PROSPECTUS
COMPANY LOGO
AMERITAS VARIABLE LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM One Ameritas Way/5900 "O" Street
VARIABLE UNIVERSAL LIFE P.O. Box 82550/Lincoln, NE 68501
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This Prospectus describes a flexible premium variable universal life insurance
policy ("Policy") offered by Ameritas Variable Life Insurance Company ("AVLIC"),
a stock life insurance company. The Policy is designed to provide insurance
protection until the Policy Anniversary nearest the Insured's 95th birthday and
at the same time provide flexibility to vary the frequency and amount of premium
payments and to increase or decrease the level of death benefits payable under
the Policy. This flexibility allows a Policyowner to provide for changing
insurance needs under a single insurance policy.
The Policy guarantees the Death Benefit as long as the Policy remains in force.
The Policyowner may choose death benefit Option A (generally, a level benefit
that equals the Specified Amount of the Policy) or Option B (a variable benefit
that generally equals the Specified Amount plus the Policy's accumulation
value). The specified amount for a policy is generally $100,000, lower specified
amounts may be requested. The Policy provides for a surrender value that can be
obtained through partial withdrawals, surrender of the Policy, or through policy
loans. There is no minimum guaranteed accumulation value. AVLIC agrees to keep
the Policy in force during the first three years and provide a Guaranteed Death
Benefit during that time, so long as the cumulative pro rata monthly minimum
Guaranteed Death Benefit Premium is paid even though, in certain instances, the
minimum payments allowed by the contract will not generate positive surrender
values, after payment of insurance and other charges, during the first several
policy months. AVLIC also offers an Extended Guaranteed Death Benefit Rider
which extends this benefit for 10 years and up to 30 years, depending on the age
of the Insured.
The Policyowner has the right to examine the Policy and return it for a refund
for a limited time (see page 24). The initial premium payment will be allocated
to the Money Market portfolio of the Variable Insurance Products Fund, as of the
issue date, for 13 days. After the 13-day period (see page 26), the accumulation
value will be allocated to the Subaccounts of AVLIC Separate Account V
("Account") or the Fixed Account as selected by the Policyowner. The
accumulation value, the duration of the death benefit and, if Option B is
selected, the amount of the death benefit above the Specified Amount, will vary
with the investment experience of the selected Subaccounts or the Fixed Account.
The accumulation value will also be adjusted for other factors, including the
amount of charges imposed and the premium payments made. The Policy will
continue in force so long as the surrender value is sufficient to pay certain
monthly charges imposed in connection with the Policy. This Policy may also be
acquired in exchange for another policy (Form #4002) previously offered by AVLIC
(See Exchange Offer, page 33).
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.
Replacing existing insurance with a Policy or purchasing a Policy as a means to
obtain additional insurance protection if the purchaser already owns another
flexible premium variable life insurance policy may not be advantageous.
This Prospectus Must Be Accompanied or Preceded By Current Prospectuses For
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 ANY STATE SECURITIES REGULATORY AUTHORITY, NOR HAS
THE COMMISSION, OR ANY STATE SECURITIES REGULATORY AUTHORITY, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date of This Prospectus is May 1, 1997.
APPLAUSE! 1
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<TABLE>
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TABLE OF CONTENTS
<S> <C>
Definitions............................................................ 3
Summary................................................................ 5
Ameritas Variable Life Insurance Company and the Account .............. 9
Ameritas Variable Life Insurance Company...................... 9
Ameritas Variable Life Insurance Company Separate Account V... 10
The Funds..................................................... 11
Investment Objectives and Policies Of The Funds' Portfolios... 12
Fund Management Fees ......................................... 15
Addition, Deletion or Substitution of Investments............. 16
Fixed Account................................................. 17
Policy Benefits........................................................ 17
Purposes of the Policy........................................ 17
Death Benefit Proceeds........................................ 18
Death Benefit Options......................................... 18
Methods of Affecting Insurance Protection..................... 20
Duration of Policy............................................ 20
Accumulation Value............................................ 20
Benefits at Maturity.......................................... 21
Payment of Policy Benefits.................................... 21
Policy Rights.......................................................... 22
Loan Benefits................................................. 22
Surrenders.................................................... 23
Partial Withdrawals........................................... 23
Transfers..................................................... 23
Systematic Programs........................................... 24
Refund Privilege.............................................. 24
Exchange Privilege............................................ 24
Payment and Allocation of Premiums..................................... 25
Issuance of a Policy.......................................... 25
Premiums...................................................... 25
Allocation of Premiums and Accumulation Value................. 26
Policy Lapse and Reinstatement................................ 26
Charges and Deductions................................................. 27
Deductions From Premium Payment............................... 27
Charges from Accumulation Value............................... 28
Surrender Charge.............................................. 29
Daily Charges Against the Account............................. 29
General Provisions..................................................... 30
Exchange Offer......................................................... 33
Distribution of the Policies........................................... 34
Federal Tax Matters.................................................... 34
Safekeeping of the Account's Assets.................................... 36
Third Party Services................................................... 36
Voting Rights.......................................................... 36
State Regulation of AVLIC.............................................. 37
Executive Officers and Directors of AVLIC.............................. 37
Legal Matters.......................................................... 39
Legal Proceedings...................................................... 39
Experts................................................................ 39
Additional Information................................................. 39
Financial Statements................................................... 39
Ameritas Variable Life Insurance Company Separate Account V............ 40
Ameritas Variable Life Insurance Company............................... 47
Appendices............................................................. 59
</TABLE>
The Policy, certain funds, and/or certain riders are not available in all
States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2 APPLAUSE!
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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 - Any monthly deductions that are due and unpaid.
ACCUMULATION VALUE - The total amount that a Policy provides for investment at
any time. It is equal to the total of the accumulation value held in the
Account, the Fixed Account, and any accumulation value held in the general
account which secures policy loans.
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 person or persons designated in the application, unless later
changed, to receive the Death Benefit (see page 30 for "Beneficiary" and
page 31 for "Change of Beneficiary").
DECLARED RATES - The interest rate declared by AVLIC to be earned on amounts in
the Fixed Account, which AVLIC guarantees to be no less than 4.5%.
DEATH BENEFITS - 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. It
is equal to: (l) the Death Benefit; (2) plus additional life insurance proceeds
provided by any riders; (3) minus any outstanding policy debt; (4) minus any
unpaid monthly deduction due, including the deduction for the month of death.
EXTENDED GUARANTEED DEATH BENEFIT PREMIUMS - A specified premium which, when
paid, will extend the Guaranteed Death Benefit beyond the first three policy
years to a period of 10 to 30 policy years, depending on the age of the Insured
on the Issue Date (See Additional Insurance Benefits, page 31). This benefit is
provided without an additional policy charge.
FIXED ACCOUNT - An account that is a part of AVLIC's General Account to which
all or a portion of net premiums and transfers may be allocated for accumulation
at fixed rates of interest.
GENERAL ACCOUNT - The General Account of AVLIC includes all of AVLIC's assets
except those assets segregated into separate accounts.
GUARANTEED DEATH BENEFIT PREMIUM - A specified premium for the first three years
which, if paid in advance on a monthly or yearly prorated basis, will keep the
Policy in force during the first three policy years so long as other policy
provisions are met, even if the surrender value is zero or less. This benefit is
provided without an additional policy charge.
INSURED - The person whose life is insured under the Policy.
ISSUE AGE - The age of the Insured at the Insured's birthday nearest the policy
date.
ISSUE DATE - The date that all financial, contractual and administrative
requirements have been met and processed for the Policy.
MATURITY DATE - The date AVLIC pays any surrender value, if the Insured is still
living.
MONTHLY ACTIVITY DATE - The same date in each succeeding month as the policy
date except should such monthly activity date fall on a date other than a
valuation date, the monthly activity date will be the next valuation date.
NET PREMIUM - Premium paid less the sales load charge and premium tax charge
(See page 27 and 28).
APPLAUSE! 3
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OUTSTANDING POLICY DEBT - The sum of all unpaid policy loans and accrued
interest on policy loans.
PLANNED PERIODIC PREMIUMS - A selected schedule of equal premiums payable at
fixed intervals. The Policyowner is not required to follow this schedule, nor
does following this schedule ensure that the Policy will remain in force unless
the payments meet the requirements of the Guaranteed Death Benefit Premium or
the Extended Guaranteed Death Benefit Premium.
POLICY - The Flexible Premium Variable Universal Life Insurance Policy offered
by AVLIC and described in this Prospectus.
POLICYOWNER - The owner of the Policy, as designated in the application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee is
the Policyowner. A collateral assignee is not the Policyowner.
POLICY ANNIVERSARY DATE - The same day as the policy date for each year the
Policy remains in force.
POLICY DATE - As set forth in the Policy, the effective date for all coverage
provided in the application. The policy date is used to determine policy
anniversary dates, policy years and monthly activity dates. Policy anniversaries
are measured from the policy date. The policy date and the issue date will be
the same unless: 1) an earlier policy date is specifically requested, or 2) when
additional premiums or application amendments are required at time of delivery.
(See Issuance of a Policy, page 25).
POLICY YEAR - The period from one policy anniversary date until the next policy
anniversary date.
REDUCED LOAN RATE - After reaching the later of age 55 or the tenth policy
anniversary (the reduced loan rate start date), the Policyowner may borrow each
year approximately 10% of the accumulation value at the reduced loan rate (See
page 22 for "Loan Benefits").
SATISFACTORY PROOF OF DEATH - Means all of the following must be submitted: (1)
A certified copy of the death certificate; (2) A Claimant Statement; (3) The
Policy; and (4) Any other information that AVLIC may reasonably require to
establish the validity of the claim.
SPECIFIED AMOUNT - The minimum death benefit under the Policy, as selected by
the Policyowner, which generally must be $100,000 or more at issue date.
SUBACCOUNT - A subdivision of the Account. Each Subaccount invests exclusively
in the shares of a specified portfolio of the Funds.
SURRENDER VALUE - The policy accumulation value on the date of surrender, less
any outstanding policy debt, any surrender charge, and any accrued expense
charges.
VALUATION DATE - Any day on which the New York Stock Exchange is open for
trading.
VALUATION PERIOD - The period between two successive valuation dates, commencing
at the close of the New York Stock Exchange ("NYSE") on one valuation date and
ending at the close of the NYSE on the next succeeding valuation date.
4 APPLAUSE!
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SUMMARY
The following summary of Prospectus information and diagram of the Policy should
be read in conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy contained
in this Prospectus assumes that the Policy is in force and that there is no
outstanding indebtedness.
DIAGRAM OF POLICY
PREMIUM PAYMENTS
You can vary amount and frequency.
DEDUCTIONS FROM PREMIUMS
Sales load and distribution expense - 5%.
Premium Tax - 2.5%
NET PREMIUM
You direct the net premium to be invested in the Fixed Account or to the
separate account which offers twenty-six different subaccounts. The twenty-six
subaccounts invest in the corresponding portfolios (Funds) of the Fidelity
Variable Insurance Product Funds, the Fidelity Variable Insurance Products Fund
II, the Alger American Fund, the MFS Variable Insurance Trust, or the Morgan
Stanley Universal Trust.
DEDUCTIONS FROM ASSETS
Monthly charge for cost of insurance and cost of any riders.
Monthly charge for administrative expenses $9.00 per month the first year,
$4.50 per month thereafter.
Daily charge, at an annual rate of 0.90% for Policy Years 1-20, and 0.65%
thereafter, from the subaccounts for mortality and expense risks. This charge
is not deducted from Fixed Account assets.
LIVING BENEFITS RETIREMENT BENEFITS DEATH BENEFITS
Partial withdrawals can Loans may be taken at a net Income tax free to
be made (subject to zero interest rate after beneficiary.
certain restrictions). ten years or when the
The death benefit will policyholder reaches 55 Available as lump
be reduced by the amount (whichever occurs later). sum or under the
of the partial withdrawal. five payment meth-
Should the policy lapse ods available as
Up to fifteen free trans- while loans are outstanding retirement benefits.
fers can be made each the portion of the loan
year between the invest- attributable to earnings
ment portfolios. will become taxable dist-
ributions. (See page 22).
Accelerated payment of up
to 50% of the lowest
scheduled death benefit Payments can be taken under
is available under cer- one or more of five dif-
tain conditions to insur- ferent payment options.
eds suffering from termi-
nal illness.
The policy may be sur-
rendered at any time for
its surrender value.
Because the company
incurs expenses imme-
diately upon the issuance
of the policy that are
recovered over a period
of years, a policy sur-
render prior to the fif-
teenth anniversary date
will be assessed a sur-
render charge consisting
of the contingent defer-
red sales charge and the
contingent deferred ad-
ministrative charge.
After the fifth policy
year the charge decreases
each year until no sur-
render charge is applied
after the fifteenth
policy year.(See pages 23
and 29).
APPLAUSE! 5
<PAGE>
THE ISSUER
The Policy is issued by Ameritas Variable Life Insurance Company ("AVLIC"), a
Nebraska stock life insurance company. A separate account of AVLIC, Separate
Account V ("Account"), has been established to hold the assets supporting the
Policy. The Account has twenty-six Subaccounts which correspond to, and are
invested in, the portfolios of the Funds discussed at page 11 herein. (See
Ameritas Variable Life Insurance Company and the Account, page 9, and The Funds,
page 11). The financial statements for AVLIC and the Account can be found
beginning on page 40.
THE POLICY
This flexible premium variable universal life insurance policy ("Policy") allows
the Policyowner, within limitations, to choose: (a) the amount and frequency of
premium payments; (b) the manner in which the Policyowners accumulation values
are invested; and (c) a choice of two death benefit options unless the Extended
Maturity Rider is in effect.
As long as the Policy remains in force, it will provide for: (1) life insurance
coverage on the Insured up to age 95; (2) an accumulation value; (3) surrender
rights (including partial withdrawals and total surrenders); (4) policy loan
privileges; and (5) a variety of optional benefits and riders that may be added
to the Policy for an additional charge or without charge if certain minimum
premiums are paid.
PREMIUMS
This Policy differs in two important respects from a conventional life insurance
policy. First, the failure to pay a planned periodic premium will not in itself
cause the Policy to lapse.
Second, a Policy can lapse even if planned periodic premiums have been paid
unless the Guaranteed Death Benefit and/or the Extended Guaranteed Death Benefit
Premium requirements have been met. (See Payment and Allocation of Premiums,
page 25).
AMOUNTS. An initial premium of at least 1/12 of the first year Guaranteed Death
Benefit Premium, charges for riders and any substandard risk adjustment times
the number of months between the policy date and issue date, plus one, must be
paid in order to put the Policy in force. After the initial premium is paid,
unscheduled premiums may be paid in any amount and at any frequency, subject
only to the maximum and minimum limitations set by AVLIC and the maximum
limitations set by Federal Income Tax Law. A Policyowner may also choose a
planned periodic premium which may include the minimum cumulative premiums
necessary to keep in force the Guaranteed Death Benefit provision and the
Extended Guaranteed Death Benefit Rider.
A Policy will lapse when the surrender value is insufficient to pay the monthly
deduction unless the Guaranteed or Extended Guaranteed Death Benefit Riders are
in effect. A period of 61 days from the date written notice of lapse is mailed
to the Policyowner's last known address will be allowed for the Policyowner to
make sufficient payment to keep the Policy in force for the Policyowner (grace
period).
ALLOCATION OF NET PREMIUMS
The Policyowner may select the manner in which the new premiums are allocated
between the Fixed Account (See Fixed Account, page 17) and to one or more of the
Subaccounts.
Net premiums, which equal the premiums paid less the premium charges, are first
allocated for 13 days, as of the issue date, to the Subaccount for the Money
Market Portfolio of the Variable Insurance Products Fund. After the expiration
of the refund period, the accumulation value will be allocated as selected by
the Policyowner. The Policyowner may change the allocation instructions for
premiums and may also make a special designation for unscheduled premiums.
Subject to certain charges and restrictions, a Policyowner may also transfer
amounts among the Subaccounts and the Fixed Account. (See Allocation of Premiums
and Accumulation Value, page 26).
The various subaccounts available invest in a corresponding portfolio of the
Funds. VIPF offers the following portfolios: Money Market, Equity-Income,
Growth, High Income and Overseas Portfolios. VIPF II offers the following
portfolios: the
6 APPLAUSE!
<PAGE>
Asset Manager, Investment Grade Bond, Asset Manager: Growth,Index 500, and
Contrafund Portfolios. The Alger American Fund offers the following portfolios:
Alger American Growth, Alger American Income and Growth, Alger American Small
Capitalization, Alger American Balanced, Alger American MidCap Growth, and Alger
American Leveraged AllCap Portfolios. The MFS Trust 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: Emerging Markets Equity, Global Equity, International Magnum, Asian
Equity and U.S. Real Estate Portfolios. A summary of the investment objectives
for these portfolios is set forth at page 11 of this Prospectus, and detailed
objectives of these portfolios are described in the accompanying prospectuses
for the Funds. There is no assurance that these objectives will be met. The
Policyowner bears the entire investment risk for amounts allocated to the
Subaccounts.
POLICY BENEFITS
The rights and benefits under the Policy are summarized in this prospectus;
however prospectus disclosure regarding the policy is qualified in its entirety
by the policy itself, a copy of which is available upon request from AVLIC.
DEATH BENEFIT PROCEEDS AND DEATH BENEFIT OPTIONS. While the Policy remains in
force, AVLIC will pay the Death Benefit to the Beneficiary upon receipt of Proof
of Death of the Insured. These proceeds may be paid in a lump sum or in
accordance with an optional payment plan.
The Policy provides for two death benefit options unless the Extended Maturity
Rider is in effect. Under either option, so long as the Policy remains in force,
the death benefit will not be less than the current Specified Amount of the
Policy adjusted for any policy indebtedness. The death benefit may, however,
exceed the Specified Amount, depending upon the investment experience of the
Policy. Death Benefit Option A provides for a level benefit equal to the current
Specified Amount of the Policy, unless the accumulation value of the Policy on
the date of the Insured's death multiplied by the applicable percentage set
forth in the Policy is greater, in which case the death benefit is equal to that
larger amount. Death Benefit Option B provides for a variable benefit equal to
the current Specified Amount of the Policy plus the Policy's accumulation value
on the date of the Insured's death, or if greater, the accumulation value of the
Policy on the date of the Insured's death multiplied by the applicable
percentage set forth in the Policy. (See Death Benefit Options, page 18)
If the Extended Maturity Rider is in effect, the Death Benefit will be the
Accumulation Value.
Optional insurance benefits offered under the Policy include: Guaranteed Death
Benefit provision; Extended Guaranteed Death Benefit rider; Accelerated Living
Benefits Rider for Terminal Illness; Accidental Death Benefit rider; Covered
Insured rider; Disability Benefit rider; Guaranteed Insurability rider; Payor
Disability rider; and Children's Protection rider. (See Additional Insurance
Benefits, page 31). These riders are not all available in every state. The cost,
if any, of these additional insurance benefits will be deducted from the
Policy's accumulation value as a part of the monthly deduction. The Guaranteed
Death Benefit and Extended Guaranteed Death Benefit provisions are provided
without cost but require the described premium payments.
BENEFITS AT MATURITY.
On the maturity date of the Policy, if the Insured is still living, the
Policyowner will be paid the accumulation value of the Policy less any
outstanding policy debt and accrued interest charges.
ACCUMULATION VALUE BENEFITS
The Policy's accumulation value in the Account will reflect the amount and
frequency of premium payments, the investment experience of the chosen
Subaccounts and the Fixed Account, policy loans, any partial withdrawals, and
any charges imposed in connection with the Policy. The entire investment risk of
the Account is borne by the Policyowner. AVLIC does not guarantee a minimum
accumulation value in the Account. (See Accumulation Value, page 20). It does
guarantee the Fixed Account.
The Policyowner may surrender the Policy at any time and receive its surrender
value. Subject to certain limitations, the Policyowner may also make a partial
withdrawal from the Policy and obtain a portion of the surrender value at any
time prior to the maturity date. Partial withdrawals will reduce both the
accumulation value and the death benefit payable under the
APPLAUSE! 7
<PAGE>
Policy. (See Partial Withdrawals, page 23). A charge will be deducted from the
amount paid upon partial withdrawal. (See Partial Withdrawal Charge, page 30).
POLICY LOANS. Policy loans, secured by the accumulation value of the Policy, are
available. After the first policy anniversary, the Policyowner may obtain a loan
at "regular" loan interest rates, which shall not exceed 8% annually.
After the later of age 55 or the tenth policy anniversary, the Policyowner can
borrow against a limited amount of the accumulation value of the Policy at a
"reduced" interest rate, which reduced rate is currently 4.5% and shall not
exceed 5% annually ("reduced rate loan"). While the loan is outstanding, the
Policyowner earns 4.5% interest on the accumulation values securing the loans.
(For details concerning policy loan provisions, see page 22).
Policy loans may have tax consequences and will affect earnings and policy
accumulation values. Should the policy lapse while loans are outstanding the
portion of the loans attributable to earnings will become taxable distributions.
Should the Policy become a modified endowment contract, loans (including loans
to pay loan interest) will be taxable to the extent of any gain under the
Policy. Further, a 10% penalty tax also applies to the taxable portion of any
distribution prior to the Insured's age 59 1/2. (See Federal Tax Matters, page
34).
CHARGES
SALES AND PREMIUM TAX CHARGES Generally, a sales charge of 5% of each premium
will be deducted to compensate AVLIC for its expenses associated with
distributing the Policy and a premium tax charge of 2.5% of each premium will be
deducted from each premium before placing any amount in a Subaccount or the
Fixed Account. (See Deductions From Premium Payments, page 27).
MONTHLY CHARGES AGAINST THE ACCUMULATION VALUE.
a) A monthly maintenance charge of up to $9.00 [currently AVLIC is charging
$9.00 per month ($108.00 per year) during the first policy year and $4.50 per
month ($54.00 per year) thereafter], to compensate AVLIC for the continuing
administrative costs of the Policy, plus
b) A monthly charge for the cost of insurance including the cost for any
riders. (See Charges from Accumulation Value, page 28).
SURRENDER CHARGE. If a Policy is surrendered prior to the 15th anniversary date,
AVLIC will assess a surrender charge consisting of the Contingent Deferred Sales
Charge ("DSC") and the Contingent Deferred Administrative Charge ("DAC"). After
the fifth Policy Year, the surrender charge decreases each year until no
surrender charge is applied after the fifteenth Policy Year. (See Surrender
Charge, page 29).
The DSC is equal to 25% of the premiums received in the first two Policy Years
up to the Guaranteed Death Benefit Premium plus 5% of the premiums received in
those years in excess of the Guaranteed Death Benefit Premium. In no event shall
the surrender charge exceed $12.00 for every $1000.00 of insurance obtained
under the Policy.
The DAC is an amount per $1,000 of insurance that varies by issue age and sex.
(See Contingent Deferred Administrative Charges, page 29).
TRANSFER CHARGE. Fifteen transfers of accumulation value per policy year will be
permitted free of charge. A $10 administrative charge may be assessed for each
additional transfer. The transfer charge will be deducted from the amount
transferred. (See Transfer Charge, page 29).
PARTIAL WITHDRAWAL CHARGE. A maximum charge, not to exceed the lesser of $50 or
2% of the amount withdrawn may be deducted for each partial withdrawal.
(Currently, the charge is the lesser of $25 or 2%). The charge will be deducted
from the amount paid as a result of the withdrawal and will compensate AVLIC for
the administrative costs of partial withdrawals. No surrender charge is assessed
on a partial withdrawal and a partial withdrawal charge is not assessed when a
Policy is surrendered. (See Partial Withdrawal Charge, page 30).
8 APPLAUSE!
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DAILY CHARGES AGAINST THE ACCOUNT. A daily charge at an annual rate not to
exceed .90% (currently .90% for policy years 1-20 and .65% thereafter) of the
average daily net assets of each Subaccount, but not the Fixed Account. (See
Daily Charges Against the Account, page 30).
No charges are currently made against the Account for federal, state or local
taxes (which are charged in addition to state premium taxes). If there is a
material change from the expected treatment of AVLIC under federal, state or
local tax laws, AVLIC may determine to make deductions from the Account to pay
those taxes. (See Taxes, page 30).
In addition, because the Account purchases shares of the Funds, the value of the
units in each Subaccount will reflect the net asset value of shares of the
various Funds held therein, and therefore, the management fee and other expenses
incurred by the Funds. (See The Funds, page 11).
TAX TREATMENT OF THE POLICY
Like death benefits payable under conventional life insurance policies, life
insurance proceeds payable under the Policy are excludable from the taxable
income of the Beneficiary. Should the Policy be deemed a modified endowment
contract (see Federal Tax Matters-Tax Status of the Policy, page 34), partial or
full surrenders, assignments, policy pledges, and loans under the Policy will be
taxable to the Policyowner to the extent of any gain under the Policy.
Generally, a 10% penalty tax also applies to the taxable portion of any
distribution prior to the Insured reaching age 59 1/2. (For further detail
regarding taxation, see Federal Tax Matters, page 34).
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 notice
concerning cancellation, whichever is later. The amount of the refund is the
greater of the premiums paid or the premium paid adjusted by investment gains
and losses. (See Refund Privilege, page 24).
EXCHANGE PRIVILEGE
During the first 24 months after the policy date of the Policy, subject to
certain restrictions, the Policyowner may exchange the Policy for a flexible
premium adjustable life insurance policy issued and made available for exchange
by AVLIC or 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 24).
EXCHANGE OFFER
On June 13, 1990, the Securities and Exchange Commission approved a request from
AVLIC and the Account that they be permitted to offer to exchange the Policy for
a life insurance policy previously issued by AVLIC. That exchange offer
continues as of the date of this Prospectus. (For additional details concerning
the exchange offer, see Exchange Offer, page 33).
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 47.
AVLIC is a wholly-owned subsidiary of AMAL Corporation, a Nebraska stock
company. AMAL Corporation is a joint venture of Ameritas Life Insurance Corp.
(Ameritas 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
APPLAUSE! 9
<PAGE>
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.
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 insurance company who has a
financial rating by a National Rating Agency equal to or greater than Ameritas
Life and who agrees to assume the guarantee; provided that if AmerUs Life sells
its interest in AMAL Corporation to another insurance company who has a
financial rating by a National Rating Agency equal to or greater than that of
AmerUs Life, and the purchaser assumes the guarantee, AmerUs Life will be
relieved of its obligations under the Guarantee.
Ameritas Investment Corp., the principal underwriter of the policies may publish
in advertisements and reports to Policyowners the ratings and other information
assigned to Ameritas Life and AVLIC by one or more independent rating services
and charts and other information concerning asset allocation, dollar cost
averaging, portfolio rebalancing, earnings sweep, tax-deference and other
investment methods. The purpose of the ratings are to reflect the financial
strength and/or claims-paying ability of AVLIC. The ratings do not relate to the
performance of the separate account.
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
Ameritas Variable Life Insurance Company Separate Account V ("the Account") was
established under Nebraska law on August 28, 1985. The assets of the Account are
held by AVLIC segregated from all of AVLIC's other assets, are not chargeable
with liabilities arising out of any other business which AVLIC may conduct, and
income, gains, or losses of AVLIC. Although the assets maintained in the Account
will not be charged with any liabilities arising out of AVLIC's other business,
all obligations arising under the Policies are liabilities of AVLIC who will
maintain assets in the Account of a total market value at least equal to the
reserve and other contract liabilities of the Account. The Account will at all
times contain assets equal to or greater than 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 Accumulation 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.
10 APPLAUSE!
<PAGE>
We may also provide individualized hypothetical illustrations of Accumulation
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 Payment Deductions, and the Surrender Charge. These hypothetical
illustrations will be based on the actual historical experience of the funds as
if the Subaccounts had been in existence and a Policy issued for the same
periods as those indicated for the funds.
THE FUNDS
There are currently twenty-six Subaccounts within the Account available to
Policyowners for new allocations. Each Subaccount of the Account will invest
only in the shares of a corresponding portfolio of the VIPF, VIPF II, The Alger
American Fund, the MFS Fund and the Morgan Stanley Universal Funds (collectively
the "Funds".) Each Fund is registered with the SEC under the Investment Company
Act of 1940 as an open-end management investment company.
The assets of each portfolio of the Funds are held separate from the assets of
the other portfolios. Thus, each portfolio operates as a separate investment
portfolio, and the income or losses of one portfolio generally have no effect on
the investment performance of any other portfolio.
The investment objectives and policies of each portfolio are summarized below.
There is no assurance that any of the portfolios will achieve their stated
objectives. More detailed information, including a description of investment
objectives, policies, restrictions, expenses and risks, is in the prospectuses
for each of the Funds, which must accompany or precede this Prospectus. All
underlying fund information, including Fund prospectuses, has been provided to
AVLIC by the underlying Funds. AVLIC has not independently verified this
information. One or more of the Portfolios may employ investment techniques that
involve certain risks, including investing in non-investment grade, high risk
debt securities, entering into repurchase agreements and reverse repurchase
agreements, lending portfolio securities, engaging in "short sales against the
box," investing in instruments issued by foreign banks, entering into firm
commitment agreements and investing in warrants and restricted securities. In
addition, certain of the portfolios may invest in securities of foreign issuers.
The Leveraged AllCap Portfolio may borrow money to increase its portfolio of
securities, and may purchase or sell options and enter into futures contracts on
securities indexes to increase gain or to hedge the value of the Portfolio.
Certain of the portfolios are permitted to invest a portion of their assets in
non-investment grade, high risk debt securities; these portfolios include The
High Income, Equity-Income, Asset Manager: Growth, Asset Manager Portfolios of
the Fidelity Funds, and the Research Portfolio of the MFS Fund. Certain
portfolios are designed to invest a substantial portion of their assets
overseas, such as the Overseas Portfolio of VIPF and the International Magnum
Portfolio of the Morgan Stanley Fund. Other portfolios invest primarily in the
securities markets of emerging nations. Investments of this type involve
different risks than investments in more established economies, and will be
affected by greater volatility of currency exchange rates and overall economic
and political factors. Such portfolios include the Emerging Markets Equity and
Asian Equity Portfolios of the Morgan Stanley Fund. The Emerging Markets Equity
Portfolio may also invest in non-investment grade, high risk debt securities and
securities of Russian companies. Investment in Russian companies may involve
risks associated with that nation's system of share registration and custody.
Securities of non-U.S. issuers (including issuers in emerging nations) may also
be purchased by each of the portfolios of the MFS Trust and the Global Equity
Portfolio of the Morgan Stanley Fund. Investments acquired by the U.S. Real
Estate Portfolio of the Morgan Stanley Fund may be subject to the risks
associated with the direct ownership of real estate and direct investments in
real estate investment trusts. Further information about the risks associated
with investments in each of the Funds and their respective portfolios is
contained in the prospectus relating to that Fund. These prospectuses, together
with this Prospectus, should be read carefully and retained.
Each Policyowner should periodically consider the allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investing in the Funds' various portfolios.
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.
APPLAUSE! 11
<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
12 APPLAUSE!
<TABLE>
<CAPTION>
ALGER
AMERICAN FUND
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Growth The Portfolio will invest its assets in companies Seeks long-term capital appreciation.
whose securities are traded on domestic stock
exchanges or in the over-the-counter market. Except
during temporary defensive periods, the Portfolio
will invest at least 65% of its total assets in the
securities of companies that have a total market
capitalization of $1 billion or greater.
Income and The Portfolio attempts to invest 100% of its Seeks to provide a high level of dividend
Growth assets, and except during temporary defensive income to the extent consistent with prudent
periods, it is a fundamental policy of the Portfolio investment management. Capital appreciation
to invest, at least 65% of its total assets in is a secondary objective of the Portfolio.
dividend paying equity securities.
Small Capitalization Except during temporary defensive periods, the Seeks long-term capital appreciation.
Portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of
purchase of the securities, have total market
capitalization within the range of companies
included in the Russell 2000 Growth Index or the S& P
SmallCap 600 Index, updated quarterly. The Portfolio
may invest up to 35% of its total assets in equity
securities of companies that, at the time of purchase,
have total market capitalization outside the range of
companies included in those Indexes and in excess of
that amount (up to 100% of its assets) during
temporary defensive periods.
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.
APPLAUSE! 13
<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.
<PAGE>
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>
14 APPLAUSE!
<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:
<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%
</TABLE>
<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>
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>
APPLAUSE! 15
<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.
- ---------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
AVLIC reserves the right, subject to applicable law, and, if necessary, after
notice to and prior approval from the SEC and/or state insurance authorities to
make additions to, deletions from, or substitutions for the shares that are held
in the Account or that the Account may purchase. The Account may, to the extent
permitted by law, purchase other securities for other contracts or permit a
conversion between contracts upon request by the Policyowners.
AVLIC may, in its sole discretion, also establish additional Subaccounts of the
Account, each of which would invest in shares corresponding to a new portfolio
of the Funds or in shares of another investment company having a specified
investment objective. AVLIC may, in its sole discretion, establish new
Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant. Any new Subaccounts may be made
available to existing Policyowners on a basis to be determined by AVLIC.
If any of these substitutions or changes are made, AVLIC may by appropriate
endorsement change the Policy to reflect the substitution or change. If AVLIC
deems it to be in the best interest of Policyowners, and subject to any
approvals that may be required under applicable law, the Account may be operated
as a management company under the 1940 Act, it may be deregistered under that
Act if registration is no longer required, or it may be combined with other
AVLIC separate accounts. To the extent permitted by applicable law, AVLIC may
also transfer the assets of the Account associated with the Policies to another
separate account. In addition, AVLIC may, when permitted by law, restrict or
eliminate any voting rights of Policyowners or other persons who have voting
rights as to the Account.
16 APPLAUSE!
<PAGE>
The Policyowner will be notified of any material change in the investment policy
of any portfolio in which the Policyowner has an interest.
FIXED ACCOUNT
Policyowners may elect to allocate all or a portion of their premium payments to
the Fixed Account, and they may also transfer monies between the Account and the
Fixed Account. (See Transfers, page 23).
Payments allocated to the Fixed Account and transferred from the Account to the
Fixed Account are placed in the General Account 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 Policyowner bears the investment
risk that the declared rate described below, will fall to a lower rate after the
expiration of a declared rate period. Because of exemptive and exclusionary
provisions, interests in the General Account have not been registered under the
Securities Act of 1933 (the "1933 Act") nor is the General Account registered as
an investment company under "the Investment Company Act of 1940". Accordingly,
neither the General Account nor any interest therein is generally subject to the
provisions of the 1933 or 1940 Act. We understand that the staff of the SEC has
not reviewed the disclosures in this Prospectus relating to the Fixed Account
portion of the Policy; however, disclosures regarding the Fixed Account portion
of the Policy may be subject to generally applicable provisions of the Federal
Securities Laws regarding the accuracy and completeness of statements made in
prospectuses.
AVLIC guarantees that it will credit interest at an effective annual rate of at
least 4.5%. AVLIC may, at its 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 from the monies transferred or
allocated to the Fixed Account that month. The Policyowner will earn interest on
the amount transferred or allocated 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.
POLICY BENEFITS
The rights and benefits under the Policy are summarized in this prospectus;
however prospectus disclosure regarding the policy is qualified in its entirety
by the policy itself, a copy of which is available upon request from AVLIC.
PURPOSES OF THE POLICY
The Policy is designed to provide the Policyowner with both lifetime insurance
protection to the policy anniversary nearest the Insured's 95th birthday and
flexibility in connection with the amount and frequency of premium payments and
with the level of life insurance proceeds payable under the Policy.
The Policyowner is not required to pay scheduled premiums to keep a Policy in
force, but may, subject to certain limitations, vary the frequency and amount of
premium payments. Moreover, the Policy allows a Policyowner to adjust the level
of death benefits payable under the Policy without having to purchase a new
Policy by increasing (with evidence of insurability) or decreasing the Specified
Amount. An increase in the Specified Amount will increase the Guaranteed Death
Benefit and the Extended Guaranteed Death Benefit premium required. Thus, as
insurance needs or financial conditions change, the Policyowner has the
flexibility to adjust life insurance benefits and vary premium payments.
The death benefit may, and the accumulation value will, vary with the investment
experience of the chosen Subaccounts of the Account. Thus the Policyowner
benefits from any appreciation in value of the underlying assets, but bears the
investment risk of any depreciation in value. As a result, whether or not a
Policy continues in force may depend in part upon the investment experience of
the chosen Subaccounts. The failure to pay a planned periodic premium will not
necessarily cause the Policy to lapse, but the Policy could lapse even if
planned periodic premiums have been paid, depending upon the investment
experience of the Account. AVLIC agrees to keep the Policy in force during the
first three years and provide
APPLAUSE! 17
<PAGE>
a Guaranteed Death Benefit during that period so long as the cumulative pro rata
monthly minimum Guaranteed Death Benefit premium is paid even though, in certain
instances, the minimum payment allowed by contract will not, after the payment
of monthly insurance and administrative charges, generate positive surrender
values during the first several policy months. AVLIC also offers an Extended
Guaranteed Death Benefit rider which extends this benefit to between 10 and 30
years depending upon the age of the insured at the date of issue.
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, AVLIC will, upon satisfactory 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 21).
Death benefit proceeds will be paid to the surviving beneficiary or
beneficiaries specified in the application or as subsequently changed. If no
beneficiary is chosen, the proceeds will be paid to the Policyowners estate.
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 26).
The minimum initial Specified Amount is currently $50,000. Defined differences,
assisted by graphic illustrations are as follows:
OPTION A.
Omitted graph illustrates payout under Death Benefit Option A, specifically by
showing the relationships over time, between the Specified Amount and the
Accumulation Value.
Death Benefit Option A. Pays a Face Amount of death benefit equal to the
Specified Amount or the accumulation value multiplied by the Death Benefit Ratio
(as illustrated at Point A) whichever is greater.
Under Option A, the death benefit is the current Specified Amount of the Policy
or, if greater, the applicable percentage of accumulation value on the date of
death. The applicable percentage is 250% for Insureds with an attained age 40 or
younger on the policy anniversary prior to the date of death. For Insureds with
an attained age over 40 on that policy anniversary, the percentage declines. For
example, the percentage at age 40 is 250%, at age 50 is 185%, at age 60 is 130%,
at age 70 is 115%, at age 80 is 105%, and at age 90 is 100%. Accordingly, under
Option A the death benefit will remain level at the Specified Amount unless the
applicable percentage of accumulation value exceeds the current Specified
Amount, in which case the amount of the death benefit will vary as the
accumulation value varies. Policyowners who prefer to have favorable investment
performance, if any, reflected in higher accumulation value, rather than
increased insurance coverage, generally should select Option A.
18 APPLAUSE!
<PAGE>
OPTION B.
Omitted graph illustrates payout under Death Benefit Option B, specifically by
showing the relationships over time, between the Specified Amount and the
Accumulation Value.
Death Benefit Option B. Pays a Face Amount of death benefit equal to the
Specified Amount plus the Policy's accumulation value or the accumulation
value multiplied by the Death Benefit Ratio, whichever is greater.
Under Option B, the death benefit is equal to the current Specified Amount plus
the accumulation value of the Policy or, if greater, the applicable percentage
of the accumulation value on the date of death. The applicable percentage is the
same as under Option A: 250% for Insureds with an attained age 40 or younger on
the policy anniversary prior to the date of death, and for Insureds with an
attained age over 40 on that policy anniversary the percentage declines.
Accordingly, under Option B the amount of the death benefit will always vary as
the accumulation value varies (but will never be less than the Specified
Amount). Policyowners who prefer to have favorable investment performance, if
any, reflected in increased insurance coverage, rather than higher accumulation
values, generally should select Option B.
EXTENDED MATURITY
If the Extended Maturity Rider is in effect, the Death Benefit will be the
Accumulation Value.
CHANGE IN DEATH BENEFIT OPTION. The death benefit option may be changed once per
year after the first policy year by sending AVLIC a written request. The
effective date of such a change will be the monthly activity date on or
following the date the change is approved by AVLIC. A change may have Federal
Tax consequences.
If the death benefit option is changed from Option A to Option B, the death
benefit after the change will equal the Specified Amount before the change plus
the accumulation value on the effective date of the change and will require
evidence of insurability before the change is made. If the death benefit option
is changed from Option B to Option A, the Specified Amount under Option A after
the change will equal the death benefit under Option B on the effective date of
change.
No charges will be imposed upon a change in death benefit option, nor will such
a change in and of itself result in an immediate change in the amount of a
Policy's accumulation value. However, a change in the death benefit option may
affect the 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 accumulation value on that date.
Changing from Option B to Option A will generally decrease in the future the net
amount at risk, and therefore the cost of insurance charges. Changing from
Option A to Option B generally will not change a net amount at risk. 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, page 27 and Federal Tax Matters, page 34).
CHANGE IN SPECIFIED AMOUNT. Subject to certain limitations, after the first
policy year, a Policyowner may increase or decrease the Specified Amount of a
Policy. A change in Specified Amount may affect the cost of insurance rate and
the net amount at risk, both of which may affect a Policyowner's cost of
insurance charge and have Federal Tax consequences. (See Charges and Deductions,
page 27 and Federal Tax Matters, page 34).
Any increase or decrease in the Specified Amount will become effective on the
monthly activity date on or following the date a written request is approved by
AVLIC. The Specified Amount of a Policy may be changed only once per year and
AVLIC may limit the size of a change in a policy year. The Specified Amount
remaining in force after any requested decrease may not be less than $35,000. In
addition, if following the decrease in Specified Amount, the Policy would not
comply with the
APPLAUSE! 19
<PAGE>
maximum premium limitations required by Federal Tax Law (See Premiums, page 25),
the decrease may be limited or accumulation value may be returned to the
Policyowner at the Policyowner's election, to the extent necessary to meet these
requirements.
Increases in the Specified Amount will be allowed after the first policy year.
For an increase in the Specified Amount, a written supplemental application must
be submitted. AVLIC may also require additional evidence of insurability.
Although an increase need not necessarily be accompanied by an additional
premium, in certain cases an additional premium will be required to effect the
requested increase. (See Premiums upon Increases in Specified Amount, page 26).
The minimum amount of any increase is $25,000, and an increase cannot be made if
the Insured's attained age is over 75. An increase in the Specified Amount will
result in certain increased charges, which will be deducted from the
accumulation value of the Policy on each monthly activity date. An increase in
the Specified Amount may also increase surrender charges. An increase in the
Specified Amount during the time the Guaranteed and Extended Guaranteed Death
Benefit provision or rider are in effect will increase the respective premium
requirements. (See Charges and Deductions, page 27).
METHODS OF AFFECTING INSURANCE PROTECTION
A Policyowner may increase or decrease the pure insurance protection provided by
a Policy - the difference between the death benefit and the accumulation value -
in several ways as insurance needs change. These ways include increasing or
decreasing the Specified Amount of insurance, changing the level of premium
payments, and making a partial withdrawal of the Policy's accumulation value.
Certain of these changes may have Federal Tax consequences. The consequences of
each of these methods will depend upon the individual circumstances.
DURATION OF THE POLICY
The duration of the Policy generally depends upon the accumulation value. The
Policy will remain in force so long as the surrender value is sufficient to pay
the monthly deduction. (See Charges from Accumulation Value, page 28). Where,
however, the surrender value is insufficient to pay the monthly deduction and
the grace period expires without an adequate payment by the policyowner, the
Policy will lapse and terminate without value. (See Policy Lapse and
Reinstatement, page 26). AVLIC agrees to keep the policy in force during the
first three years and provide a Guaranteed Death Benefit so long as the
cumulative pro rata monthly minimum Guaranteed Death Benefit premium is paid.
AVLIC also offers an Extended Guaranteed Death Benefit rider which extends this
benefit up to 30 years. (See Additional Insurance Benefits, page 31)
ACCUMULATION VALUE
The Policy's accumulation value in the Account or the Fixed Account will reflect
the investment performance of the chosen Subaccounts of the Account or the Fixed
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 surrender value. (See Surrenders, page 23).
There is no guaranteed minimum accumulation value.
DETERMINATION OF ACCUMULATION VALUE. Accumulation value is determined on each
valuation date. On the policy issue date, the accumulation value in a Subaccount
will equal the portion of any net premium allocated to the Subaccount, reduced
by the portion of the first monthly deductions allocated to that Subaccount.
(See Allocation of Premiums and Accumulation Value, page 26). Thereafter, on
each valuation date, the accumulation value of a Policy will equal:
(a) The aggregate of the values attributable to the Policy in each of the
Subaccounts on the valuation date, determined for each Subaccount by
multiplying the Subaccount's unit value by the number of Subaccount units
allocated to the Policy; plus
(b) The value of the Fixed Account; plus
(c) Any accumulation value impaired by policy debt held in the general account;
plus
(d) Any net premiums received on that valuation date; less
(e) Any partial withdrawal, and its charge, made on that valuation date; less
(f) Any monthly deduction to be made on that valuation date; less
(g) Any federal or state income taxes charged against the accumulation value.
20 APPLAUSE!
<PAGE>
In computing the Policy's accumulation 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 accumulation value is dependent upon a number of
variables, a Policy's accumulation value cannot be predetermined.
THE UNIT VALUE. The unit value of each Subaccount reflects the investment
performance of that Subaccount. The unit value of each Subaccount shall be
calculated by (i) multiplying the per share net asset value of the corresponding
Fund portfolio on the valuation date times the number of shares held by the
Subaccount, before the purchase or redemption of any shares on that date; minus
(ii) a charge not exceeding an annual rate of .90% for mortality and expense
risk; 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 30).
VALUATION DATE AND VALUATION PERIOD. A valuation date is each day on which the
New York Stock Exchange ("NYSE") is open for trading. A valuation period is the
period between two successive valuation dates, commencing at the close of the
NYSE on each valuation date and ending at the close of the NYSE on the next
succeeding valuation date.
BENEFITS AT MATURITY
If the Insured is living, AVLIC will pay the accumulation value of the Policy,
less outstanding policy debt, on the maturity date to the Policyowner. 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 Satisfactory Proof of Death. Accumulation 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 31). 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. Changes must be in writing and will
revoke all prior elections. 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. Further,
if the Policy is assigned, any amounts due to the assignee will first be paid in
one sum. The balance, if any, may be applied under any payment option. Once
payments have begun, the payment option may not be changed.
PAYMENT OPTIONS. The minimum amount of each payment is $25. If a payment would
be less than $25, AVLIC has the right to make payments less often so that the
amount of each payment is at least $25. Once a payment option is in effect, the
proceeds will be transferred to AVLIC's general account. AVLIC may make other
payment options available in the future. For additional information concerning
these options, see the Policy itself. The following payment options are
currently available:
OPTION AI--INTEREST PAYMENT OPTION. AVLIC will hold any amount applied under
this option. Interest on the unpaid balance will be paid or credited each month
at a rate determined by AVLIC.
OPTION AII--FIXED AMOUNT PAYABLE OPTION. Each payment will be for an agreed
fixed amount. Payments continue until the amount AVLIC holds runs out.
OPTION B--FIXED PERIOD PAYMENT OPTION. Equal payments will be made for any
period selected up to 20 years.
OPTION C--LIFETIME PAYMENT OPTION. Equal monthly payments are based on the life
of a named person. Payments will continue for the lifetime of that person.
Variations provide for guaranteed payments for a period of time.
OPTION D--JOINT LIFETIME PAYMENT OPTION. Equal monthly payments are based on the
lives of two named persons. While both are living, one payment will be made each
month. When one dies, the same payment will continue for the lifetime of the
other.
APPLAUSE! 21
<PAGE>
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 request of the Policyowner using the rules set out
above.
POLICY RIGHTS
LOAN BENEFITS
LOAN PRIVILEGES. After the first policy anniversary, the Policyowner may borrow
up to 90% of the accumulation value less any surrender charges and any accrued
expenses as of the date of the policy loan at regular and, as described below,
reduced loan interest rates. Loans usually are funded within seven days after
receipt of a written request. The loan may be repaid at any time while the
Insured is living, prior to the maturity date. Policyowners in certain states
may borrow 100% of the surrender value after deducting interest and policy
charges for the remainder of the policy year. Loans may have a tax consequence.
(See Federal Tax Matters, page 34).
INTEREST. AVLIC charges interest to Policyowners at regular and reduced rates.
After the later of age 55 or the tenth policy anniversary, the Policyowner may
borrow each year a limited amount of the accumulation value of the Policy at a
reduced interest rate. Interest will accrue on a daily basis at a rate of up to
5% per year. AVLIC is currently charging 4.5% interest on reduced rate loans.
The amount available at the reduced rate is 10% of the accumulation value as of
the later of age 55 or the 10th policy anniversary (the start date) times the
number of years since the start date, increased by the accrued interest charges
on the reduced loan amount. Regular loans will accrue interest on a daily basis
at a rate of up to 8% per year. AVLIC is currently charging 6.5% on regular
loans.
If unpaid when due, interest will be added to the amount of the
loan and bear interest at the same rate. The Policyowner earns 4.5% interest on
the accumulation values securing the loans.
EFFECT OF POLICY LOANS. When a loan is made, accumulation value equal to the
amount of the loan will be transferred from the Account and/or the Fixed Account
to the General Account of AVLIC as security for the indebtedness. The
accumulation 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 or
the Fixed Account as a result of a loan is $100. If no instructions are given
the amounts will be withdrawn in proportion to the various accumulation values
in the Subaccounts or the 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
accumulation value of a Policy, and may permanently affect the amount of the
Death Benefits, even if the loan is repaid.
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 in accordance with the repayment of indebtedness provision
(see below) will be transferred to increase the accumulation 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 accumulation value less any 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.
Should the policy lapse while policy loans are outstanding the portion of the
loans attributable to earnings will become taxable. A policyowner may lower the
risk of a policy lapsing while loans are outstanding as a result of a reduction
in the market value of investments in the various subaccounts by investing in a
diversified group of lower risk investment portfolios and/or transferring the
funds to the fixed account and receiving a guaranteed rate of return. Should a
substantial reduction be experienced, the policyowner may need to lower
anticipated withdrawals and loans, repay loans, make additional premium
payments, or take other action to avoid policy lapse. A lapsed Policy may later
be reinstated. (See Policy Lapse and Reinstatement, page 26).
22 APPLAUSE!
<PAGE>
REPAYMENT OF INDEBTEDNESS. Unscheduled premiums paid while a policy loan is
outstanding are treated as repayment of indebtedness only if the Policyowner so
requests. As indebtedness is repaid, the accumulation value in the general
account securing the indebtedness repaid will be allocated among the Subaccounts
and the Fixed Account in the same proportion that net premiums are being
allocated at the time of repayment.
SURRENDERS
At any time during the lifetime of the Insured and prior to the maturity date,
the Policyowner may partially withdraw or totally surrender the Policy by
sending a written request to AVLIC. The amount available for surrender is the
surrender value at the end of the valuation period during which the surrender
request is received at AVLIC's Home Office. Surrenders will generally be paid
within seven days of receipt of the written request. (See Postponement of
Payments, page 31). Surrenders may have tax consequences. (See Tax Treatment of
Policy Proceeds, page 35).
TOTAL SURRENDERS. If the Policy is being totally surrendered, the Policy itself
must be returned to AVLIC along with the request. AVLIC will pay the surrender
value. Coverage under the Policy will terminate as of the date of a total
surrender. A Policyowner may elect to have the amount paid in a lump sum or
under a payment option. (See Payment Options, page 21).
PARTIAL WITHDRAWALS
Partial withdrawals are irrevocable. During policy years 1-5 a partial
withdrawal may be obtained if the accumulation value is at least three times the
annual Guaranteed Death Benefit premiums. The amount of a partial withdrawal may
not exceed the surrender value on the date the request is received and may not
be less than $500. The surrender value after a partial withdrawal must be at
least $1,000 and further during policy years 1-5 the accumulation value after
surrender must equal two times the annual Guaranteed Death Benefit Premium.
The amount paid will be deducted from the Subaccounts or the Fixed Account
according to the instructions of the Policyowner when the withdrawal is
requested, provided that the minimum amount remaining in a Subaccount as a
result of the allocation is $100. If no instructions are given, the amounts will
be withdrawn in proportion to the various accumulation values in the Subaccounts
and/or Fixed Account.
The Death Benefit will be reduced by the amount of any partial withdrawal and
may affect the way in which the cost of insurance charge is calculated and the
amount of pure insurance protection under the Policy. (See Monthly Deduction -
Cost of Insurance, page 28; Death Benefit Options-Methods of Affecting
Insurance Protection, page 20). If Option B is in effect, the Specified Amount
will not change, but the accumulation value will be reduced.
The Specified Amount remaining in force after a partial withdrawal may not be
less than $35,000. Any request for a partial withdrawal that would reduce the
Specified Amount below this amount will not be implemented. A fee not to exceed
the lesser of $50.00 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 30).
TRANSFERS
Accumulation value may be transferred among the Subaccounts of the Account and
to the Fixed Account as often as desired. The transfers may be ordered in
person, by mail or by telephone. The total amount transferred each time must be
at least $250, or the balance of the Subaccount, if less. The minimum amount
that may remain in a Subaccount or the Fixed Account after a transfer is $100.
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 policy anniversary date.
The first fifteen transfers per policy year will be permitted free of charge.
Thereafter, a transfer charge of $10 may be imposed each additional time amounts
are transferred. This charge will be deducted pro rata from each Subaccount
(and, if applicable, the Fixed Account) in which the Policyowner is invested.
(See Transfer Charge, page 29). Transfers resulting from policy loans or
exercise of the exchange privilege will not be subject to a transfer charge and
will not be counted towards the fifteen free transfers per policy year. AVLIC
may at any time revoke or modify the transfer privilege, including the minimum
amount transferable.
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
APPLAUSE! 23
<PAGE>
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 10 days after the Policyowner
receives it, within 10 days after AVLIC delivers a notice of the Policyowners
right of cancellation, or within 45 days of completing Part I of the
application, whichever is later. If a Policy is cancelled within this time
period 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 31).
EXCHANGE PRIVILEGE
During the first 24 policy months after the policy date of the Policy, the
Policyowner may exchange the Policy for a flexible premium adjustable life
insurance policy approved for exchange and issued by AVLIC or an affiliate. No
new evidence of insurability will be required.
The policy date, issue age and 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. Accumulation values for the
exchange and payments will be established after making adjustments for
investment gains or losses and after recognizing variance, if any, between
payment or charges, dividends or accumulation values under the flexible contract
and under the new Policy. The Policyowner may elect either the same Specified
Amount or the same net amount at risk for the new Policy as under the old.
24 APPLAUSE!
<PAGE>
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 or less on their nearest birthday 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. The initial premium payment will be allocated to the Money Market
Portfolio of the Variable Products Insurance Fund, as of the issue date, for 13
days. After the expiration of the refund period, the accumulation value will be
allocated to the Subaccounts or the Fixed Account as selected by the
Policyowner.
Interim conditional insurance coverage may be issued prior to the policy date,
provided that certain conditions are met, upon the completion of an application
and the payment of a specified amount at the time of the application. The amount
of the interim coverage is limited to the smaller of; (a) the amount of
insurance applied for, (b) $100,000, or (c) $25,000 if the proposed Insured is
under age 10 or over age 60 at his nearest birthday.
PREMIUMS
No insurance will take effect before the initial premium is received by AVLIC in
Federal Funds. The initial premium must be at least 1/12 of the first year
Guaranteed Death Benefit Premium, including any riders and any substandard risk
adjustment, times the number of months between the policy date and the issue
date, plus one. Subsequent premiums are payable at AVLIC's Home Office. The
Directors and employees of AVLIC and its affiliates may purchase this Policy in
transactions that involve lower sales costs to AVLIC. In those instances the
initial sales load, the contingent deferred sales load, and/or initial premium
may be lowered. In no event will this be permitted where it will be unfairly
discriminatory to any person. Subject to certain limitations, a Policyowner has
flexibility in determining the frequency and amount of premiums. However, unless
the Policyowner has paid sufficient premiums to pay the cost of insurance, the
monthly maintenance and mortality and expense risk charges, the Policy may have
a zero surrender value and lapse. AVLIC agrees to keep the Policy in force
during the first three years and provide a Guaranteed Death Benefit so long as
the cumulative prorated monthly minimum Guaranteed Death Benefit Premium is paid
even though, in certain instances, these minimum premiums will not, after the
payment of monthly insurance and administrative charges, generate positive
surrender values during the first several policy months. AVLIC also offers an
Extended Guaranteed Death Benefit rider which extends this benefit up to 30
years. (See Additional Insurance Benefits (Riders), page 31).
PLANNED PERIODIC PREMIUMS. At the time the Policy is issued each Policyowner may
determine a planned periodic premium schedule that provides for the payment of
level premiums at selected intervals. The planned periodic premium schedule may
include the Guaranteed Death Benefit Premium and/or the Extended Guaranteed
Death Benefit Premium. The Policyowner is not required to pay premiums in
accordance with this schedule. The Policyowner has considerable flexibility to
alter the
APPLAUSE! 25
<PAGE>
amount and frequency of premiums paid. AVLIC does reserve the right to limit the
number and amount of additional or unscheduled premium payments.
Policyowners can also change the frequency and amount of planned periodic
premiums by sending a written request to the Home Office, although AVLIC
reserves the right to limit any increase. Premium payment notices will be sent
annually, semi-annually or quarterly, depending upon the frequency of the
planned periodic premiums. Payment of the planned periodic premiums does not
guarantee that the Policy remains in force unless the Guaranteed Death Benefit
provision and/or the Extended Guaranteed Death Benefit Rider is in effect.
Instead, the duration of the Policy depends upon the Policy's surrender value.
(See Duration of the Policy, page 20). Unless the Guaranteed Death Benefit or
Extended Guaranteed Death Benefit provisions are in effect, even if planned
periodic premiums are paid by the Policyowner, the Policy will lapse any time
surrender value is insufficient to pay certain monthly charges, and a grace
period expires without a sufficient payment. (See Policy Lapse and
Reinstatement, page 26).
PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both
planned and unscheduled, exceed the current maximum premium limitations
established by federal tax laws.
If at any time a premium is paid which would result in total premiums exceeding
the current maximum premium limitation, AVLIC will only accept that portion of
the premium which will make total premiums equal the maximum. Any part of the
premium in excess of that amount will be returned or applied as otherwise agreed
and no further premiums will be accepted until allowed by the current maximum
premium limitations prescribed by law. AVLIC may require additional evidence of
insurability if any premium payment would result in an increase in the Policy's
net amount at risk on the date the premium is received.
PREMIUMS UPON INCREASES IN SPECIFIED AMOUNT. Depending upon the accumulation
value of the Policy at the time of an increase in the Specified Amount of the
Policy and the amount of the increase requested by the Policyowner, an
additional premium payment may be required. AVLIC will notify the Policyowner of
any premium required to fund the increase, this required premium must be made as
a single payment. The accumulation value of the Policy will be immediately
increased by the amount of the payment, less the applicable premium charge.
ALLOCATION OF PREMIUMS AND ACCUMULATION VALUE
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the Policyowner
allocates net premiums to one or more Subaccounts of the Account and/or to the
Fixed Account. Allocations must be whole number percentages and must total 100%.
The allocation for future net premiums may be changed without charge by
providing proper notification to the Home Office. If there is any outstanding
policy debt at the time of a payment, AVLIC will treat the payment as a premium
payment unless otherwise instructed in proper written notice.
The initial premium payment will be allocated to the Money Market portfolio of
the Variable Insurance Products Fund, as of the issue date, 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 until the issue date and
are credited with interest at a rate determined by AVLIC for the period from the
date the payment has been converted into Federal Funds (monies of member banks
within the Federal Reserve System which are held on deposit at a Federal Reserve
Bank) that are available to AVLIC. In no event will interest be credited prior
to the policy date.
ACCUMULATION VALUE. The value of the Subaccounts of the Separate Account will
vary with the investment performance of these Subaccounts and the Policyowner
bears the entire investment risk. This will affect the Policy's accumulation
value, and may affect the death benefit as well. Policyowners should
periodically review their allocations of premiums and values in light of market
conditions and overall financial planning requirements.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make a
planned periodic premium payment will not itself cause the Policy to lapse.
Lapse will occur when the surrender value (the accumulation value less debt,
deferred sales and administrative charges, and accrued expense charges) is
insufficient to cover the monthly deduction and a grace period expires without a
sufficient payment unless the Guaranteed Death Benefit provision or Extended
Death Benefit rider are in
26 APPLAUSE!
<PAGE>
effect. The grace period is 61 days from the date AVLIC mails a notice that the
grace period has begun. AVLIC will notify the Policyowner at the beginning of
the grace period by mail addressed to the last known address on file with AVLIC.
The notice will specify the premium required to keep the Policy in force.
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 surrender value is insufficient to cover the monthly deduction, the
policyowner must pay a premium during the grace period sufficient to cover the
monthly deductions and premium charges for the three policy months after
commencement of the grace period to avoid lapse. (See Charges and Deductions,
page 27).
REINSTATEMENT. A lapsed Policy may be reinstated any time within three years
(five years in Missouri) after the end of the grace period, but before the
maturity date. Reinstatement will be effected based on the Insured's
underwriting classification at the time of the reinstatement.
Reinstatement is subject to the following:
a. Evidence of insurability of the Insured satisfactory to AVLIC (including
evidence of insurability of any person covered by a rider to reinstate the
rider);
b. Any policy debt will be reinstated with interest due and accrued;
c. The Policy cannot be reinstated if it has been surrendered for its full
surrender value;
d. If the reinstatement occurs during the first three years, the minimum premium
required is the amount necessary to meet the pro rata monthly requirement of
the Guaranteed Death Benefit premium as of the date of reinstatement as if
the Policy had not lapsed;
e. If the reinstatement occurs after the first three years, the minimum premium
required is the greater of:
(1) the amount necessary to raise the surrender value as of the date of
reinstatement to equal to or greater than zero; or
(2) the amount necessary to pay sales load and premium tax on the premium
paid and monthly policy deductions for the next three policy months.
The amount of accumulation value on the date of reinstatement will be equal to
the amount of the surrender 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., surrender charge) which would
apply if the Policy were surrendered on the date of reinstatement. The last
addition to the accumulation value is designed to avoid duplicate surrender
charges. The original policy date, and the dates of increases in the Specified
Amount (if applicable), will be used for purposes of calculating the surrender
charge. If any policy debt was reinstated, that debt will be held in AVLIC's
General Account. Accumulation value calculations will then proceed as described
under "Accumulation Value" on page 20.
The effective date of reinstatement will be the first monthly activity date on
or next following the date of approval by AVLIC of the application for
reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate AVLIC for:
(1) providing the insurance benefits set forth in the Policy and any optional
insurance benefits added by rider; (2) administering the Policy; (3) assuming
certain risks in connection with the Policy; and (4) incurring expenses in
distributing the Policy. The nature and amount of these charges are described
more fully below.
DEDUCTIONS FROM PREMIUM PAYMENT
SALES CHARGE. AVLIC deducts a sales charge, generally called the "sales load,"
of 5% from each payment to reimburse AVLIC for the cost of selling the Policy.
This cost includes agents' commissions, the printing of Prospectuses and sales
literature, and advertising.
APPLAUSE! 27
<PAGE>
There are two types of sales loads under the Policy. The first, just described,
is the front-end sales load, which will be deducted from each premium payment
upon receipt prior to allocation of net premium to the Account or the Fixed
Account. The second, a contingent deferred sales load which is part of the
surrender charge, will reduce the assets in the Account and the Fixed Account
attributable to the Policy in the event of surrender if surrendered before the
15th policy year.
The sales charges in any Policy year are not necessarily related to actual
distribution expenses incurred in that year. Instead, AVLIC expects to incur the
majority of distribution expenses in the early Policy years and to recover
amounts to pay such expenses over the life of the Policy. To the extent that
sales and distribution expenses exceed sales loads (both front-end and deferred)
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.
PREMIUM TAXES. A deduction of 2.5% of the premium will be made from each premium
payment to pay state premium taxes. The deduction represents an amount AVLIC
considers necessary to pay all premium taxes imposed by the states and their
subdivisions. AVLIC does not expect to derive a profit from the premium tax
charge.
CHARGES FROM ACCUMULATION VALUE
MONTHLY DEDUCTION. Charges will be deducted as of the policy date and on each
monthly activity date thereafter from the accumulation value of the Policy to
compensate AVLIC for administrative expenses and insurance provided. These
charges will be allocated among the Subaccounts, and the Fixed Account on a pro
rata basis. Each of these charges is described in more detail below.
MAINTENANCE CHARGE. To compensate AVLIC for the ordinary administrative expenses
expected to be incurred in connection with a Policy, the monthly deduction
includes a $9.00 per policy charge (currently $9.00 the first year and $4.50
during each year thereafter). This maintenance charge is levied throughout the
life of the Policy and is guaranteed not to increase above $9.00 per month.
AVLIC does not expect to make any profit from the monthly maintenance charge.
COST OF INSURANCE. Because the cost of insurance depends upon several variables,
the cost for each policy month can vary from month to month. AVLIC will
determine the monthly cost of insurance 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
accumulation 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, specified amount, and risk class.
The rate will vary if the Insured is a smoker, non-smoker, a preferred
non-smoker or is considered a substandard risk 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 and are equal to the 1980 Insurance
Commissioners Standard Ordinary Smoker and Non-Smoker, Male and Female Mortality
Tables. The current rates range between 40% and 100% of the rates based on the
1980 Commissioners Standard Ordinary Tables, based on AVLIC's own mortality
experience. Policies issued on a unisex basis are based upon the 1980 Insurance
Commissioners Standard Ordinary Table B assuming 80% male and 20% female lines.
The cost of insurance rates, 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, Specified Amount and risk class and whose policies
have been in effect for the same length of time.
If the underwriting class for any increase in the Specified Amount or for any
increase in death benefit resulting from a change in death benefit option from A
to B is not the same as the underwriting class at issue, the cost of insurance
rate used after such increase will be a composite rate based upon a weighted
average of the rates of the different underwriting classes. Decreases will also
be reflected in the cost of insurance rate as discussed earlier.
The actual charges made during the policy year will be shown in the annual
report delivered to Policyowners.
RATE CLASS. The rate class of an Insured may affect the cost of insurance rate.
AVLIC currently places Insureds into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical policy,
an Insured
28 APPLAUSE!
<PAGE>
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, and may be from 1.5 to 5 times the guaranteed rate for a standard
issue.
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.
SURRENDER CHARGE
If a policy is surrendered prior to the 15th anniversary, AVLIC will assess a
surrender charge based upon percentages of the premiums actually paid in policy
years 1 and 2 and a charge per $1,000 of insurance issued based upon sex, age,
and smoking habits.
The total surrender charge is made up of two parts, the Contingent Deferred
Administrative Charge and Contingent Deferred Sales Charge. AVLIC will assess
surrender charges on increases in Specified Amount based on Contingent Deferred
Administrative Charges.
The Contingent Deferred Sales Charge will be based upon the actual premiums
received the first two policy years up to a maximum of $12 per $1,000 of
insurance. It will be calculated as 25% of the premiums received up to the
Guaranteed Death Benefit Premium plus 5% of the premiums received in excess of
the Guaranteed Death Benefit Premium.
The Contingent Deferred Administrative Charge is an amount per $1,000 of
insurance that varies by issue age and sex. It is 70% of the Guaranteed Death
Benefit Premium not to exceed $28 per $1,000 of insurance.
The surrender charge remains level in policy years three through five and will
equal the surrender charge at the end of year 2 and then grades to 0% in year
fifteen based upon the following schedule.
<TABLE>
<CAPTION>
Policy Year Percent of Surrender Policy Year Percent of Surrender
Charge maximum that Charge maximum that
will apply during will apply during
policy year policy year
-------------- --------------------- -------------- ----------------------
<S> <C> <C> <C>
1 thru 5 100% 11 40%
6 90% 12 30%
7 80% 13 20%
8 70% 14 10%
9 60% 15 0%
10 50%
</TABLE>
No surrender charge will be assessed upon decreases in the Specified Amount of
the Policy or partial withdrawals of accumulation value.
Because the surrender charge may be significant upon early surrender,
prospective Policyowners should purchase a Policy only if they do not intend to
surrender the Policy for a substantial period.
TRANSFER CHARGE. A transfer charge of $10.00 (guaranteed not to increase) may be
imposed for each additional transfer among the Subaccounts after fifteen per
policy year to compensate AVLIC for the costs of effecting the transfer. Since
the charge reimburses AVLIC for the cost of effecting the transfer only, AVLIC
does not expect to make any profit from the transfer charge. This charge will be
deducted pro rata from each Subaccount (and, if applicable, the Fixed Account)
in which
APPLAUSE! 29
<PAGE>
the Policyowner is invested. The transfer charge will not be imposed on
transfers that occur as a result of policy loans or the exercise of exchange
rights.
PARTIAL WITHDRAWAL CHARGE. A charge currently not greater than the lesser of $25
or 2% of the amount withdrawn (guaranteed not to be greater than the lesser of
$50 or 2% of the amount withdrawn) 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. No Surrender
Charge is assessed on a partial withdrawal and a partial withdrawal charge is
not assessed when a Policy is surrendered.
DAILY CHARGES AGAINST THE ACCOUNT
A daily charge will be deducted from the value of the net assets of the Account
to compensate AVLIC for mortality and expense risks assumed in connection with
the Policy. This daily charge from the Account is currently at the rate of
0.002466% (equivalent to an annual rate of 0.90%) for policy years 1-20 and at
the rate of 0.001781% (equivalent to an annual rate of 0.65%) for the years
thereafter, and will not exceed .90% of the average daily net assets of the
Account. The daily charge will be deducted from the net asset value of the
Account, and therefore the Subaccounts, on each valuation date. Where the
previous day or days was not a valuation date, the deduction on the valuation
date will be 0.002466% (or 0.001781%, if applicable) 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.
AVLIC believes that this level of charge is within the range of industry
practice for comparable flexible premium variable universal life policies.
The mortality risk assumed by AVLIC is that Insureds may live for a shorter time
than assumed, and that an aggregate amount of death benefits greater than that
assumed accordingly will be paid. The expense risk assumed is that expenses
incurred in issuing and administering the policies will exceed the
administrative charges provided in the policies.
In addition to the charges against the account described just above, management
fees and expenses will be assessed by FMR, Alger, and MFS against the amounts
invested in the various portfolios. No portfolio fees will be assessed against
amounts placed in the Fixed Account.
AVLIC may receive administrative fees from the investment advisers of certain
funds.
TAXES. Currently, no charge is 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 and/or the Fixed Account. (See Federal Tax Matters, page 34).
GENERAL PROVISIONS
THE CONTRACT. The Policy, the application, any supplemental applications, and
any riders, amendments or endorsements make up the entire contract. Only the
President, Vice President, Secretary or Assistant Secretary can modify the
Policy. Any changes must be made in writing, and approved by AVLIC. No agent has
the authority to alter or modify any of the terms, conditions or agreements of
the Policy or to waive any of its provisions. The rights and benefits under the
Policy are summarized in this prospectus; however prospectus disclosure
regarding the policy is qualified in its entirety by the policy itself, a copy
of which is available upon request from AVLIC.
CONTROL OF POLICY. The Policyowner is as shown in the application or subsequent
written endorsement. Subject to the rights of any irrevocable beneficiary and
any assignee of record, all rights, options, and privileges belong to the
Policyowner, if living; otherwise to any successor-owner or owners, if living;
otherwise to the estate of the last owner to die.
BENEFICIARY. 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.
30 APPLAUSE!
<PAGE>
CHANGE OF BENEFICIARY. The Policyowner may change the beneficiary by written
request at any time during the Insured's lifetime unless otherwise provided in
the previous designation of beneficiary. The change will take effect as of the
date the change is recorded at the Home Office. AVLIC will not be liable for any
payment made or action taken before the change is recorded.
CHANGE OF OWNER OR ASSIGNMENT. In order to change the owner of the Policy or
assign Policy rights, an assignment of the Policy must be made in writing and
filed with AVLIC at its Home Office. 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 designated 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 Policyowner'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 or reinstated Policy is incontestable after it has
been in force for two years from the policy date (or reinstatement effective
date) during the lifetime of the Insured. An increase in the Specified Amount or
addition of a rider after the policy date shall be incontestable after such
increase or addition has been in force for two years from its effective date
during the lifetime of the Insured. However, this two year provision shall not
apply to riders that provide disability or accidental death benefits.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the Insured or any person
insured by rider has been misstated, the amount of the death benefit will be
adjusted. The death benefit will be adjusted in proportion to the correct and
incorrect cost of insurance rates.
SUICIDE. Suicide within two years of the policy date is not covered by the
Policy unless otherwise provided by a state's Insurance law. If the Insured,
while sane or insane, commits suicide within two years after the policy date,
AVLIC will pay only the premiums received less any partial withdrawals, the cost
for riders and any outstanding policy debt. If the Insured, while sane or
insane, commits suicide within two years after the effective date of any
increase in the Specified Amount, AVLIC's liability with respect to such
increase will only be its total cost of insurance applied to the increase. The
laws of Missouri provide that death by suicide at any time is covered by the
Policy, and further that suicide by an insane person may be considered an
accidental death.
POSTPONEMENT OF PAYMENTS. Payment of any amount upon 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 weekend and holiday closings, or trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission;
(ii) the Commission by order permits postponement for the protection of
Policyowners; (iii) an emergency exists, as determined by the Commission, as a
result of which disposal of securities is not reasonably practicable or it is
not reasonably practicable to determine the value of the Account's net assets;
or (iv) surrenders, loans or partial withdrawals from the Fixed Account may be
deferred for up to 6 months from the date of written request. Payments under the
Policy of any amounts derived from premiums paid by check may be delayed until
such time as the check has cleared the Policyowner's bank.
ADDITIONAL INSURANCE BENEFITS (RIDERS). Subject to certain requirements, one or
more of the following additional insurance benefits may be added to a Policy by
rider. All riders are not available in all states. The cost, if any, of
additional insurance benefits will be deducted as part of the monthly deduction.
(See Charges From Accumulation Value - Monthly Deduction, page 28).
ACCELERATED BENEFIT RIDER FOR TERMINAL ILLNESS (LIVING BENEFIT RIDER). Upon
satisfactory proof of terminal illness after the two-year contestable period,
(no waiting period in certain states) AVLIC will accelerate the payment of up to
50% of the lowest scheduled death benefit as provided by eligible coverages,
less an amount up to two guideline level premiums. Future premium allocations
after the payment of the benefit must be allocated to the Fixed Account. Payment
will not be made for amounts less than $4,000 or more than $250,000 on all
policies issued by AVLIC or its affiliates. AVLIC may charge the lesser of 2% of
the benefit or $50 as 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.
APPLAUSE! 31
<PAGE>
The accelerated benefit first will be used to repay any 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 policy death benefit and will thus reduce the proceeds payable on
the death of the Insured. There is no extra premium for this rider.
ACCIDENTAL DEATH BENEFIT RIDER. Provides additional insurance if the Insured's
death results from accidental death, as defined in the rider. Under the terms of
the rider, the additional benefits provided in the Policy will be paid upon
receipt of proof by AVLIC that death resulted directly and independently of all
other causes from accidental bodily injuries incurred before the rider
terminates and within 91 days after such injuries were incurred.
TERM RIDER FOR COVERED INSURED. Provides the Specified Amount of insurance to
the beneficiary upon receipt of satisfactory proof of death of any Covered
Insured, as defined in the rider. This rider is not available if the Extended
Guaranteed Death Benefit rider is chosen.
CHILDREN'S PROTECTION RIDER. Provides for term insurance on the Insured's
children, as defined in the rider. Under the terms of the rider, the death
benefit will be payable to the named beneficiary upon the death of any insured
child. Upon receipt of proof of the Insured's death before the rider terminates,
the rider will be considered paid up for the term of the rider.
EXTENDED GUARANTEED DEATH BENEFIT RIDER. Provides that, as long as the
cumulative Extended Guaranteed Death Benefit premiums are paid during the
guarantee period, the Policy will stay in force and the Specified Amount of the
Policy will be paid upon death even though the surrender value of the Policy is
zero or less.
The length of the guarantee period for various issue ages is as follows: issue
ages 0-35 - 30 years; issue ages 36-55-to age 65; and issue ages 56-65 - 10
years. The rider will not be issued on policies for persons over 65 or rated as
a substandard risk.
The annual premium for the Extended Guaranteed Death Benefit Rider will equal
the Guaranteed Death Benefit premium for nonsmokers taking Death Benefit Option
A under the Policy. A higher premium will be required for smokers and/or persons
taking Policy Option B. If the required premium exceeds the IRS guideline level
premium, the rider cannot be issued. The required annual premium will be
adjusted by changes in the Specified Amount, changes in death benefit options or
changes in riders.
Partial withdrawals and any outstanding policy debt are subtracted from premiums
paid in determining if cumulative monthly pro rata extended Guaranteed Death
Benefit premiums have been paid. Further, the Policy will terminate if the
policy loan exceeds the surrender value even if the cumulative premiums have
been paid.
GUARANTEED INSURABILITY RIDER. Provides that the Policyowner can purchase
additional insurance for the Insured by increasing the Specified Amount of the
Policy at certain future dates without evidence of insurability.
DISABILITY BENEFIT PAYMENT RIDER. Provides for the payment of a disability
benefit in the form of premiums by AVLIC while the Insured is disabled. The
premium payments provided will equal the policy's initial Guaranteed Death
Benefit premium. In addition, while the Insured is totally disabled, the cost of
insurance for the rider will not be deducted from the Policy's accumulation
value.
PAYOR DISABILITY RIDER. Provides for the payment of a disability benefit in the
form of premiums by AVLIC while the Covered Person specified in the rider is
totally disabled, as defined in the rider. The premium payments provided will
equal the policy's initial Guaranteed Death Benefit premium. In addition, while
the Covered Person is totally disabled, the cost of insurance for the rider will
not be deducted from the Policy's accumulation value.
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 Surrender Value is greater than zero, the policy will 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
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.
32 APPLAUSE!
<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
accumulation value, 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.
EXCHANGE OFFER
On June 13, 1990, the Securities and Exchange Commission, after application by
Ameritas Variable Life Insurance Company (AVLIC), AVLIC's Separate Account V and
Ameritas Investment Corp., and public notice in the Federal Register, granted
their request that they be allowed to offer to exchange certain previously
issued Variable Universal Life Insurance policies for the policies offered by
this Prospectus.
1. This insurance Policy will be issued as of the original date of issue of the
exchanged UniVar Life Policy;
2. This Policy will be issued to UniVar Policyowners without additional evidence
of insurability of the insured for the same amount of insurance.
3. The UniVar Life Policyowner will be refunded all of the sales and acquisition
charges deducted from his/her premium payment, except premium taxes, plus 12%
interest thereon, which amount will be added to the UniVar Policy's
accumulation value.
4. After the additions to the accumulation value, AVLIC will then exchange the
UniVar Life Policy for and issue the Policy offered by this Prospectus on a
relative net asset basis without deducting surrender charges on the UniVar
Life Policy's surrender or sales or acquisition charges on this Policy's
acquisition. AVLIC expects to recover certain of the refunded sales and
acquisition charges through surrender charges on this Policy if surrendered
before the 15th policy year dating from the original UniVar issue date. AVLIC
does not expect to recover the remainder of the refunded charge.
5. The Policyowner will then enjoy the benefits and be subject to the charges
and contract provisions as set out in this Prospectus. A table summarizing
the charges under the respective policies follows:
Old Policy New Policy
---------------------- -----------------------------------
PREMIUM TAX 2.5% 2.5% (not charged on accumulation
values transferred from the old
policy)
SALES CHARGES 7.5% of all premiums 5% (not charged on accumulation
(8.5% of minimum first values transferred from the old
year premiums) (refunded policy)
plus 12% interest in the
exchange).
ADMINISTRA- Charges deducted from No deductions are made from
TIVE CHARGES first year premiums based premiums for the Administrative
FOR ISSUE upon table in the Univar costs of issue. A Deferred Admini-
Prospectus strative costs charge will be
assessed if the policy is
surrendered before policy year 15.
MORTALITY Daily deductions at an Daily deductions currently charged
AND EXPENSE annual rate of .70%. at an annual rate of .90% for the
CHARGES first 20 policy years and .65%
thereafter (guaranteed .90%).
SURRENDER A contingent deferred A contingent deferred sales load of
CHARGES sales load based upon 25% of premiums actually paid in
amounts paid in the first the first two years up to the
two policy years (up to Guaranteed Death Benefit premium,
21.5% of the minimum and 5% of the premiums paid in
first year premium to 2.5% excess of that amount.
of additional amounts This is subject to a limit of $12
paid during the per $1000 of insurance. And a
first two years, up to a contingent deferred administrative
second minimum first year charge based upon an amount per
premium) is deducted upon $1000 of face amount of insurance.
surrenders prior to the This amount varies by age at date
sixteenth policy anniver- of issue as described in the table
sary. 100% of the on page 27 herein. 100% of the
surrender charge is surrender charges are deducted in
deducted in policy years policy years 1 through 5 and then
1 through 11 and then grades to 0 in the 15th policy
grades to 0 in the 16th year.
policy year.
APPLAUSE! 33
<PAGE>
DISTRIBUTION OF THE POLICIES
Ameritas Investment Corp. ("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. 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, 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.
Registered Representatives of Investment Corp. who sell the Policy will receive
commissions based upon a commission schedule. After issuance of the Policy,
commissions to the Registered Representatives will equal, at most, 50% of the
commissionable first year premium paid plus the first year cost of any riders.
In years thereafter, Registered Representatives will receive a maximum
commission of 4% per policy year on any premiums paid. Upon any subsequent
increase in Specified Amount or any subsequent increase in riders, commissions
will also be paid based on the amount of the increase in Specified Amount or
increase in rider. Further, Registered Representatives who meet certain
production standards may receive additional compensation, and managers receive
override commissions and bonuses with respect to the Policies. Investment Corp.
and AVLIC may authorize other registered broker/dealers and its Registered
Representatives to sell the Policies subject to applicable law.
FEDERAL TAX MATTERS
The following discussion provides a general description of the federal income
tax considerations associated with the Policy and does not purport to be
complete or cover all situations. This discussion is not intended as tax advice.
No attempt has been made to consider in detail any applicable state or other tax
(except premium taxes, see discussion "Premium Taxes," page 28 ) laws. This
discussion is based upon AVLIC's understanding of the relevant laws at the time
of filing. 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 automatically retained as a part of the reserves
of the Policy and are taken into account in determining the death benefit
and accumulation value of the Policy. AVLIC believes that Account net
investment income and realized net capital gains will not be taxable to the
extent that such income and gains are retained as reserves under Policy.
AVLIC does not currently expect to incur any federal income tax liability
attributable to the Account with respect to the sale of the Policies.
Accordingly, no charge is being made currently to the Account for federal
income taxes. If, however, AVLIC determines that it may incur such taxes
attributable to the Account, it may assess a charge for such taxes against
the Account.
AVLIC may also incur state and local taxes (in addition to premium taxes
for which a deduction from premiums is currently made). At present, they
are not charges against the Account. If there is a material change in state
or local tax laws, charges for such taxes attributable to the Account, if
any, may be assessed against the Account.
(b) TAX STATUS OF THE POLICY. The Code (section 7702)includes a definition of a
life insurance contract for federal tax purposes, which places limitations
on the amount of premiums that may be paid for the Policy and the
relationship of the accumulation value to the death benefit. AVLIC believes
that the Policy meets the statutory definition of a life insurance
contract. If the death benefit of a Policy is changed, the applicable
definitional limitations may change. In the case of a decrease in the death
benefit, a partial surrender, a change in Death Benefit option, or any
other such change that reduces future benefits under the Policy during the
first 15 years after a Policy is issued and that results in a cash
distribution to the Policyowners in order for the Policy to continue
complying with the section 7702 definitional
34 APPLAUSE!
<PAGE>
limitations on premiums and accumulation values, such distributions will
be taxable as ordinary income to the Policyowner (to the extent of any gain
in the Policy) as prescribed in Section 7702.
The Code (section 7702A) also defines a "modified endowment contract" for
federal tax purposes which causes distributions to be taxed as ordinary
income to the extent of any gain. This Policy will become a "modified
endowment contract" if the premiums paid into the Policy fail to meet a
7-pay premium test as outlined in Section 7702A of the Code.
Certain benefits the Insured may elect under this Policy may be material
changes affecting the 7-pay premium test. These include changes in death
benefits and changes in the policy amount. Should the Policy become a
"modified endowment contract" partial or full surrenders, assignments,
pledges, and loans (including loans to pay loan interest) under the Policy
will be taxable to the extent of any gain under the Policy. A 10% penalty
tax also applies to the taxable portion of any distribution prior to the
Insured's age 59 1/2. The 10% penalty tax does not apply if the Insured is
disabled as defined under the Code or if the distribution is paid out in
the form of a life annuity on the life of the Insured or the joint lives of
the Insured and beneficiary. One may avoid a Policy becoming a modified
endowment contract by, among other things, not making excessive payments or
reducing benefits. Should one deposit excessive premiums during a policy
year, that portion that is returned by the insurance company within 60 days
after the policy anniversary will reduce the premiums paid to avoid the
Policy becoming a modified endowment contract. A Policyowner should contact
a competent tax professional before paying additional premiums or making
other changes to the Policy to determine whether such payments or changes
would cause the Policy to become a modified endowment contract.
The Code (Section 817(h)) also authorizes the Secretary of the Treasury
(the "Treasury") to set standards by regulation or otherwise for the
investments of the Account to be "adequately diversified" in order for the
Policy to be treated as a life insurance contract for federal tax purposes.
The Account, through the Funds, intends to comply with the diversification
requirements prescribed by the Treasury in regulations published in the
Federal Register on March 2, 1989, which affect how the Fund's assets may
be invested.
AVLIC does not have control over the Funds or their investments. However,
AVLIC believes that the Funds will be operated in compliance with the
diversification requirements of the Internal Revenue Code. Thus, AVLIC
believes that the Policy will be treated as a life insurance contract for
federal tax purposes.
In connection with the issuance of regulations relating to the
diversification requirements, the Treasury announced that such regulations
do not provide guidance concerning the extent to which owners may direct
their investments to particular divisions of a separate account.
Regulations in this regard may be issued in the future. It is not clear
what these regulations will provide nor whether they will be prospective
only. It is possible that when regulations are issued, the Policy may need
to be modified to comply with such regulations. For these reasons, the
Company reserves the right to modify the Policy as necessary to prevent the
Policyowner from being considered the owner of the assets of the 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.
(c) TAX TREATMENT OF POLICY PROCEEDS. AVLIC believes that the Policy will be
treated in a manner consistent with a fixed benefit life insurance
policy for federal income tax purposes. Thus, AVLIC believes that the death
benefit payable prior to the original maturity date will be excludable from
the gross income of the beneficiary under Section 101(a)(1) of the Code and
the Policyowner will not be deemed to be in constructive receipt of the
accumulation value under the Policy until its actual surrender. However, in
the event of certain cash distributions under the Policy resulting from any
change which reduces future benefits under the Policy, the distribution
will be taxed in whole or in part as ordinary income (to the extent of gain
in the Policy). See discussion above, "Tax Status of the Policy."
AVLIC also believes that loans received under a Policy will be treated as
indebtedness of the Policyowner and that no part of any loan under a Policy
will constitute income to the Policyowner so long as the Policy remains in
force, unless the Policy becomes a Modified Endowment Contract. Should the
policy lapse while policy loans are outstanding the portion of the loans
attributable to earnings will become taxable. Generally, interest paid on
any loan under a Policy owned by an individual will not be tax-deductible.
Except for Policies with respect to a limited number of key persons of an
employer (both as defined in the Internal Revenue Code), and subject to
applicable interest rate caps, the Health Insurance Portability and
Accountability Act
APPLAUSE! 35
<PAGE>
of 1996 (the "Health Insurance Act") generally repeals the deduction for
interest paid or accrued after October 13, 1995 on loans from corporate
owned life insurance Policies. Certain transitional rules for existing
indebtedness are included in the Health Insurance Act. The transitional
rules include a phase-out of the deduction for indebtedness incurred (1)
before January 1, 1996, (or) (2) before January 1, 1997, for Policies
entered into in 1994 or 1995. The phase-out of the interest expense
deduction occurs over a transition period between October 13, 1995 and
January 1, 1999. There is also a special rule for pre-June 21, 1986
Policies. Policyowners should consult a competent tax advisor concerning
the tax implications of these changes for their Policies.
The right to exchange the Policy for a flexible premium adjustable life
insurance policy (See Exchange Privilege, page 24), the right to change
owners (See General Provisions, page 30), and the provision for partial
withdrawals (See Surrenders, page 23) may have tax consequences depending
on the circumstances of such exchange, change, or withdrawal. Upon complete
surrender or when maturity benefits are paid, if the amount received plus
any outstanding policy debt exceeds the total premiums paid (the "basis"),
that are not treated as previously withdrawn by the Policyowner, the
excess generally will be taxed as ordinary income.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of 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, except for the
Fixed Account. AVLIC maintains records of all purchases and redemptions of
Funds' shares by each of the Subaccounts.
THIRD PARTY SERVICES
AVLIC is aware that certain third parties are offering investment advisory,
asset allocation, money management and timing services in connection with the
contracts. AVLIC does not engage any such third parties to offer such services
of any type. In certain cases, AVLIC has agreed to honor transfer instructions
from such services where it has received powers of attorney, in a form
acceptable to it, from the contract owners participating in the service. Firms
or persons offering such services do so independently from any agency
relationship they may have with AVLIC for the sale of contracts. AVLIC takes no
responsibility for the investment allocations and transfers transacted on a
contract owner's behalf by such third parties or any investment allocation
recommendations made by such parties. Contract owners should be aware that fees
paid for such services are separate and in addition to fees paid under the
contracts.
VOTING RIGHTS
AVLIC is the legal holder of the shares held in the Subaccounts of the Account
and as such has the right to vote the shares; to elect Directors of the Funds,
to vote on matters that are required by the 1940 Act and upon any other matter
that may be voted upon at a shareholders's meeting. To the extent required by
law, AVLIC will vote all shares of the Funds held in the Account at regular and
special shareholder meetings of the Funds in accordance with instructions
received from Policyowners based on the number of shares held as of the record
date declared by the Funds' Board of Directors.
The number of Fund shares in a Subaccount for which instructions may be given by
a Policyowner is determined by dividing the Policy's accumulation value held in
that Subaccount by the net asset value of one share in the corresponding
portfolio of the Fund. Fractional shares will be counted. Fund shares held in
each Subaccount for which no timely instructions from Policyowners are received
and Fund shares held in each Subaccount which do not support Policyowner
interests will be voted by AVLIC in the same proportion as those shares in that
Subaccount for which timely instructions are received. Voting instructions to
abstain on any item to be voted will be applied on a pro rata basis to reduce
the votes eligible to be cast. Should applicable federal securities laws or
regulations permit, AVLIC may elect to vote shares of the Fund in its own right.
36 APPLAUSE!
<PAGE>
DISREGARD OF VOTING INSTRUCTION. AVLIC may, if required by state insurance
officials, disregard voting instructions if those instructions would require
shares to be voted to cause a change in the subclassification or investment
objectives or policies of one or more of the Funds' Portfolios, or to approve or
disapprove an investment adviser or principal underwriter for the Funds. In
addition, AVLIC itself may disregard voting instructions that would require
changes in the investment objectives or policies of any portfolio or in an
investment adviser or principal underwriter for the Funds, if AVLIC reasonably
disapproves those changes in accordance with applicable federal regulations. If
AVLIC does disregard voting instructions, it will advise Policyowners of that
action and its reasons for the action in the next annual report or proxy
statement to Policyowners.
STATE REGULATION OF AVLIC
AVLIC, a stock life insurance company organized under the laws of Nebraska, is
subject to regulation by the Nebraska Department of Insurance. On or before
March 1 of each year an NAIC convention blank covering the operations and
reporting on the financial condition of AVLIC and the Account as of December 31
of the preceding year must be filed with the Nebraska Department of Insurance.
Periodically, the Nebraska Department of Insurance examines the liabilities and
reserves of AVLIC and the Account and certifies their adequacy.
In addition, AVLIC is subject to the insurance laws and regulations of other
states within which it is licensed or may become licensed to operate. The
policies offered by the Prospectus are available in the various states as
approved. Generally, the Insurance Department of any other state applies the
laws of the state of domicile in determining permissible investments.
EXECUTIVE OFFICERS AND DIRECTORS OF AVLIC
Shows name and position(s) with AVLIC followed by the principal occupations for
the last five years.***
LAWRENCE J. ARTH, DIRECTOR, CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER*
Director, Chairman of the Board, and Chief Executive Officer: ALIC**; also
serves as officer and/or director of other subsidiaries and/or affiliates of
ALIC.
KENNETH C. LOUIS, DIRECTOR, EXECUTIVE VICE PRESIDENT*
Director, President and Chief Operating Officer: ALIC; also serves as officer
and/or director of other subsidiaries and/or affiliates of ALIC.
ROBERT W. BUSH, DIRECTOR, SENIOR VICE PRESIDENT VARIABLE OPERATIONS AND
ADMINISTRATION*
Executive Vice President-Individual Insurance: ALIC; also serves as officer
and/or director of other subsidiaries and/or affiliates of ALIC; Senior Vice
President, CUNA Mutual Insurance Group; also served as officer and/or director
of other subsidiaries and/or affiliates of CUNA.
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.
APPLAUSE! 37
<PAGE>
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*****).
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.)
38 APPLAUSE!
<PAGE>
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 its
total assets or that relates to the Account.
EXPERTS
The financial statements of AVLIC as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, and the financial
statements of the Account as of December 31, 1996 and for each of the three
years in the period then ended, included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Thomas P.
McArdle, Assistant Vice President and Associate Actuary of Ameritas Life
Insurance Corp., as stated in the opinion filed as an exhibit to the
registration statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Account, AVLIC and the Policy offered hereby.
Statements contained in this Prospectus as to the contents of the Policy and
other legal instruments are summaries. For a complete statement of the terms
thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of AVLIC which are included in this Prospectus should
be considered only as bearing on the ability of AVLIC to meet its obligations
under the Policies. They should not be considered as bearing on the investment
performance of the assets held in the Account.
APPLAUSE! 39
<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 audit 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
40 APPLAUSE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
ASSETS
INVESTMENTS AT NET ASSET VALUE:
<S> <C>
Variable Insurance Products Fund:
Money Market Portfolio - 7,637,767.850 shares at
$1.00 per share (cost $7,637,768) $ 7,637,768
Equity-Income Portfolio - 817,109.096 shares at
$21.03 per share (cost $12,890,674) 17,183,804
Growth Portfolio - 841,043.772 shares at
$31.14 per share (cost $18,237,669) 26,190,103
High Income Portfolio - 558,109.727 shares at
$12.52 per share (cost $6,060,955) 6,987,534
Overseas Portfolio - 565,907.403 shares at
$18.84 per share (cost $8,863,172) 10,661,695
Variable Insurance Products Fund II:
Asset Manager Portfolio - 1,326,763.623 shares at
$16.93 per share (cost $18,129,171) 22,462,108
Investment Grade Bond Portfolio - 192,186.776 shares at
$12.24 per share (cost $2,269,043) 2,352,366
Contrafund Portfolio - 176,606.628 shares at
$16.56 per share (cost $2,654,228) 2,924,606
Index 500 Portfolio - 21,656.138 shares at
$89.13 per share (cost $1,776,480) 1,930,212
Asset Manager: Growth Portfolio - 42,445.800 shares at
$13.10 per share (cost $537,009) 556,040
Alger American Fund:
Small Capitalization Portfolio - 345,335.196 shares at
$40.91 per share (cost $11,394,354) 14,127,663
Growth Portfolio - 233,042.387 shares at
$34.33 per share (cost $6,402,061) 8,000,345
Income and Growth Portfolio - 234,654.249 shares at
$8.42 per share (cost $2,405,858) 1,975,789
Midcap Growth Portfolio - 263,959.188 shares at
$21.35 per share (cost $4,851,056) 5,635,529
Balanced Portfolio - 98,800.487 shares at
$9.24 per share (cost $1,036,004) 912,916
Leveraged Allcap Portfolio - 61,392.043 shares at
$19.36 per share (cost $1,169,774) 1,188,550
Dreyfus Stock Index Fund:
Stock Index Fund Portfolio - 109,123.387 shares at
$20.28 per share (cost $1,534,631) 2,213,022
MFS Variable Insurance Trust:
Emerging Growth Series Portfolio - 193,700.823 shares at
$13.24 per share (cost $2,533,503) 2,564,599
World Governments Series Portfolio - 17,336.705 shares at
$10.58 per share (cost $176,945) 183,422
Utilities Series Portfolio - 28,672.191 shares at
$13.66 per share (cost $383,098) 391,662
-------------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 136,079,733
===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! 41
<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>
42 APPLAUSE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION AND ACCOUNTING POLICIES:
-------------------------------------
Ameritas Variable Life Insurance Company Separate Account V (the Account)
was established on August 28, 1985, under Nebraska law by Ameritas
Variable Life Insurance Company (AVLIC), a wholly-owned subsidiary of
AMAL Corporation, a holding company 66% owned by Ameritas Life Insurance
Corp (ALIC) and 34% owned by AmerUs Life Insurance Company (AmerUs). The
assets of the Account are segregated from AVLIC's other assets and are
used only to support variable life products issued by AVLIC.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. At December 31, 1996, there are
twenty subaccounts within the Account. Five of the subaccounts invest
only in a corresponding Portfolio of Variable Insurance Products Fund and
five invest only in a corresponding Portfolio of Variable Insurance
Products Fund II. Both funds are diversified open-end management
investment companies and are managed by Fidelity Management and Research
Company. Six of the subaccounts invest only in a corresponding Portfolio
of Alger American Fund which is a diversified open-end management
investment company managed by Fred Alger Management, Inc. One subaccount
invests only in a corresponding Portfolio of Dreyfus Stock Index Fund
which is a non-diversified open-end management investment company managed
by Dreyfus Service Corporation. Three of the subaccounts invest only in a
corresponding Portfolio of MFS Variable Insurance Trust which is a
diversified open-end management investment company managed by
Massachusetts Financial Services Company. All five funds are registered
under the Investment Company Act of 1940, as amended. Each Portfolio pays
the manager a monthly fee for managing its investments and business
affairs. The assets of the Account are carried at the net asset value of
the underlying Portfolios of the Funds. The value of the policyowners'
units corresponds to the Account's investment in the underlying
subaccounts. The availability of investment portfolio and subaccount
options may vary between products. Share transactions and security
transactions are accounted for on a trade date basis.
AVLIC currently does not expect to incur any federal income tax liability
attributable to the Account with respect to the sale of the variable life
insurance policies. If, however, AVLIC determines that it may incur such
taxes attributable to the Account, it may assess a charge for such taxes
against the Account.
B. POLICYHOLDER CHARGES:
--------------------
AVLIC charges the Account for mortality and expense risks assumed. A
daily charge is made on the average daily value of the net assets
representing equity of policyowners held in each subaccount per each
product's current policy provisions. Additional charges are made at
intervals and in amounts per each product's current policy provisions.
These charges are prorated against the balance in each investment option
of the policyholder, including the Fixed Account option which is not
reflected in this separate account. The withdrawal of these charges are
included as other operating transfers.
APPLAUSE! 43
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
C: INFORMATION BY FUND:
Variable Insurance Products Fund
-------------------------------------------------------------------------------
Money Equity- High
Market Income Growth Income Overseas
-------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance 01-01-96 $ 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>
44 APPLAUSE!
<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>
APPLAUSE! 45
<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>
46 APPLAUSE!
<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>
APPLAUSE! 47
<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>
48 APPLAUSE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF OPERATIONS
------------------------
(in thousands)
--------------
Years Ended December 31,
-----------------------------------------------------------------
1996 1995 1994
------------------- ------------------- --------------------
<S> <C> <C> <C>
INCOME:
Insurance revenues:
Contract charges $ 26,345 $ 18,350 $ 13,528
Premium-reinsurance ceded (5,895) (4,289) (2,009)
Reinsurance ceded allowance 2,235 1,859 502
Investment revenues:
Investment income, net 3,603 3,492 3,046
Realized gains, net 19 28 19
Other 567 261 337
------------------- ------------------- --------------------
26,874 19,701 15,423
------------------- ------------------- --------------------
BENEFITS AND EXPENSES:
Policy Benefits:
Death benefits 716 268 417
Interest credited 2,736 1,995 1,524
Increase in policy and contract reserves 140 183 195
Other 52 32 46
Sales and operating expenses 10,041 6,815 5,940
Amortization of deferred policy acquisition costs 5,531 3,057 2,521
------------------- ------------------- --------------------
19,216 12,350 10,643
------------------- ------------------- --------------------
Income before federal income taxes 7,658 7,351 4,780
------------------- ------------------- --------------------
Income taxes - current 3,819 1,685 (608)
Income taxes - deferred (811) 902 2,278
------------------- ------------------- --------------------
Total income taxes 3,008 2,587 1,670
------------------- ------------------- --------------------
NET INCOME $ 4,650 $ 4,764 $ 3,110
=================== =================== ====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! 49
<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>
50 APPLAUSE!
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(in thousands)
December 31,
----------------------------------------------------
1996 1995 1994
---------------- ----------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Income $ 4,650 $ 4,764 $ 3,110
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs 5,531 3,057 2,521
Policy acquisition costs deferred (26,596) (16,020) (17,481)
Interest credited to contract values 2,736 1,995 1,524
Amortization of discounts or premiums (83) (70) (49)
Net realized gains on investment transactions (19) (28) (19)
Deferred income taxes (811) 902 2,278
Change in assets and liabilities:
Accrued investment income (306) (15) (98)
Reinsurance recoverable-affiliates 48 412 (469)
Prepaid reinsurance premium (650) (487) (451)
Other assets (377) (18) (16)
Policy and contract reserves 140 183 195
Unearned policy charges 279 234 247
Federal income tax payable-current (310) 698 (81)
Unearned reinsurance ceded allowance 860 610 595
Other liabilities 3,868 1,939 (1,823)
------------- ------------------ --------------
Net cash used in operating activities (11,040) (1,844) (10,017)
------------- ------------------ --------------
INVESTING ACTIVITIES
- --------------------
Purchase of fixed maturity securities available for sale (31,514) (7,760) (15,673)
Proceeds from maturities or repayment of fixed maturity securities
available for sale 5,307 3,738 5,108
Proceeds from sales of fixed maturity securities available for sale 3,014 - -
Net change in loans on insurance policies (1,670) (1,042) (576)
------------- ------------------ --------------
Net cash used in investing activities (24,863) (5,064) (11,141)
------------- ------------------ --------------
FINANCING ACTIVITIES
- --------------------
Return of capital (15,000) - 6,000
Capital contribution 25,670 - -
Net change in accumulated contract values 30,257 4,448 2,873
------------- ------------------ --------------
Net cash from financing activities 40,927 4,448 8,873
------------- ------------------ --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,024 (2,460) (12,285)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,660 8,120 20,405
============= ================== ==============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,684 $ 5,660 $ 8,120
============= ================== ==============
Supplemental cash flow information:
- ----------------------------------
Net cash paid (received) on income taxes $ 4,129 $ 987 $ (527)
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! 51
<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.
52 APPLAUSE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------
(Continued):
- -------------
RECOGNITION OF INVESTMENT CONTRACT REVENUE AND BENEFITS TO POLICYHOLDERS
Contracts that do not subject the Company to risks arising from policyholder
mortality or morbidity are referred to as investment contracts. Certain deferred
annuities are considered investment contracts. Amounts received as payments for
such contracts are reflected as deposits and are not reported as premium
revenues.
Revenues for investment products consist of investment income and policy
administration charges. Contract benefits that are charged to expense include
benefit claims incurred in the period in excess of related contract balances,
and interest credited to contract balances.
POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are primarily
related to the production of new business, have been deferred to the extent that
such costs are deemed recoverable from future premiums. Such costs include
commissions, certain costs of policy issuance and underwriting, and certain
variable distribution expenses.
Costs deferred related to universal life-type policies and investment-type
contracts are amortized over the lives of the policies, in relation to the
present value of estimated gross profits from mortality, investment and expense
margins. The estimated gross profits are reviewed annually based on actual
experience and changes in assumptions.
An analysis of the costs carried in the balance sheets as deferred acquisition
costs is as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $57,664 $45,940 $30,659
Acquisition costs deferred 26,596 16,020 17,481
Amortization of deferred policy acquisition costs (5,531) (3,057) (2,521)
Adjustment for unrealized investment (gain) loss 543 (1,239) 321
- -------------------------------------------------------------------------------------------------------------------------
Ending balance $79,272 $57,664 $45,940
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
To the extent that unrealized gains or losses on available-for-sale securities
would result in an adjustment of deferred policy acquisition costs had those
gains or losses actually been realized, the related unamortized deferred policy
acquisition costs are recorded as an adjustment of the unrealized gains or
losses included in stockholder's equity.
FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy and contract benefits left with the Company on
variable universal life and annuity-type contracts are based on the policy
account balance, and are shown as accumulated contract values. In addition the
Company carries as future policy benefits a liability for additional coverages
offered under policy riders.
INCOME TAXES
The provision for income taxes includes amounts currently payable and
deferred income taxes resulting from the cumulative differences in assets and
liabilities determined on a tax return and financial statement basis at the
current enacted tax rates.
APPLAUSE! 53
<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>
54 APPLAUSE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
2. INVESTMENTS (continued)
- ---------------------------
The December 31, 1995 balance of stockholder's equity was increased by $609
(comprised of an increase in the carrying value of the securities of $2,177,
reduced by $1,240 of related adjustments to deferred acquisition costs and $328
in deferred income taxes) to reflect the net unrealized gain on securities
classified as available-for-sale.
The amortized cost and fair value of fixed maturity securities available for
sale by contractual maturity at December 31, 1996 are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $7,582 $7,652
Due after one year through five years 17,266 17,568
Due after five years through ten years 22,264 22,303
Due after ten years 1,529 1,504
Mortgage-backed securities 13,407 13,594
- --------------------------------------------------------------------------------------------------------------------------
Total $62,048 $62,621
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. INCOME TAXES
- ----------------
The items that give rise to deferred tax assets and liabilities relate to the
following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized investment gains $277 $606
Deferred policy acquisition costs 23,727 17,276
Prepaid expenses 172 118
Other 0 500
- -------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 24,176 18,500
- -------------------------------------------------------------------------------------------------------------
Future policy and contract benefits 12,620 5,939
Deferred future revenues 1,534 1,039
Other 101 124
- -------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 14,255 7,102
- -------------------------------------------------------------------------------------------------------------
Net deferred tax liability $9,921 $11,398
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The difference between the U.S. federal income tax rate and the consolidated
tax provision rate is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Other 4.3 0.2 (0.1)
- ---------------------------------------------------------------------------------------------------------------------
Provision for income taxes 39.3% 35.2% 34.9%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
APPLAUSE! 55
<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.
56 APPLAUSE!
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
(in thousands)
6. STOCKHOLDER'S EQUITY
- ------------------------
Net income(loss), as determined in accordance with statutory accounting
practices, was $855, $(19), and $(3,900) for 1996, 1995 and 1994, respectively.
The Company's statutory surplus was $44,100, $13,800, and $12,600 at December
31, 1996, 1995 and 1994, respectively. Effective January 1, 1996 the Company
changed reserving methods used for most existing products resulting in an
increase in statutory surplus of approximately $20,601.
Under statutes of the Insurance Department of the State of Nebraska, the Company
is limited in the amount of dividends it can pay to its stockholder. On February
28, 1996 the Board of Directors declared a return of paid-in-capital of $15,000
payable by way of a note due on or before August 15, 1996. The note was retired
on August 15, 1996. This action was approved by the State of Nebraska Insurance
Department and any additional distributions of capital or surplus will require
approval of the Insurance Department.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
The following disclosures are made regarding fair value information about
certain financial instruments for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates, in many cases, may not be realized in immediate settlement
of the instrument. All nonfinancial instruments are excluded from disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31 of each year. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date; therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for each class of financial instrument for which it
is practicable to estimate a value:
Fixed maturity securities available for sale
For publicly traded securities, fair value is determined using an
independent pricing source. For securities without a readily ascertainable
fair value, fair value has been determined using an interest rate spread
matrix based upon quality, weighted average maturity and Treasury yields.
Loans on insurance policies
Fair values for policy loans are estimated using discounted cash flow
analyses at interest rates currently offered for similar loans with similar
remaining terms. Policy loans with similar characteristics are aggregated
for purposes of the calculations.
Cash and cash equivalents, accrued investment income and reinsurance
recoverable
The carrying amounts reported in the balance sheet equals fair value due to
the nature of these instruments.
Accumulated contract values
Funds on deposit which do not have fixed maturities are carried at the
amount payable on demand at the reporting date.
APPLAUSE! 57
<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.
58 APPLAUSE!
<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 60 through 63 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
60 and 62 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 61 and 63 are based on the assumption that the maximum
allowable cost of insurance rates as described above and maximum allowable
expense deductions are made throughout the life of the Policy.
The amounts shown for the death benefits, surrender values and accumulation
values reflect the fact that the net investment return of the Subaccounts is
lower than the gross, after-tax return of the assets held in the Funds as a
result of expenses paid by the Fund and charges levied against the Subaccounts.
The values shown take into account an average of the daily management fee paid
by each portfolio available for investment (the equivalent to an annual rate of
.69% of the aggregate average daily net assets of the Fund), the other expenses
incurred by the Fund (.20%), and the daily charge by AVLIC to each Subaccount
for assuming mortality and expense risks (which is equivalent to a charge at an
annual rate of 0.90% for policy years 1-20 and 0.65% thereafter on pages 60 and
62 and at an annual rate of .90% on page 61 and 63 of the average net assets of
the Subaccounts). The Investment Advisor or other affiliates of the various
funds have agreed to reimburse the portfolios to the extent that the aggregate
operating expenses (certain portfolio's may exclude certain items) were in
excess of an annual rate of 1.00% for the High Income, Contrafund and Asset
Manager: Growth Portfolios, 1.50% for the Equity-Income, Growth and Overseas
Portfolios, .80% for the Investment Grade Bond Portfolio, 1.25% for the Asset
Manager Portfolio, .28% for the Index 500 Portfolio, 1.25% for the Alger
American Income and Growth and Alger American Balanced Portfolio; 1.50% for the
Alger American Small Capitalization, Alger American Mid-Cap Growth, Alger
American Leveraged All Cap, and Alger American Growth Portfolios, 1.75% for the
Morgan Stanley Emerging Markets Equity, 1.20% for the Morgan Stanley Asian
Equity, 1.15% for the Morgan Stanley Global Equity and Morgan Stanley
International Magnum, 1.10% for the Morgan Stanley U.S. Real Estate Portfolios
of daily net assets. MFS has agreed to bear expenses for each series, subject to
reimbursement by each series, such that each series "Other Expenses" shall not
exceed .25% of the average daily net assets of the series during the current
fiscal year. These agreements are expected to continue in future years but may
be terminated at any time. As long as the expense limitations continue for a
portfolio, if a reimbursement occurs, it has the effect of lowering the
portfolio's expense ratio and increasing its total return. The illustrated gross
annual investment rates of return of 0%, 6%, and 12% were computed after
deducting fund expenses and correspond to approximate net annual rates of
- -1.79%, 4.21%, and 10.21% respectively, for years 1-20 and -1.54%, 4.46% and
10.46% for the years thereafter respectively, on pages 60 and 62 and -1.79%,
4.21%, and 10.21% respectively, on pages 61 and 63.
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 34).
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. In addition, upon client request, illustrations may be furnished
reflecting allocation of premiums to specified Subaccounts. Such illustrations
will reflect the expenses of the portfolio in which the Subaccount invests.
APPLAUSE! 59
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 95
Male Issue Age: 35 Non-Smoker Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $1252
INITIAL SPECIFIED AMOUNT: $100,000
DEATH BENEFIT OPTION: A
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
O% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-1.79% net) (4.21% net) (10.21% net)
---------------------------- ----------------------------- -----------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------ ------------- ------- ---------- --------- -------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1315 872 88 100000 933 149 100000 994 210 100000
2 2695 1777 975 100000 1955 1154 100000 2141 1340 100000
3 4144 2653 1851 100000 3008 2206 100000 3392 2591 100000
4 5666 3506 2704 100000 4097 3296 100000 4765 3963 100000
5 7264 4333 3531 100000 5223 4421 100000 6268 5466 100000
6 8942 5139 4418 100000 6390 5669 100000 7919 7198 100000
7 10703 5920 5279 100000 7596 6955 100000 9730 9089 100000
8 12553 6676 6115 100000 8843 8282 100000 11718 11157 100000
9 14496 7407 6926 100000 10132 9651 100000 13900 13419 100000
10 16535 8114 7713 100000 11466 11066 100000 16300 15899 100000
15 28367 11204 11204 100000 18793 18793 100000 32354 32354 100000
20 43469 13905 13905 100000 27761 27761 100000 58720 58720 100000
Ages
60 62742 16258 16258 100000 39148 39148 100000 103090 103090 138141
65 87341 17090 17090 100000 52611 52611 100000 175258 175258 213815
70 118735 15449 15449 100000 68743 68743 100000 292076 292076 338808
75 158803 9559 9559 100000 89112 89112 100000 481717 481717 515438
</TABLE>
1) Assumes an annual $1252 premium is paid at the beginning of each policy year.
Values would be different if premiums with a different frequency or in different
amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals
may cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, DEATH BENEFIT OPTION SELECTED,
PREVAILING INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH
VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS
CAN BE MADE BY AVLIC OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
60 APPLAUSE!
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 95
Male Issue Age: 35 Non-Smoker Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $1252
INITIAL SPECIFIED AMOUNT: $100,000
DEATH BENEFIT OPTION: A
USING MAXIMUM ALLOWABLE SCHEDULE OF COST OF INSURANCE RATES
O% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-1.79% net) (4.21% net) (10.21% net)
---------------------------- ----------------------------- -----------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------- ------------- ------- ---------- --------- -------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1315 872 88 100000 933 149 100000 994 210 100000
2 2695 1716 914 100000 1891 1090 100000 2075 1274 100000
3 4144 2535 1733 100000 2883 2081 100000 3259 2458 100000
4 5666 3330 2528 100000 3904 3103 100000 4554 3752 100000
5 7264 4099 3297 100000 4958 4156 100000 5970 5168 100000
6 8942 4841 4120 100000 6044 5323 100000 7518 6797 100000
7 10703 5555 4914 100000 7161 6520 100000 9212 8571 100000
8 12553 6242 5681 100000 8312 7751 100000 11067 10506 100000
9 14496 6899 6418 100000 9494 9013 100000 13097 12616 100000
10 16535 7527 7126 100000 10710 10310 100000 15322 14921 100000
15 28367 10164 10164 100000 17293 17293 100000 30122 30122 100000
20 43469 11759 11759 100000 24663 24663 100000 53911 53911 100000
Ages
60 62742 11720 11720 100000 32561 32561 100000 92738 92738 124268
65 87341 9051 9051 100000 40612 40612 100000 154839 154839 188904
70 118735 1562 1562 100000 48040 48040 100000 253019 253019 293502
75 158803 0* 0* 0* 53576 53576 100000 409139 409139 437778
</TABLE>
*In the absence of an additional premium, the Policy would lapse.
1) Assumes an annual $1252 premium is paid at the beginning of each policy year.
Values would be different if premiums with a different frequency or in different
amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, DEATH BENEFIT OPTION SELECTED,
PREVAILING INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH
VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS
CAN BE MADE BY AVLIC OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
APPLAUSE! 61
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 95
Male Issue Age: 35 Non-Smoker Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $2804
INITIAL SPECIFIED AMOUNT: $100,000
DEATH BENEFIT OPTION: B
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
O% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-1.79% net) (4.21% net) (10.21% net)
---------------------------- ----------------------------- -----------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------- ------------- ------- ---------- --------- -------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2944 2280 1479 102280 2427 1626 102427 2574 1773 102574
2 6036 4567 3765 104567 5005 4203 105005 5461 4660 105461
3 9282 6797 5996 106797 7676 6874 107676 8627 7826 108627
4 12690 8979 8177 108979 10450 9649 110450 12107 11305 112107
5 16269 11109 10307 111109 13328 12526 113328 15928 15127 115928
6 20026 13193 12471 113193 16319 15597 116319 20132 19410 120132
7 23972 15226 14584 115226 19421 18780 119421 24749 24108 124749
8 28114 17209 16648 117209 22641 22080 122641 29825 29264 129825
9 32464 19142 18661 119142 25981 25500 125981 35402 34921 135402
10 37032 21027 20626 121027 29447 29047 129447 41535 41134 141535
15 63532 29637 29637 129637 48739 48739 148739 82574 82574 182574
20 97353 37312 37312 137312 72212 72212 172212 149015 149015 249015
Ages
60 140518 44417 44417 144417 101762 101762 201762 259416 259416 359416
65 195609 49322 49322 149322 136611 136611 236611 438815 438815 538815
70 265921 50975 50975 150975 176655 176655 276655 729636 729636 846377
75 355659 47760 47760 147760 221041 221041 321041 1201287 1201287 1301287
</TABLE>
1) Assumes an annual $2804 premium is paid at the beginning of each policy year.
Values would be different if premiums with a different frequency or in different
amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, DEATH BENEFIT OPTION SELECTED,
PREVAILING INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH
VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS
CAN BE MADE BY AVLIC OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
62 APPLAUSE!
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 95
Male Issue Age: 35 Non-Smoker Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $2804
INITIAL SPECIFIED AMOUNT: $100,000
DEATH BENEFIT OPTION: B
USING MAXIMUM ALLOWABLE SCHEDULE OF COST OF INSURANCE RATES
O% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-1.79% net) (4.21% net) (10.21% net)
---------------------------- ----------------------------- -----------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------- ------------- ------- ---------- --------- -------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2944 2280 1479 102280 2427 1626 102427 2574 1773 102574
2 6036 4506 3704 104505 4942 4140 104942 5395 4594 105396
3 9282 6679 5878 106680 7551 6749 107551 8494 7693 108494
4 12690 8803 8001 108803 10257 9456 110257 11896 11094 111896
5 16269 10875 10073 110875 13064 12262 113064 15630 14829 115631
6 20026 12895 12173 112895 15974 15252 115973 19731 19009 119731
7 23972 14861 14219 114861 18986 18345 118987 24230 23589 124230
8 28114 16773 16212 116774 22108 21547 122109 29171 28610 129171
9 32464 18632 18151 118632 25341 24860 125341 34594 34113 134594
10 37032 20436 20035 120436 28687 28287 128688 40549 40148 140548
15 63532 28582 28582 128582 47211 47211 147211 80284 80284 180284
20 97353 35059 35059 135059 68868 68868 168868 143629 143629 243629
Ages
60 140518 39242 39242 139242 93495 93495 193495 244352 244352 344352
65 195609 40172 40172 140172 120451 120451 220451 404377 404377 504377
70 265921 36049 36049 136049 147883 147883 247883 658062 658062 763352
75 355659 24049 24049 124049 172202 172202 272202 1059899 1059899 1159899
</TABLE>
1) Assumes an annual $2804 premium is paid at the beginning of each policy year.
Values would be different if premiums with a different frequency or in different
amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, DEATH BENEFIT OPTION SELECTED,
PREVAILING INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH
VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS
CAN BE MADE BY AVLIC OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
APPLAUSE! 63
<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.
64 APPLAUSE!
<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.
APPLAUSE! 65
