specified Amount for a Policy
is the amount that a premium of $10,000 ($5,000 for ages 0-15) will purchase.
The Policy provides for a cash surrender value that can be obtained by partial
withdrawals, completely surrendering the Policy, or by policy loans. There is no
minimum guaranteed cash value. However, the Policy could be a modified endowment
contract. Policy loans, partial withdrawals or a surrender prior to age 59 1/2
may result in adverse tax consequences and or penalties.
The Policyowner may allocate net premiums to one or more of the Subaccounts of
Ameritas Variable Life Insurance Company Separate Account V ("Account"). The
initial premium payment will be allocated to the Money Market Subaccount, as of
the issue date, for 13 days. After the expiration of the 13 day period (see page
21) the accumulation value will be allocated to the Subaccounts or the Fixed
Account as selected by the Policyowner. The amount of the Policy's cash value,
the duration of the death benefit and, if Option B is selected, the amount of
the death benefit above the Specified Amount, will vary with the investment
experience of the selected Subaccounts or the Fixed Account. In addition, the
cash value will also be adjusted for other factors, including the amount of
charges imposed and the premium payments made. The Policy will continue in force
so long as the cash surrender value is sufficient to pay certain monthly charges
imposed in connection with the Policy.
The assets of each Subaccount are invested in shares of a corresponding
portfolio of one of the following mutual funds (collectively, the "Funds"):
Variable Insurance Products Fund and the Variable Insurance Products Fund II,
(respectively, "VIPF" and "VIPF II"; collectively "Fidelity Funds"); the Alger
American Fund ("Alger American Fund"); MFS Variable Insurance Trust ("MFS
Trust"); and Morgan Stanley Universal Funds, Inc. ("Morgan Stanley Fund"). VIPF,
which is managed by Fidelity Management & Research Company ("Fidelity"), offers
the following portfolios: Money Market, Equity-Income, Growth, High Income and
Overseas Portfolios. VIPF II, also managed by Fidelity, offers the following
portfolios: Asset Manager, Investment Grade Bond, Asset Manager: Growth, Index
500, and Contrafund Portfolios. The Alger American Fund, which is managed by
Fred Alger Management, Inc. ("Alger Management"), offers the following
portfolios: Alger American Growth ("Growth"), Alger American Income and Growth
("Income and Growth"), Alger American Small Capitalization ("Small
Capitalization"), Alger American Balanced ("Balanced"), Alger American MidCap
Growth ("MidCap Growth"), and Alger American Leveraged AllCap ("Leveraged
AllCap") Portfolios. The MFS Trust, managed by Massachusetts Financial Services
Company ("MFS Co."), offers the following portfolios or series in connection
with this Policy: MFS Emerging Growth, MFS Utilities, MFS World Governments, MFS
Research and MFS Growth With Income. The Morgan Stanley Fund offers the
following portfolios in connection with the Policy, all of which are managed by
Morgan Stanley Asset Management Inc. ("MSAM"): Emerging Markets Equity, Global
Equity, International Magnum, Asian Equity and U.S. Real Estate Portfolios. This
prospectus must be 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.
You have the right to examine the Policy and return it for a refund for a
limited time.
Replacing existing insurance with a Policy or purchasing a Policy as a means to
obtain additional insurance protection if the purchaser already owns another
flexible premium variable life insurance policy may not be advantageous.
This Prospectus Must Be Accompanied Or Preceded By The Current Prospectuses for
Variable Insurance Products Fund, Variable Insurance Products Fund II, Alger
American Fund, MFS Variable Insurance Trust and Morgan Stanley Universal Funds,
Inc.
These securities are not deposits with, or obligations of, or guaranteed or
endorsed by, any financial institution; and the securities are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency. These securities involve investment risk, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY STATE SECURITIES REGULATORY AUTHORITIES, NOR HAS THE
COMMISSION OR STATE REGULATORY AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date of This Prospectus is May 1, 1997.
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TABLE OF CONTENTS
Page
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Definitions.............................................................. 3
Ameritas Variable Life Insurance Company and the Account................. 8
Ameritas Variable Life Insurance Company......................... 8
Ameritas Variable Life Insurance Company Separate Account V...... 9
The Funds........................................................ 10
Investment Objectives and Policies of the Funds' Portfolios...... 11
Fixed Account.................................................... 15
Addition, Deletion or Substitution of Investments................ 16
Policy Benefits.......................................................... 16
Purposes of the Policy........................................... 16
Death Benefit Proceeds........................................... 17
Death Benefit Options............................................ 17
Cash Value....................................................... 18
Benefits at Maturity............................................. 19
Payment of Policy Benefits....................................... 19
Policy Rights............................................................ 20
Loan Benefits.................................................... 20
Surrenders....................................................... 21
Transfers........................................................ 22
Systematic Programs.............................................. 22
Refund Privilege................................................. 22
Exchange Privilege............................................... 23
Payment and Allocation of Premiums....................................... 23
Issuance of a Policy............................................. 23
Premiums......................................................... 24
Allocation of Premiums and Cash Value............................ 25
Policy Lapse and Reinstatement................................... 25
Charges and Deductions................................................... 26
Premium Charge................................................... 26
Monthly Deduction................................................ 26
Daily Charges Against the Account................................ 27
Fund Investment Advisory Fee and Expenses........................ 27
Cash Surrender Charge............................................ 28
Transfer Charge.................................................. 28
Partial Withdrawal Charge........................................ 28
General Provisions....................................................... 28
Distribution of the Policies............................................. 31
Federal Tax Matters...................................................... 31
Safekeeping of the Account's Assets...................................... 33
Third Party Services..................................................... 33
Voting Rights............................................................ 33
State Regulation of AVLIC................................................ 34
Executive Officers and Directors of AVLIC................................ 34
Legal Matters............................................................ 36
Legal Proceedings........................................................ 36
Experts.................................................................. 36
Additional Information................................................... 36
Financial Statements..................................................... 37
Ameritas Variable Life Insurance Company Account V............... 38
Ameritas Variable Life Insurance Company......................... 45
Appendices............................................................... 57
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The Policy, certain funds and/or certain riders are not available in all
states.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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DEFINITIONS
ACCOUNT - Ameritas Variable Life Insurance Company Separate Account V, a
separate investment account established by AVLIC to receive and invest the net
premiums paid under the Policy and allocated by the Policyowner to the Account.
ACCRUED EXPENSE CHARGES - The sum of any monthly deductions that are due and
unpaid.
ATTAINED AGE - The Issue Age of the Insured plus the number of complete policy
years that the Policy has been in force.
AVLIC - Ameritas Variable Life Insurance Company, a Nebraska stock company.
BENEFICIARY - The beneficiary is designated by the Policyowner in the
application. If changed, the beneficiary is as shown in the latest change filed
and recorded with AVLIC. If no beneficiary survives the Insured, the Policyowner
or the Policyowner's estate will be the beneficiary. The interest of any
beneficiary is subject to that of any assignee.
CASH VALUE - The total amount that a Policy provides for investment at any time.
It is equal to the total of the cash value held in the Account and the cash
value held in the general account which secures policy loans.
CASH SURRENDER VALUE - The Policy cash value on the date of surrender, less any
outstanding policy debt, any cash surrender charge, and any accrued expense
charges.
DEATH BENEFIT - The amount of insurance coverage provided under the Policy.
DEATH BENEFIT PROCEEDS - The proceeds payable to the beneficiary upon receipt by
AVLIC of the proof of the death of the Insured while the Policy is in force
equal to: (l) the death benefit; minus (2) any outstanding policy debt; minus
(3) any monthly deduction that may apply to that period, including the deduction
for the month of death.
DECLARED RATES - AVLIC guarantees that it will credit interest in the Fixed
Account at an effective annual rate of at least 4.5%. AVLIC may, at its sole
discretion, declare higher interest rates for amounts allocated or transferred
to the Fixed Account.
DUE PROOF OF DEATH - All of the following must be submitted:
(1) A certified copy of the death certificate;
(2) A Claimant Statement;
(3) The Policy; and
(4) Any other information that AVLIC may reasonably require to establish the
validity of the contract.
EARNINGS LOAN VALUE - The amount of cash value equaling the difference between
the cash value and the total premium paid.
FIXED ACCOUNT - An account that is a part of AVLIC's general account to which
all or a portion of premium payments may be allocated for accumulation at fixed
rates of interest.
FUNDS - The Funds available on the policy date or as later changed by AVLIC. The
Funds available as of the date of this Prospectus are the Variable Insurance
Products Fund ("VIPF"), Variable Insurance Products Fund II ("VIPF II")
("collectively the "Fidelity Funds"), the Alger American Fund ("Alger American
Fund), the MFS Variable Insurance Trust ("MFS Trust"), and Morgan Stanley
Universal Funds, Inc. ("Morgan Stanley Fund"). The Funds have one or more
portfolios each. There is a portfolio that corresponds to each of the
Subaccounts of the Account.
GUIDELINE SINGLE PREMUIM - The "Guideline Single Premium" as defined in Section
7702 of the Internal Revenue Code of 1986. It is based on the single premium
that would be required to provide the future benefits under the Policy, computed
using certain assumptions, including an assumed interest rate of 6% and standard
guaranteed cost of insurance rates and charges and the premium loads.
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INSURED - The person upon whose life the Policy is issued.
ISSUE AGE - The age at the Insured's nearest birthday on the policy date.
ISSUE DATE - The date that all financial, contractual and administrative
requirements have been met and processed for the Policy.
MATURITY DATE - The policy anniversary nearest the Insured's 95th birthday, if
living, unless the maturity has been extended by election of the Extended
Maturity Rider.
MINIMUM FIRST YEAR PREMIUM - The premium that must be paid on or before the date
the Policy is delivered to pay for insurance coverage under the selected death
benefit option.
MONTHLY ACTIVITY DATE - The same date in each succeeding month as the policy
date except that whenever the monthly activity date falls on a date other than a
valuation date, the monthly activity date will be deemed the next valuation
date.
NET PREMIUM - The premium paid less any charge for premium taxes.
OUTSTANDING POLICY DEBT - The sum of all unpaid policy loans and accrued
interest on policy loans.
PLANNED PERIODIC PREMIUMS - A selected scheduled premium of a level amount at a
fixed interval. The Policyowner is not required to select a scheduled premium.
The Policyowner is also not required to follow this schedule, if selected, and
following this schedule does not necessarily ensure that the Policy will remain
in force.
POLICY - The flexible premium variable life insurance Policy offered by AVLIC
and described in this Prospectus.
POLICYOWNER - The owner of the Policy, as designated in the application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee is
the Policyowner. A collateral assignee is not the Policyowner.
POLICY DATE - The date set forth in the Policy that is the effective date of
coverage for all coverage provided in the original application and that is used
to determine policy anniversary dates, policy years and monthly activity dates.
Policy anniversaries are measured from the policy date. The policy date and the
issue date will be the same unless: 1) an earlier policy date is specifically
requested, or 2) when additional premiums or application amendments are needed
at the time of delivery (See Issuance of a Policy, page 23).
POLICY YEAR - The period from one policy anniversary date until the next policy
anniversary date.
SPECIFIED AMOUNT - The minimum death benefit under the Policy so long as the
Policy remains in force.
SUBACCOUNT - A subdivision of the Account. Each Subaccount invests exclusively
in the shares of a specified portfolio of the Funds.
VALUATION DATE - A valuation date is each day on which the New York Stock
Exchange is open for trading.
VALUATION PERIOD - The period between two successive valuation dates, commencing
at the close of the New York Stock Exchange ("NYSE") on one valuation date and
ending at the close of the NYSE on the next succeeding valuation date.
SUMMARY
The following summary of Prospectus information should be read in conjunction
with the detailed information appearing elsewhere in this Prospectus. Unless
otherwise indicated, the description of the Policy contained in this Prospectus
assumes that the Policy is in effect and that there is no outstanding
indebtedness.
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THE POLICY
This flexible premium variable life insurance policy ("Policy") allows the
Policyowner, within certain limitations, to choose: (a) the amount and frequency
of premium payments; (b) the manner in which the Policyowner's accumulation
values are invested; and (c) a choice of two benefit options.
So long as the Policy remains in force, it will provide for: (1) life insurance
coverage on the named Insured up to age 95; (2) cash value; (3) surrender rights
(including partial withdrawals and total surrenders) and policy loan privileges;
and (4) accelerated death benefits under certain circumstances in the instance
of terminal illness (See Accelerated Benefit Rider for Terminal Illness, page
30).
PREMIUMS
This Policy differs in two important respects from a conventional life insurance
policy. The failure to pay a planned periodic premium will not in itself cause
the policy to lapse and a policy can lapse even if planned periodic premiums
have been paid. (See Payment and Allocation of Premiums, page 23). The Policy
will lapse when its cash surrender value is insufficient to pay the monthly
deduction for insurance charges and administrative charges and the grace period
expires. The Policy is designed so that it may be used as a single premium
policy, whereby a single, large premium payment may be made. The Policy will not
be placed in force if the minimum first year premium has not been paid on or
before the date the Policy is delivered. The minimum first year premium for the
Policy is no less than $10,000, except for Insureds who have an age nearest
birthday of 0 to 15 for whom the minimum first year premium is no less than
$5,000. The minimum first year premium generally approximates 80% of the
Guideline Single Premium for the coverage amount selected as defined for federal
tax purposes. If the initial premium is less than 100% of the Guideline Single
Premium, the Policyowner may establish a schedule of premium payments ("planned
periodic premiums"), subject to the limitations set by federal tax law on total
premiums paid. (See Premiums, page 24).
The Policyowner may select the manner in which new premiums are allocated
between one or more of the Subaccounts or the Fixed Account. (See Fixed Account,
page 15). The assets of each Subaccount are invested in a corresponding
portfolio of the Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Alger American Fund, or the MFS Variable Insurance Trust,
or the Morgan Stanley Universal Funds, Inc., which are mutual fund companies
with separate investment portfolios, each intended to pursue different
investment objectives. (See The Funds, page 10).
ALLOCATION OF PREMIUMS
On the issue date of the Policy, premiums paid are allocated to the Money Market
Subaccount. Premium payments received by AVLIC prior to the issue date are held
in the general account until the issue date. Should the policyowner elect a
policy date prior to the issue date the amounts held in the general account will
be credited with interest at a rate determined by AVLIC for the period from the
later of, the policy date or the date the payment has been converted into
Federal Funds (monies of member banks within the Federal Reserve System which
are held on deposit at a Federal Reserve Bank) that are available to AVLIC until
the amounts are transferred to the Money Market Subaccount. As of thirteen days
from the issue date of the Policy, the Policy's cash value will be reallocated
to the Subaccounts or the Fixed Account as selected by the Policyowner.
Thereafter, net premiums are allocated to the Subaccounts or the Fixed Account
according to the latest Policyowner instructions. After the first policy year,
all premiums are subject to a premium charge (see below) and then, the net
premium is allocated. The Policyowner may change the allocation instructions for
future premium payments at any time. The Policyowner may also make a special
designation for unscheduled premiums. Subject to certain restrictions, a
Policyowner may transfer amounts among the Subaccounts. (See Allocation of
Premiums and Cash Value, page 25).
CHARGES
PREMIUM CHARGES. No premium charges will be deducted from premium payments made
during the first year. However, a charge of 2 1/2% of the premiums will be
deducted from premium payments made after the first year to reimburse AVLIC for
premium taxes.
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MONTHLY DEDUCTIONS FROM THE CASH VALUE. On each monthly activity date, the cash
value will be reduced by the monthly deduction. The monthly deduction is equal
to: (a) a charge for the cost of insurance for the current policy month, plus,
(b) one-twelfth of any flat extra rating charge (See Monthly Deduction, page 26
and Rate Class, page 27).
DAILY CHARGES AGAINST THE ACCOUNT. A Daily Charge will be imposed at an annual
rate of 1.20% of the average daily net assets of each Subaccount, but not the
Fixed Account, to compensate AVLIC for certain mortality and expense risks and
administrative costs incurred in connection with the Policy. (See Daily Charges
Against the Account, page 27).
No charges are currently made against the Account for federal, state or local
taxes (in addition to state premium taxes). If there is a material change from
the expected treatment of AVLIC under federal, state or local tax laws, AVLIC
may determine to make deductions from the Account to pay those taxes. (See
Federal Tax Matters, page 31).
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 10).
CASH SURRENDER CHARGE. If a Policy is surrendered prior to the 7th policy
anniversary, AVLIC will assess a cash surrender charge based upon percentages of
premiums actually paid during the first policy year, limited as shown in the
policy schedule pages. Subject to other considerations, the Policyowner may
decide to minimize the cash surrender charge by paying only the minimum amount
required during the first policy year. However, the amount paid will affect the
values and costs under the Policy and the duration of the Policy.
AVLIC has voluntarily lowered its maximum surrender charge to 9%. This would
affect the surrender charge for the first 3 years. The Policy provides that
should the Policyowner surrender during the first seven policy years AVLIC may
assess a cash surrender charge beginning with 11.5% during the first year
grading off to 0% during the next seven years. The maximum charge allowed by the
Policy is based on a 9% deferred sales cost and a 2.5% charge for premium tax.
Because the cash surrender charge may be significant upon early surrender,
prospective Policyowners should purchase a Policy only if they do not intend to
surrender the Policy for a substantial period.(See Cash Surrender Charge, page
28).
TRANSFER CHARGE. The first 15 transfers per policy year will be allowed free of
charge. Thereafter a transfer charge of $10 may be assessed for each transfer of
cash value among Subaccounts, or the Fixed Account, to compensate AVLIC for
administrative costs in handling the transfer. The transfer charge will be
deducted from the amount transferred. Transfers may be made from the Subaccounts
to the Fixed Account. One hundred percent of the amount deposited, plus interest
thereon, may be transferred out of the Fixed Account during the 30 day period
following the yearly anniversary date of the Policy. (See Transfer Charge, page
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% of the amount withdrawn. The
charge will be deducted from the amount paid as a result of the withdrawal and
will compensate AVLIC for the administrative costs of partial withdrawals. (See
Partial Withdrawal Charge, page 28).
THE ISSUER
The Policy is issued by AVLIC, which is a Nebraska stock life insurance company.
A separate account of AVLIC, Ameritas Variable Life Insurance Company Separate
Account V ("Account"), has been established to hold the assets supporting the
Policy. The Account has twenty-six Subaccounts that support the Policies which
correspond to, and invest in, the portfolios of the Funds. For more detailed
information about AVLIC and the Account, see Ameritas Variable Life Insurance
Company and the Account, page 8. The financial statements for AVLIC and the
Account can be found beginning on page 37.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS AND DEATH BENEFIT OPTIONS. So long as the Policy remains
in force, AVLIC will pay the proceeds under the Policy upon receipt of due proof
of death of the Insured. These proceeds will be the Policy's death benefit,
reduced by any outstanding policy debt and any accrued expenses. The proceeds
may be paid in a lump sum or in accordance with an optional payment plan.
<PAGE>
The Policy provides for two death benefit options unless the Extended Maturity
Rider is in effect. Under either option, so long as the Policy remains in force,
the death benefit will not be less than the current Specified Amount of the
Policy. The death benefit may, however, exceed the Specified Amount, depending
upon the investment experience of the Policy. Death Benefit Option A provides
for a level benefit equal to the current Specified Amount of the Policy, unless
the cash value of the Policy on the date of the Insured's death multiplied by
the applicable percentage set forth in the Policy is greater, in which case the
death benefit is equal to that larger amount. Death Benefit Option B provides
for a variable benefit equal to the current Specified Amount of the Policy plus
the Policy's cash value on the date of the Insured's death, or if greater, the
cash value of the Policy on the date of the Insured's death multiplied by the
applicable percentage set forth in the Policy. (See Death Benefit Proceeds, page
17).
If the Extended Maturity Rider is in effect, the Death Benefit will be the Cash
Value.
BENEFITS AT MATURITY. On the maturity date of the Policy, if the Insured is
still living, the Policyowner will be paid the cash value of the Policy less any
outstanding policy debt.
CASH VALUE BENEFITS. The Policy's cash value in the Account will reflect the
amount and frequency of premium payments, the investment experience of the
chosen Subaccounts, policy loans, any partial withdrawals, and any charges
imposed in connection with the Policy. The entire investment risk is borne by
the Policyowner. AVLIC does not guarantee a minimum cash value in the Separate
Account. (See Cash Value, page 19).
The Policyowner may at any time surrender the Policy and receive its cash
surrender value, which is the cash value less any outstanding policy debt, cash
surrender charge and accrued expense charges. (See Surrenders page 21). Subject
to certain limitations, the Policyowner may also make a partial withdrawal from
the Policy and obtain a portion of the cash surrender value at any time and
prior to the maturity date. Partial withdrawals will reduce both the cash value
and the death benefit payable under the Policy. (See Partial Withdrawals, page
21). A charge will be deducted from the amount paid upon partial withdrawal.
(See Partial Withdrawal Charge, page 28).
POLICY LOANS. The Policyowner may exercise certain loan privileges under a
Policy. THIS POLICY MAY BE A MODIFIED ENDOWMENT CONTRACT ("MEC"). THERE ARE
ADVERSE TAX CONSEQUENCES FOR MECS, INCLUDING WHEN A POLICY LOAN PROVISION IS
EXERCISED. (See Tax Treatment of the Policy, page 8, MEC and Tax Penalty on
Early Withdrawals, page 32).
The maximum loan amount, which is the amount that may be borrowed, is 85% of the
cash value less any cash surrender charge and accrued expenses. Texas and
Virginia Policyowners may borrow 100% of the cash value subject to certain
deductions. The minimum loan that may be requested is $1000. The available loan
amount at any time is the maximum loan amount less any outstanding policy debt.
Loans currently will accrue interest on a daily basis at the rate of 4 1/2% per
year on that portion of the outstanding policy debt not exceeding the Earnings
Loan Value and 6% per year on the remainder of the outstanding policy debt.
AVLIC may increase these rates to a maximum of 8%. The amount of any loans
outstanding plus any accrued interest equals the outstanding policy debt.
Interest is due on each policy anniversary and if not paid when due, will be
added to the outstanding loan. When the loan is made or when interest is not
paid when due, an amount sufficient to secure the policy debt is transferred out
of the Account and into AVLIC's general account as security for the loan and
will earn interest at the annual rate of 4.5%, credited on the policy
anniversary. Upon partial or full loan repayment, the portion of the cash value
in the general account securing the repaid portion of the policy loan will be
transferred to the Account or the Fixed Account. Any loan transaction will
permanently affect the values of the Policy. If the outstanding policy debt
exceeds the Policy's cash value less any cash surrender charge and accrued
expenses, the excess must be repaid within the specified time period or the
Policy will terminate without value. Should the policy lapse while loans are
outstanding the portion of the loans attributable to earnings will become
taxable distributions. (See Loan Benefits, page 20).
FLEXIBILITY TO ADJUST DEATH BENEFITS
After the first policy anniversary, the Policyowner has flexibility to adjust
the death benefit by changing the death benefit option. After the second policy
year the Policyowner has flexibility to adjust the death benefit by decreasing
the Specified Amount of the Policy. A change in the Specified Amount and a
change in the death benefit option may only be made once per year, and are
subject to certain limitations. No change will be allowed if the resulting
Specified Amount is less than the minimum allowed. The minimum Specified Amount
during the first three policy years is the amount that a premium of $10,000
($5,000 for ages 0-15) will purchase; thereafter, the minimum is $15,000. A
change in the death benefit option
<PAGE>
from Option A to Option B will require satisfactory evidence of insurability.
Finally, no decrease will be allowed if the Specified Amount is less than
$15,000 in the first three policy years. (See Change in Death Benefit Option,
page 17, and Change in Specified Amount, page 18).
TAX TREATMENT OF THE POLICY
The Internal Revenue Code ("the Code") defines a modified endowment insurance
contract ("MEC") as one where the accumulated amount paid under the contract at
any time during the first 7 contract years exceeds the sum of the net level
premiums which would have been paid on or before that time if the Policy was
paid up after the payment of 7 level annual premiums. Because this is designed
to operate as a single premium contract, the initial premium exceeds the amounts
allowed in the seven pay test. Partial or full surrenders, assignments, policy
pledges, and loans (including loans to pay loan interest) under the Policy will
be taxable to the extent of any gain under the Policy. A 10% penalty tax also
applies to the taxable portion of any distribution prior to the Policyowner
reaching age 59 1/2. The 10% penalty tax does not apply if the Policyowner is
disabled as defined under the Code or if the distribution is paid out in the
form of a life annuity on the life of the Policyowner or the joint lives of the
Policyowner and beneficiary. (See Federal Tax Matters, page 31).
Like death benefits payable under conventional life insurance policies, life
insurance proceeds payable under a Policy should be completely excludable from
the gross income of the beneficiary. As a result, the beneficiary generally will
not be taxed on these proceeds. (See Federal Tax Matters, page 31).
REFUND PRIVILEGE
The Policyowner is granted a period of time (a "free look period") to examine a
Policy and return it for a refund. The Policyowner may cancel the Policy within
45 days after Part I of the application is signed, within 10 days after the
Policyowner receives the Policy, or 10 days after AVLIC delivers a cancellation
notice, whichever is later. The amount of the refund is the greater of the
premium paid or the premium paid adjusted by investment gains or losses. (See
Refund Privilege, page 22).
EXCHANGE PRIVILEGE
During the first 24 months after the Policy date of the Policy, subject to
certain restrictions, the Policyowner may exchange the Policy for a non-variable
life insurance policy issued by AVLIC or an affiliate. The Policy provisions
and applicable charges for the new Policy will be based on the same policy date
and issue age as under the Policy. (See Exchange Privilege, page 23).
AVLIC AND THE ACCOUNT
AMERITAS VARIABLE LIFE INSURANCE COMPANY
Ameritas Variable Life Insurance Company ("AVLIC") is a stock life insurance
company organized in the State of Nebraska. AVLIC was incorporated on June 22,
1983 and commenced business December 29, 1983. AVLIC is currently licensed to
sell life insurance in 46 states and the District of Columbia. AVLIC's financial
statements may be found at page 45.
AVLIC is a wholly-owned subsidiary of AMAL Corporation, a Nebraska stock
company. AMAL Corporation is a joint venture of Ameritas Life Insurance Corp.
(Ameritas Life), which owns a majority interest in AMAL Corporation; and AmerUs
Life Insurance Company ("AmerUs Life"), an Iowa stock life insurance company ,
which owns a minority interest in AMAL Corporation. The Home Offices of both
AVLIC and Ameritas Life are at One Ameritas Way, 5900 "O" Street, P.O. Box
82550, Lincoln, Nebraska 68501.
On April 1, 1996 Ameritas Life consummated an agreement with AmerUs Life whereby
AVLIC became a wholly-owned subsidiary of a newly formed holding company, AMAL
Corporation. Under terms of the agreement the AMAL Corporation is 66% owned by
Ameritas Life and 34% owned by AmerUs Life. AmerUs Life has options to purchase
an additional interest in AMAL Corporation if certain conditions are met. There
are no other owners of 5% or more of the outstanding voting securities of AVLIC.
<PAGE>
Ameritas Life and its subsidiaries had total assets at December 31, 1996 of over
$2.9 billion. AmerUs Life had total assets as of December 31, 1996 of over
$4.3 billion.
AVLIC has a rating of A (Excellent) from A.M. Best Company, a firm that analyzes
insurance carriers, and a rating of AA ("Excellent") from Standard & Poor's for
claims-paying ability. Ameritas Life enjoys a long standing A+ (Superior) rating
from A.M. Best.
Ameritas Life, AmerUs Life and AMAL Corporation guarantee the obligations of
AVLIC. This guarantee will continue until AVLIC is recognized by a National
Rating Agency as having a financial rating equal to or greater than Ameritas
Life, or until AVLIC is acquired by another 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 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.
AVLIC may publish in advertisements and reports to Policyowners, the ratings and
other information assigned it by one or more independent rating services. The
purpose of the ratings is to reflect the financial strength and/or claims-paying
ability of AVLIC. The ratings do not relate to the performance of the separate
account. Further AVLIC may publish charts and other information concerning asset
allocation, dollar cost averaging, portfolio rebalancing, earnings sweep,
tax-deference and other investment methods.
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
Ameritas Variable Life Insurance Company Separate Account V ("the Account") was
established under Nebraska law on August 28, 1985.
The assets of the account are held by AVLIC segregated from all of AVLIC's other
assets, are not chargeable with liabilities arising out of any other business
which AVLIC may conduct, and income, gains, or losses of the Account are
credited without regard to the other income, gains, or losses of AVLIC. Although
the assets maintained in the Account will not be charged with any liabilities
arising out of AVLIC's other business, all obligations arising under the
policies are liabilities of AVLIC who will maintain assets in the Account of a
total market value at least equal to the reserve and other contract liabilities
of the Account. The Account will at all times contain assets equal to or greater
than account values invested in the separate account. Nevertheless, to the
extent assets in the Account exceed AVLIC's liabilities in the Account, the
assets are available to cover the liabilities of AVLIC's General Account. AVLIC
may, from time to time, withdraw assets available to cover the General Account
obligations.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any SEC
supervision of the management or investment policies or practices of the
Account. For state law purposes, the Account is treated as a Division of AVLIC.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Account and the funds
available for investment by the Account may appear in advertisements, sales
literature, or reports to Policyowners or prospective purchasers. We may also
provide a hypothetical illustration of Cash Value, Cash Surrender Value and
Death Benefit based on historical investment returns of the Funds for a sample
insured based on assumptions as to age, sex, and other policy specific
assumptions.
We may also provide individualized hypothetical illustrations of Cash Value,
Cash Surrender Value and Death Benefit based on historical investment returns of
the Funds. These illustrations will reflect deductions for fund expenses and
Policy and Account charges, including the Monthly Deduction, Premium Charge and
Cash Surrender Charge. These hypothetical illustrations will be based on the
actual historical experience of the funds as if the Subaccounts had been in
existence and a Policy issued for the same periods as those indicated for the
funds.
<PAGE>
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.
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.
<PAGE>
<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
<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 or the S& P
SmallCap 600 Index, updated quarterly. The Portfolio
may invest up to 35% of its total assets in equity
securities of companies that, at the time of purchase,
have total market capitalization outside the range of
companies included in those Indexes and in excess of
that amount (up to 100% of its assets) during
temporary defensive periods.
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.
<PAGE>
MFS FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
Emerging Growth Series At least 80% normally will be invested in equity Seeks to provide long-term capital growth;
securities of emerging growth companies. Up to 25% dividend and interest income is incidental.
may be invested in foreign securities not including
ADRs.
Utilities Series At least 65%, but up to 100% normally will be Seeks capital growth and current income (above
invested in equity and debt securities of both that available from a portfolio invested
domestic and foreign companies in the utilities entirely in equity securities).
industry. Normally, not more than 35% will be
invested in equity and debt securities of
issuers in other industries, including foreign
securities, emerging market securities and non-dollar
denominated securities.
World Governments Series At least 80% normally will be invested in debt Seeks to provide long-term growth of capital and
securities. May invest up to 100% of assets in future income.
foreign securities, including emerging market
securities.
Research Series Invests in common stocks or securities convertible Seeks to provide long-term growth of capital
into common stocks of companies believed to possess and future income.
better than average prospects for long-term growth.
Up to 10% may be invested in non-investment
grade debt; up to 20% may be invested in foreign
securities (including emerging market issues.)
Growth With Income Series At least 65% will normally be invested in common Seeks to provide reasonable current income and
stocks or securities convertible into common stocks long-term growth of capital and income.
of companies believed to have long-term prospects
for growth and income. Expects to invest not more
than 15% in foreign securities (including emerging
market issues.)
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY
FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Emerging Markets Equity Invests primarily in equity securities of emerging Long-term capital appreciation.
market country issuers with a focus on those countries
whose economies the portfolio's adviser believes to
be developing strongly and in which markets are
becoming more sophisticated.
Global Equity Invests primarily in equity securities of Long-term capital appreciation.
issuers throughout the world, including U.S.
issuers and emerging market countries, using an
approach that is oriented to the selection of
individual stocks that the portfolio's adviser
believes are undervalued.
International Magnum Invests primarily in equity securities of Long-term capital appreciation.
non-U.S. issuers, generally in accordance with
weightings determined by the portfolio's adviser, in
countries comprising the Morgan Stanley Capital
International Europe, Australia, Far East Index,
commonly known as the "EAFE Index."
Asian Equity Invests primarily in equity securities of Long-term capital appreciation.
Asian issuers, excluding Japan, using an
approach that is oriented to the selection of
individual stocks believed by the portfolio's
adviser to be undervalued.
U.S. Real Estate Invests primarily in equity securities of companies Above-average current income and long
primarily engaged in the U.S. real estate industry, term capital appreciation.
including real estate investment trusts.
</TABLE>
<PAGE>
FUND EXPENSE SUMMARY
The information shown below relating to the Funds was provided to AVLIC by the
Funds and AVLIC has not independently verified such information. Each of the
Funds is managed by an investment advisory organization that is not affiliated
with AVLIC. Each such organization is entitled to receive a fee for its services
based on the value of the relevant portfolio's net assets. The amount of
expenses, including the asset based advisory fee referred to above, borne by
each portfolio for the fiscal year ended December 31, 1996, was as follows:
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSES TOTAL
MANAGEMENT
Figures presented may reflect Figures presented may reflect Figures presented
expense reimbursement expense reimbursement may reflect expense
reimbursement
<S> <C> <C> <C>
FIDELITY
Money Market .21% .09% .30%
Equity-Income .51% .05% .56%(1)
Growth .61% .06% .67%(1)
High Income .59% .12% .71%
Overseas .76% .16% .92%(1)
Asset Manager .64% .09% .73%(1)
Investment Grade Bond .45% .13% .58%
Asset Manager: Growth .65% .20% .85%(1)
Index 500 .13% .15% .28%(2)
Contrafund .61% .10% .71%(1)
ALGER AMERICAN (3)
Growth .75% .04% .79%
Income and Growth .625% .185% .81%
Small Capitalization .85% .03% .88%
Balanced .75% .39% 1.14%
MidCap Growth .80% .04% .84%
Leveraged AllCap .85% .24% 1.09%
MFS
Emerging Growth .75% .25%(4) 1.00%(5)
Utilities .75% .25%(4) 1.00%(5)
World Governments .75% .25%(4) 1.00%(5)
Research .75% .25%(4) 1.00%(5)
Growth With Income .75% .25%(4) 1.00%(5)
MORGAN STANLEY
Emerging Markets Equity(6) 1.25% .50% 1.75%
Global Equity(7) .80% .35% 1.15%
International Magnum(7) .80% .35% 1.15%
Asian Equity(7) .80% .40% 1.20%
U.S. Real Estate(7) .80% .30% 1.10%
</TABLE>
<PAGE>
(1) A portion of the brokerage commissions that certain funds pay was used
to reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Without these reductions, the total operating
expenses presented in the table would have been .58% for Equity-Income
Portfolio, .69% for Growth Portfolio, .93% for Overseas Portfolio, .74%
for Asset Manager Portfolio, .74% for Contrafund Portfolio, and .87%
for Asset Manger: Growth Portfolio.
(2) Fidelity agreed to reimburse a portion of Index 500 Portfolio's
expenses during the period. Without this reimbursement, the fund's
management fee, other expenses and total expenses would have been .28%,
.15% and .43% respectively, on an annualized basis.
(3) Alger Management has agreed to reimburse the portfolios to the extent
that the aggregate annual expenses (excluding interest, taxes, fees for
brokerage services and extraordinary expenses) exceed respectively:
Alger American Income and Growth, and Alger American Balanced, 1.25%;
Alger American Small Capitalization, Alger American MidCap Growth,
Alger American Leveraged All Cap, and the Alger American Growth, 1.50%.
As long as the expense limitations continue for a portfolio, if a
reimbursement occurs, it has the effect of lowering the portfolio's
expense ratio and increasing its total return. Included in "Other
Expenses" of Leveraged AllCap is .03% of interest expense.
(4) MFS has agreed to bear expenses for each series, subject to
reimbursement by each series, such that each series "Other Expenses"
shall not exceed .25% of the average daily net assets of the series
during the current fiscal year. Absent this expense arrangement, "Other
Expenses" and "Total" expenses would be .41% and 1.16%, respectively,
for the Emerging Growth Series; 2.00% and 2.75%, respectively, for the
Utilities Series; 1.28% and 2.03%, respectively, for the World
Governments Series; .73% and 1.48%, respectively, for the Research
Series; and 1.32% and 2.07%, respectively, for the Growth With Income
Series.
(5) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series
with its custodian and dividend disbursing agent, and may enter into
other such arrangements and directed brokerage arrangements (which
would also have the effect of reducing the series' expenses). Any such
fee reductions are not reflected under "Other Expenses."
(6) The fund's expenses were voluntarily reduced by the fund's investment
adviser. Absent reimbursement, the management fee, other expenses, and
total expenses would have been 1.25%, 4.92%, and 6.17%, respectively.
(7) This is an estimate of expenses for the fiscal year ending December 31,
1997. MSAM has agreed to a reduction in management fees and to
reimburse each portfolio if necessary, if such fees would cause the
total annual operating expenses to exceed the percentage indicated.
Expense reimbursement agreements are expected to continue in future years but
may be terminated at any time. As long as the expense limitations continue for a
portfolio, if a reimbursement occurs, it has the effect of lowering the
portfolio's expense ratio and increasing its total return.
- ----------------
FIXED ACCOUNT
Owners may elect to allocate all or a portion of their premium payments to the
Fixed Account, and they may also transfer monies from the Separate Account to
the Fixed Account or from the Fixed Account to the Separate Account. (See
Transfers, page 22).
Payments allocated to the Fixed Account and transfers from the Separate Account
to the Fixed Account are placed in the general account of AVLIC, which supports
insurance and annuity obligations. The general account includes all of AVLIC's
assets, except those assets segregated in the separate accounts. AVLIC has the
sole discretion to invest the assets of the general account, subject to
applicable law. AVLIC bears an investment risk for all amounts allocated or
transferred to the Fixed Account and interest credited thereto, less any
deduction for charges and expenses, whereas the owner bears the investment risk
after the expiration of a contract year. Because of exemptive and exclusionary
provisions, interests in the general account have not been registered under the
Securities Act of 1933 (the "1933 Act") nor is the general account registered as
an investment company under the 1940 Act. Accordingly, neither the general
account nor any interest therein
<PAGE>
is generally subject to the provisions of the 1933 or 1940 Act. We understand
that the staff of the SEC has not reviewed the disclosures in this Prospectus
relating to the Fixed Account portion of the Contract; however, disclosures
regarding the Fixed Account portion of the Contract may be subject to generally
applicable provisions of the federal securities laws regarding the accuracy and
completeness of statements made in prospectuses.
AVLIC guarantees that it will credit interest at an effective annual rate of at
least 4.5%. AVLIC may, at its sole discretion, declare higher interest rate(s)
for amounts allocated or transferred to the general account ("Declared
Rate(s)"). Each month AVLIC will establish the declared rate for the monies
transferred or allocated to the Fixed Account that month. The owner will earn
interest on the amount transferred or allocated (after the refund period) at the
rate declared for a 12-month period effective the month of transfer or
allocation. After the end of the 12- month period, the monies will earn interest
at the rate established by AVLIC for each month.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Generally AVLIC reserves the right, subject to applicable law, and, if
necessary, after notice and prior approval from the SEC and/or state insurance
authorities, to make additions to, deletions from, or substitutions for the
shares that are held in the Account or that the Account may purchase. The
Account may, to the extent permitted by law, purchase other securities for other
contracts or permit a conversion between contracts upon request by the
Policyowners.
AVLIC may, in its sole discretion, also establish additional Subaccounts of the
Account, which would invest in shares corresponding to a new portfolio of the
Fund or in shares of another investment company or eliminate one or more
Subaccounts if marketing needs, tax considerations or investment conditions
warrant. Any new Subaccounts may be made available to existing Policyowners on a
basis to be determined by AVLIC.
If any of these substitutions or changes are made, AVLIC may by appropriate
endorsement change the Policy to reflect the substitution or change. If AVLIC
deems it to be in the best interest of Policyowners, and subject to any
approvals that may be required under applicable law, the Account may be operated
as a management company under the 1940 Act, it may be deregistered under that
Act if registration is no longer required, or it may be combined with other
AVLIC Separate Accounts. To the extent permitted by applicable law, AVLIC may
also transfer the assets of the Account associated with the Policies to another
Separate Account. In addition, AVLIC may, when permitted by law, restrict or
eliminate any voting rights of Policyowners or other persons who have voting
rights as to the Account.
The Policyowner will be notified of any material change in the investment policy
of any portfolio in which the owner has an interest.
POLICY BENEFITS
The rights and benefits under the Policy are summarized in this prospectus. The
Policy itself is what controls the rights and benefits. A copy of the Policy is
available upon request from AVLIC.
PURPOSES OF THE POLICY
The Policy is designed to provide the Policyowner with both lifetime insurance
protection to the policy anniversary nearest the Insured's 95th birthday and
flexibility in connection with the amount and frequency of premium payments and
the level of life insurance proceeds payable under the Policy. Unlike
traditional life insurance, other than the minimum first year premium, the
Policyowner is not required to pay scheduled premiums to keep a Policy in force.
The Policy is designed so that a single premium payment may be made, or the
Policyowner has the flexibility to vary subsequent premium payments.
Moreover, the Policy allows a Policyowner to adjust the level of death benefits
payable under the Policy without having to purchase a new Policy by decreasing
the Specified Amount or changing the death benefit option. Thus, as insurance
needs
<PAGE>
or financial conditions change, the Policyowner has the flexibility to adjust
life insurance benefits and vary premium payments.
The death benefit may, and the cash value will, vary with the investment
experience of the chosen Subaccounts of the Account. The Policyowner reaps the
benefit of any appreciation in value of the underlying assets, but bears the
investment risk of any depreciation in value. As a result, whether or not a
Policy continues in force may depend in part upon the investment experience of
the chosen Subaccounts. The failure to pay a planned periodic premium will not
necessarily cause the Policy to lapse, but the Policy could lapse even if
planned periodic premiums have been paid, depending upon the investment
experience of the Account.
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, AVLIC will, upon due proof of the
Insured's death, pay the death benefit proceeds of a Policy in accordance with
the death benefit option in effect at the time of the Insured's death. The
amount of the death benefits payable will be determined at the end of the
valuation period during which the Insured's death occurred. The death benefit
proceeds may be paid in a lump sum or under one or more of the payment options
set forth in the Policy. (See Payment Options, page 20).
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options, unless the Extended Maturity
Rider is in effect, and the Policyowner selects one of the options in the
application. The death benefit under either option will never be less than the
current Specified Amount of the Policy as long as the Policy remains in force.
(See Policy Lapse and Reinstatement, page 25). The minimum Specified Amount
currently is the amount that a premium of $10,000 ($5,000 for ages 0-15) will
purchase.
OPTION A. Under Option A, the death benefit is the current Specified Amount of
the Policy or, if greater, the applicable percentage of cash value on the date
of death. The applicable percentage is 250% for Insureds with an attained age 40
or younger on the policy anniversary prior to the date of death. For Insureds
with an attained age over 40 on that policy anniversary, the percentage
declines. For example, the percentage at age 40 is 250%, at age 50 is 185%, at
age 60 is 130%, at age 70 is 115%, at age 80 is 108%, and at age 90 is 100%.
Accordingly, under Option A the death benefit will remain level at the Specified
Amount unless the applicable percentage of cash value exceeds the current
Specified Amount, in which case the amount of the death benefit will vary as the
cash value varies. Policyowners who prefer to have favorable investment
performance reflected in higher cash value, rather than increased insurance
coverage, generally should select Option A.
OPTION B. Under Option B, the death benefit is equal to the current Specified
Amount plus the cash value of the Policy or, if greater, the applicable
percentage of the cash value on the date of death. The applicable percentage is
the same as under Option A: 250% for Insureds with an attained age 40 or younger
on the policy anniversary prior to the date of death, and for Insureds with an
attained age over 40 on that policy anniversary the percentage declines as in
Option A. Accordingly, under Option B the amount of the death benefit will
always vary as the cash value varies (but will never be less than the Specified
Amount). Policyowners who prefer to have favorable investment performance
reflected in increased insurance coverage, rather than higher cash values,
generally should select Option B.
EXTENDED MATURITY
If the Extended Maturity Rider is in effect, the Death Benefit will be the Cash
Value.
CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit option in effect
may be changed once per year any time after the first policy year by sending
AVLIC a written request for change. AVLIC will require evidence of insurability
before making a change in the death benefit option from Option A to Option B.
The effective date of such a change will be the monthly activity date on or
following the date the change is approved by AVLIC.
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If the death benefit option is changed from Option A to Option B, the death
benefit after the change will equal the Specified Amount before the change plus
the cash value on the effective date of the change. If the death benefit option
is changed from Option B to Option A, the death benefit after the change will
equal the death benefit before the change minus the cash value on the effective
date of change.
No charges will be imposed upon a change in death benefit option, nor will such
a change in and of itself result in an immediate change in the amount of a
Policy's cash value. However, a change in the death benefit option may affect
the monthly cost of insurance charge since this charge varies with the net
amount at risk, which is the amount by which the death benefit that would be
payable on a monthly activity date exceeds the cash value on that date. Changing
from Option B to Option A will generally decrease the net amount at risk, and
therefore cost of insurance charges. Changing from Option A to Option B will
generally result in a net amount at risk that remains level. Such a change,
however, will result in an increase in the cost of insurance charges over time,
since the cost of insurance rates increase with the Insured's age. If, however,
the change was from Option A to Option B, the cost of insurance rate may be
different for the increased death benefit. (See Charges and Deductions - Cost of
Insurance, page 26).
CHANGE IN SPECIFIED AMOUNT. Subject to certain limitations, after the second
policy year a Policyowner may decrease the Specified Amount of a Policy. A
decrease in Specified Amount may affect the cost of insurance rate and the net
amount at risk, both of which may affect a Policyowner's cost of insurance
charge. (See Charges and Deductions - Cost of Insurance, page 26).
Any decrease in the Specified Amount will become effective on the monthly
activity date on or following the date a written request is approved by AVLIC.
The Specified Amount of a Policy may be changed only once per year, and AVLIC
may limit the size of a change in a policy year.
The Specified Amount remaining in force after any requested decrease may not be
less than the amount a minimum first year premium of $10,000 ($5,000 for ages
0-15) would have purchased during the first 3 Policy years and $15,000
thereafter. Further, no decrease will be allowed if the Specified Amount is less
than $15,000 in the first three Policy years. In addition, if following the
decrease in Specified Amount, the Policy would not comply with the maximum
premium limitations required by federal tax law (see Premium Limitations, page
24), the decrease may be limited or cash value may be returned to the
Policyowner at the Policyowner's election, to the extent necessary to meet these
requirements.
METHODS OF AFFECTING INSURANCE PROTECTION. A Policyowner may increase or
decrease the pure insurance protection provided by a Policy - the difference
between the death benefit and the cash value - in several ways as insurance
needs change. These ways include decreasing the Specified Amount of insurance,
changing the level of premium payments, and, to a lesser extent, making a
partial withdrawal of the Policy's cash value. The consequences of each of these
methods will depend upon the individual circumstances.
DURATION OF THE POLICY. The Policy will not be placed in force if the minimum
first year premium has not been paid on or before the date the Policy is
delivered. The Policy will remain in force so long as the cash surrender value
is sufficient to pay the monthly deduction. (See Monthly Deduction, page 26).
Where, however, the cash surrender value is insufficient to pay the monthly
deduction and the grace period expires without an adequate payment by the
Policyowner, the Policy will lapse and terminate without value. (See Policy
Lapse and Reinstatement, page 25).
CASH VALUE
The Policy's cash value in the Account will reflect the investment performance
of the chosen Subaccounts of the Account, the net premiums paid, any partial
withdrawals, and the charges assessed in connection with the Policy. A
Policyowner may at any time surrender the Policy and receive the Policy's cash
surrender value. (See Surrenders, page 21). There is no guaranteed minimum cash
value.
DETERMINATION OF CASH VALUE. Cash value is determined on each valuation date. On
the policy issue date, the cash value in a Subaccount will equal the portion of
any premium allocated to the Subaccount, reduced by the portion of the first
monthly deduction allocated to that Subaccount. (See Allocation of Premiums and
Cash Value, page 25). Thereafter, on each valuation date, the cash value of a
Policy will equal:
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(1) The aggregate of the values attributable to the Policy in each of the
Subaccounts on the valuation date, determined for each Subaccount by
multiplying the Subaccount's unit value by the number of Subaccount units
allocated to the Policy; plus
(2) The value of the Fixed Account; plus
(3) Any cash value impaired by policy debt held in the general account; plus
(4) Any net premiums received on that valuation date; less
(5) Any partial withdrawal, and its charge, made on that valuation date; less
(6) Any monthly deduction to be made on that valuation date; less
(7) Any federal or state income taxes charged against the cash value.
In computing the Policy's cash value, the number of Subaccount units allocated
to the Policy is determined after any transfers among Subaccounts, or the Fixed
Account, (and deduction of transfer charges) but before any other Policy
transactions, such as receipt of net premiums and partial withdrawals, on the
valuation date. Because the cash value is dependent upon a number of variables,
a Policy's cash value cannot be predetermined.
THE UNIT VALUE. The unit value of each Subaccount reflects the investment
performance of that Subaccount. The unit value of each Subaccount shall be
calculated by (i) multiplying the per share net asset value of the corresponding
Fund portfolio on the valuation date times the number of shares held by the
Subaccount, before the purchase or redemption of any shares on that date; minus
(ii) a Daily Charge not exceeding an annual rate of 1.20% for mortality and
expense risk (.90%) and administrative costs (.30%); and (iii) dividing the
result by the total number of units held in the Subaccount on the valuation
date, before the purchase or redemption of any units on that date. (See Daily
Charges Against the Account, page 27).
VALUATION DATE AND VALUATION PERIOD. A valuation date is each day on which the
New York Stock Exchange ("NYSE") is open for trading. A valuation period is the
period between two successive valuation dates, commencing at the close of the
NYSE on each valuation date and ending at the close of the NYSE on the next
succeeding valuation date.
BENEFITS AT MATURITY
If the Insured is living, AVLIC will pay the cash value of the Policy, less
outstanding policy debt, on the maturity date. The Policy will mature on the
policy anniversary nearest the Insured's 95th birthday, if living, unless the
maturity has been extended by election of the Extended Maturity Rider.
PAYMENT OF POLICY BENEFITS
Death benefit proceeds under the Policy will usually be paid within seven days
after AVLIC receives due proof of death. Cash value benefits will ordinarily be
paid within seven days of receipt of a written request. Payments may be
postponed in certain circumstances. (See Postponement of Payments, page 30). The
Policyowner may decide the form in which the benefits will be paid. During the
Insured's lifetime, the Policyowner may arrange for the death benefit proceeds
to be paid in a lump sum or under one or more of the optional methods of payment
described below. These choices are also available if the Policy is surrendered
or matures. If no election is made, AVLIC will pay the benefits in a lump sum.
When death benefits are payable in a lump sum and no election for an optional
method of payment is in force at the death of the Insured, the beneficiary may
select one or more of the optional methods of payment.
An election or change of method of payment must be in writing. A change in
beneficiary revokes any previous settlement election. Further, if the Policy is
assigned, any amounts due to the assignee will first be paid in one sum. The
balance, if any, may be applied under any payment option. Once payments have
begun, the payment option may not be changed.
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PAYMENT OPTIONS. The minimum amount of each payment is $25. If a payment would
be less than $25, AVLIC has the right to make payments less often so that the
amount of each payment is at least $25. Once a payment option is in effect, the
proceeds will be transferred to AVLIC's general account. AVLIC may make other
payment options available in the future. For additional information concerning
these options, see the Policy itself. The following payment options are
currently available:
Option ai- INTEREST PAYMENT OPTION. AVLIC will hold any amount applied under
this option. Interest on the unpaid balance will be paid or credited each month
at a rate determined by AVLIC.
Option aii- FIXED AMOUNT PAYABLE OPTION. Each payment will be for an agreed
fixed amount. Payments continue until the amount AVLIC holds runs out.
Option b- FIXED PERIOD PAYMENT OPTION. Equal payments will be made for any
period selected up to 20 years.
Option c- LIFETIME PAYMENT OPTION. Equal monthly payments are based on the life
of a named person. Payments will continue for the lifetime of that person.
Variations provide for guaranteed payments for a period of time.
Option d- JOINT LIFETIME PAYMENT OPTION. Equal monthly payments are based on the
lives of two named persons. While both are living, one payment will be made each
month. When one dies, the same payment will continue for the lifetime of the
other.
As an alternative to the above payment options, the proceeds may be paid in any
other manner approved by AVLIC. Further, one of AVLIC's affiliates may make
payments under the above payment options. If an affiliate makes the payment, it
will do so according to the rules set out above.
POLICY RIGHTS
LOAN BENEFITS
LOAN PRIVILEGES. AVLIC will permit the Policyowner to borrow money from it using
the Policy as the only security for the loan. The maximum amount that may be
borrowed is 85% of the cash value less the cash surrender charge and any accrued
expenses as of the date of the policy loan. The minimum amount of any loan
request is $1,000. The loan may be completely or partially repaid at any time
while the Insured is living, prior to the maturity date. Loans usually are paid
within 7 days after receipt of a written request. Texas and Virginia
Policyowners may borrow 100% of the surrender value after deducting interest and
policy charges for the remainder of the policy year. LOANS MAY HAVE ADVERSE TAX
CONSEQUENCES. (See Tax Treatment of Policy Proceeds, page 32).
INTEREST. The interest rate charged on the portion of the outstanding policy
debt not exceeding the Earnings Loan Value is 4 1/2% per year. Outstanding
policy debt in excess of the Earnings Loan Value is charged 6% interest per
year. The determination of whether the outstanding policy debt exceeds the
Earnings Loan Value will be made each time a loan is taken. AVLIC may increase
either of these rates to a maximum of 8%. Interest accrues daily and is due on
each policy anniversary date. If unpaid when due, interest will be added to the
amount of the loan and bear interest at the same rate.
EFFECT OF POLICY LOANS. When a loan is made, cash value equal to the amount of
the loan will be transferred from the cash value in the Account to the general
account of AVLIC as security for the indebtedness. The cash value transferred
out of the Account will be allocated among the Subaccounts, or the Fixed
Account, in accordance with the instructions given when the loan is requested.
The minimum amount which can remain in a Subaccount as a result of a loan is
$100. If no instructions are given, the amount will be withdrawn in proportion
to the various deposits in the Subaccount or Fixed Account. If loan interest is
not paid when due in any policy year, on the policy anniversary thereafter,
AVLIC will loan the interest and allocate the amount transferred to secure the
excess indebtedness among the Subaccounts and the Fixed Account as set out just
above. No charge will be imposed for these transfers. A policy loan will
permanently affect the cash value of a Policy, and may permanently affect the
amount of the death benefit, even if the loan is repaid. Should the policy lapse
while policy loans are outstanding the portion of the loans attributable to
earnings will become taxable.
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Cash value in the general account held to secure indebtedness will be credited
with interest at a rate of 4.5% per year. Currently, the net cost to borrow to
the Policyowner ranges from 0% interest per annum (on the amount not exceeding
the Earnings Loan Value) to 1 1/2% per annum. However, the Policy permits a
maximum net cost to borrow of 3 1/2%. Interest earned on amounts held in the
general account will be allocated to the Subaccounts and the Fixed Account on
each policy anniversary in the same proportion that net premiums are being
allocated to those Subaccounts and the Fixed Account at the time. Upon repayment
of indebtedness, the portion of the repayment allocated to a Subaccount in
accordance with the repayment of indebtedness provision (see below) will be
transferred to the Subaccount and increase the cash value in that Subaccount or
the Fixed Account.
OUTSTANDING POLICY DEBT. The outstanding policy debt equals the total of all
policy loans and accrued interest on policy loans. If the policy debt exceeds
the cash value less any cash surrender charge and any accrued expenses, the
Policyowner must pay the excess. AVLIC will send a notice of the amount which
must be paid. If the Policyowner does not make the required payment within the
61 days after AVLIC sends the notice, the Policy will terminate without value. A
lapsed Policy may later be reinstated. (See Policy Lapse and Reinstatement, page
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 cash value in the general account
securing the indebtedness repaid will be allocated among the Subaccounts and the
Fixed Account in the same proportion that net premiums are being allocated to
those Subaccounts at the time of repayment.
SURRENDERS
At any time during the lifetime of the Insured and prior to the maturity date,
the Policyowner may totally surrender the Policy by sending a written request to
AVLIC. Certain partial withdrawals may also be made. Surrenders from the Account
will generally be paid within seven days of receipt of the written request. (See
Postponement of Payments, page 30). SURRENDERS AND PARTIAL WITHDRAWALS MAY HAVE
ADVERSE TAX CONSEQUENCES. (See Modified Endowment Contract; Tax Penalty on Early
Withdrawals page 32).
TOTAL SURRENDERS. If the Policy is being totally surrendered, the Policy itself
must be returned to AVLIC along with the request. AVLIC will pay an amount equal
to the cash surrender value at the end of the valuation period during which the
surrender request is received at AVLIC's Home Office. Coverage under the Policy
will terminate as of the date of a total surrender. A Policyowner may elect to
have the amount paid in a lump sum or under a payment option. (See Payment
Options, page 20).
PARTIAL WITHDRAWALS. Partial withdrawals are irrevocable. The amount of a
partial withdrawal may not exceed the cash surrender value on the date the
request is received and in policy years one through seven, may not exceed 10%
of the minimum first year premium. The cash surrender value after a partial
withdrawal must be at least $1,000. The amount paid will be deducted from the
Policy's cash value at the end of the valuation period during which the request
is received. The amount will be deducted from the Subaccounts according to the
instructions of the Policyowner when the withdrawal is requested, provided that
the minimum amount remaining in a Subaccount as a result of the allocation is
$100. If no instructions are given, the amount will be withdrawn in proportion
to the various deposits in the Subaccount and/or Fixed Account.
The Death Benefit may be reduced by the amount of any partial withdrawal and may
affect the way in which the cost of insurance charge is calculated and the
amount of pure insurance protection under the Policy. (See Monthly Deduction -
Cost of Insurance, page 26; Death Benefits - Methods of Affecting Insurance
Protection, page 18). If Option B is in effect, the Specified Amount will not
change, but the cash value will be reduced.
The Specified Amount remaining in force after a partial withdrawal, during the
first three policy years, may not be less than the amount a premium of $10,000
would purchase ($5,000 for ages 0-15) and thereafter may not be less than
$15,000. Also, no partial withdrawal will be allowed if the Specified Amount is
less than $15,000 in the first three years. Any request for a partial withdrawal
that would reduce the Specified Amount below this amount will not be
implemented. A fee not to exceed the lesser of $50.00 or 2% of the amount
withdrawn is deducted from each partial withdrawal amount paid. Currently the
charge is the lesser of $25 or 2% of the amount withdrawn. (See Partial
Withdrawal Charge, page 28).
<PAGE>
TRANSFERS
Cash value may be transferred among the Subaccounts of the Account. The total
amount transferred each time must be at least $250, or the balance of the
Subaccount, if less. The minimum amount that may remain in a Subaccount after a
transfer is $100. AVLIC will effectuate transfers and determine all values in
connection with transfers on the later of the date designated in the request or
at the end of the valuation period during which the transfer request is
received. Cash value on the date of a transfer will not be affected except to
the extent of any transfer charge. Transfers may also be made from the
subaccounts to the Fixed Account. One hundred percent of the amount deposited,
plus interest thereon, may be transferred out of the Fixed Account during the
30-day period following the yearly anniversary of the date of the Policy.
An unlimited number of transfers may be made, with the first fifteen transfers
per policy year permitted free of charge. A transfer charge may be imposed each
additional time amounts are transferred. This charge will be deducted pro rata
from each Subaccount (and, if applicable, the Fixed Account) in which the
Policyowner is invested. The charge is $10 per transfer. (See Transfer Charge,
page 28). Transfers resulting from policy loans or exercise of the exchange
privilege will not be subject to a transfer charge. In addition, such transfers
will not be counted for purposes of the limitation on the number of transfers
allowed in each year. AVLIC may at any time revoke or modify the transfer
privilege, including the minimum amount transferable. (See also Tax Status of
the Policy, page 32).
The privilege to initiate transactions by telephone will be made available to
Policyowners automatically. AVLIC will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, and if it does not,
AVLIC may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures AVLIC follows for transactions initiated by
telephone include, but are not limited to, requiring the Policyowner to provide
the policy number at the time of giving transfer instructions; AVLIC's tape
recording of all telephone transfer instructions; and the provision, by AVLIC,
of written confirmation of telephone transactions.
Transfers may be subject to additional restrictions at the fund level.
Specifically, fund managers may have the right to refuse sales, or suspend or
terminate the offering of portfolio shares, if they determine that such action
is necessary in the best interests of the portfolio's shareholders. If a fund
manager refuses a transfer for any reason, the transfer will not be allowed.
AVLIC will not be able to process the transfer if the fund manager refuses.
SYSTEMATIC PROGRAMS
AVLIC may offer systematic programs as discussed below. Transfers of
Accumulation Value made pursuant to these programs will be counted in
determining whether the transfer fee applies. Lower minimum amounts may be
allowed to transfer as part of a systematic program. There is no separate charge
for participation in these programs at this time. All other normal transfer
restrictions, as described above, apply. The Fixed Account can not be used in
any systematic program.
PORTFOLIO REBALANCING. Under the Portfolio Rebalancing program, the Owner can
instruct AVLIC to allocate Accumulation Value among the Subaccounts of the
Account on a systematic basis, in accordance with allocation instructions
specified by the Owner.
DOLLAR COST AVERAGING. Under the Dollar Cost Averaging program, the Owner can
instruct AVLIC to automatically transfer, on a systematic basis, a predetermined
amount or percentage specified by the Owner from any one Subaccount to any
Subaccount(s) of the Separate Account.
EARNINGS SWEEP. Permits systematic redistribution of earnings among Subaccounts.
The Owner can request participation in the available programs when purchasing
the Policy or at a later date. The Owner can change the allocation percentage or
discontinue any program by sending written notice or calling the Home Office.
Other scheduled programs may be made available. AVLIC reserves the right to
modify, suspend or terminate such programs at any time. Use of Systematic
Programs may not be advantageous, and does not guarantee success.
REFUND PRIVILEGE
The Policyowner may cancel the Policy within the later of 10 days after the
Policyowner receives it, within 10 days after AVLIC mails a cancellation notice,
or within 45 days of completing Part I of the application. If a Policy is
cancelled within
<PAGE>
this time period, a refund will be paid. The refund will be the greater of the
premium paid or the premium paid adjusted by investment gains or losses.
To cancel the Policy, the Policyowner should mail or deliver it to AVLIC at the
Home Office. A refund of premiums paid by check may be delayed until the check
has cleared the Policyowner's bank. (See Postponement of Payments, page 30).
EXCHANGE PRIVILEGE
During the first 24 policy months after the policy date of the Policy, the
Policyowner may exchange the Policy for a non-variable life insurance policy
issued by AVLIC or an affiliate. No new evidence of insurability will be
required.
The policy date, issue age and risk classification for the Insured will be the
same under the new Policy as under the old. In addition, the policy provisions
and applicable charges for the new Policy and its riders will be based on the
same policy date and issue age as under the Policy. Cash values for the exchange
and payments will be established after making adjustments for investment gains
or losses and after recognizing variance, if any, between payment or charges,
dividends or cash values under the flexible contract and under the new Policy.
The Policyowner may elect either the same Specified Amount or the same net
amount at risk for the new Policy as under the old.
To make the change, the Policy, a completed application for exchange and any
required payment must be received by AVLIC. The exchange will be effective on
the valuation date when all financial and contractual arrangements for the new
Policy have been completed.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and submit
it to AVLIC's Home Office (One Ameritas Way, 5900 "O" Street, P.O. Box 82550,
Lincoln, Nebraska 68501). A Policy will generally be issued only to individuals
80 years of age on their nearest birthday or less who supply satisfactory
evidence of insurability to AVLIC. AVLIC may, at its sole discretion, issue a
Policy to an individual above the age of 80. Acceptance is subject to AVLIC's
underwriting rules, and AVLIC reserves the right to reject an application for
any reason.
The policy date is the effective date of coverage for all coverage applied for
in the original application. The policy date is used to determine policy
anniversary dates, policy years and policy months. The policy date and the issue
date will be the same unless: 1) an earlier policy date is specifically
requested, or 2) when additional premiums or application amendments are needed.
When there are additional requirements before issue (see below) the policy date
will be when it is sent for delivery and the issue date will be the date the
requirements are met.
The issue date is the date that all financial, contractual and administrative
requirements have been met and processed for the Policy. When all required
premiums and application amendments have been received by AVLIC in its Home
Office, the issue date will be the date the Policy is mailed to the Policyowner
or sent to the agent for delivery to the Policyowner. When application
amendments or additional premiums need to be obtained upon delivery of the
Policy, the issue date will be when the policy receipt and Federal funds are
received; and the application amendments are received and reviewed in AVLIC's
Home Office. On the issue date, the premium paid (plus any interest credited on
premiums paid before the issue date less any cost of insurance charge for the
period between the policy date and the issue date) is allocated to the Money
Market Subaccount. After the expiration of the refund period, the accumulation
value will be allocated to the subaccounts or the Fixed Account as selected by
the Policyowner.
Subject to approval, a Policy may be backdated, but the Policy Date may not be
more than six months prior to the date of the application. Backdating can be
advantageous if the Insured's lower Issue Age results in lower cost of insurance
rates. If a Policy is backdated, the minimum initial premium required will
include sufficient premium to cover the backdating period. Monthly deductions
will be made for the period the Policy Date is backdated.
Interim conditional insurance coverage may be issued prior to the policy date,
provided that certain conditions are met, upon the completion of an application
and the payment of a specified amount at the time of the application. The amount
of the
<PAGE>
interim coverage is limited to the smaller of the amount of insurance applied
for, $100,000, or $25,000 if the proposed Insured is under age 10 or over age 60
at his nearest birthday.
PREMIUMS
The minimum first year premium must be paid on or before the date the Policy is
delivered. No insurance will take effect before the minimum first year premium
is received in AVLIC's home office in Federal Funds. No other premiums are
required. The amounts and frequency of the planned periodic premiums are shown
in the Schedule of Premiums in the Policy. However, subject to certain
limitations, a Policyowner has flexibility in determining the frequency and
amount of premiums since the planned periodic premium schedule is not binding on
the Policyowner. The timing and amount of premium payments will have an effect
on the values under, and the duration of, the Policy, including the cash
surrender charge, the cost of insurance charge, the premium tax charges and the
cash value under the Policy.
MINIMUM FIRST YEAR PREMIUM. The minimum first year premium is equal to the
amount designated in the Policy. The minimum first year premium will be no less
than $10,000, except on Insureds who have an age nearest birthday of 0 to 15,
for which the minimum premium will be no less than $5,000. The minimum first
year premium generally approximates 80% of the Guideline Single Premium, as
defined for federal tax purposes, for the initial Specified Amount. The
Guideline Single Premium is based on the single premium that would be required
to provide the future benefits under the Policy, computed using certain
assumptions, including an assumed interest rate of 6% and standard guaranteed
cost of insurance rates and charges and the premium loads. There is no
representation that the Policy will not lapse if the minimum first year premium
is paid, nor is there a guarantee that the Policy will not lapse even if planned
periodic premiums are paid.
PREMIUM FLEXIBILITY. A Policyowner may make a single premium payment, make
unscheduled premium payments at any time in any amount, or skip planned periodic
premium payments, subject to the premium limitations described below. Therefore,
unlike conventional insurance policies, this Policy does not obligate the
Policyowner to pay premiums in accordance with a rigid and inflexible premium
schedule.
The level of premium payments does, however, affect the nature of the Policy,
including the amount of pure insurance coverage and the charge for that
coverage. Comparing two Policies that are identical in all respects other than
the amount of the initial premium paid, the Policy with the larger initial
premium will have a greater cash value and, therefore, will provide less pure
insurance protection (a lower net amount at risk) and have a smaller monthly
cost of insurance charge. AVLIC does reserve the right to limit the number and
amount of additional or unscheduled premium payments.
PLANNED PERIODIC PREMIUMS. At the time the Policy is issued, if the initial
premium is less than 100% of the Guideline Single Premium, the Policyowner may
determine a planned periodic premium schedule that provides for the payment of
level premiums at selected intervals; subject, however, to a minimum planned
periodic premium schedule of $1,200 on an annual basis and a maximum schedule of
no greater than the limitation on total premiums established by federal tax law.
The Policyowner is not required to pay premiums in accordance with this
schedule. The Policyowner has considerable flexibility to alter the amount and
frequency of premiums paid.
Policyowners can also change the frequency and amount of planned periodic
premiums by sending a written request to the Home Office, although AVLIC
reserves the right to limit any increase. Premium payment notices will be sent
annually, semi-annually or quarterly depending upon the frequency of the planned
periodic premiums. Payment of the planned periodic premiums does not guarantee
that the Policy remains in force. Instead, the duration of the Policy depends
upon the Policy's cash surrender value. (See Duration of the Policy, page 18).
Thus, even if planned periodic premiums are paid by the Policyowner, the Policy
will nonetheless lapse any time cash surrender value is insufficient to pay
certain monthly charges, and a grace period expires without a sufficient
payment. (See Policy Lapse and Reinstatement, page 25).
Any premium received in an amount different from the planned periodic premium
will be considered an unscheduled premium.
PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both
planned and unscheduled, exceed the current maximum premium limitations
established by federal tax laws. If at any time a premium is paid which would
result in total premiums exceeding the current maximum premium limitation, AVLIC
will only accept that portion of the premium which will make total premiums
equal the maximum. Any part of the premium in excess of that amount will be
returned or applied
<PAGE>
as otherwise agreed and no further premiums will be accepted until allowed by
the current maximum premium limitations prescribed by law. AVLIC may also
establish a minimum acceptable premium amount.
ALLOCATION OF PREMIUMS AND CASH VALUE
ALLOCATION OF PREMIUMS. In the application for a Policy, the Policyowner
allocates premiums to one or more Subaccounts of the Account and/or to the Fixed
Account. Allocations must be whole number percentages and must total 100%. The
allocation for future premiums may be changed without charge at any time by
providing proper notification to the Home Office.
The initial premium is allocated as of the issue date of the Policy to the Money
Market Subaccount for 13 days. Thereafter, the accumulation value will be
allocated to the Subaccounts or the Fixed Account as selected by the
Policyowner. Premium payments received by AVLIC prior to the issue date are held
in the general account and are credited with interest at a rate determined by
AVLIC for the period from the date the payment has been converted into Federal
Funds that are available to AVLIC until the date the amounts are transferred to
the Money Market Subaccount, but in no event will interest be credited prior to
the policy date. After the first policy year, all premiums are subject to a
premium charge, and thus the net premium is allocated to the selected Subaccount
or the Fixed Account. If there is any outstanding policy debt at the time of
payment, AVLIC will treat it as a premium payment unless otherwise instructed in
proper written notice.
The value of amounts allocated to Subaccounts of the Account will vary with the
investment performance of these Subaccounts, and the Policyowner bears the
entire investment risk. This will affect the Policy's cash value, and may affect
the death benefit as well. Policyowners should periodically review their
allocations of premiums and values in light of market conditions and overall
financial planning requirements.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make a
planned periodic premium payment will not itself cause the Policy to lapse.
Lapse will occur when the cash surrender value is insufficient to cover the
monthly deduction, and a grace period expires without a sufficient payment. The
grace period is 61 days from the date AVLIC mails a notice that the grace period
has begun. AVLIC will notify the Policyowner at the beginning of the grace
period by mail addressed to the last known address on file with AVLIC. The
notice will specify the premium required to keep the Policy in force. Failure to
pay the required amount within the grace period will result in lapse of the
Policy. If the Insured dies during the grace period, any overdue monthly
deductions and outstanding policy debt will be deducted from the proceeds.
If the cash surrender value is insufficient to cover the monthly deduction, the
Policyowner must pay a premium during the grace period sufficient to cover the
monthly deduction. (See Charges and Deductions, page 26).
REINSTATEMENT. A lapsed Policy may be reinstated any time within 2 years after
the end of the grace period (or if required by state law, longer periods), but
before the maturity date. Reinstatement will be affected based on the Insured's
underwriting classification at the time of the reinstatement. Reinstatement is
subject to the following:
1. Evidence of insurability of the Insured satisfactory to AVLIC;
2. Payment of a premium equal to the greater of $1,000 or an amount that,
after the deduction of premium charges, is large enough to cover the
monthly deductions for at least the three policy months commencing with the
effective date of reinstatement; and
3. Any policy debt will be reinstated with interest due and accrued.
4. The Policy cannot be reinstated if it has been surrendered for its full
cash surrender value.
The amount of cash value on the date of reinstatement will be equal to the
amount of the cash value on the date of lapse, increased by the premium paid at
reinstatement, less the premium charges and the amounts stated above, plus that
part of the deferred sales load (i.e., cash surrender charge) which would apply
if the Policy were surrendered on the date of reinstatement. The last addition
to the cash value is designed to avoid duplicate cash surrender charges. The
original policy date will be used for purposes of calculating the cash surrender
charge. If any policy debt was reinstated, that debt will be
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held in AVLIC's general account. Cash value calculations will then proceed as
described under "Determination Of Cash Value" on page 18.
The effective date of reinstatement will be the first monthly activity date on
or next following the date of approval by AVLIC of the application for
reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate AVLIC for:
(1) providing the insurance benefits set forth in the Policy and any optional
insurance benefits added by rider; (2) administering the Policy; (3) assuming
certain risks in connection with the Policy; and (4) incurring expenses in
distributing the Policy. The nature and amount of these charges are described
more fully below.
PREMIUM CHARGE
No premium charges will be deducted from premium payments made during the first
policy year prior to their allocation to the selected Subaccounts or the Fixed
Account. However, a charge equal to 2.5% of the premium will be deducted from
each payment made after the first policy year prior to allocation among the
selected Subaccounts to reimburse AVLIC for premium taxes. Various states and
their subdivisions impose a tax on premiums received by insurance companies.
Premium taxes vary from state to state.
Although no deduction for premium taxes is made from premiums paid during the
first policy year, upon surrender, a portion of the cash surrender charge
includes a charge for state premium taxes of no greater than 2.5% of the
premiums paid. (See "Cash Surrender Charge," page 28). The charges for premium
taxes represent an amount AVLIC considers necessary to pay all premium taxes
imposed by the states and their subdivisions.
MONTHLY DEDUCTION
Charges will be deducted on each monthly activity date from the cash value of
the Policy to compensate AVLIC for insurance provided. The monthly deduction
includes: (a) the cost of insurance for the current policy month, plus (b)
one-twelfth of any flat extra rating charge. The monthly deduction will be
deducted as of the policy date and on each monthly activity date thereafter. It
will be allocated among the Subaccounts or the Fixed Account on a pro rata
basis. Each of these charges is described in more detail below.
COST OF INSURANCE. Because the cost of insurance depends upon several variables,
the cost for each policy month can vary from month to month. AVLIC will
determine the monthly cost of insurance charges by multiplying the applicable
cost of insurance rate by the net amount at risk for each policy month. The net
amount at risk on any monthly activity date is the amount by which the death
benefit which would have been payable on that monthly activity date exceeds the
cash value on that date.
COST OF INSURANCE RATE. The annual cost of insurance rate is based on the
Insured's sex, attained age, policy duration and risk class. The rate will vary
if the Insured is a smoker or non-smoker or is considered a substandard risk
classification and rated with a tabular extra rating. For the initial Specified
Amount, the cost of insurance rate will not exceed those shown in the Schedule
of Guaranteed Annual Cost of Insurance Rates shown in the schedule pages of the
Policy. These guaranteed rates are based on the Insured's age nearest birthday,
risk class, and the 1980 Commissioners Standard Ordinary Smoker and Non-Smoker,
Male and Female Mortality Tables. The cost of insurance rate, surrender charges
and payment options for policies issued in Massachusetts, Montana and certain
other states are on a sex neutral (unisex) basis. Any change in the cost of
insurance rates will apply to all persons of the same age, sex and risk class
and whose policies have been in effect for the same length of time.
If the underwriting class for any increase in death benefit resulting from a
change in death benefit option from A to B is not the same as the underwriting
class at issue, the cost of insurance rate used after such increase will be a
composite rate based
<PAGE>
upon a weighted average of the rates of the different underwriting classes.
Decreases will also be reflected in the cost of insurance rate as discussed
earlier. The actual charges made during the Policy year will be shown in the
annual report delivered to Policyowners.
RATE CLASS. The rate class of an Insured may affect the cost of insurance rate.
AVLIC currently places Insureds into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with higher mortality risks. If a Policy is rated at
issue with a tabular extra rating, the guaranteed rate is a multiple of the
guaranteed rate for a standard issue. This multiple factor is shown in the
Schedule of Benefits in the Policy.
Insureds may also be assigned a flat extra rating to reflect certain additional
risks. The flat extra rating will not impact the cost of insurance rate, but
1/12 of any flat extra cost will be deducted as part of the monthly deduction on
each monthly activity date.
DAILY CHARGES AGAINST THE ACCOUNT
A Daily Charge will be deducted from the value of the net assets of the Account
to compensate AVLIC for mortality and expense risks assumed and the
administrative costs incurred in connection with the Policy. This daily charge
from the Account will be at the rate of 0.003288 percent (equivalent to an
annual rate of 1.20 percent) of the average daily net assets of the Account. The
daily charge will be deducted from the net asset value of the Account, and
therefore the Subaccounts, on each valuation date. Where the previous day or
days was not a valuation date, the deduction on the valuation date will be
0.003288 percent multiplied by the number of days since the last valuation date.
No mortality and expense charges will be deducted from the amounts in the Fixed
Account.
Of this Daily Charge, .002466 percent (equivalent to an annual rate of 0.90
percent) of the average daily net assets of the Account is deducted to
compensate AVLIC for the mortality and expense risk assumed under the Policies.
AVLIC believes that this level of charge is reasonable in relation to the risks
assumed by AVLIC under the Policies. The mortality risk assumed by AVLIC is that
Insureds' may live for a shorter time than assumed, and that an aggregate amount
of death benefits greater than that assumed accordingly will be paid. The
expense risk assumed is that expenses incurred in issuing and administering the
policies will exceed the administrative charges provided in the Policies.
AVLIC also deducts .000822 percent (equivalent to an annual rate of 0.30
percent) of the average daily net assets of the Account on a daily basis to
compensate it for administrative costs in connection with the Policy. AVLIC has
primary responsibility for the administration of the Policy and the Account.
AVLIC intends to administer the Policy itself through an arrangement whereby
AVLIC may purchase some administrative services from Ameritas Life. The services
in connection with the Policy involve issuance of the Policy, ordinary ongoing
maintenance of the Policy, and future changes in the Policy initiated by the
Policyowner. Administrative expenses in connection with the issuance of the
Policy are medical exams, review of applications for insurance underwriting
decisions, and processing of the applications and establishing policy records.
Ongoing ordinary administrative expenses expected to be incurred in connection
with a Policy include premium billing; recordkeeping; processing death benefit
claims, cash surrenders, and policy changes; preparing and mailing reports; and
overhead costs. Future changes in the Policy initiated by the Policyowner
include changes in the death benefit option. Administrative costs for changing
the death benefit option include the cost of processing applications and
changing and establishing policy records. The Daily Charge is assessed
throughout the life of the Policy. AVLIC does not expect to make a profit on the
portion of the charge levied to cover administrative expenses.
TAXES. Currently, no charge will be made against the Account for federal, state
or local income taxes. AVLIC may, however, make such a charge in the future if
income or gains within the Account will incur any federal, or any significant
state or local income tax liability, or if the federal, state or local tax
treatment of AVLIC changes. Charges for such taxes, if any, would be deducted
from the Account as a portion of the Daily Charge. (See Federal Tax Matters,
page 31).
FUND INVESTMENT ADVISORY FEE AND EXPENSES
Because the Account purchases shares of the Funds, the net assets of the Account
will reflect the investment advisory fees and other expenses incurred by the
Funds. The investment advisers to the Funds will receive compensation with
respect to the Funds' portfolios that they advise at a rate which varies by
portfolio and the size of that portfolio. (See The Funds, page 10).
<PAGE>
AVLIC may receive administrative fees from the investment advisers of certain
funds.
CASH SURRENDER CHARGE
If a Policy is surrendered prior to the 7th policy anniversary, AVLIC will
assess a cash surrender charge based upon percentages of the premiums actually
paid during the first policy year, limited as shown in the policy schedule
pages. Paying less premium in the first year generally will have the effect of
reducing the cash surrender charge. However, depending upon the investment
experience, if the Policyowner chooses to pay less premium in the first year,
the cost of insurance charge may increase, the premium tax charge may be
greater, the Policy Values may be reduced and there is an increased risk that
the Policy will lapse. A portion of the cash surrender charge includes a charge
to cover state premium taxes. The remainder of the charge is deducted to
compensate AVLIC for the cost of distributing the Policy. The cost includes
agents' commissions, the printing of Prospectuses and sales literature, and
advertising.
The sales load portion of the cash surrender charge in any policy year is not
necessarily related to actual distribution expenses incurred in that year.
Instead, AVLIC expects to incur the majority of distribution expenses in the
early policy years and to recover amounts to pay such expenses over the life of
the Policy. AVLIC anticipates that funds generated by the sales loads will not
be sufficient to cover distribution expenses. To the extent that sales and
distribution expenses exceed sales loads in any year, AVLIC will pay them from
its other assets or surplus in its general account, which include amounts
derived from mortality and expense risk charges and other charges made under the
Policy. AVLIC believes that this distribution financing arrangement will benefit
the Account and the Policyowners.
AVLIC has voluntarily lowered its maximum surrender charge to 9%, which amount
will be charged on surrenders during policy years one, two and three. The Policy
provides that surrender charges may equal, respectively, 11.5%, 10.5% and 9.5%
for the first three years. Thereafter, the cash surrender charge grades to 8.5%
in year four, 7% in year five, 5% in year six, 2% in year seven and 0% after the
seventh year. The charge allowed by the Policy is based on a 9% sales load and a
2.5% charge for premium tax. The sales load and premium tax components of the
cash surrender charge grade down proportionately. There is no cash surrender
charge assessed upon decreases in the Specified Amount of the Policy or partial
withdrawals of cash value. There is no additional cash surrender charge
attributable to payments made after the first policy year. Because the cash
surrender charge may be significant upon early surrender, prospective
Policyowners should purchase a Policy only if they do not intend to surrender
the Policy for a substantial period.
TRANSFER CHARGE
A transfer charge of $10.00 may be imposed for each additional transfer among
the Subaccounts or the Fixed Account after fifteen per policy year to compensate
AVLIC for the costs of effecting the transfer. Since the charge reimburses AVLIC
for the cost of effecting the transfer only, it does not expect to make any
profit from the 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. The amount of the
transfer charge is guaranteed not to be increased.
PARTIAL WITHDRAWAL CHARGE
A charge will be imposed for each partial withdrawal to compensate AVLIC for the
administrative costs in effecting the requested payment and in making necessary
calculations for any reductions in Specified Amount which may be required by
reason of the partial withdrawal. The charge will be deducted from the amount of
the withdrawal. The current charge made will be the lesser of 2% of the amount
withdrawn or $25. This charge is guaranteed not to be more than the lesser of
$50 or 2% of the amount withdrawn. AVLIC does not expect to make any profit from
the partial withdrawal charge.
GENERAL PROVISIONS
THE CONTRACT
The Policy, the application, any supplemental applications, and any amendments
or endorsements make up the entire contract. Only the President, Vice President,
Secretary or Assistant Secretary can modify the Policy. Any changes must be
<PAGE>
made in writing and approved by AVLIC. No agent has the authority to alter or
modify any of the terms, conditions or agreements of the Policy or to waive any
of its provisions. The rights and benefits under the Policy are summarized in
this prospectus. The Policy itself is what controls the rights and benefits. A
copy of the Policy is available upon request from AVLIC.
CONTROL OF POLICY
The Policyowner is as shown in the application or subsequent written
endorsement. Subject to the rights of any irrevocable beneficiary and any
assignee of record, all rights, options, and privileges belong to the
Policyowner, if living; otherwise to any successor-owner or owners, if living;
otherwise to the estate of the last owner to die.
BENEFICIARY
The Policyowner may name both primary and contingent beneficiaries in the
application. Payments will be shared equally among beneficiaries of the same
class unless otherwise stated. If a beneficiary dies before the Insured,
payments will be made to any surviving beneficiaries of the same class;
otherwise to any beneficiary(ies) of the next class; otherwise to the owner;
otherwise to the estate of the owner.
CHANGE OF BENEFICIARY
The Policyowner may change the beneficiary by written request at any time during
the Insured's lifetime unless otherwise provided in the previous designation of
beneficiary. The change will take effect as of the date the change is recorded
at the Home Office. AVLIC will not be liable for any payment made or action
taken before the change is recorded.
CHANGE IN OWNER OR ASSIGNMENT
In order to change the owner of the Policy or assign policy rights, an
assignment of the Policy must be made in writing and filed with AVLIC at its
Home Office. The change will take effect as of the date the change is recorded
at the Home Office, and AVLIC will not be liable for any payment made or action
taken before the change is recorded. Payment of proceeds is subject to the
rights of any assignee of record. A collateral assignment is not a change of
ownership.
PAYMENT OF PROCEEDS
The proceeds are subject first to any indebtedness to AVLIC and then to the
interest of any assignee of record. The balance of any death benefit proceeds
shall be paid in one sum to the designed beneficiary unless an optional method
of payment is selected. If no beneficiary survives the Insured, the proceeds
shall be paid in one sum to the Policyowner, if living; otherwise to any
successor-owner, if living; otherwise to the owner's estate. Any proceeds
payable on the Maturity Date or upon full surrender shall be paid in one sum
unless an optional method of payment is elected.
INCONTESTABILITY
The Policy is incontestable after it has been in force for two years from the
policy date during the lifetime of the Insured. However, this two year provision
shall not apply to riders that provide disability or accidental death benefits.
Any reinstatement of a Policy shall be incontestable only after having been in
force during the lifetime of the Insured for two years after the effective date
of the reinstatement.
MISSTATEMENT OF AGE, SEX, OR SMOKING
If the age, sex, or smoking habits of the Insured have been misstated, the
amount of the death benefit and cash values under the Policy will be adjusted.
The death benefit will be adjusted in proportion to the correct and incorrect
cost of insurance rates. The adjustment in the cash value will be the difference
between the cost of insurance deductions that were made and those that should
have been made.
<PAGE>
SUICIDE
Suicide within two years of the policy date is not covered by the Policy, unless
otherwise provided by state law. If the Insured, while sane or insane, commits
suicide within two years after the policy date, AVLIC will pay only the premiums
received, less any partial withdrawals and any outstanding policy debt. The laws
of Missouri provide that death by suicide at any time is covered by the Policy,
and further, that suicide by an insane person is not a defense to the payment of
Accidental Death Benefits unless the insane person intended suicide when the
Insured applied for the Policy.
POSTPONEMENT OF PAYMENTS
Payment of any amount upon complete surrender, partial withdrawal, policy loans,
benefits payable at death or maturity, and transfers may be postponed whenever:
(i) the New York Stock Exchange is closed other than customary week-end and
holiday closings, or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission; (ii) the Commission by
order permits postponement for the protection of Policyowners; (iii) an
emergency exists, as determined by the Commission, as a result of which disposal
of securities is not reasonably practicable or it is not reasonably practicable
to determine the value of the Account's net assets; or, (iv) surrenders or
partial withdrawals from the Fixed Account may be deferred for up to 6 months
from the date of written request.
Payments under the Policy of any amounts derived from premiums paid by check may
be delayed until such time as the check has cleared the Policyowner's bank.
ACCELERATED BENEFIT RIDER FOR TERMINAL ILLNESS (LIVING BENEFIT RIDER)
Upon satisfactory proof of terminal illness and after the two-year contestable
period (no waiting period in certain states), AVLIC will accelerate the payment
of up to 50% of the lowest scheduled death benefit as provided by eligible
coverage, less an amount up to two guideline level premiums. Future premium
allocations after the payment of the benefit must be allocated to the Fixed
Account. Payment will not be made for amounts less than $4,000 or more than
$250,000 on all policies issued by AVLIC or its affiliates.
AVLIC may charge the lesser of 2% of the benefit or $50 as a withdrawal charge
to cover the costs of administration.
Satisfactory proof of terminal illness must include a written statement from a
licensed physician who is not related to the insured or the Policyowner stating
that the insured has a non-correctable medical condition that, with a reasonable
degree of medical certainty, will result in the death of the insured in less
than 12 months (6 months in certain states) from the physician's statement.
Further, the condition must first be diagnosed while the policy was in force.
The accelerated benefit first will be used to repay an outstanding policy loans
and unpaid loan interest, and will also affect future loans, partial
withdrawals, and surrenders. The accelerated benefit will be treated as a lien
against the death benefit policy value and will thus reduce the proceeds payable
on the death of the insured.
There is no extra premium for this rider. This rider is not available in all
states.
EXTENDED MATURITY RIDER - This rider may be elected by submitting a written
request to AVLIC during the 90 days prior to Maturity Date. If elected, as long
as the Cash Surrender Value is greater than zero, the policy may remain in force
for purposes of providing a benefit at the time of the Insured's death. Once
this rider becomes effective, no further premium payments will be accepted, and
no monthly charges will be made for cost of insurance, riders or flat extra
rating. All other policy provisions not specifically noted herein will remain in
effect while the policy continues in force. Interest on policy loans will
continue to accrue and become part of the policy debt. This rider does not
extend the original Maturity Date for purposes of determining benefits under any
other riders. Death Benefit Proceeds are payable to the beneficiary.
There is no extra premium for this rider. This rider is not available in all
states.
The Internal Revenue Service has not issued a ruling regarding the tax
consequences of this rider.
<PAGE>
REPORTS AND RECORDS
AVLIC will maintain all records relating to the Account and will mail to the
Policyowner, at the last known address of record, within 30 days after each
policy anniversary, an annual report which shows the current cash value, cash
surrender value, death benefit, premiums paid, outstanding policy debt and other
information. The Policyowner will also be sent a periodic report for the Funds
and a list of the portfolio securities held in each portfolio of the Funds.
DISTRIBUTION OF THE POLICIES
Ameritas Investment Corp. a wholly-owned subsidiary of AMAL Corporation and an
affiliated company of AVLIC, will act as the principal underwriter of the
Policies, pursuant to an Underwriting Agreement between itself and AVLIC.
Ameritas Investment Corp. was organized under the laws of the State of Nebraska
on December 29, 1983 and is a registered broker/dealer pursuant to the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers. In 1996, Ameritas Investment Corp. received gross variable
universal life compensation of $10,227,584, and retained $376,122 in
underwriting fees, and $3,222 in brokerage commissions on AVLIC's variable
universal life policies. Ameritas Investment Corp. offers its clients a wide
variety of financial products and services and has the ability to execute stock
and bond transactions on a number of national exchanges. It also has executed
selling agreements with a variety of mutual funds, unit investment trusts and
direct participation programs.
The Policies are sold by individuals who are Registered Representatives of
Ameritas Investment Corp. and who are licensed as life insurance agents for
AVLIC. In addition, Ameritas Investment Corp. has entered into agreements with
other registered broker/dealers to permit their Registered Representatives to
sell the Policies subject to applicable law.
Registered Representatives who sell the Policy will receive commissions based
upon a commission schedule. After issuance of the Policy, commissions will
equal, at most, 5% of premiums paid in the first policy year. Further,
Registered Representatives who meet certain production standards may receive
additional compensation and managers receive override commission with respect to
the policies.
FEDERAL TAX MATTERS
The following discussion provides a general description of the federal income
tax considerations associated with the Policy. This discussion is not intended
as tax advice. Any person concerned about these tax implications should consult
a competent tax advisor. This discussion is based upon AVLIC's understanding of
the present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the` Service').
The following summary does not purport to be complete or to cover all
situations.
Special rules not described in this Prospectus may be applicable in certain
situations. Specifically, this discussion does not address tax provisions that
may be applicable if the Policyowner is a corporation. Moreover, no attempt has
been made to consider in detail any applicable state or other tax (except
premium taxes, see discussion "Premium Charge," page 26) laws.
Counsel and other competent 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 are taken into account in determining the
death benefit and cash value of the Policy. As a result, such net
investment income and realized net capital gains are automatically
retained as part of the reserves under the Policy. AVLIC believes that
Account net investment income and realized net capital gains will not be
taxable to the extent that such income and gains are retained as
reserves under the Policy.
<PAGE>
AVLIC does not currently expect to incur any federal income tax
liability attributable to the Account with respect to the sale of the
Policies. Accordingly, no charge is being made currently to the Account
for federal income taxes. If, however, AVLIC determines that it may
incur such taxes attributable to the Account, it may assess a charge for
such taxes against the Account.
AVLIC may also incur state and local taxes (in addition to premium taxes
for which a deduction from premiums is currently made) in various
states. At present, these taxes are not significant. If there is a
material change in state or local tax laws, charges for such taxes
attributable to the Account, if any, may be assessed against the
Account.
(b) MODIFIED ENDOWMENT CONTRACT. The Code (Section 7702A) also states that a
Policy becomes a "modified endowment contract" if it does not meet a
7-pay premium test described in the section. Because this Policy is
designed to operate generally as a single premium contract, it does not
meet that test. While gains remaining in the Policy continue to be tax
deferred, distributions such as partial or full surrenders, assignments,
policy pledges, and loans (including loans to pay loan interest) under
the Policy will be taxable to the extent of any gain under the Policy.
(c) TAX PENALTY ON EARLY WITHDRAWALS. A 10% penalty tax also applies to the
taxable portion of any distribution such as prior to the Policyowner
reaching age 59 1/2. The 10% penalty tax does not apply if the
Policyowner is disabled as defined under the code or if the distribution
is paid out in the form of a life annuity on the life of the Policyowner
or the joint lives of the Policyowner and beneficiary.
(d) TAX STATUS OF THE POLICY. The Code (Section 7702) includes a definition
of a life insurance contract for federal tax purposes, which places
limitations on the amount of premiums that may be paid for the Policy
and the relationship of the cash value to the death benefit. AVLIC
believes that the Policy meets the statutory definition of a life
insurance contract. If the death benefit of a Policy is changed, the
applicable definitional limitations may change. In the case of a
decrease in the death benefit, a partial surrender, a change 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 cash values, the Policyowner must include in
ordinary income (to the extent of any gain in the Policy)certain amounts
prescribed in Section 7702 which are so distributed.
The Code (Section 817(h)) also authorizes the Secretary of the Treasury
(the "Treasury") to set standards by regulation or otherwise for the
investments of the Account to be 'adequately diversified' in order for
the Policy to be treated as a life insurance contract for federal tax
purposes. The Account, through the Funds, intends to comply with the
diversification requirements prescribed by the Treasury in regulations
published in the Federal Register on March 2, 1989, which affect how
the Funds' assets may be invested.
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 Owner from being considered the
owner of the assets of the Separate 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.
(e) TAX TREATMENT OF POLICY PROCEEDS. AVLIC believes that the Policy will
be treated in a manner consistent with a fixed benefit life insurance
policy for federal income tax purposes. Thus, AVLIC believes that the
death benefit payable prior to the original maturity date under either
death benefit option under the Policy will be excludable from the gross
income of the beneficiary under Section 101(a)(1) of the Code, and the
Policyowner will not be deemed
<PAGE>
to be in constructive receipt of the cash value under the Policy until
its actual surrender. However, in the event of certain cash
distributions under the Policy resulting from any change which reduces
future benefits under the Policy, the distribution will be taxed in
whole or in part as ordinary income (to the extent of gain in the
Policy). See discussion page 32, "Tax Status of the Policy."
Loans received from a MEC will be considered distributions to the extent
of any gain under the Policy. Generally, interest paid on any loan under
a Policy owned by an individual will not be tax deductible. 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 non-variable life insurance
policy (see Exchange Privilege, page 23), may have tax consequences and,
the right to change owners (see General Provisions, page 28), and the
provision for partial withdrawals (see Surrenders, page 21) will have
tax consequences. Upon complete surrender or when maturity benefits are
paid, if the amount received plus any outstanding policy debt exceeds
the total premiums paid that are not treated as previously withdrawn by
the Policyowner, the excess generally will be taxed as ordinary income.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on
applicable law and the circumstances of each Policyowner or beneficiary.
In addition, if the Policy is used in connection with tax-qualified
retirement plans, certain limitations prescribed by the service on, and
rules with respect to the taxation of, life insurance protection
provided through such plans may apply.
SAFEKEEPING OF THE ACCOUNT'S ASSETS
AVLIC holds the assets of the Account. The assets are kept physically segregated
and held separate and apart from the general account assets. AVLIC maintains
records of all purchases and redemptions of Fund shares by each of the
Subaccounts.
THIRD PARTY SERVICES
AVLIC is aware that certain third parties are offering investment advisory,
asset allocation, money management and timing services in connection with the
contracts. AVLIC does not engage any such third parties to offer such services
of any type. In certain cases, AVLIC has agreed to honor transfer instructions
from such services where it has received powers of attorney, in a form
acceptable to it, from the contract owners participating in the service. Firms
or persons offering such services do so independently from any agency
relationship they may have with AVLIC for the sale of contracts. AVLIC takes no
responsibility for the investment allocations and transfers transacted on a
contract owner's behalf by such third parties or any investment allocation
recommendations made by such parties. Contract owners should be aware that fees
paid for such services are separate and in addition to fees paid under the
contracts.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Account will be invested in
shares of the corresponding portfolios of the Funds. AVLIC is the legal holder
of those shares and as such has the right to vote to elect the Board of
Directors of the Funds, to vote upon certain matters that are required by the
1940 Act to be approved or ratified by the shareholders of a
<PAGE>
mutual fund, and to vote upon any other matter that may be voted upon at a
shareholders' meeting. To the extent required by law, AVLIC will vote all shares
of the Funds held in the Account at regular and special shareholder meetings of
the Funds in accordance with instructions received from Policyowners. The number
of votes for which each Policyowner has the right to provide instructions will
be determined as of the record date selected by the Board of Directors of the
Funds. AVLIC will furnish Policyowners with the proper forms, materials and
reports to enable them to give it these instructions.
The number of Fund shares in a Subaccount for which instructions may be given by
a Policyowner is determined by dividing the Policy's cash value held in that
Subaccount by the net asset value of one share in the corresponding portfolio of
the Fund. Fractional shares will be counted. Fund shares held in each Subaccount
for which no timely instructions from Policyowners are received and Fund shares
held in each Subaccount which do not support Policyowner interests will be voted
by AVLIC in the same proportion as those shares in that Subaccount for which
timely instructions are received. Voting instructions to abstain on any item to
be voted will be applied on a pro rata basis to reduce the votes eligible to be
cast. Should applicable federal securities laws or regulations permit, AVLIC may
elect to vote shares of the Funds in its own right.
Matters on which Policyowners may give voting instructions include the
following: (1) election of the Board of Directors of the Fund; (2) ratification
of the independent accountant of the Fund; (3) approval of the Investment
Advisory Agreement for the Portfolio(s) of the Fund corresponding to the
Policyowner's selected Subaccount; and (4) any change in the fundamental
investment policies of the Portfolio(s) corresponding to the Policyowner's
selected Subaccount(s).
DISREGARD OF VOTING INSTRUCTION. AVLIC may, if required by state insurance
officials, disregard voting instructions if those instructions would require
shares to be voted to cause a change in the subclassification or investment
objectives or policies of one or more of the Funds' portfolios, or to approve or
disapprove an investment adviser or principal underwriter for the Funds. In
addition, AVLIC itself may disregard voting instructions that would require
changes in the investment objectives or policies of any portfolio or in an
investment adviser or principal underwriter for a Fund, if AVLIC reasonably
disapproves those changes in accordance with applicable federal regulations. If
AVLIC does disregard voting instructions, it will advise Policyowners of that
action and its reasons for the action in the next annual report or proxy
statement to Policyowners.
STATE REGULATION OF AVLIC
AVLIC, a stock life insurance company organized under the laws of Nebraska, is
subject to regulation by the Nebraska Department of Insurance. On or before
March 1 of each year an NAIC convention blank covering the operations and
reporting on the financial condition of AVLIC and the Account as of December 31
of the preceding year must be filed with the Nebraska Department of Insurance.
Periodically, the Nebraska Department of Insurance examines the liabilities and
reserves of AVLIC and the Account and certifies their adequacy.
In addition, AVLIC is subject to the insurance laws and regulations of other
states within which it is licensed or may become licensed to operate. The
policies offered by the prospectus are available in the various states as
approved. Generally, the Insurance Department of any other state applies the
laws of the state of domicile in determining permissible investments.
EXECUTIVE OFFICERS AND DIRECTORS OF AVLIC
Shows name and position(s) with AVLIC followed by the principal occupations for
the last five years.***
LAWRENCE J. ARTH, DIRECTOR, CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER*
Director, Chairman of the Board, and Chief Executive Officer: ALIC**; also
serves as officer and/or director of other subsidiaries and/or affiliates of
ALIC.
KENNETH C. LOUIS, DIRECTOR, EXECUTIVE VICE PRESIDENT*
Director, President and Chief Operating Officer: ALIC; also serves as officer
and/or director of other subsidiaries and/or affiliates of ALIC.
ROBERT W. BUSH, DIRECTOR, SENIOR VICE PRESIDENT VARIABLE OPERATIONS AND
ADMINISTRATION*
Executive Vice President-Individual Insurance: ALIC; also serves as officer
and/or director of other subsidiaries and/or affiliates of ALIC; Senior Vice
President, CUNA Mutual Insurance Group; also served as officer and/or director
of other subsidiaries and/or affiliates of CUNA.
<PAGE>
WAYNE E. BREWSTER, SENIOR VICE PRESIDENT-VARIABLE SALES*
Vice President-Variable Sales: ALIC.
ASHOK CHAWLA, VICE PRESIDENT-FIXED ANNUITY INVESTMENTS****
Senior Vice President - Fixed Income Group: AmerUs Life Insurance Company
(f.k.a. American Mutual Life Insurance Company); Director-Risk Management:
Providian Corp.; Assistant Vice President: Lincoln National Corp.
THOMAS C. GODLASKY, DIRECTOR****
Executive Vice President and Chief Investment Officer: AmerUs Life Holdings,
Inc.; Executive Vice President and Chief Investment Officer: AmerUs Life
Insurance Company (f.k.a. American Mutual Life Insurance Company); Manager-Fixed
Income and Derivatives Department: Providian Corporation; also serves as
director of an affiliate of AVLIC; also serves as officer and/or director of
other affiliates of AmerUs Life Insurance Company.
JOSEPH K. HAGGERTY, ASSISTANT GENERAL COUNSEL****
Senior Vice President and General Counsel: AmerUs Life Holdings, Inc.; Senior
Vice President and General Counsel: AmerUs Life Insurance Company (f.k.a.
American Mutual Life Insurance Company f.k.a. Central Life Assurance
Company*****); Senior Vice President, Deputy General Counsel: I.C.H.
Corporation; also serves as an officer to an affiliate of AVLIC, and served as
officer and/or director of other subsidiaries and/or affiliates of I.C.H.
Corporation; also serves as officer of other affiliates of AmerUs Life Insurance
Company.
JAMES R. HAIRE, VICE PRESIDENT AND ACTUARY*
Vice President-Corporate Actuary: ALIC; also serves as officer and/or director
of other subsidiaries and/or affiliates of ALIC.
JON C. HEADRICK, TREASURER*
Executive Vice President-Investments and Treasurer: ALIC; also serves as officer
and/or director of other subsidiaries and/or affiliates of ALIC.
SANDRA K. HOLMES, VICE PRESIDENT-FIXED ANNUITY CUSTOMER SERVICE****
Senior Vice President: AmerUs Life Insurance Company (f.k.a. American Mutual
Life Insurance Company, f.k.a. Central Life Assurance Company*****).
KENNETH R. JONES, VICE PRESIDENT-CORPORATE COMPLIANCE AND ASSISTANT SECRETARY*
Vice President, Corporate Compliance & Assistant Secretary: ALIC; also serves as
officer of other subsidiaries and/or affiliates of ALIC.
NORMAN M. KRIVOSHA, SECRETARY AND GENERAL COUNSEL*
Executive Vice President, Secretary & Corporate General Counsel: ALIC; also
serves as officer and/or director of other subsidiaries and/or affiliates of
ALIC.
JOANN M. MARTIN, CONTROLLER*
Senior Vice President-Controller and Chief Financial Officer: ALIC; also serves
as officer and/or director of other subsidiaries and/or affiliates of ALIC.
SHEILA SANDY, ASSISTANT SECRETARY****
Manager Annuity Services: AmerUs Life Insurance Company (f.k.a. American Mutual
Life Insurance Company).
MICHAEL E. SPROULE, DIRECTOR****
Executive Vice President and Chief Financial Officer: AmerUs Life Holdings,
Inc.; Executive Vice President and Chief Financial Officer: AmerUs Life
Insurance Company (f.k.a. American Mutual Life Insurance Company, f.k.a. Central
Life Assurance Company*****); I.C.H. Corporation; also serves as director of an
affiliate of AVLIC; also serves as officer and/or director of other affiliates
of AmerUs Life Insurance Company.
LINDA S. STRECK, VICE PRESIDENT-FIXED ANNUITY PRODUCT DEVELOPMENT****
Actuarial Vice President - Product Development and Management: AmerUs Life
Insurance Company (f.k.a. American Mutual Life Insurance Company, f.k.a. Central
Life Assurance Company*****).
<PAGE>
KEVIN WAGONER, ASSISTANT TREASURER****
Director Investment Accounting: AmerUs Life Insurance Company (f.k.a. American
Mutual Life Insurance Company, f.k.a. Central Life Assurance Company*****);
Senior Financial Analyst: Target Stores.
*Principal business address: Ameritas Variable Life Insurance Company,
One Ameritas Way, 5900 "O" Street,
P.O. Box 82550, Lincoln, Nebraska 68501.
**Ameritas Life Insurance Corp.
***Where an individual has held more than one position with an organization
during the last 5-year period, the last position held has been given.
**** Principal business address for Joseph Haggerty, Sandra K. Holmes,
Michael E. Sproule, Ashok K. Chawla, Thomas C. Godlasky, Sheila E. Sandy,
Linda S. Streck, and Kevin Wagoner is: AmerUs Life Insurance Company,
611 Fifth Avenue, Des Moines, Iowa 50309.
***** Central Life Assurance Company merged with American Mutual Life
Insurance Company on December 31, 1994. Central Life Assurance Company was
the survivor of the merger. Contemporaneous with the merger, Central Life
Assurance Company changed its name to American Mutual Life Insurance
Company. (American Mutual Life Insurance Company changed its name to AmerUs
Life Insurance Company on July 1, 1996.)
LEGAL MATTERS
All matters of Nebraska law pertaining to the Policy, including the validity of
the Policy and AVLIC's right to issue the Policy under Nebraska Insurance Law,
have been passed upon by Norman M. Krivosha, Secretary and General Counsel of
AVLIC.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Account is a party or to which the
assets of the Account are subject. AVLIC is not involved in any litigation that
is of material importance in relation to its total assets or that relates to the
Account.
EXPERTS
The financial statements of AVLIC as of December 31, 1996 and 1995, and for each
of the three years in the period ended December 31, 1996, and the financial
statements of the Account as of December 31, 1996 and for each of the three
years in the period then ended, included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Thomas P.
McArdle, Assistant Vice President 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
<PAGE>
as to the contents of the Policy and other legal instruments are summaries. For
a complete statement of the terms thereof reference is made to such instruments
as filed.
FINANCIAL STATEMENTS
The financial statements of AVLIC which are included in this Prospectus should
be considered only as bearing on the ability of AVLIC to meet its obligations
under the Policies. They should not be considered as bearing on the investment
performance of the assets held in the Account.
<PAGE>
Independent Auditors' Report
Board of Directors
Ameritas Variable Life
Insurance Company
Lincoln, Nebraska
We have audited the accompanying statement of net assets of Ameritas
Variable Life Insurance Company Separate Account V as of December 31, 1996, and
the related statements of operations and changes in net assets for each of the
three years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company
Separate Account V as of December 31, 1996, and the results of its operations
and changes in its net assets for each of the three years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
ASSETS
INVESTMENTS AT NET ASSET VALUE:
<S> <C>
Variable Insurance Products Fund:
Money Market Portfolio - 7,637,767.850 shares at
$1.00 per share (cost $7,637,768) $ 7,637,768
Equity-Income Portfolio - 817,109.096 shares at
$21.03 per share (cost $12,890,674) 17,183,804
Growth Portfolio - 841,043.772 shares at
$31.14 per share (cost $18,237,669) 26,190,103
High Income Portfolio - 558,109.727 shares at
$12.52 per share (cost $6,060,955) 6,987,534
Overseas Portfolio - 565,907.403 shares at
$18.84 per share (cost $8,863,172) 10,661,695
Variable Insurance Products Fund II:
Asset Manager Portfolio - 1,326,763.623 shares at
$16.93 per share (cost $18,129,171) 22,462,108
Investment Grade Bond Portfolio - 192,186.776 shares at
$12.24 per share (cost $2,269,043) 2,352,366
Contrafund Portfolio - 176,606.628 shares at
$16.56 per share (cost $2,654,228) 2,924,606
Index 500 Portfolio - 21,656.138 shares at
$89.13 per share (cost $1,776,480) 1,930,212
Asset Manager: Growth Portfolio - 42,445.800 shares at
$13.10 per share (cost $537,009) 556,040
Alger American Fund:
Small Capitalization Portfolio - 345,335.196 shares at
$40.91 per share (cost $11,394,354) 14,127,663
Growth Portfolio - 233,042.387 shares at
$34.33 per share (cost $6,402,061) 8,000,345
Income and Growth Portfolio - 234,654.249 shares at
$8.42 per share (cost $2,405,858) 1,975,789
Midcap Growth Portfolio - 263,959.188 shares at
$21.35 per share (cost $4,851,056) 5,635,529
Balanced Portfolio - 98,800.487 shares at
$9.24 per share (cost $1,036,004) 912,916
Leveraged Allcap Portfolio - 61,392.043 shares at
$19.36 per share (cost $1,169,774) 1,188,550
Dreyfus Stock Index Fund:
Stock Index Fund Portfolio - 109,123.387 shares at
$20.28 per share (cost $1,534,631) 2,213,022
MFS Variable Insurance Trust:
Emerging Growth Series Portfolio - 193,700.823 shares at
$13.24 per share (cost $2,533,503) 2,564,599
World Governments Series Portfolio - 17,336.705 shares at
$10.58 per share (cost $176,945) 183,422
Utilities Series Portfolio - 28,672.191 shares at
$13.66 per share (cost $383,098) 391,662
-------------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 136,079,733
===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
---------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 1,837,028 $ 1,293,935 $ 799,210
EXPENSES
Charges to policyowners for assuming
mortality and expense risk 1,085,616 723,000 465,706
---------------- ---------------- ---------------
INVESTMENT INCOME - NET 751,412 570,935 333,504
---------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NET
Capital gain distributions received 4,152,296 403,845 1,403,280
Unrealized increase/(decrease) 7,185,902 14,755,373 (2,469,056)
---------------- ---------------- ---------------
NET GAIN/(LOSS) ON INVESTMENTS 11,338,198 15,159,218 (1,065,776)
---------------- ---------------- ---------------
NET INCREASE/(DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS 12,089,610 15,730,153 (732,272)
NET INCREASE IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS 30,380,460 19,763,147 21,904,104
---------------- ---------------- ---------------
TOTAL INCREASE IN NET ASSETS 42,470,070 35,493,300 21,171,832
NET ASSETS
Beginning of period 93,609,663 58,116,363 36,944,531
---------------- ---------------- ---------------
End of period $ 136,079,733 $ 93,609,663 $ 58,116,363
================ ================ ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION AND ACCOUNTING POLICIES:
-------------------------------------
Ameritas Variable Life Insurance Company Separate Account V (the Account)
was established on August 28, 1985, under Nebraska law by Ameritas
Variable Life Insurance Company (AVLIC), a wholly-owned subsidiary of
AMAL Corporation, a holding company 66% owned by Ameritas Life Insurance
Corp (ALIC) and 34% owned by AmerUs Life Insurance Company (AmerUs). The
assets of the Account are segregated from AVLIC's other assets and are
used only to support variable life products issued by AVLIC.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. At December 31, 1996, there are
twenty subaccounts within the Account. Five of the subaccounts invest
only in a corresponding Portfolio of Variable Insurance Products Fund and
five invest only in a corresponding Portfolio of Variable Insurance
Products Fund II. Both funds are diversified open-end management
investment companies and are managed by Fidelity Management and Research
Company. Six of the subaccounts invest only in a corresponding Portfolio
of Alger American Fund which is a diversified open-end management
investment company managed by Fred Alger Management, Inc. One subaccount
invests only in a corresponding Portfolio of Dreyfus Stock Index Fund
which is a non-diversified open-end management investment company managed
by Dreyfus Service Corporation. Three of the subaccounts invest only in a
corresponding Portfolio of MFS Variable Insurance Trust which is a
diversified open-end management investment company managed by
Massachusetts Financial Services Company. All five funds are registered
under the Investment Company Act of 1940, as amended. Each Portfolio pays
the manager a monthly fee for managing its investments and business
affairs. The assets of the Account are carried at the net asset value of
the underlying Portfolios of the Funds. The value of the policyowners'
units corresponds to the Account's investment in the underlying
subaccounts. The availability of investment portfolio and subaccount
options may vary between products. Share transactions and security
transactions are accounted for on a trade date basis.
AVLIC currently does not expect to incur any federal income tax liability
attributable to the Account with respect to the sale of the variable life
insurance policies. If, however, AVLIC determines that it may incur such
taxes attributable to the Account, it may assess a charge for such taxes
against the Account.
B. POLICYHOLDER CHARGES:
--------------------
AVLIC charges the Account for mortality and expense risks assumed. A
daily charge is made on the average daily value of the net assets
representing equity of policyowners held in each subaccount per each
product's current policy provisions. Additional charges are made at
intervals and in amounts per each product's current policy provisions.
These charges are prorated against the balance in each investment option
of the policyholder, including the Fixed Account option which is not
reflected in this separate account. The withdrawal of these charges are
included as other operating transfers.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
C: INFORMATION BY FUND:
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
-------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 5,613,527 $ 12,572,494 $ 20,504,133 $ 4,325,807 $ 7,483,491
Distributed earnings 383,333 586,341 1,480,529 414,864 201,300
Mortality risk charge (71,053) (141,453) (223,387) (52,366) (87,506)
Unrealized increase/(decrease) --- 1,388,228 1,591,342 303,796 931,213
Net premium transferred 1,711,961 2,778,194 2,837,486 1,995,433 2,133,197
-------------- ---------------- -------------- ------------- -- -----------
Balance 12-31-96 $ 7,637,768 $ 17,183,804 $ 26,190,103 $ 6,987,534 $ 10,661,695
============== ================ ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
-------------------------------------------------------------------------------
Asset Investment Asset Mgr.:
Manager Grade Bond Contrafund Index 500 Growth
------------- ------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 19,286,671 $ 2,136,439 $ 129,293 $ 4,639 $ 13,585
Distributed earnings 1,280,712 110,640 1,845 1,869 22,368
Mortality risk charge (192,161) (22,366) (12,082) (6,403) (2,489)
Unrealized increase/(decrease) 1,567,972 (39,903) 270,650 153,497 19,517
Net premium transferred 518,914 167,556 2,534,900 1,776,610 503,059
------------ ------------- ------------- ------------ ----------------
Balance 12-31-96 $ 22,462,108 $ 2,352,366 $ 2,924,606 $ 1,930,212 $ 556,040
============ ============= ============= ============ ================
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
----------------------------------------------------------------------------------------------
Small Income and Midcap Leveraged
Capitalization Growth Growth Growth Balanced Allcap
-------------- ---------------- -------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 10,377,502 $ 4,678,557 $ 918,762 $ 2,682,818 $ 436,491 $ 100,756
Distributed earnings 51,224 169,099 837,514 74,978 229,557 4,125
Mortality risk charge (118,508) (58,005) (13,912) (38,781) (6,215) (5,432)
Unrealized increase/(decrease) 368,251 592,282 (557,847) 330,732 (168,250) 17,914
Net premium transferred 3,449,194 2,618,412 791,272 2,585,782 421,333 1,071,187
-------------- ---------------- -------------- ------------- ---------------- -------------
Balance 12-31-96 $ 14,127,663 $ 8,000,345 $ 1,975,789 $ 5,635,529 $ 912,916 $ 1,188,550
============== ================ ============== ============= ================ =============
</TABLE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Dreyfus
------------------------------------------------ -------------
Emerging World Stock
Growth Governments Utilities Index Fund TOTAL
-------------- ---------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 118,158 $ 15,815 $ 18,547 $ 2,192,178 $ 93,609,663
Distributed earnings 21,561 --- 32,602 84,863 5,989,324
Mortality risk charge (9,549) (913) (1,520) (21,515) (1,085,616)
Unrealized increase/(decrease) 32,735 7,363 9,810 366,600 7,185,902
Net premium transferred 2,401,694 161,157 332,223 (409,104) 30,380,460
-------------- ---------------- -------------- ------------- -----------------
Balance 12-31-96 $ 2,564,599 $ 183,422 $ 391,662 $ 2,213,022 $ 136,079,733
============== ================ ============== ============= =================
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
C: INFORMATION BY FUND:
<TABLE>
<CAPTION>
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
-------------- ---------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 6,247,662 $ 6,295,945 $ 12,362,890 $ 2,970,211 $ 4,954,650
Distributed earnings 330,031 558,647 71,777 214,996 39,788
Mortality risk charge (57,621) (89,161) (160,505) (40,007) (60,098)
Unrealized increase/(decrease) --- 2,148,654 4,664,368 542,261 616,308
Net premium transferred (906,545) 3,658,409 3,565,603 638,346 1,932,843
-------------- ---------------- -------------- ------------- ----------------
Balance 12-31-95 $ 5,613,527 $ 12,572,494 $ 20,504,133 $ 4,325,807 $ 7,483,491
============== ================ ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
-------------------------------------------------------------------------------
Asset Investment Contrafund Index 500 Asset Mgr.:
Manager Grade Bond (1) (2) Growth (3)
-------------- ---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 16,158,059 $ 907,159 $ --- $ --- $ ---
Distributed earnings 346,679 34,269 1,284 --- 564
Mortality risk charge (164,848) (13,893) (119) (7) (25)
Unrealized increase/(decrease) 2,471,611 183,723 (273) 236 (486)
Net premium transferred 475,170 1,025,181 128,401 4,410 13,532
-------------- ---------------- -------------- ------------- ----------------
Balance 12-31-95 $ 19,286,671 $ 2,136,439 $ 129,293 $ 4,639 $ 13,585
============== ================ ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
-----------------------------------------------------------------------------------------------
Small Income and Midcap Leveraged
Capitalization Growth Growth Growth Balanced Allcap (4)
-------------- ---------------- -------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance 01-01-95 $ 4,264,367 $ 2,012,571 $ 307,350 $ 545,887 $ 126,178 $ ---
Distributed earnings --- 34,885 5,186 142 3,039 ---
Mortality risk charge (67,150) (32,981) (5,765) (14,362) (2,251) (57)
Unrealized increase/(decrease) 2,184,006 924,176 146,805 430,138 45,544 863
Net premium transferred 3,996,279 1,739,906 465,186 1,721,013 263,981 99,950
-------------- ---------------- -------------- ------------- ---------------- ---------------
Balance 12-31-95 $ 10,377,502 $ 4,678,557 $ 918,762 $ 2,682,818 $ 436,491 $ 100,756
============== ================ ============== ============= ================ ==============
</TABLE>
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Dreyfus
------------------------------------------------ -------------
Emerging World (6) Utilities Stock
Growth (5) Governments (7) Index Fund TOTAL
-------------- ---------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-95 $ --- $ --- $ --- $ 963,434 $ 58,116,363
Distributed earnings 2,634 1,440 1,745 50,674 1,697,780
Mortality risk charge (118) (37) (10) (13,985) (723,000)
Unrealized increase/(decrease) (1,638) (885) (1,246) 401,208 14,755,373
Net premium transferred 117,280 15,297 18,058 790,847 19,763,147
-------------- ---------------- -------------- ------------- -----------------
Balance 12-31-95 $ 118,158 $ 15,815 $ 18,547 $ 2,192,178 $ 93,609,663
============== ================ ============== ============= =================
</TABLE>
(1) Commenced business 09/05/95. (5) Commenced business 09/12/95.
(2) Commenced business 10/17/95. (6) Commenced business 09/13/95.
(3) Commenced business 09/13/95. (7) Commenced business 10/18/95.
(4) Commenced business 09/13/95.
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
C. INFORMATION BY FUND:
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity High
Market Income Growth Income Overseas
-------------- ---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-94 $ 3,302,391 $ 4,081,214 $ 8,666,232 $ 2,112,409 $ 2,627,460
Distributed earnings 227,947 343,291 540,322 192,676 16,253
Mortality risk charge (53,086) (50,692) (97,597) (24,422) (41,486)
Unrealized increase/(decrease) --- (10,817) (430,322) (216,500) (57,561)
Net premium transferred 2,770,410 1,932,949 3,684,255 906,048 2,409,984
-------------- ---------------- -------------- ------------- ----------------
Balance 12-31-94 $ 6,247,662 $ 6,295,945 $ 12,362,890 $ 2,970,211 $ 4,954,650
============== ================ ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Alger American Fund
-------------------------------------------------------------------------------
Income and Midcap
Small Cap Growth Growth Growth Balanced
-------------- ---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-94 $ 2,431,108 $ 513,578 $ 155,544 $ 91,469 $ 12,416
Distributed earnings 197,447 56,309 12,250 805 1,173
Mortality risk charge (28,810) (10,955) (2,338) (2,777) (667)
Unrealized increase/(decrease) (212,648) 11,388 (27,043) 15,802 (793)
Net premium transferred 1,877,270 1,442,251 168,937 440,588 114,049
-------------- ---------------- -------------- ------------- ----------------
Balance 12-31-94 $ 4,264,367 $ 2,012,571 $ 307,350 $ 545,887 $ 126,178
============== ================ ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund II Dreyfus
-------------- ---------------- --------------
Asset Investment Stock
Manager Grade Bond Index Fund TOTAL
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Balance 01-01-94 $ 11,412,386 $ 1,069,216 $ 469,108 $ 36,944,531
Distributed earnings 589,342 2,944 21,731 2,202,490
Mortality risk charge (133,984) (12,468) (6,424) (465,706)
Unrealized increase/(decrease) (1,465,271) (53,875) (21,416) (2,469,056)
Net premium transferred 5,755,586 (98,658) 500,435 21,904,104
-------------- ---------------- -------------- ----------------
Balance 12-31-94 $ 16,158,059 $ 907,159 $ 963,434 $ 58,116,363
============== ================ ============== ================
</TABLE>
<PAGE>
Independent Auditors' Report
Board of Directors
Ameritas Variable Life Insurance Company
Lincoln, Nebraska
We have audited the accompanying balance sheets of Ameritas Variable Life
Insurance Company as of December 31, 1996 and 1995, and the related statements
of operations, changes in stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ameritas Variable Life Insurance Company
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
BALANCE SHEETS
--------------
(in thousands, except per share data)
-------------------------------------
December 31,
-------------------------------------------------
1996 1995
---------------------- --------------------
<S> <C> <C>
ASSETS
- ------
Investments:
Fixed maturity securities, available for sale (amortized cost
$62,048 - 1996 and $38,753 - 1995) $ 62,621 $ 40,343
Loans on insurance policies 4,309 2,639
---------------------- --------------------
Total investments 66,930 42,982
Cash and cash equivalents 10,684 5,660
Accrued investment income 1,096 790
Reinsurance recoverable-affiliates 9 57
Prepaid reinsurance premium-affiliates 2,156 1,506
Deferred policy acquisition costs 79,272 57,664
Other 483 106
Separate Accounts 947,580 682,482
---------------------- --------------------
$ 1,108,210 $ 791,247
====================== ====================
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
Policy and contract reserves $ 749 $ 609
Accumulated contract values 77,560 44,568
Unearned policy charges 1,243 964
Unearned reinsurance ceded allowance 3,139 2,279
Federal income taxes--
Current 875 685
Deferred 9,921 11,398
Other 8,134 4,266
Separate Accounts 947,580 682,482
---------------------- --------------------
Total Liabilities 1,049,201 747,251
---------------------- --------------------
STOCKHOLDER'S EQUITY:
Common stock, par value $100 per share;
authorized 50,000 shares, issued and
outstanding 40,000 shares 4,000 4,000
Additional paid-in capital 40,370 29,700
Retained earnings 14,510 9,860
Net unrealized investment gain 129 436
---------------------- --------------------
Total Stockholder's Equity 59,009 43,996
---------------------- --------------------
$ 1,108,210 $ 791,247
====================== ====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF OPERATIONS
------------------------
(in thousands)
--------------
Years Ended December 31,
-----------------------------------------------------------------
1996 1995 1994
------------------- ------------------- --------------------
<S> <C> <C> <C>
INCOME:
Insurance revenues:
Contract charges $ 26,345 $ 18,350 $ 13,528
Premium-reinsurance ceded (5,895) (4,289) (2,009)
Reinsurance ceded allowance 2,235 1,859 502
Investment revenues:
Investment income, net 3,603 3,492 3,046
Realized gains, net 19 28 19
Other 567 261 337
------------------- ------------------- --------------------
26,874 19,701 15,423
------------------- ------------------- --------------------
BENEFITS AND EXPENSES:
Policy Benefits:
Death benefits 716 268 417
Interest credited 2,736 1,995 1,524
Increase in policy and contract reserves 140 183 195
Other 52 32 46
Sales and operating expenses 10,041 6,815 5,940
Amortization of deferred policy acquisition costs 5,531 3,057 2,521
------------------- ------------------- --------------------
19,216 12,350 10,643
------------------- ------------------- --------------------
Income before federal income taxes 7,658 7,351 4,780
------------------- ------------------- --------------------
Income taxes - current 3,819 1,685 (608)
Income taxes - deferred (811) 902 2,278
------------------- ------------------- --------------------
Total income taxes 3,008 2,587 1,670
------------------- ------------------- --------------------
NET INCOME $ 4,650 $ 4,764 $ 3,110
=================== =================== ====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
(in thousands, except shares)
-----------------------------
Net
Common Stock Additional Unrealized
------------------------------- Paid-in Retained Investment
Shares Amount Capital Earnings Gain(Loss) Total
--------------- ------------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 40,000 $ 4,000 $ 23,700 $ 1,986 $ - $ 29,686
Capital contribution from
Ameritas Life Insurance Corp. - - 6,000 - - 6,000
Net unrealized investment loss, net - - - - (173) (173)
Net income - - - 3,110 - 3,110
--------------- ------------ -------------- ----------- ---------- ------------
BALANCE, December 31, 1994 40,000 4,000 29,700 5,096 (173) 38,623
Net unrealized investment gain, net - - - - 609 609
Net income - - - 4,764 - 4,764
--------------- ------------- -------------- ------------ --------- ------------
BALANCE, December 31, 1995 40,000 4,000 29,700 9,860 436 43,996
Return of capital - - (15,000) - - (15,000)
Capital contribution from
AMAL Corporation - - 25,670 - - 25,670
Net unrealized investment loss, net - - - - (307) (307)
Net income - - - 4,650 - 4,650
--------------- ------------- ------------- ------------ --------- ----------
BALANCE, December 31, 1996 40,000 $ 4,000 $ 40,370 $ 14,510 $ 129 $ 59,009
=============== ============= ============= ============ ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(in thousands)
December 31,
----------------------------------------------------
1996 1995 1994
---------------- ----------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Income $ 4,650 $ 4,764 $ 3,110
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs 5,531 3,057 2,521
Policy acquisition costs deferred (26,596) (16,020) (17,481)
Interest credited to contract values 2,736 1,995 1,524
Amortization of discounts or premiums (83) (70) (49)
Net realized gains on investment transactions (19) (28) (19)
Deferred income taxes (811) 902 2,278
Change in assets and liabilities:
Accrued investment income (306) (15) (98)
Reinsurance recoverable-affiliates 48 412 (469)
Prepaid reinsurance premium (650) (487) (451)
Other assets (377) (18) (16)
Policy and contract reserves 140 183 195
Unearned policy charges 279 234 247
Federal income tax payable-current (310) 698 (81)
Unearned reinsurance ceded allowance 860 610 595
Other liabilities 3,868 1,939 (1,823)
------------- ------------------ --------------
Net cash used in operating activities (11,040) (1,844) (10,017)
------------- ------------------ --------------
INVESTING ACTIVITIES
- --------------------
Purchase of fixed maturity securities available for sale (31,514) (7,760) (15,673)
Proceeds from maturities or repayment of fixed maturity securities
available for sale 5,307 3,738 5,108
Proceeds from sales of fixed maturity securities available for sale 3,014 - -
Net change in loans on insurance policies (1,670) (1,042) (576)
------------- ------------------ --------------
Net cash used in investing activities (24,863) (5,064) (11,141)
------------- ------------------ --------------
FINANCING ACTIVITIES
- --------------------
Return of capital (15,000) - 6,000
Capital contribution 25,670 - -
Net change in accumulated contract values 30,257 4,448 2,873
------------- ------------------ --------------
Net cash from financing activities 40,927 4,448 8,873
------------- ------------------ --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,024 (2,460) (12,285)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,660 8,120 20,405
============= ================== ==============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,684 $ 5,660 $ 8,120
============= ================== ==============
Supplemental cash flow information:
- ----------------------------------
Net cash paid (received) on income taxes $ 4,129 $ 987 $ (527)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------
Ameritas Variable Life Insurance Company (the Company), a stock life insurance
company domiciled in the State of Nebraska, was a wholly-owned subsidiary of
Ameritas Life Insurance Corp. (ALIC), a mutual life insurance company, until
April of 1996 when it became a wholly-owned subsidiary of AMAL Corporation, a
holding company 66% owned by ALIC and 34% owned by AmerUs Life Insurance
Company (AmerUs). The Company began issuing variable life insurance and
variable annuity policies in 1987 and fixed premium annuities in 1996. The
variable life, variable annuity and fixed premium annuity policies are not
participating with respect to dividends.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The principal accounting and reporting practices followed are:
INVESTMENTS
The Company classifies its securities into categories based upon the Company's
intent relative to the eventual disposition of the securities. The first
category, held-to-maturity securities, is composed of debt securities which a
company has the positive intent and ability to hold-to-maturity. These
securities are carried at amortized cost. The second category,
available-for-sale securities, may be sold to address the liquidity and other
needs of a company. Debt and equity securities classified as available-for-sale
are carried at fair value on the balance sheet with unrealized gains and losses
excluded from income and reported as a separate component of stockholder's
equity, net of related deferred acquisition costs and income tax effects. The
third category, trading securities, is for debt and equity securities acquired
for the purpose of selling them in the near term. The Company has classified all
of its securities as available-for-sale. Realized investment gains and losses on
sales of securities are determined on the specific identification method.
The Company records write-offs or allowances for its investments based upon an
evaluation of specific problem investments. The Company reviews, on a continual
basis, all invested assets to identify investments where the Company has credit
concerns. Investments with credit concerns include those the Company has
identified as experiencing a deterioration in financial condition. The Company
has no write-offs or allowances recorded as of December 31, 1996, 1995 and 1994.
CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with a
remaining maturity of less than three months to be cash equivalents.
SEPARATE ACCOUNTS
The Company operates separate accounts on which the earnings or losses accrue
exclusively to contractholders. The assets (mutual fund investments) and
liabilities of each account are clearly identifiable and distinguishable from
other assets and liabilities of the Company. Assets are reported at fair value.
PREMIUM REVENUE AND BENEFITS TO POLICYHOLDERS
RECOGNITION OF UNIVERSAL LIFE-TYPE CONTRACTS REVENUE AND BENEFITS TO
POLICYHOLDERS
Universal life-type policies are insurance contracts with terms that are not
fixed and guaranteed. The terms that may be changed could include one or more of
the amounts assessed the policyholder, premiums paid by the policyholder or
interest accrued to policyholder balances. Amounts received as payments for such
contracts are reflected as deposits and are not reported as premium revenues.
Revenues for universal life-type policies consist of charges assessed against
policy account values for deferred policy loading, mortality risk expense, the
cost of insurance and policy administration. Policy benefits and claims that are
charged to expense include interest credited to contracts under the fixed
account investment option and benefit claims incurred in the period in excess of
related policy account balances.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------
(Continued):
- -------------
RECOGNITION OF INVESTMENT CONTRACT REVENUE AND BENEFITS TO POLICYHOLDERS
Contracts that do not subject the Company to risks arising from policyholder
mortality or morbidity are referred to as investment contracts. Certain deferred
annuities are considered investment contracts. Amounts received as payments for
such contracts are reflected as deposits and are not reported as premium
revenues.
Revenues for investment products consist of investment income and policy
administration charges. Contract benefits that are charged to expense include
benefit claims incurred in the period in excess of related contract balances,
and interest credited to contract balances.
POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are primarily
related to the production of new business, have been deferred to the extent that
such costs are deemed recoverable from future premiums. Such costs include
commissions, certain costs of policy issuance and underwriting, and certain
variable distribution expenses.
Costs deferred related to universal life-type policies and investment-type
contracts are amortized over the lives of the policies, in relation to the
present value of estimated gross profits from mortality, investment and expense
margins. The estimated gross profits are reviewed annually based on actual
experience and changes in assumptions.
An analysis of the costs carried in the balance sheets as deferred acquisition
costs is as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $57,664 $45,940 $30,659
Acquisition costs deferred 26,596 16,020 17,481
Amortization of deferred policy acquisition costs (5,531) (3,057) (2,521)
Adjustment for unrealized investment (gain) loss 543 (1,239) 321
- -------------------------------------------------------------------------------------------------------------------------
Ending balance $79,272 $57,664 $45,940
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
To the extent that unrealized gains or losses on available-for-sale securities
would result in an adjustment of deferred policy acquisition costs had those
gains or losses actually been realized, the related unamortized deferred policy
acquisition costs are recorded as an adjustment of the unrealized gains or
losses included in stockholder's equity.
FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy and contract benefits left with the Company on
variable universal life and annuity-type contracts are based on the policy
account balance, and are shown as accumulated contract values. In addition the
Company carries as future policy benefits a liability for additional coverages
offered under policy riders.
INCOME TAXES
The provision for income taxes includes amounts currently payable and
deferred income taxes resulting from the cumulative differences in assets and
liabilities determined on a tax return and financial statement basis at the
current enacted tax rates.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
2. INVESTMENTS
- ---------------
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $3,308 $2,819 $2,411
Cash equivalents 618 597 609
Loans on insurance policies 214 128 82
- ---------------------------------------------------------------------------------------------------------------------------------
Gross investment income 4,140 3,544 3,102
Investment expenses 537 52 56
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income $3,603 $3,492 $3,046
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net pretax realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net gains on disposals of fixed maturity securities available for sale $19 $28 $19
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed maturity securities available for sale and gross
gains and losses realized on those sales were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------
Proceeds Gains Losses
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$3,014 $30 $ -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no disposals of fixed maturity securities available for sale during
1995 or 1994 other than calls or maturities.
The amortized cost and fair value of investments in fixed maturity securities
available for sale by type of investment were as follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------
Amortized Gross Unrealized Fair
----------------------------
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Corporate $33,690 $437 $114 $34,013
Mortgage-backed 13,407 209 22 13,594
U.S. Treasury securities and obligations of
U.S. government agencies 14,951 158 95 15,014
- ---------------------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale $62,048 $804 $231 $62,621
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The December 31, 1996 balance of stockholder's equity was decreased by $307
(comprised of a decrease in the carrying value of the securities of $1,017
reduced by $545 of related adjustments to deferred acquisition costs and $165 in
deferred income taxes) to reflect the net unrealized gain on securities
classified as available-for-sale.
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Amortized Gross Unrealized Fair
----------------------------
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Corporate $20,667 $930 $ - $21,597
Mortgage-backed 3,628 114 - 3,742
U.S. Treasury securities and obligations of
U.S. government agencies 14,458 550 4 15,004
- ---------------------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale $38,753 $1,594 $4 $40,343
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
2. INVESTMENTS (continued)
- ---------------------------
The December 31, 1995 balance of stockholder's equity was increased by $609
(comprised of an increase in the carrying value of the securities of $2,177,
reduced by $1,240 of related adjustments to deferred acquisition costs and $328
in deferred income taxes) to reflect the net unrealized gain on securities
classified as available-for-sale.
The amortized cost and fair value of fixed maturity securities available for
sale by contractual maturity at December 31, 1996 are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $7,582 $7,652
Due after one year through five years 17,266 17,568
Due after five years through ten years 22,264 22,303
Due after ten years 1,529 1,504
Mortgage-backed securities 13,407 13,594
- --------------------------------------------------------------------------------------------------------------------------
Total $62,048 $62,621
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. INCOME TAXES
- ----------------
The items that give rise to deferred tax assets and liabilities relate to the
following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized investment gains $277 $606
Deferred policy acquisition costs 23,727 17,276
Prepaid expenses 172 118
Other 0 500
- -------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 24,176 18,500
- -------------------------------------------------------------------------------------------------------------
Future policy and contract benefits 12,620 5,939
Deferred future revenues 1,534 1,039
Other 101 124
- -------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 14,255 7,102
- -------------------------------------------------------------------------------------------------------------
Net deferred tax liability $9,921 $11,398
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The difference between the U.S. federal income tax rate and the consolidated
tax provision rate is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Other 4.3 0.2 (0.1)
- ---------------------------------------------------------------------------------------------------------------------
Provision for income taxes 39.3% 35.2% 34.9%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
4. RELATED PARTY TRANSACTIONS
- ------------------------------
Affiliates provide technical, financial and legal support to the Company under
administrative service agreements. The cost of these services to the Company for
years ended December 31, 1996, 1995 and 1994 was $8,907, $4,858 and $4,029
respectively. The Company also leased office space and furniture and equipment
from affiliates during 1995 and 1994. The cost of these leases to the Company
for the years ended December 31, 1995, and 1994 was $37 and $40, respectively.
Under the terms of investment advisory agreements, the Company paid $73, $44 and
$43 for the years ended December 31, 1996, 1995 and 1994 to Ameritas Investment
Advisors Inc., an indirect wholly-owned subsidiary of Ameritas Life Insurance
Corp.
The Company entered into reinsurance agreements (yearly renewable term) with
affiliates. Under this agreement, these affiliates assume life insurance risk in
excess of the Company's $100 retention limit. The Company paid $3,301, $2,280
and $1,333 of net reinsurance premiums to affiliates for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company has received
reinsurance recoveries from affiliates of $659, $1,472 and $519 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The Company has entered into guarantee agreements with ALIC, AmerUs and AMAL
Corporation whereby, they guarantee the full, complete and absolute performance
of all duties and obligations of the Company.
The Company's variable life and variable annuity products are distributed
through Ameritas Investment Corp., a wholly-owned subsidiary of AMAL
Corporation. The Company received $54, $192 and $272 for the years ended
December 31, 1996, 1995 and 1994 respectively, from this affiliate to partially
defray the costs of materials and prospectuses. Policies placed by this
affiliate generated commission expense of $20,373, $14,028 and $15,223 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Transactions with related parties are not necessarily indicative of revenues and
expenses which would have occurred had the parties not been related.
5. EMPLOYEE AND AGENT BENEFIT PLANS
- ------------------------------------
The Company is included in the noncontributory defined-benefit pension plan that
covers substantially all full-time employees of ALIC and its subsidiaries.
Pension costs include current service costs, which are accrued and funded on a
current basis, and past service costs, which are amortized over the average
remaining service life of all employees on the adoption date. The assets and
liabilities of this plan are not segregated. The Company had no full time
employees during 1996 or 1995. Total Company contributions for the year ended
December 31, 1994 was $47.
The Company's employees also participate in a defined contribution thrift plan
that covers substantially all full-time employees of Ameritas Life Insurance
Corp. and its subsidiaries. Company matching contributions under the plan range
from 1% to 3% of the participant's compensation. The Company had no full time
employees during 1996 or 1995. Total Company contributions for the year ended
December 31, 1994 was $20.
The Company is also included in the postretirement benefit plans provided to
retired employees of Ameritas Life Insurance Corp. and its subsidiaries. These
benefits are a specified percentage of premium until age 65 and a flat dollar
amount thereafter. Employees become eligible for these benefits upon the
attainment of age 55, 15 years of service and participation in the plan for the
immediately preceding 5 years. Benefit costs include the expected cost of
postretirement benefits for newly eligible employees, interest cost, and gains
and losses arising from differences between actuarial assumptions and actual
experience. The assets and liabilities of this plan are not segregated. The
Company had no full time employees during 1996 or 1995. Total Company
contribution for the year ended December 31, 1994 was $7.
Expenses for the defined benefit pension plan and postretirement group medical
plan are allocated to the Company based on percentage of payroll.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
6. STOCKHOLDER'S EQUITY
- ------------------------
Net income(loss), as determined in accordance with statutory accounting
practices, was $855, $(19), and $(3,900) for 1996, 1995 and 1994, respectively.
The Company's statutory surplus was $44,100, $13,800, and $12,600 at December
31, 1996, 1995 and 1994, respectively. Effective January 1, 1996 the Company
changed reserving methods used for most existing products resulting in an
increase in statutory surplus of approximately $20,601.
Under statutes of the Insurance Department of the State of Nebraska, the Company
is limited in the amount of dividends it can pay to its stockholder. On February
28, 1996 the Board of Directors declared a return of paid-in-capital of $15,000
payable by way of a note due on or before August 15, 1996. The note was retired
on August 15, 1996. This action was approved by the State of Nebraska Insurance
Department and any additional distributions of capital or surplus will require
approval of the Insurance Department.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
The following disclosures are made regarding fair value information about
certain financial instruments for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates, in many cases, may not be realized in immediate settlement
of the instrument. All nonfinancial instruments are excluded from disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31 of each year. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date; therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for each class of financial instrument for which it
is practicable to estimate a value:
Fixed maturity securities available for sale
For publicly traded securities, fair value is determined using an
independent pricing source. For securities without a readily ascertainable
fair value, fair value has been determined using an interest rate spread
matrix based upon quality, weighted average maturity and Treasury yields.
Loans on insurance policies
Fair values for policy loans are estimated using discounted cash flow
analyses at interest rates currently offered for similar loans with similar
remaining terms. Policy loans with similar characteristics are aggregated
for purposes of the calculations.
Cash and cash equivalents, accrued investment income and reinsurance
recoverable
The carrying amounts reported in the balance sheet equals fair value due to
the nature of these instruments.
Accumulated contract values
Funds on deposit which do not have fixed maturities are carried at the
amount payable on demand at the reporting date.
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued):
- ----------------------------------------------------
<TABLE>
<CAPTION>
Estimated fair values as of December 31, are as follows:
December 31
--------------------------------------------------------
1996 1995
--------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturity securities available for sale $62,621 $62,621 $40,343 $40,343
Loans on insurance policies 4,309 3,843 2,639 2,346
Cash and cash equivalents 10,684 10,684 5,660 5,660
Accrued investment income 1,096 1,096 790 790
Reinsurance recoverable - affiliates 9 9 57 57
Financial Liabilities:
Accumulated contract values excluding amounts held under
insurance contracts $70,640 $70,640 $39,283 $39,283
</TABLE>
8. SEPARATE ACCOUNTS
- ---------------------
The Company is currently marketing variable life and variable annuity products
which have separate accounts as an investment option. Separate Account V
(Account V) was formed to receive and invest premium receipts from variable life
insurance policies issued by the Company. Separate Account VA-2 (Account VA-2)
was formed to receive and invest premium receipts from variable annuity policies
issued by the Company. Both Separate Accounts are registered under the
Investment Company Act of 1940, as amended, as unit investment trusts. Account V
and VA-2's assets and liabilities are segregated from the other assets and
liabilities of the Company.
<TABLE>
<CAPTION>
Amounts in the Separate Accounts are:
December 31
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Separate Account V $136,079 $93,610
Separate Account VA-2 811,501 588,872
- ---------------------------------------------------------------------------------------------------------------------------------
$947,580 $682,482
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The assets of Account V are invested in shares of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, Alger American Fund,
Dreyfus Stock Index Fund and MFS Variable Insurance Trust. Each fund is
registered with the SEC under the Investment Company Act of 1940, as amended, as
an open-end diversified management investment company.
The Variable Insurance Products Fund and the Variable Insurance Products Fund II
are managed by Fidelity Management and Research Company. The Variable Insurance
Products Fund has five portfolios: the Money Market Portfolio, the High Income
Portfolio, the Equity Income Portfolio, the Growth Portfolio and the Overseas
Portfolio. The Variable Insurance Fund II has five portfolios: the Investment
Grade Bond Portfolio, Asset Manager Portfolio, Contrafund Portfolio (effective
August 25, 1995), Asset Manager Growth Portfolio( effective September 15, 1995)
and the Index 500 Portfolio (effective September 21, 1995). The Alger American
Fund is managed by Fred Alger Management, Inc. and has six portfolios: Income
and Growth Portfolio, Small Capitalization Portfolio, Growth Portfolio, MidCap
Growth Portfolio (effective June 17, 1993), Balanced Portfolio (effective June
28, 1993) and the Leveraged Allcap Portfolio (effective August 30, 1995). The
Dreyfus Stock Index Fund is managed by Wells Fargo Nikko Investment Advisors and
has the Stock Index Fund Portfolio. The MFS Variable Insurance Trust is managed
by Massachusetts Financial Services Company. The MFS Variable Insurance Trust
has three portfolios: the Emerging Growth Portfolio (effective August 25, 1995),
World Governments Portfolio (effective August 24, 1995) and the Utilities
Portfolio (effective September 18, 1995)
Separate Account VA-2 allows investment in the Variable Insurance Products Fund,
Variable Insurance Products Fund II, Alger American Fund, Dreyfus Stock Index
Fund and the MFS Variable Insurance Trust with the same portfolios as described
above.
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The following tables illustrate how the cash values and death benefits of a
Policy may change with the investment experience of the Fund. The tables show
how the cash values and death benefits of a Policy issued to an Insured of a
given age and specified underwriting risk classification who pays the given
premium at issue would vary over time if the investment return on the assets
held in each portfolio of the Funds were a uniform, gross, after-tax annual rate
of 0%, 6%, or 12%. The tables on pages 58 through 61 illustrate a Policy issued
to a male, age 35, under a Preferred rate non-smoker underwriting risk
classification. This policy provides for a standard smoker and non-smoker, and
preferred non-smoker classification and different rates for certain specified
amounts. The cash values and death benefits would be different from those shown
if the gross annual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above and below those averages for individual
policy years, or if the Insured were assigned to a different underwriting risk
classification.
The second column of the tables shows the accumulated value of the premiums paid
at 5%. The following columns show the death benefits and the cash values for
uniform hypothetical rates of return shown in these tables. The tables on pages
58 and 60 are based on the current cost of insurance rates, current expense
deductions and the maximum percent of premium loads. These reflect the basis on
which AVLIC currently sells its Policies. The maximum allowable cost of
insurance rates under the Policy are based upon the 1980 Commissioner's Standard
Ordinary Smoker and Non-Smoker, Male and Female Mortality Tables. Since these
are recent tables and are split to reflect smoking habits and sex, the current
cost of insurance rates used by AVLIC are at this time equal to the maximum cost
of insurance rates for many ages. AVLIC anticipates reflecting future
improvements in actual mortality experience through adjustments in the current
cost of insurance rates actually applied. AVLIC also anticipates reflecting any
future improvements in expenses incurred by applying lower percent of premiums
of loads and other expense deductions. The death benefits and cash values shown
in the tables on pages 59 and 61 are based on the assumption that the maximum
allowable cost of insurance rates as described above and maximum allowable
expense deductions are made throughout the life of the Policy.
The amounts shown for the death benefits, surrender values and accumulation
values reflect the fact that the net investment return of the Subaccounts is
lower than the gross, after-tax return of the assets held in the Funds as a
result of expenses paid by the Fund and charges levied against the Subaccounts.
The values shown take into account an average of the daily management fee paid
by each portfolio available for investment (the equivalent to an annual rate of
.69% of the aggregate average daily net assets of the Fund), the other expenses
incurred by the Fund (0.20%), and the daily charge by AVLIC to each Subaccount
for assuming mortality and expense risks and administrative costs (which is
equivalent to a charge at an annual rate of 1.20% of the average net assets of
the Subaccounts) After deduction of these amounts, the illustrated gross annual
investment rates of return of 0%, 6%, and 12%, correspond to approximate net
annual rates of -2.09%, 3.91%, 9.91% respectively.
The Investment Advisor or other affiliates of the various funds have agreed to
reimburse the portfolios to the extent that the aggregate operating expenses
(certain portfolio's may exclude certain items) were in excess of an annual rate
of 1.00% for the High Income, Contrafund and Asset Manager: Growth Portfolios,
1.50% for the Equity-Income, Growth and Overseas Portfolios, .80% for the
Investment Grade Bond Portfolio, .28% for the Index 500 Portfolio, 1.25% for the
Asset Manager Portfolio, 1.25% for the Alger American Income and Growth and
Alger American Balanced Portfolio; 1.50% for the Alger American Small
Capitalization, Alger American Mid-Cap Growth, Alger American Leveraged AllCap,
and Alger American Growth Portfolios, 1.75% for the Morgan Stanley Emerging
Markets Equity, 1.20% for the Morgan Stanley Asian Equity, 1.15% for the Morgan
Stanley Global Equity and Morgan Stanley International Magnum, 1.10% for the
Morgan Stanley U.S. Real Estate Portfolios of daily net assets. MFS has agreed
to bear expenses for each series, subject to reimbursement by each series, such
that each series "Other Expenses" shall not exceed .25% of the average daily net
assets of the series during the current fiscal year. These agreements are
expected to continue in future years but may be terminated at any time. As long
as this reimbursement continues for a portfolio, if a reimbursement occurs, it
has the effect of lowering the portfolio's expense ratio and increasing its
total return.
The 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
smoker, in substandard risk classification, or were another age, or if a higher
or lower premium was illustrated.
Upon request, AVLIC will provide comparable illustration based upon the proposed
Insured's age, sex and underwriting classification, the Specified Amount, the
death benefit option, and planned periodic premium schedule requested, and any
available riders requested. In addition, upon client request, illustrations may
be furnished reflecting allocation of premiums to specified Subaccounts. Such
illustrations will reflect the expenses of the portfolio in which the Subaccount
invests.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 95
Single Endowment at Age 95
Male Issue Age: 35 Non-Smoker Standard Underwriting Class
MINIMUM FIRST YEAR PREMIUM: $10,000
INITIAL SPECIFIED AMOUNT: $55,620
DEATH BENEFIT OPTION: A
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
Cash Value Less Any
Cash Surrender Charge (1)(2) Death Benefit (1)(2)
----------------------------------------- ------------------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
End Of Accumulated Annual Investment Rate of Return Of: Annual Investment Rate of Return Of:
Policy At 5% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-2.09% net) (3.91% net) (9.91% net) (-2.09% net) (3.91% net) (9.91% net)
- -------- -------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8815 9413 10011 55620 55620 55620
2 11025 8532 9735 11010 55620 55620 55620
3 11576 8249 10065 12105 55620 55620 55620
4 12155 8016 10453 13356 55620 55620 55620
5 12762 7882 10949 14822 55620 55620 55620
6 13400 7796 11503 16466 55620 55620 55620
7 14071 7807 12163 18349 55620 55620 55620
8 14774 7715 12730 20286 55620 55620 55620
9 15513 7419 13104 22193 55620 55620 55620
10 16288 7118 13484 24288 55620 55620 55620
15 20789 5492 15458 38183 55620 55620 72929
20 26532 3515 17469 59998 55620 55620 94196
Ages
60 33863 876 19333 94459 55620 55620 126576
65 43219 0* 21064 149151 0 55620 181964
70 55160 0* 21998 235218 0 55620 272853
75 70399 0* 20802 371035 0 55620 397007
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
1) Assumes a minimum first year premium of $10,000 is paid at issue with no
additional premium payment. Values would be different if premiums are paid with
a different frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value. Should a policy
lapse with loans outstanding the portion of the loans attributable to earnings
will become taxable.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY AVLIC OR THE FUNDS
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 95
Single Endowment at Age 95
Male Issue Age: 35 Non-Smoker Standard Underwriting Class
MINIMUM FIRST YEAR PREMIUM: $10,000
INITIAL SPECIFIED AMOUNT: $55,620
DEATH BENEFIT OPTION: A
USING MAXIMUM ALLOWABLE COST OF INSURANCE RATES
Cash Value Less Any
Cash Surrender Charge (1)(2) Death Benefit (1)(2)
----------------------------------------- ------------------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
End Of Accumulated Annual Investment Rate of Return Of: Annual Investment Rate of Return Of:
Policy At 5% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-2.09% net) (3.91% net) (9.91% net) (-2.09% net) (3.91% net)(9.91% net)
- -------- -------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8565 9163 9761 55620 55620 55620
2 11025 8382 9585 10860 55620 55620 55620
3 11576 8199 10015 12055 55620 55620 55620
4 12155 8016 10453 13356 55620 55620 55620
5 12762 7882 10949 14822 55620 55620 55620
6 13400 7796 11503 16466 55620 55620 55620
7 14071 7807 12163 18349 55620 55620 55620
8 14774 7715 12730 20286 55620 55620 55620
9 15513 7419 13104 22193 55620 55620 55620
10 16288 7118 13484 24288 55620 55620 55620
15 20789 5492 15458 38183 55620 55620 72929
20 26532 3504 17460 59990 55620 55620 94185
Ages
60 33863 725 19210 94343 55620 55620 126420
65 43219 0* 20225 148329 0* 55620 180961
70 55160 0* 19449 232468 0* 55620 269662
75 70399 0* 14584 364477 0* 55620 389990
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
1) Assumes a minimum first year premium of $10,000 is paid at issue with no
additional premium payment. Values would be different if premiums are paid with
a different frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value. Should a policy
lapse with loans outstanding the portion of the loans attributable to earnings
will become taxable.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY AVLIC OR THE FUNDS
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 95
Single Endowment at Age 95
Male Issue Age: 35 Non-Smoker Standard Underwriting Class
MINIMUM FIRST YEAR PREMIUM: $10,000
INITIAL SPECIFIED AMOUNT: $55,620
DEATH BENEFIT OPTION: B
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
Cash Value Less Any
Cash Surrender Charge (1)(2) Death Benefit (1)(2)
----------------------------------------- ------------------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
End Of Accumulated Annual Investment Rate of Return Of: Annual Investment Rate of Return Of:
Policy At 5% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-2.09% net) (3.91% net) (9.91% net) (-2.09% net) (3.91% net) (9.91% net)
- -------- -------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8798 9395 9992 65318 65915 66512
2 11025 8499 9698 10969 65019 66218 67489
3 11576 8199 10006 12035 64719 66526 68555
4 12155 7950 10369 13251 64420 66839 69721
5 12762 7799 10837 14673 64119 67157 70993
6 13400 7696 11359 16263 63816 67479 72383
7 14071 7689 11983 18080 63509 67803 73900
8 14774 7579 12509 19938 63199 68129 75558
9 15513 7264 12837 21747 62884 68457 77367
10 16288 6944 13165 23723 62564 68785 79343
15 20789 5220 14762 36685 60840 70382 92305
20 26532 3145 16095 56787 58765 71715 112407
Ages
60 33863 450 16761 87945 56070 72381 143565
65 43219 0* 16598 136807 0* 72218 192427
70 55160 0* 14338 212865 0* 69958 268485
75 70399 0* 7786 330599 0* 63406 386219
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
1) Assumes a minimum first year premium of $10,000 is paid at issue with no
additional premium payment. Values would be different if premiums are paid with
different frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value. Should a policy
lapse with loans outstanding the portion of the loans attributable to earnings
will become taxable.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY AVLIC OR THE FUNDS
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 95
Single Endowment at Age 95
Male Issue Age: 35 Non-Smoker Standard Underwriting Class
MINIMUM FIRST YEAR PREMIUM: $10,000
INITIAL SPECIFIED AMOUNT: $55,620
DEATH BENEFIT OPTION: B
USING MAXIMUM ALLOWABLE SCHEDULE OF COST OF INSURANCE RATES
Cash Value Less Any
Cash Surrender Charge (1)(2) Death Benefit (1)(2)
----------------------------------------- ------------------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
End Of Accumulated Annual Investment Rate of Return Of: Annual Investment Rate of Return Of:
Policy At 5% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-2.09% net) (3.91% net) (9.91% net) (-2.09% net) (3.91% net) (9.91% net)
- -------- -------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10500 8548 9145 9742 65318 65915 66512
2 11025 8349 9548 10819 65019 66218 67489
3 11576 8149 9956 11985 64719 66526 68555
4 12155 7950 10369 13251 64420 66839 69721
5 12762 7799 10837 14673 64119 67157 70993
6 13400 7696 11359 16263 63816 67479 72383
7 14071 7689 11983 18080 63509 67803 73900
8 14774 7579 12509 19938 63199 68129 75558
9 15513 7264 12837 21747 62884 68457 77367
10 16288 6944 13165 23723 62564 68785 79343
15 20789 5220 14762 36685 60840 70382 92305
20 26532 3133 16084 56775 58753 71704 112395
Ages
60 33863 296 16582 87738 55916 72202 143358
65 43219 0* 15349 135315 0* 70969 190935
70 55160 0* 10690 208043 0* 66310 263663
75 70399 0* 0* 318898 0* 0* 374518
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
1) Assumes a minimum first year premium of $10,000 is paid at issue with no
additional premium payment. Values would be different if premiums are paid with
a different frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value. Should a policy
lapse with loans outstanding the portion of the loans attributable to earnings
will become taxable.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY AVLIC OR THE FUNDS
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below covering the period of 1926-1996 is an examination of the
basic relationship between risk and return among the different asset classes,
and between nominal and real (inflation adjusted) returns. The information is
provided because the Policyowners have varied investment portfolios available
which have different investment objectives and policies. The chart generally
demonstrates how different classes of investments have performed during the
period. The study of asset returns provides a period long enough to include most
of the major types of events that investors have experienced in the past . This
is a historical record and is not intended as a projection of future
performance.
The graph depicts the growth of a dollar invested in common stocks, small
company stocks, long-term government bonds, Treasury bills, and a hypothetical
asset returning the inflation rate over the period from the end of 1925 to the
end of 1996. All results assume reinvestment of dividends on stocks or coupons
on bonds and no taxes. Transaction costs are not included, except in the small
stock index starting in 1982. Charges associated with a variable insurance
policy are not reflected in the chart.
Each of the cumulative index values is initiated at $1.00 at year-end 1925. The
graph illustrates that common stocks and small stocks gained the most over the
entire 71-year period: investments of one dollar would have grown to $1,370.95
and $4,495.99 respectively, by year-end 1996. This growth, however, was earned
by taking substantial risk. In contrast, long-term government bonds (with an
approximate 20-year maturity), which exposed the holder to less risk, grew to
only $33.73. Note that the return and principal value of an investment in stocks
will fluctuate with changes in market conditions. Prices of small company stocks
are generally more volatile than those of large company stocks. Government bonds
and Treasury Bills are guaranteed by the U.S. Government and, if held to
maturity, offer a fixed rate of return and a fixed principal value.
The lowest risk strategy over the past 71 years was to buy U.S. Treasury bills.
Since Treasury bills tended to track inflation, the resulting real
(inflation-adjusted) returns were near zero for the entire 1926-1996 period.
Omitted graph illustrates long term market trends as described in the narrative
above.
Year End 1925 = $1.00
Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook
(C)Ibbotson Associates, Chicago. All Rights Reserved.
<PAGE>
APPENDIX C
STANDARD & POOR'S 500
The Standard and Poor's (S & P 500) is a weighted index of 500 widely held
stocks: 400 Industrials, 40 Financial Company Stocks, 40 Public Utilities, and
20 Transportation stocks, most of which are traded on the New York Stock
Exchange. This information is provided because the Policyowners have varied
investment options available. The investment options, except the Fixed Account
and the Money Market Account, involve investments in the stock market. The S & P
500 is generally regarded as an accurate composite of the overall stock market.
<TABLE>
<CAPTION>
PERCENT CHANGE OF TOTAL RETURN
STANDARD & POOR'S 500 INDEX
%
Year Change
- -----------------------------------------
<S> <C> <C>
1 1972 18.90 Omitted graph depicts the activity
2 1973 -14.77 of the S&P 500 Index for the years
3 1974 -26.39 1971-1996.
4 1975 37.16
5 1976 23.57
6 1977 -7.42
7 1978 6.38
8 1979 18.20
9 1980 32.27
10 1981 -5.01
11 1982 21.44
12 1983 22.38
13 1984 6.10
14 1985 31.57
15 1986 18.56
16 1987 5.10
17 1988 16.61
18 1989 31.69
19 1990 -3.14
20 1991 30.45
21 1992 7.61
22 1993 10.08
23 1994 1.32
24 1995 37.58
25 1996 22.96
</TABLE>
THE CHART ASSUMES THE RETURN EXPERIENCED BY THE STANDARD & POOR'S 500 INDEX FOR
THE LAST 25 YEARS. THE CHART ASSUMES THAT DIVIDENDS ARE REINVESTED INTO THE
INDEX. FUTURE RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER. THE INFORMATION IN THE CHART IS NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE.
INDEX PERFORMANCE IS NOT ILLUSTRATIVE OF POLICY SUBACCOUNT PERFORMANCE, AND
INVESTMENTS ARE NOT MADE IN THE INDEX. THE POLICY IS NOT SPONSORED, ENDORSED,
SOLD OR PROMOTED BY STANDARD & POOR'S.
