PROSPECTUS Ameritas Variable Life Insurance Company Logo
APPLAUSE! II -- A Flexible Premium Variable
Universal Life Insurance Policy issued
by Ameritas Variable Life Insurance Company 5900 "O" Street
P.O. Box 82550/Lincoln, NE 68501
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APPLAUSE! II represents a type of insurance known as a flexible premium variable
universal life insurance policy. Like traditional life insurance policies, an
APPLAUSE! II Policy provides death benefits to beneficiaries designated by the
Policyowner and the opportunity to increase the cash value of the insurance
Policy itself. Unlike such traditional policies, APPLAUSE! II also allows
Policyowners to vary the frequency and amount of premium payments rather than
follow a fixed premium payment schedule. It also permits Policyowners to change
the level of Death Benefits as often as once each year.
An APPLAUSE! II Policy is different from traditional life insurance policies in
another important respect: Policyowners are responsible for selecting the manner
in which premiums paid on the Policy will be invested. Although each Policyowner
is guaranteed a minimum death benefit, the cash value of the Policy, as well as
the actual death benefit payable under the Policy, will vary with the
performance of investments selected by the Policyowner over the life of the
Policy.
The investment options available through APPLAUSE! II include investment
portfolios managed by Fidelity Management, Fred Alger Management, Massachusetts
Financial Services and Morgan Stanley Asset Management. Each of these portfolios
has its own investment objective and policies. These are described in the
prospectuses relating to each investment portfolio which must accompany this
APPLAUSE! II prospectus. Policyowners may also choose to allocate premium
payments to the Fixed Account managed by Ameritas Variable Life Insurance
Company ("AVLIC").
An APPLAUSE! II policy will be established following the acceptance of a
prospective Policyowner's application. Generally, an application must specify a
minimum Death Benefit of $100,000 (or $50,000 if the individual named as the
Insured under the policy is 50 or older), but lower minimums may be requested.
An APPLAUSE! II Policy, once purchased, may be returned for a full refund for 13
days after the Issue Date.
This APPLAUSE! II prospectus is designed to assist you in understanding the
opportunity and risks associated with the purchase of an APPLAUSE! II Policy.
Prospective Policyowners are urged to read the prospectus carefully and retain
it for future reference.
The prospectus includes a summary of the most important features of the
APPLAUSE! II policy, as well as a detailed description of the APPLAUSE! II
Policy, including a listing of the several investment portfolios to which
Policyowners may allocate premium payments and information about AVLIC. Several
appendices follow the prospectus narrative; these include tables designed to
illustrate how cash values and Death Benefits may change with the investment
experience of the investment options available to Policyowners. Historical
trends in the securities markets are also illustrated.
This prospectus must be accompanied by a prospectus relating to each of the
investment portfolios available through APPLAUSE! II.
Although it is designed to provide life insurance, an APPLAUSE! II Policy is
nevertheless considered to be a security. It is not a deposit with, an
obligation of, or guaranteed or endorsed by any banking institution through
which it may be purchased, nor is it insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. The purchase of an
APPLAUSE! II Policy thus involves investment risk, including the possible loss
of principal. For this reason, APPLAUSE! II may not be suitable for all
individuals and it may not be advantageous to replace an existing insurance
Policy with an APPLAUSE! II Policy or to use APPLAUSE! II as a means to obtain
additional insurance protection.
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains other information regarding registrants that file electronically
with the Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE SECURITIES REGULATORY AUTHORITY, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1998.
APPLAUSE! II 1
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TABLE OF CONTENTS PAGE
Definitions............................................................... 3
Summary................................................................... 6
Ameritas Variable Life Insurance Company and the Separate Account ........ 10
Ameritas Variable Life Insurance Company.............................. 10
Ameritas Variable Life Insurance Company Separate Account V........... 10
Performance Information............................................... 11
The Funds............................................................. 11
Investment Objectives and Policies Of The Funds' Portfolios........... 12
Addition, Deletion or Substitution of Investments..................... 15
Fixed Account......................................................... 16
Policy Benefits........................................................... 16
Purposes of the Policy................................................ 16
Death Benefit Proceeds................................................ 17
Death Benefit Options................................................. 17
Methods of Affecting Insurance Protection............................. 19
Duration of Policy.................................................... 19
Accumulation Value.................................................... 19
Net Cash Surrender Value Bonus........................................ 20
Benefits at Maturity.................................................. 20
Payment of Policy Benefits............................................ 20
Policy Rights............................................................. 21
Loan Benefits......................................................... 21
Surrenders............................................................ 22
Partial Withdrawals................................................... 22
Transfers............................................................. 22
Systematic Programs................................................... 23
Free Look Privilege................................................... 23
Exchange Privilege.................................................... 23
Payment and Allocation of Premiums........................................ 24
Issuance of a Policy.................................................. 24
Premiums.............................................................. 24
Allocation of Premiums and Accumulation Value......................... 25
Policy Lapse and Reinstatement........................................ 25
Charges and Deductions.................................................... 26
Deductions From Premium Payment....................................... 26
Charges from Accumulation Value....................................... 26
Surrender Charge...................................................... 27
Daily Charges Against the Separate Account............................ 28
Fund Expense Summary.................................................. 29
General Provisions........................................................ 31
Distribution of the Policies.............................................. 33
Federal Tax Matters....................................................... 33
Safekeeping of the Separate Account's Assets.............................. 36
Third Party Services...................................................... 36
Voting Rights............................................................. 36
State Regulation of AVLIC................................................. 36
Executive Officers and Directors of AVLIC................................. 37
Legal Matters............................................................. 38
Legal Proceedings......................................................... 38
Experts................................................................... 38
Additional Information.................................................... 39
Financial Statements...................................................... 39
Ameritas Variable Life Insurance Company Separate Account V............... 40
Ameritas Variable Life Insurance Company.................................. 63
Appendices................................................................ 79
The Policy, certain funds, and/or certain riders are not available in all
States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2 APPLAUSE! II
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DEFINITIONS
ACCRUED EXPENSE CHARGES - Any Monthly Deductions that are due and unpaid.
ACCUMULATION VALUE - The total amount that the Policy provides for investment at
any time. It is equal to the total of the Accumulation Value held in the
Separate Account, the Fixed Account, and any Accumulation Value held in the
General Account which secures Outstanding Policy Debt. (See page 21.)
ADMINISTRATIVE EXPENSE CHARGE - A charge, which is part of the Monthly
Deduction, to cover the cost of administering the Policy. (See page 27.)
ASSET-BASED ADMINISTRATIVE EXPENSE CHARGE - A daily charge that is deducted from
the overall assets of the Separate Account to provide for expenses of ongoing
administrative services to the Policyowners as a group. (See page 29.)
ATTAINED AGE - The Issue Age of the Insured plus the number of complete Policy
Years that the Policy has been in force.
AVLIC - Ameritas Variable Life Insurance Company, a Nebraska stock company.
AVLIC's Home Office is located at 5900 "O" Street, P.O. Box 82550, Lincoln, NE
68501.
BENEFICIARY - The person or persons to whom the Death Benefit Proceeds are
payable upon the death of the Insured. (See page 31 for "Beneficiary" and
"Change of Beneficiary".)
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE - An administrative charge for the
underwriting, issuance and initial administration of the Policy that is deducted
upon Surrender of the Policy. This charge is part of the Surrender Charge. (See
page 27.)
CONTINGENT DEFERRED SALES CHARGE - A sales charge, calculated based on a
percentage of premiums received, is deducted upon Surrender of the Policy. This
charge is part of the Surrender Charge. (See page 27.)
COST OF INSURANCE - A charge deducted monthly from the Accumulation Value to
provide the life insurance protection; this charge may also include a Flat Extra
Rating Charge. The Cost of Insurance is calculated with reference to an annual
Cost of Insurance Rate. This rate is based on the Insured's sex, Issue Age,
policy duration, Specified Amount, and risk class. The Cost of Insurance is part
of the Monthly Deduction. (See page 26.)
DECLARED RATE - The interest rate declared by AVLIC to be earned on amounts in
the Fixed Account, which AVLIC guarantees to be no less than 3.5%. (See page
16.)
DEATH BENEFIT - The amount of insurance coverage provided under the selected
Death Benefit option of the Policy.
DEATH BENEFIT PROCEEDS - The proceeds payable to the Beneficiary upon receipt by
AVLIC of Satisfactory Proof of Death of the Insured while the Policy is in
force. It is equal to: (l) the Death Benefit; (2) plus additional life insurance
proceeds provided by any riders; (3) minus any Outstanding Policy Debt; (4)
minus any Accrued Expense Charges, including the Monthly Deduction for the month
of death. (See page 17.)
FLAT EXTRA RATING CHARGE - A charge that will be applicable if an Insured is
placed into a class that involves a higher mortality risk. Any applicable Flat
Extra Rating Charge will be added to the Cost of Insurance Rate and, thus, will
be deducted as part of the Monthly Deduction on each Monthly Activity Date.
FIXED ACCOUNT - An account that is a part of AVLIC's General Account to which
all or a portion of Net Premiums and transfers may be allocated for accumulation
at fixed rates of interest. (See page 16.)
GENERAL ACCOUNT - The General Account of AVLIC includes all of AVLIC's assets
except those assets segregated into separate accounts, such as the Separate
Account.
APPLAUSE! II 3
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GRACE PERIOD - A 61 day period from the date written notice of lapse is mailed
to the Policyowner's last known address. If the Policyowner makes a payment
during the Grace Period such that the Net Cash Surrender Value of the Policy is
sufficient to pay the Monthly Deduction, the Policy will not lapse. (See page
25.)
GUARANTEED DEATH BENEFIT (IN MARYLAND, "GUARANTEED DEATH BENEFIT TO PREVENT
LAPSE") PERIOD - The number of years the Guaranteed Death Benefit provision will
apply. The period will vary based upon the Insured's Issue Age and rating class.
The period ranges from 3 to 25 years, and may be restricted as a result of state
law. In Massachusetts, state policy restricts the period to no greater than five
years. This benefit is provided without an additional policy charge. (See page
17.)
GUARANTEED DEATH BENEFIT PREMIUM - A specified premium which, if paid in advance
on a monthly prorated basis, will keep the Policy in force during the Guaranteed
Death Benefit Period so long as other policy provisions are met, even if the Net
Cash Surrender Value is zero or less. (See page 17.)
INSURED - The person whose life is insured under the Policy.
INVESTMENT OPTIONS - Refers to the Subaccounts and/or the Fixed Account offered
under this Policy.
ISSUE AGE - The age of the Insured at the Insured's birthday nearest the Policy
Date.
ISSUE DATE - The date that all financial, contractual and administrative
requirements have been met and processed for the Policy.
MATURITY BENEFITS - The amount payable to the Policyowner, if the Insured is
living, on the Maturity Date. The Maturity Benefit is the Accumulation Value
less any Outstanding Policy Debt. (See page 20.)
MATURITY DATE - The date AVLIC pays any Maturity Benefit to the Policyowner, if
the Insured is still living.
MONTHLY ACTIVITY DATE - The same date in each succeeding month as the Policy
Date except should such Monthly Activity Date fall on a date other than a
Valuation Date, the Monthly Activity Date will be the next Valuation Date.
MONTHLY DEDUCTION - The deductions taken from the Accumulation Value on the
Monthly Activity Date. These deductions are equal to: (1) the current Cost of
Insurance; (2) the Administrative Expense Charge; and (3) rider charges, if any.
(See page 26.)
MORTALITY AND EXPENSE RISK CHARGE - a daily charge that is deducted from the
overall assets of the Separate Account to provide for the risk that mortality
and expense costs may be greater than expected. (See page 28.)
NET CASH SURRENDER VALUE - The Accumulation Value of the Policy on any Valuation
Date (including for this purpose, the date of Surrender), less any Surrender
Charges and any Outstanding Policy Debt.
NET POLICY FUNDING - Net Policy Funding is the sum of all premiums paid, less
any partial withdrawals and less any Outstanding Policy Debt. (See page 24.)
NET PREMIUM - Premium paid less the Percent of Premium Charge (See page 26.)
OUTSTANDING POLICY DEBT - The sum of all unpaid policy loans and accrued
interest on policy loans. (See page 21.)
PERCENT OF PREMIUM CHARGE - The amount deducted from each premium received to
cover certain expenses, expressed as a percentage of the premium. This charge
may include a Sales Load Charge and/or a Premium Charge for Taxes. (See
Deductions From Premium Payment, page 26.)
PLANNED PERIODIC PREMIUMS - A selected schedule of equal premiums payable at
fixed intervals. The Policyowner is not required to follow this schedule, nor
does following this schedule ensure that the Policy will remain in force unless
the payments meet the requirements of the Guaranteed Death Benefit. (See page
24.)
POLICY - The Flexible Premium Variable Universal Life Insurance Policy offered
by AVLIC and described in this Prospectus.
POLICYOWNER - The owner of the Policy, as designated in the application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee is
the Policyowner. A collateral assignee is not the Policyowner.
4 APPLAUSE! II
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POLICY ANNIVERSARY DATE - The same day as the Policy Date for each year the
Policy remains in force.
POLICY DATE - The effective date for all coverage provided in the application.
The Policy Date is used to determine Policy Anniversary Dates, Policy Years and
Monthly Activity Dates. Policy Anniversaries are measured from the Policy Date.
The Policy Date and the Issue Date will be the same unless: 1) an earlier Policy
Date is specifically requested, or 2) unless there are additional premiums or
application amendments at time of delivery. (See Issuance of a Policy, page 24.)
POLICY YEAR - The period from one Policy Anniversary Date until the next Policy
Anniversary Date. A "Policy Month" is measured from the same date in each
succeeding month as the Policy Date.
PREMIUM CHARGE FOR TAXES - This charge, which is part of the Percent of Premium
Charge, represents the amount AVLIC considers necessary to pay all premium taxes
imposed by the states and their subdivisions and to defray the tax cost due to
capitalizing certain policy acquisition expenses as required under applicable
Federal tax laws. AVLIC does not expect to derive a profit from the Premium
Charge for Taxes.
SALES LOAD CHARGE - This charge, which is part of the Percent of Premium Charge,
is designed to compensate AVLIC for expenses associated with distributing the
Policy; no sales load charge is currently in effect.
SATISFACTORY PROOF OF DEATH - Means all of the following must be submitted:
(1) A certified copy of the death certificate;
(2) A Claimant Statement;
(3) The Policy; and
(4) Any other information that AVLIC may reasonably require to establish the
validity of the claim.
SEPARATE ACCOUNT - This term refers to Separate Account V, a separate investment
account established by AVLIC to receive and invest the Net Premiums paid under
the Policy and allocated by the Policyowner to the Separate Account. The
Separate Account is segregated from the General Account and all other assets of
AVLIC. (See page 10.)
SPECIFIED AMOUNT - The minimum Death Benefit under the Policy, as selected by
the Policyowner.
SUBACCOUNT - A subdivision of the Separate Account. Each Subaccount invests
exclusively in the shares of a specified portfolio of the Funds.
SURRENDER - The termination of the Policy before the Maturity Date during the
Insured's life for the Net Cash Surrender Value.
SURRENDER CHARGE - This charge is assessed against the Accumulation Value of the
Policy if the Policy is Surrendered before the 15th Policy Anniversary Date or,
in the case of an increase in the Specified Amount, the 15th anniversary of the
increase. The Surrender Charge is comprised of the Contingent Deferred
Administrative Charge and the Contingent Deferred Sales Charge (See page 27).
VALUATION DATE - Any day on which the New York Stock Exchange is open for
trading.
VALUATION PERIOD - The period between two successive valuation dates, commencing
at the close of the New York Stock Exchange ("NYSE") on one valuation date and
ending at the close of the NYSE on the next succeeding valuation date.
APPLAUSE! II 5
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SUMMARY
The following summary of Prospectus information and diagram of the Policy should
be read in conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy contained
in this Prospectus assumes that the Policy is in force and that there is no
Outstanding Policy Debt.
DIAGRAM OF POLICY
PREMIUM PAYMENTS
You can vary amount and frequency.
|
DEDUCTIONS FROM PREMIUMS
Sales load and distribution expense - 0%*
Premium Charge for Taxes - 3.5% **
|
NET PREMIUM
You direct the net premium to be invested in the Fixed Account or to the
separate account which offers twenty six different subaccounts. The twenty six
subaccounts invest in the corresponding portfolios (Funds) of the Fidelity
Variable Insurance Product Fund, the Fidelity Variable Insurance Products Fund
II, the Alger American Fund, the MFS Variable Insurance Trust, or Morgan Stanley
Universal Trust.
|
DEDUCTIONS FROM ASSETS
Monthly charge for cost of insurance and cost of any riders. Monthly charge for
administrative expenses $9.00 per month the first year, $4.50*** per month
thereafter.
Daily charge, at an annual rate of 0.80%**** for Policy Years 1-20, and
0.45%**** thereafter, from the subaccounts for mortality and expense risks and
administrative expenses. This charge is not deducted from Fixed Account assets.
| | |
LIVING BENEFITS RETIREMENT BENEFITS DEATH BENEFITS
Partial withdrawals can Loans may be taken at a net Generally income tax
be made (subject to zero interest rate after free to beneficiary.
certain restrictions). The ten years.
death benefit will be Available as lump
reduced by the amount Should the policy lapse sum or under the
of the partial withdrawal. while loans are outstanding five payment meth-
the portion of the loan ods available as
Up to fifteen free trans- attributable to earnings retirement benefits.
fers can be made each will become taxable dist-
year between the Invest- ributions. (See page 21).
ment Options.
Payment can be taken under
Accelerated payment of up one or more of five dif-
to 50% of the lowest ferent payment options.
scheduled death benefit
is available under cer-
tain conditions to insur-
eds suffering from termi-
nal illness.
The policy may be sur-
rendered at any time for
its net cash surrender
value.
Because the company
incurs expenses imme-
diately upon the issuance
of the policy that are
recovered over a period
of years, a policy sur-
render prior to the fif-
teenth anniversary date
will be assessed a sur-
render charge consisting
of the contingent defer-
red sales charge and the
contingent deferred ad-
ministrative charge. The
charge decreases each year
until no surrender charge
is applied after the
fifteenth policy year.
Increases in coverage
after issue will also have
a surrender charge
associated with them. (See
pages 22 and 27).
* maximum charge 2.5%
** maximum charge 5.0%
*** maximum charge $9.00/mo.
**** maximum charge 1.25%
6 APPLAUSE! II
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SUMMARY
The following summary is intended to highlight the most important features of an
APPLAUSE! II POLICY that you, as a prospective POLICYOWNER, should consider.
More detailed information is contained in the main portion of the prospectus;
cross-references are provided for your convenience. As you review this Summary,
take note of those terms that appear in italics. A definition of each of these
italicized terms is included in the glossary that appears on page 3 of this
prospectus. Both this summary and the prospectus of which it is a part, are
qualified in their entirety by the terms of the APPLAUSE! II POLICY, which is
available upon request from AVLIC.
WHO IS THE ISSUER OF AN APPLAUSE! II POLICY?
AVLIC is the issuer of each APPLAUSE! II POLICY. AVLIC enjoys a rating of A
(Excellent) from A.M. Best Company, a firm that analyzes insurance carriers and
a rating of AA (Excellent) from Standard & Poor's Corporation for claims-paying
ability. A stock life insurance company organized in Nebraska, AVLIC is a wholly
owned subsidiary of AMAL Corporation which is, in turn, owned by Ameritas Life
Insurance Corp. ("Ameritas Life") and AmerUs Life Insurance Company ("AmerUs
Life"). Ameritas Life , AmerUs Life and AMAL Corporation guarantee the
obligations of AVLIC, including the obligations of AVLIC under each APPLAUSE! II
POLICY; taken together, these companies have aggregate assets of over $13.7
billion as of December 31, 1997. (page 10)
WHY SHOULD I CONSIDER PURCHASING AN APPLAUSE! II POLICY?
The primary purpose of an APPLAUSE! II POLICY is to provide life insurance
protection on the INSURED named in the POLICY. This means that, so long as the
POLICY is in force, it will provide for:
[ ] payment of a DEATH BENEFIT, which will never be less than the SPECIFIED
AMOUNT selected by the POLICYOWNER (page 18)
[ ] policy loan, SURRENDER and withdrawal features (page 22)
[ ] the payment of MATURITY BENEFITS to the POLICYOWNER, if living, on the
MATURITY DATE (page 20).
An APPLAUSE! II POLICY also includes an investment component. This means that,
so long as the POLICY is in force, you will be responsible for selecting the
manner in which NET PREMIUMS paid will be invested. Thus, the value of an
APPLAUSE! II POLICY will reflect your investment choices over the life of the
POLICY.
HOW DOES THE INVESTMENT COMPONENT OF MY APPLAUSE! II POLICY WORK?
AVLIC has established a SEPARATE ACCOUNT, which is separate from all other
assets of AVLIC, as a vehicle to receive and invest premiums received from
APPLAUSE! II POLICYOWNERS and owners of certain other variable universal life
products offered by AVLIC. The SEPARATE ACCOUNT is divided into separate
SUBACCOUNTS. Each SUBACCOUNT invests exclusively in shares of one of the
investment portfolios available through APPLAUSE! II. Each POLICYOWNER may
allocate NET PREMIUMS to one or more SUBACCOUNTS, or to AVLIC's FIXED ACCOUNT in
the initial application and these allocations may be changed, without charge, by
notifying AVLIC's Home Office. The aggregate value of your interests in the
SUBACCOUNTS and the FIXED ACCOUNT will represent the cash or ACCUMULATION VALUE
of your APPLAUSE! II POLICY. (page 19)
WHAT INVESTMENT OPTIONS ARE AVAILABLE THROUGH THE APPLAUSE! II POLICY?
The investment options available through APPLAUSE! II include 26 investment
portfolios, each of which is a separate series of a mutual fund managed by
Fidelity Management & Research Company, Fred Alger Management, Inc.
Massachusetts Financial Services Company or Morgan Stanley Asset Management Inc.
These portfolios are:
[ ] FIDELITY MANAGEMENT & RESEARCH COMPANY:
VIP Money Market Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP High Income Portfolio
VIP Overseas Portfolio
VIP II Asset Manager Portfolio
VIP II Investment Grade Bond Portfolio
VIP II Asset Manager: Growth Portfolio
VIP II Index 500 Portfolio
VIP II Contrafund Portfolio
[ ] FRED ALGER MANAGEMENT, INC.:
Growth Portfolio
Income and Growth Portfolio
Small Capitalization Portfolio
Balanced Portfolio
MidCap Growth Portfolio
Leveraged AllCap Portfolio
APPLAUSE! II 7
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[ ] MASSACHUSETTS FINANCIAL SERVICES COMPANY:
Emerging Growth Portfolio
Utilities Portfolio
World Governments Portfolio
Research Portfolio
Growth With Income Portfolio
[ ] MORGAN STANLEY ASSET MANAGEMENT INC.:
Emerging Markets Equity Portfolio
Global Equity Portfolio
International Magnum Portfolio
Asian Equity Portfolio
U.S. Real Estate Portfolio
Details about the investment objectives and policies of each of the available
investment portfolios, including management fees and expenses, appear on page 12
of this prospectus. In addition to the listed portfolios, POLICYOWNERS may also
elect to allocate NET PREMIUMS to AVLIC's FIXED ACCOUNT (page 16).
HOW DOES THE LIFE INSURANCE COMPONENT OF AN APPLAUSE! II POLICY WORK?
An APPLAUSE! II POLICY provides for the payment of a minimum DEATH BENEFIT upon
the death of the INSURED. The amount of the minimum DEATH BENEFIT ---sometimes
referred to as the SPECIFIED AMOUNT of your APPLAUSE! II POLICY --- is chosen by
you at the time your APPLAUSE! II POLICY is established. However, DEATH BENEFIT
PROCEEDS -- the actual amount that will be paid after receipt by AVLIC of
SATISFACTORY PROOF OF DEATH OF THE INSURED -- will vary over the life of your
APPLAUSE! II Policy, depending on which of the two available coverage options
you select.
If you choose Option A, DEATH BENEFIT PROCEEDS payable under your APPLAUSE! II
POLICY will be the SPECIFIED AMOUNT of your APPLAUSE! II POLICY OR the
applicable percentage of its ACCUMULATION VALUE, whichever is greater. If you
choose Option B, DEATH BENEFIT PROCEEDS payable under your APPLAUSE! II POLICY
will be the SPECIFIED AMOUNT of your APPLAUSE! II POLICY PLUS the ACCUMULATION
VALUE of your APPLAUSE! II POLICY, or if it is higher, the applicable percentage
of the ACCUMULATION VALUE on the date of death. In either case, the applicable
percentage is established based on the age of the INSURED at the date of death
(page 17).
ARE THERE ANY RISKS INVOLVED IN OWNING AN APPLAUSE! II POLICY?
Yes. Over the life of your APPLAUSE! II POLICY, the SUBACCOUNTS to which you
allocate your premiums will fluctuate in response to movements in the stock
market and overall economic factors. These fluctuations will be reflected in the
ACCUMULATION VALUE of your APPLAUSE! II POLICY and may result in loss of
principal. For this reason, the purchase of an APPLAUSE! II POLICY may not be
suitable for all individuals and it may not be advantageous to replace or
augment your existing insurance arrangements with an APPLAUSE! II POLICY.
Appendix A includes tables illustrating the impact that hypothetical market
returns would have on ACCUMULATION VALUES under an APPLAUSE! II POLICY (page
79).
WHAT IS THE PREMIUM THAT MUST BE PAID TO KEEP AN APPLAUSE! II POLICY IN FORCE?
Like traditional life insurance policies, an APPLAUSE! II POLICY requires the
payment of periodic premiums in order to keep the POLICY in force. You will be
asked to establish a payment schedule before your APPLAUSE! II POLICY becomes
effective.
The distinction between traditional life policies and an APPLAUSE! II POLICY is
that an APPLAUSE! II POLICY will not lapse simply because premium payments are
not made in accordance with that payment schedule. However, an APPLAUSE! II
POLICY will lapse, even if scheduled premium payments are made, if the NET CASH
SURRENDER VALUE of your APPLAUSE! II POLICY falls below zero or premiums paid do
not, in the aggregate, equal the premium necessary to maintain the GUARANTEED
DEATH BENEFIT (page 24).
HOW ARE PREMIUMS PAID, PROCESSED AND CREDITED TO ME?
Your APPLAUSE! II POLICY will be issued after a completed application is
accepted, and the initial premium payment is received, by AVLIC at its Home
Office. AVLIC's Home Office is located at 5900 "O" Street, P.O. Box 82550,
Lincoln, NE 68501. Your initial premium will be allocated to the Money Market
Subaccount for 13 days following the ISSUE DATE, and thereafter will be
allocated to the SUBACCOUNTS and/or the FIXED ACCOUNT, in accordance with
selections made by you in your application. You have the right to examine your
APPLAUSE! II POLICY and return it for a refund for a limited time, even after
the ISSUE DATE (page 23).
Subsequent premium payments may be made in accordance with your PLANNED PERIODIC
PREMIUM schedule; although you are not required to do so. AVLIC will send
premium payment notices to you, however, in accordance with any schedule you
select. When your premium payment is received by AVLIC at its Home Office, AVLIC
will deduct any applicable premium charges and allocate the NET PREMIUM to the
SUBACCOUNTS and/or the FIXED ACCOUNT, in accordance with selections made by you
(page 24).
8 APPLAUSE! II
<PAGE>
As already noted, APPLAUSE! II provides POLICYOWNERS considerable flexibility in
determining the frequency and amount of premium payments. This flexibility is
not, however, unlimited and you should keep certain factors in mind in
determining the payment schedule that is best suited to your needs. These
include the amount of the GUARANTEED DEATH BENEFIT PREMIUM and/or NET POLICY
FUNDING requirement needed to keep your APPLAUSE! II POLICY in force (page 24);
maximum premium limitations established under the Federal tax laws (page 25);
and the impact that reduced premium payments may have on the NET CASH SURRENDER
VALUE of your APPLAUSE! II POLICY (page 24).
IS THE ACCUMULATION VALUE OF MY APPLAUSE! II POLICY AVAILABLE BEFORE THE
MATURITY DATE WITHOUT SURRENDER?
Yes. You may access the value of your APPLAUSE! II POLICY in one of two ways.
First, you may obtain a loan, secured by the ACCUMULATION VALUE of your
APPLAUSE! II POLICY following its first POLICY ANNIVERSARY. The maximum interest
rate on any such loan is 6% annually; the current rate is 5.5% annually. After
the tenth POLICY ANNIVERSARY, you may borrow against a limited amount of the NET
CASH SURRENDER VALUE of your APPLAUSE! II POLICY at a maximum annual interest
rate of 4%; the current rate for such loans is 3.5% annually (page 21).
You may also access the value of your APPLAUSE! II POLICY by making a partial
withdrawal. A partial withdrawal is not subject to SURRENDER CHARGES, but is
subject to a maximum charge not to exceed the lesser of $50 or 2% of the amount
withdrawn (currently, the partial withdrawal charge is the lesser of $25 or 2%)
(page 22).
ARE THERE ANY OTHER CHARGES ASSOCIATED WITH OWNERSHIP OF AN APPLAUSE! II POLICY?
AVLIC is authorized to deduct a PERCENT OF PREMIUM CHARGE, which includes both a
sales charge and a PREMIUM CHARGE FOR TAXES. The sales charge, of up to 2.5%,
may be deducted from each premium payment made on an APPLAUSE! II POLICY. As of
the date of this prospectus, however, this sales charge is not being applied.
Certain states impose premium and other taxes in connection with insurance
policies such as APPLAUSE! II. AVLIC may deduct up to 5% of each premium paid as
a PREMIUM CHARGE FOR TAXES. Currently, 3.5% is deducted for this purpose.
Charges are also deducted against ACCUMULATION VALUE to cover the COST OF
INSURANCE under the POLICY and to compensate AVLIC for administering each
individual APPLAUSE! II POLICY. These charges, which are part of the MONTHLY
DEDUCTION, are calculated and paid on each MONTHLY ACTIVITY DATE. The COST OF
INSURANCE is calculated based on risk factors relating to the INSURED as
reflected in relevant actuarial tables. The MONTHLY DEDUCTION also includes a
flat ADMINISTRATIVE EXPENSE CHARGE. This charge, currently fixed at $9 per
policy per month for the 1st POLICY YEAR and $4.50 for later POLICY YEARS, may
be increased during the life of your APPLAUSE! II POLICY, up to a guaranteed $9
maximum (page 27).
For its services in administering the SEPARATE ACCOUNT and SUBACCOUNTS and as
compensation for bearing certain mortality and expense risks, AVLIC is also
entitled to receive fees, which are calculated daily during the first 20 years
of each APPLAUSE! II POLICY, at a combined current annual rate of .80% of the
value of the net assets of the SEPARATE ACCOUNT. After the 20th POLICY
ANNIVERSARY DATE, the combined current annual rate is expected to decrease to
.45% of the daily net assets of the SEPARATE ACCOUNT. No MORTALITY AND EXPENSE
RISK CHARGES will be deducted from the amount in the FIXED ACCOUNT. (page 28).
Finally, because AVLIC incurs expenses immediately upon the issuance of an
APPLAUSE! II POLICY that are recovered over a period of years, an APPLAUSE! II
POLICY that is Surrendered before its 15th POLICY ANNIVERSARY DATE is subject to
a SURRENDER CHARGE. The maximum SURRENDER CHARGE is $48 per $1000 of SPECIFIED
AMOUNT; additional SURRENDER CHARGES may apply if you increase the SPECIFIED
AMOUNT of your APPLAUSE! II POLICY. Because the SURRENDER CHARGE may be
significant upon early SURRENDER, you should purchase an APPLAUSE! II POLICY
only if you intend to maintain your APPLAUSE! II POLICY for a substantial period
(page 27).
Policyowners who choose to allocate NET PREMIUMS to one or more of the
SUBACCOUNTS will also bear a pro rata share of the management fees and expenses
paid by each of the investment portfolios in which the various SUBACCOUNTS
invest. No such management fees are assessed against NET PREMIUMS allocated to
the FIXED ACCOUNT (page 29).
WHEN DOES MY APPLAUSE! II POLICY TERMINATE?
You may terminate your APPLAUSE! II POLICY by surrendering the policy during the
lifetime of the INSURED for its NET CASH SURRENDER VALUE (page 22). As noted
above, your APPLAUSE! II POLICY will terminate if you fail to pay required
premiums or maintain sufficient NET CASH SURRENDER VALUE to cover policy charges
(page 24).
Finally, your APPLAUSE! II POLICY will terminate on its MATURITY DATE if the
named INSURED is living on that date unless you have elected the EXTENDED
MATURITY OPTION (page 20). The MATURITY DATE is the POLICY ANNIVERSARY nearest
to the INSURED'S 100th birthday. On the MATURITY DATE, AVLIC will pay to the
POLICYOWNER an amount -- referred to as the MATURITY BENEFIT -- equal to the
ACCUMULATION VALUE of your APPLAUSE! II POLICY, less any OUTSTANDING POLICY DEBT
(page 20).
YEAR 2000
Like other insurance companies and their separate accounts, AVLIC and the
Separate Account could be adversely affected if the computer systems they rely
upon do not properly process date-related information and data involving the
years 2000 and after. AVLIC has take steps it believes are reasonable to timely
address this issue in its own computer system, and to obtain assurance that its
major service providers are taking comparable steps. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on AVLIC and the Separate Account.
APPLAUSE! II 9
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY AND THE SEPARATE 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 63.
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", formerly known as American Mutual
Life Insurance Company), an Iowa stock life insurance company, which owns a
minority interest in AMAL Corporation. The Home Offices of both AVLIC and
Ameritas Life are at 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, 1997 of over
$3.4 billion. AmerUs Life had total assets as of December 31, 1997 of over $10.3
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. ("AIC"), 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 dollar cost
averaging, portfolio rebalancing, earnings sweep, tax-deference, asset
allocation, diversification, long term market trends, index performance, and
other investment methods and programs. The purpose of the ratings is to reflect
the financial strength and/or claims-paying ability of AVLIC. The ratings do not
relate to the performance of the Separate Account.
AMERITAS VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT V
Ameritas Variable Life Insurance Company Separate Account V ("the Separate
Account") was established under Nebraska law on August 28, 1985. The assets of
the Separate 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 Separate 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 Separate
Account of a total market value at least equal to the reserve and other contract
liabilities of the Separate Account. The Separate Account will at all times
contain assets equal to or greater than Accumulation Values invested in the
Separate Account. Nevertheless, to the extent assets in the Separate Account
exceed AVLIC's liabilities in the Separate 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 Separate 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
Separate Account. For state law purposes, the Separate Account is treated as a
Division of AVLIC.
10 APPLAUSE! II
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Separate Account and the
Funds available for investment by the Separate Account may appear in
advertisements, sales literature, or reports to Policyowners or prospective
purchasers. AVLIC may also provide a hypothetical illustration of Accumulation
Value, Net Cash Surrender Value and Death Benefit based on historical investment
returns of the Funds for a sample insured based on assumptions as to age, sex,
and other policy specific assumptions.
AVLIC may also provide individualized hypothetical illustrations of Accumulation
Value, Net Cash Surrender Value and Death Benefit based on historical investment
returns of the Funds. These illustrations will reflect deductions for fund
expenses and Policy and Separate Account charges, including the Monthly
Deduction, Percent of Premium Charge, and the Surrender Charge. These
hypothetical illustrations will be based on the actual historical experience of
the funds as if the Subaccounts had been in existence and a Policy issued for
the same periods as those indicated for the funds.
THE FUNDS
There are currently twenty-six Subaccounts within the Separate Account available
to Policyowners for new allocations. The assets of each Subaccount are invested
in shares of a corresponding portfolio of one of the following mutual funds
(collectively, the "Funds"): Variable Insurance Products Fund and the Variable
Insurance Products Fund II, (respectively, "VIP" and "VIP 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"). VIP, which is managed by Fidelity Management & Research Company
("Fidelity"), offers the following portfolios: Money Market, Equity-Income,
Growth, High Income and Overseas Portfolios. VIP 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 Portfolios. The Morgan Stanley Fund offers
the following portfolios in connection with the Policy, all of which are managed
by Morgan Stanley Asset Management Inc. ("MSAM"): Emerging Markets Equity,
Global Equity, International Magnum, Asian Equity and U.S. Real Estate
Portfolios. Each Fund is registered with the SEC under the Investment Company
Act of 1940 as an open-end management investment company.
The assets of each portfolio of the Funds are held separate from the assets of
the other portfolios. Thus, each portfolio operates as a separate investment
portfolio, and the income or losses of one portfolio generally have no effect on
the investment performance of any other portfolio.
The investment objectives and policies of each portfolio are summarized below.
There is no assurance that any of the portfolios will achieve their stated
objectives. More detailed information, including a description of investment
objectives, policies, restrictions, expenses and risks, is in the prospectuses
for each of the Funds, which must accompany or precede this Prospectus. All
underlying fund information, including Fund prospectuses, has been provided to
AVLIC by the underlying Funds. AVLIC has not independently verified this
information. One or more of the Portfolios may employ investment techniques that
involve certain risks, including investing in non-investment grade, high risk
debt securities, entering into repurchase agreements and reverse repurchase
agreements, lending portfolio securities, engaging in "short sales against the
box," investing in instruments issued by foreign banks, entering into firm
commitment agreements and investing in warrants and restricted securities. In
addition, certain of the portfolios may invest in securities of foreign issuers.
The Leveraged AllCap Portfolio may borrow money to increase its portfolio of
securities, and may purchase or sell options and enter into futures contracts on
securities indexes to increase gain or to hedge the value of the Portfolio.
Certain of the portfolios are permitted to invest a portion of their assets in
non-investment grade, high risk debt securities; these portfolios include the
VIP High Income, VIP Equity-Income, VIP II Asset Manager: Growth, VIP II 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 VIP Overseas Portfolio 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
APPLAUSE! II 11
<PAGE>
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 (also known as "junk bonds") 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 Separate Account will purchase and redeem shares from the Portfolios at the
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 is
automatically reinvested in 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 Separate Account and one or more of the separate
accounts of another participating insurance company. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing its separate accounts from the Funds, to resolve the matter.
The risks of such mixed and shared funding are described further in the
prospectuses of the Funds.
<TABLE>
<CAPTION>
FIDELITY FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
VIP Money Market 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.
VIP Equity-Income 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.
VIP Growth 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.
12 APPLAUSE! II
<PAGE>
VIP High Income 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.
VIP Overseas 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.
VIP II Asset Manager 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.
VIP II Investment A portfolio of investment grade fixed-income Seeks as high a level of current income as is
Grade Bond securities with a dollar weighted average maturity consistent with the preservation of capital.
of less than ten years.
VIP II Asset Manager: Focuses on stocks for high potential returns but also Seeks to maximize total return by allocating its
Growth purchases bonds and short-term instruments. assets among foreign and domestic stocks, bonds,
short-term instruments and other investments.
VIP II Index 500 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.
VIP II Contrafund 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>
<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.
APPLAUSE! II 13
<PAGE>
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 and convertible securities,
into common stocks. Except during defensive periods, with emphasis on income producing securities
it is anticipated that 25% of the portfolio assets which appear to have potential for capital
will be invested in fixed income senior securities. appreciation.
MidCap Growth Except during temporary defensive periods, the Seeks long-term capital appreciation.
Portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of
purchase of the securities, have total market
capitalization within the range of companies included
in the S&P MidCap 400 Index, updated quarterly.
The S&P MidCap 400 Index is designed to track the
performance of medium capitalization companies. The
Portfolio may invest up to 35% of its total assets
in securities that, at the time of purchase, have
total market capitalization outside the range of
companies included in the S&P MidCap 400 Index and in
excess of that amount (up to 100% of its assets)
during temporary defensive periods.
Leveraged AllCap Invests at least 85% of net assets in equity Seeks long-term capital appreciation.
securities of companies of any size, except during
defensive periods. May purchase put and call
options and sell covered options to increase gain
and to hedge. May enter into futures contracts and
purchase and sell options on these futures
contracts. May also borrow money for purchase of
additional securities.
MFS FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
Emerging Growth Series At least 80% normally will be invested in equity Seeks to provide long-term capital growth;
securities of emerging growth companies. Up to 25% dividend and interest income is incidental.
may be invested in foreign securities not including
ADRs.
Utilities Series At least 65%, but up to 100% normally will be Seeks capital growth and current income (above
invested in equity and debt securities of both that available from a portfolio invested
domestic and foreign companies in the utilities entirely in equity securities).
industry. Normally, not more than 35% will be
invested in equity and debt securities of
issuers in other industries, including foreign
securities, emerging market securities and non-dollar
denominated securities.
14 APPLAUSE! II
<PAGE>
World Governments Series At least 80% normally will be invested in debt Seeks to provide long-term growth of capital and
securities. May invest up to 100% of assets in future income.
foreign securities, including emerging market
securities.
Research Series Invests in common stocks or securities convertible Seeks to provide long-term growth of capital
into common stocks of companies believed to possess and future income.
better than average prospects for long-term growth.
Up to 10% may be invested in non-investment
grade debt; up to 20% may be invested in foreign
securities (including emerging market issues.)
Growth With Income Series At least 65% will normally be invested in common Seeks to provide reasonable current income and
stocks or securities convertible into common stocks long-term growth of capital and income.
of companies believed to have long-term prospects
for growth and income. Expects to invest not more
than 15% in foreign securities (including emerging
market issues.)
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY
FUNDS
PORTFOLIO INVESTMENT POLICIES OBJECTIVE
<S> <C> <C>
Emerging Markets Equity Invests primarily in equity securities of emerging Long-term capital appreciation.
market country issuers with a focus on those countries
whose economies the portfolio's adviser believes to
be developing strongly and in which markets are
becoming more sophisticated.
Global Equity Invests primarily in equity securities of Long-term capital appreciation.
issuers throughout the world, including U.S.
issuers and emerging market countries, using an
approach that is oriented to the selection of
individual stocks that the portfolio's adviser
believes are undervalued.
International Magnum Invests primarily in equity securities of Long-term capital appreciation.
non-U.S. issuers, generally in accordance with
weightings determined by the portfolio's adviser, in
countries comprising the Morgan Stanley Capital
International Europe, Australia, Far East Index,
commonly known as the "EAFE Index."
Asian Equity Invests primarily in equity securities of Long-term capital appreciation.
Asian issuers, excluding Japan, using an
approach that is oriented to the selection of
individual stocks believed by the portfolio's
adviser to be undervalued.
U.S. Real Estate Invests primarily in equity securities of companies Above-average current income and long
primarily engaged in the U.S. real estate industry, term capital appreciation.
including real estate investment trusts.
</TABLE>
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 Separate Account or that the Separate Account may purchase. The Separate
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.
APPLAUSE! II 15
<PAGE>
AVLIC may, in its sole discretion, also establish additional subaccounts of the
Separate 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 Separate 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 Separate 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 Separate Account.
The Policyowner will be notified of any material change in the investment policy
of any portfolio in which the Policyowner has an interest.
FIXED ACCOUNT
Policyowners may elect to allocate all or a portion of their Net Premium
payments to the Fixed Account, and they may also transfer monies between the
Separate Account and the Fixed Account. (See Transfers, page 22.)
Payments allocated to the Fixed Account and transferred from the Separate
Account to the Fixed Account are placed in the General Account. The General
Account includes all of AVLIC's assets, except those assets segregated in the
separate accounts. AVLIC has the sole discretion to invest the assets of the
General Account, subject to applicable law. AVLIC bears an investment risk for
all amounts allocated or transferred to the Fixed Account and interest credited
thereto, less any deduction for charges and expenses, whereas the Policyowner
bears the investment risk that the declared rate described below, will fall to a
lower rate after the expiration of a declared rate period. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 (the "1933 Act") nor is the General
Account registered as an investment company under the Investment Company Act of
1940. Accordingly, neither the General Account nor any interest therein is
generally subject to the provisions of the 1933 or 1940 Act. We understand that
the staff of the SEC has not reviewed the disclosures in this Prospectus
relating to the Fixed Account portion of the Policy; however, disclosures
regarding the Fixed Account portion of the Policy may be subject to generally
applicable provisions of the Federal Securities Laws regarding the accuracy and
completeness of statements made in prospectuses.
AVLIC guarantees that it will credit interest at a Declared Rate of at least
3.5%. AVLIC may, at its discretion, set a higher Declared Rate(s.) Each month
AVLIC will establish the Declared Rate for the monies transferred or allocated
to the Fixed Account that month. Each month is assumed to have 30 days, and each
year to have 360 days for purposes of crediting interest on the Fixed Account.
The Policyowner will earn interest on the amounts transferred or allocated to
the Fixed Account at the Declared Rate effective for the month in which the
Policy was issued, which rate is guaranteed for the remainder of the Policy
Year. During later Policy Years, all amounts in the Fixed Account will earn
interest at the Declared Rate in effect in the month of the last Policy
Anniversary. Declared interest rates may increase or decrease from previous
periods, but will not fall below 3.5%. AVLIC reserves the right to change the
declaration practice, and the period for which a Declared Rate will apply.
POLICY BENEFITS
The rights and benefits under the Policy are summarized in this prospectus;
however prospectus disclosure regarding the Policy is qualified in its entirety
by the Policy itself, a copy of which is available upon request from AVLIC.
PURPOSES OF THE POLICY
The Policy is designed to provide the Policyowner with both lifetime insurance
protection to the Policy Anniversary nearest the Insured's 100th birthday and
flexibility in connection with the amount and frequency of premium payments and
with the level of life insurance proceeds payable under the Policy.
The Policyowner is not required to pay scheduled premiums to keep the Policy in
force, but may, subject to certain limitations, vary the frequency and amount of
premium payments. Moreover, the Policy allows a Policyowner to adjust the
16 APPLAUSE! II
<PAGE>
level of Death Benefits payable under the Policy without having to purchase a
new Policy by increasing (with evidence of insurability) or decreasing the
Specified Amount. An increase in the Specified Amount will increase the
Guaranteed Death Benefit Premium required. If the Specified Amount is decreased,
however, the Guaranteed Death Benefit Premium will not decrease. Thus, as
insurance needs or financial conditions change, the Policyowner has the
flexibility to adjust life insurance benefits and vary premium payments.
The Death Benefit may, and the Accumulation Value will, vary with the investment
experience of the chosen Subaccounts of the Separate 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 Separate Account. AVLIC agrees to keep the Policy
in force during the Guaranteed Death Benefit Period and provide a Guaranteed
Death Benefit so long as Net Policy Funding is equal to or greater than the
cumulative monthly pro rata Guaranteed Death Benefit Premium. In certain
instances, this Net Policy Funding will not, after the payment of Monthly
Deductions, generate positive Net Cash Surrender Values.
DEATH BENEFIT PROCEEDS
As long as the Policy remains in force, AVLIC will, upon Satisfactory Proof of
Death, pay the Death Benefit Proceeds of the Policy in accordance with the Death
Benefit option in effect at the time of the Insured's death. The amount of the
Death Benefits payable will be determined at the end of the valuation period
during which the Insured's death occurred. The Death Benefit Proceeds may be
paid in a lump sum or under one or more of the payment options set forth in the
Policy. (See Payment Options, page 20.)
Death Benefit Proceeds will be paid to the surviving Beneficiary or
Beneficiaries specified in the application or as subsequently changed. If no
Beneficiary is chosen, the proceeds will be paid to the Policyowner or the
Policyowner's estate.
DEATH BENEFIT OPTIONS
The Policy provides two Death Benefit options, unless the Extended Maturity
Option is in effect. If the Extended Maturity Option is in effect, the Death
Benefit will be the Accumulation Value. (See Benefits at Maturity, page 20.) The
Policyowner selects one of the options in the application. The Death Benefit
under either option will never be less than the current Specified Amount of the
Policy as long as the Policy remains in force. (See Policy Lapse and
Reinstatement, page 25.) The minimum initial Specified Amount is generally
$100,000. Defined differences, illustrated by graphic illustrations are as
follows:
OPTION A.
(Omitted graph illustrates payout under Death Benefit Option A, specifically by
showing the relationships over time, between the Specified Amount and the
Accumulation Value.)
Death Benefit Option A. Pays a Death Benefit equal to the Specified Amount
or the Accumulation Value multiplied by the Death Benefit percentage (as
illustrated at Point A) whichever is greater.
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
APPLAUSE! II 17
<PAGE>
Amount, in which case the amount of the Death Benefit will vary as the
Accumulation Value varies. Policyowners who prefer to have favorable investment
performance, if any, reflected in higher Accumulation Value, rather than
increased insurance coverage, generally should select Option A.
OPTION B.
(Omitted graph illustrates payout under Death Benefit Option B, specifically by
showing the relationships over time, between the Specified Amount and the
Accumulation Value.)
Death Benefit Option B. Pays a Death Benefit equal to the Specified Amount
plus the Policy's Accumulation Value or the Accumulation Value multiplied
by the Death Benefit percentage, whichever is greater.
Under Option B, the Death Benefit is equal to the current Specified Amount plus
the Accumulation Value of the Policy or, if greater, the applicable percentage
of the Accumulation Value on the date of death. The applicable percentage is the
same as under Option A: 250% for Insureds with an attained age 40 or younger on
the policy anniversary prior to the date of death, and for Insureds with an
attained age over 40 on that policy anniversary the percentage declines.
Accordingly, under Option B the amount of the Death Benefit will always vary as
the Accumulation Value varies (but will never be less than the Specified
Amount.) Policyowners who prefer to have favorable investment performance, if
any, reflected in increased insurance coverage, rather than higher Accumulation
Values, generally should select Option B.
CHANGE IN DEATH BENEFIT OPTION. The Death Benefit Option may be changed once per
year after the first policy year by sending AVLIC a written request. The
effective date of such a change will be the Monthly Activity Date on or
following the date the change is approved by AVLIC. A change may have Federal
Tax consequences.
If the Death Benefit option is changed from Option A to Option B, the Specified
Amount after the change will equal the Specified Amount before the change less
the Accumulation Value as of the date of the change. If the Death Benefit option
is changed from Option B to Option A, the Specified Amount under Option A after
the change will equal the Death Benefit under Option B on the effective date of
change.
No charges will be imposed upon a change in Death Benefit option, nor will such
a change in and of itself result in an immediate change in the amount of a
Policy's Accumulation Value. However, a change in the Death Benefit option may
affect the Cost of Insurance because this charge varies depending on net amount
at risk (i.e. the amount by which the Death Benefit as calculated on a Monthly
Activity Date exceeds the Accumulation Value on that date). Changing from Option
B to Option A will generally decrease the net amount at risk in the future, and
will therefore decrease the Cost of Insurance. Changing from Option A to Option
B will generally result in an increase in the Cost of Insurance over time
because the Cost of Insurance Rate will increase with the Insured's age, and the
net amount at risk will generally remain level. If, however, the change was from
Option B to Option A, the Cost of Insurance Rate may be different for the
increased Death Benefit. On a change from Option A to Option B, the Specified
Amount will decrease so that the Cost of Insurance Rate may be different. (See
Charges and Deductions, page 26 and Federal Tax Matters, page 33.)
CHANGE IN SPECIFIED AMOUNT. Subject to certain limitations, after the first
policy year, a Policyowner may increase or decrease the Specified Amount of a
Policy. A change in Specified Amount may affect the Cost of Insurance rate and
the net amount at risk, both of which may affect a Policyowner's Cost of
Insurance and have Federal Tax consequences. (See Charges and Deductions, page
28 and Federal Tax Matters, page 33.)
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
18 APPLAUSE! II
<PAGE>
AVLIC may limit the size of a change in a Policy Year. The Specified Amount
remaining in force after any requested decrease, for other than preferred
Insureds, may not be less than $50,000 in the first three Policy Years and
$35,000 in later Policy Years. For preferred Insureds, the Specified Amount
after decrease may not be less than $100,000. In addition, if following the
decrease in Specified Amount, the Policy would not comply with the maximum
premium limitations required by Federal Tax Law the decrease may be limited or
Accumulation Value may be returned to the Policyowner at the Policyowner's
election, to the extent necessary to meet these requirements. (See Premiums,
page 24.)
Increases in the Specified Amount will be allowed after the first Policy Year.
For an increase in the Specified Amount, a written supplemental application must
be submitted. AVLIC may also require additional evidence of insurability.
Although an increase need not necessarily be accompanied by an additional
premium, in certain cases an additional premium will be required to effect the
requested increase. (See Premiums upon Increases in Specified Amount, page 25.)
The minimum amount of any increase is $25,000, and an increase cannot be made if
the Insured's attained age is over 80. An increase in the Specified Amount will
also increase Surrender Charges. An increase in the Specified Amount during the
time the Guaranteed Death Benefit provision is in effect will increase the
respective premium requirements. (See Charges and Deductions, page 26.)
METHODS OF AFFECTING INSURANCE PROTECTION
A Policyowner may increase or decrease the pure insurance protection provided by
a Policy - the difference between the Death Benefit and the Accumulation Value -
in several ways as insurance needs change. These ways include increasing or
decreasing the Specified Amount of insurance, changing the level of premium
payments, and making a partial withdrawal of the Policy's Accumulation Value.
Certain of these changes may have Federal Tax consequences. The consequences of
each of these methods will depend upon the individual circumstances.
DURATION OF THE POLICY
The duration of the Policy generally depends upon the Accumulation Value. The
Policy will remain in force so long as the Net Cash Surrender Value is
sufficient to pay the Monthly Deduction or if the Guaranteed Death Benefit
provision is in effect. (See Charges from Accumulation Value, page 28.) Where,
however, the Net Cash Surrender Value is insufficient to pay the Monthly
Deduction and the Grace Period expires without an adequate payment by the
Policyowner, the Policy will lapse and terminate without value. (See Policy
Lapse and Reinstatement, page 25.)
ACCUMULATION VALUE
The Accumulation Value will reflect the investment performance of the chosen
Investment Options, the net premiums paid, any partial withdrawals, and the
charges assessed in connection with the Policy. A Policyowner may at any time
Surrender the Policy and receive the Policy's Net Cash Surrender Value. (See
Surrenders, page 22.) There is no guaranteed minimum Accumulation Value.
Accumulation Value is determined on each Valuation Date. On the Issue Date, the
Accumulation Value will equal the portion of any Net Premium allocated to the
Investment Options, reduced by the portion of the first Monthly Deduction
allocated to the Investment Options. (See Allocation of Premiums and
Accumulation Value, page 25.) Thereafter, on each Valuation Date, the
Accumulation Value of a Policy will equal:
(a) The aggregate of the values attributable to the Policy in each of the
Subaccounts on the Valuation Date, determined for each Subaccount by
multiplying the Subaccount's unit value by the number of Subaccount units
allocated to the Policy; plus
(b) The value of the Fixed Account; plus
(c) Any Accumulation Value impaired by Outstanding Policy Debt held in the
General Account; plus
(d) Any Net Premiums received on that Valuation Date; plus
(e) Any amounts credited as Net Cash Surrender Value Bonus; less
(f) Any partial withdrawal, and its charge, made on that Valuation Date; less
(g) Any Monthly Deduction to be made on that Valuation Date; less
(h) Any federal or state income taxes charged against the Accumulation Value.
APPLAUSE! II 19
<PAGE>
In computing the Policy's Accumulation Value, the number of Subaccount units
allocated to the Policy is determined after any transfers among Investment
Options (and deduction of transfer charges) but before any other Policy
transactions, such as receipt of Net Premiums and partial withdrawals, on the
Valuation Date. Because the Accumulation Value is dependent upon a number of
variables, a Policy's Accumulation Value cannot be predetermined.
NET CASH SURRENDER VALUE BONUS
Beginning with the twenty-first Policy Anniversary, a bonus equal to .25% of the
Net Cash Surrender Value will be credited to the Fixed Account and/or the
Subaccounts on each policy anniversary, provided that the Net Cash Surrender
Value of the Policy on the Policy Anniversary is at least $500,000. This bonus
is not guaranteed. The bonus will be credited to the Fixed Account and/or the
Subaccounts based on the premium allocation percentages in effect at that time.
THE UNIT VALUE. The unit value of each Subaccount reflects the investment
performance of that Subaccount. The unit value of each Subaccount shall be
calculated by (i) multiplying the per share net asset value of the corresponding
Fund portfolio on the Valuation Date times the number of shares held by the
Subaccount, before the purchase or redemption of any shares on that Valuation
Date; minus (ii) a charge not exceeding an annual rate of .90% for mortality and
expense risk; minus (iii) a charge not exceeding an annual rate of .35% for
administrative service expenses; and (iv) dividing the result by the total
number of units held in the Subaccount on the Valuation Date, before the
purchase or redemption of any units on that Valuation Date. (See Daily Charges
Against the Separate Account, page 28.)
VALUATION DATE AND VALUATION PERIOD. A Valuation Date is each day on which the
New York Stock Exchange ("NYSE") is open for trading. A Valuation Period is the
period between two successive Valuation Dates, commencing at the close of the
NYSE on each Valuation Date and ending at the close of the NYSE on the next
succeeding Valuation Date.
BENEFITS AT MATURITY
If the Insured is living, AVLIC will pay the Accumulation Value of the Policy,
less Outstanding Policy Debt ("Maturity Benefits") on the Maturity Date to the
Policyowner. The Policy will mature on the Policy Anniversary Date nearest the
Insured's 100th birthday, if living, unless the maturity has been extended by
election of the Extended Maturity Option. The Extended Maturity Option, if
elected, has the effect of continuing the Policy in force for purposes of
providing a benefit at the time of the Insured's death. The Death Benefit will
be the Accumulation Value. The Extended Maturity Option does not, however,
extend the Maturity Date for purposes of determining benefits under any other
option or rider. Once the Extended Maturity Option becomes effective, no further
premium payments will be accepted and no deduction will be made for Cost of
Insurance or riders. As long as the policy continues in force, all other policy
provisions will remain in effect. Interest on policy loans will continue to
accrue and become part of the Outstanding Policy Debt.
There is no extra premium for the Extended Maturity Option, but it must be
elected by submitting a written request to AVLIC during the 90 days prior to
Maturity Date. The Extended Maturity Option is not available in all states.
Further, the Internal Revenue Service has not issued a ruling regarding its tax
consequences.
PAYMENT OF POLICY BENEFITS
Death Benefit Proceeds under the Policy will usually be paid within seven days
after AVLIC receives Satisfactory Proof of Death. Maturity Benefits will
ordinarily be paid within seven days of receipt of a written request. Payments
may be postponed in certain circumstances. (See Postponement of Payments, page
32.) The Policyowner may decide the form in which Death Benefit Proceeds or
Maturity Benefits will be paid. During the Insured's lifetime, the Policyowner
may arrange for the Death Benefit Proceeds to be paid in a lump sum or under one
or more of the optional methods of payment described below. Changes must be in
writing and will revoke all prior elections. If no election is made, AVLIC will
pay Death Benefit Proceeds or Accumulation Value Benefit in a lump sum. When
Death Benefit Proceeds are payable in a lump sum and no election for an optional
method of payment is in force at the death of the Insured, the Beneficiary may
select one or more of the optional methods of payment. Further, if the Policy is
assigned, any amounts due to the assignee will first be paid in one sum. The
balance, if any, may be applied under any payment option. Once payments have
begun, the payment option may not be changed.
PAYMENT OPTIONS FOR DEATH BENEFIT PROCEEDS OR MATURITY BENEFITS ("POLICY
PROCEEDS"). The minimum amount of each payment is $100. If a payment would be
less than $100, AVLIC has the right to make payments less often so that the
amount of each payment is at least $100. Once a payment option is in effect,
Policy Proceeds will be transferred to AVLIC's General Account. AVLIC may make
other payment options available in the future. For additional information
concerning these options, see the Policy itself. The following payment options
are currently available:
OPTION AI--INTEREST PAYMENT OPTION. AVLIC will hold any amount applied under
this option. Interest on the unpaid balance will be paid or credited each month
at a rate determined by AVLIC.
20 APPLAUSE! II
<PAGE>
OPTION AII--FIXED AMOUNT PAYABLE OPTION. Each payment will be for an agreed
fixed amount. Payments continue until the amount AVLIC holds runs out.
OPTION B--FIXED PERIOD PAYMENT OPTION. Equal payments will be made for any
period selected up to 20 years.
OPTION C--LIFETIME PAYMENT OPTION. Equal monthly payments are based on the life
of a named person. Payments will continue for the lifetime of that person.
Variations provide for guaranteed payments for a period of time.
OPTION D--JOINT LIFETIME PAYMENT OPTION. Equal monthly payments are based on the
lives of two named persons. While both are living, one payment will be made each
month. When one dies, the same payment will continue for the lifetime of the
other.
As an alternative to the above payment options, Death Benefits Proceeds or
Maturity Benefits may be paid in any other manner approved by AVLIC. Further,
one of AVLIC's affiliates may make payments under the above payment options. If
an affiliate makes the payment, it will do so according to the request of the
Policyowner using the rules set out above.
POLICY RIGHTS
LOAN BENEFITS
LOAN PRIVILEGES. After the first Policy Anniversary Date, the Policyowner may
borrow an amount up to the current Net Cash Surrender Value less twelve times
the most recent Monthly Deduction, at regular or, as described below, reduced
loan rates. Loans usually are funded within seven days after receipt of a
written request. The loan may be repaid at any time while the Insured is living,
prior to the Maturity Date. Policyowners in certain states may borrow 100% of
the Net Cash Surrender Value after deducting Monthly Deductions and any interest
on policy loans that will be due for the remainder of the Policy Year. Loans may
have a tax consequence. (See Federal Tax Matters, page 33.)
INTEREST. AVLIC charges interest to Policyowners at regular and reduced rates.
Regular loans will accrue interest on a daily basis at a rate of up to 6% per
year; currently the interest rate on regular policy loans is 5.5%. After the
tenth Policy Anniversary Date, the Policyowner may borrow each year a limited
amount of the Net Cash Surrender Value of the Policy at a reduced interest rate.
Interest will accrue on a daily basis at a rate of up to 4% per year; the
current reduced loan rate is 3.5%. The amount available at the reduced loan rate
is 10% of the Net Cash Surrender Value as of the most recent Policy Anniversary
Date, plus any loan previously made at a reduced loan rate. If unpaid when due,
interest will be added to the amount of the loan and bear interest at the same
rate. The Policyowner earns 3.5% interest on the Accumulation Values securing
the loans.
EFFECT OF POLICY LOANS. When a loan is made, Accumulation Value equal to the
amount of the loan will be transferred from the Investment Options to the
General Account as security for the indebtedness. The Accumulation Value
transferred will be allocated from the Investment Options in accordance with the
instructions given when the loan is requested. The minimum amount which can
remain in a Subaccount or the Fixed Account as a result of a loan is $100. If no
instructions are given the amounts will be withdrawn in proportion to the
various Accumulation Values in the Investment Options. If loan interest is not
paid when due in any Policy Year, on the Policy Anniversary thereafter, AVLIC
will add the interest due to the principal amount of the Policy loan. This loan
interest due will be transferred from the Investment Options as set out above.
No charge will be imposed for these transfers. A policy loan will permanently
affect the Accumulation Value and may permanently affect the amount of the Death
Benefits, even if the loan is repaid. Policy loans will also affect Net Policy
Funding for determining whether the Guaranteed Death Benefit provision is met.
Interest earned on amounts held in the General Account will be allocated to the
Investment Options on each Policy Anniversary in the same proportion that Net
Premiums are being allocated to those Investment Options at the time. Upon
repayment of indebtedness, the portion of the repayment allocated in accordance
with the repayment of indebtedness provision (see below) will be transferred to
increase the Accumulation Value in that Investment Option.
OUTSTANDING POLICY DEBT. The Outstanding Policy Debt equals the total of all
policy loans and accrued interest on policy loans. If the Outstanding Policy
Debt exceeds the Accumulation Value less any Surrender Charge and any Accrued
Expense Charges, the Policyowner must pay the excess. AVLIC will send a notice
of the amount which must be paid. If the Policyowner does not make the required
payment within the 61 days after AVLIC sends the notice, the Policy will
terminate without value ("lapse"). Should the policy lapse while policy loans
are outstanding, the portion of the loans attributable to earnings will become
taxable. A Policyowner may lower the risk of a Policy lapsing while loans are
outstanding as a result of a reduction in the market value of investments in the
Subaccounts by investing in a diversified group of lower risk
APPLAUSE! II 21
<PAGE>
investment portfolios and/or transferring the funds to the Fixed Account and
receiving a guaranteed rate of return. Should a substantial reduction be
experienced, the Policyowner may need to lower anticipated withdrawals and
loans, repay loans, make additional premium payments, or take other action to
avoid policy lapse. A lapsed Policy may later be reinstated. (See Policy Lapse
and Reinstatement, page 25.)
REPAYMENT OF INDEBTEDNESS. Unscheduled premiums paid while a policy loan is
outstanding are treated as repayment of indebtedness only if the Policyowner so
requests. As indebtedness is repaid, the Accumulation Value in the General
Account securing the indebtedness repaid will be allocated among the Subaccounts
and the Fixed Account in the same proportion that Net Premiums are being
allocated at the time of repayment.
SURRENDERS
At any time during the lifetime of the Insured and prior to the Maturity Date,
the Policyowner may partially withdraw a portion of the Accumulation Value or
Surrender the Policy by sending a written request to AVLIC. The amount available
for Surrender is the Net Cash Surrender Value at the end of the Valuation Period
during which the Surrender request is received at AVLIC's Home Office.
Surrenders will generally be paid within seven days of receipt of the written
request. (See Postponement of Payments, page 32.) Surrenders may have tax
consequences. Once a policy is Surrendered, it may not be reinstated. (See Tax
Treatment of Policy Proceeds, page 35.)
If the Policy is being Surrendered in its entirety, the Policy itself must be
returned to AVLIC along with the request. AVLIC will pay the Net Cash Surrender
Value. Coverage under the Policy will terminate as of the date of a total
Surrender. A Policyowner may elect to have the amount paid in a lump sum or
under a payment option. (See Payment Options, page 20.)
PARTIAL WITHDRAWALS
Partial withdrawals are irrevocable. The amount of a partial withdrawal may not
be less than $500. The Net Cash Surrender Value after a partial withdrawal must
be at least $1,000 or an amount sufficient to maintain the Policy in force for
the remainder of the Policy Year.
The amount paid will be deducted from the Investment Options according to the
instructions of the Policyowner when the withdrawal is requested, provided that
the minimum amount remaining in a Subaccount as a result of the allocation is
$100. If no instructions are given, the amounts will be withdrawn in proportion
to the various Accumulation Values in the Investment Options.
The Death Benefit will be reduced by the amount of any partial withdrawal and
may affect the way in which the cost of insurance charge is calculated and the
amount of pure insurance protection under the Policy. (See Monthly Deduction -
Cost of Insurance, page 28 and Death Benefit Options-Methods of Affecting
Insurance Protection, page 17.) If Option B is in effect, the Specified Amount
will not change, but the Accumulation Value will be reduced.
The Specified Amount remaining in force after a partial withdrawal may not be
less than $50,000 in the first three Policy Years, and $35,000 thereafter. The
Specified Amount remaining in force after a partial withdrawal for preferred
Insureds may not be less than $100,000. Any request for a partial withdrawal
that would reduce the Specified Amount below this amount will not be
implemented. A fee not to exceed the lesser of $50 or 2% of the amount withdrawn
is deducted from the Accumulation Value. Currently, the charge is the lesser of
$25 or 2% of the amount withdrawn. (See Partial Withdrawal Charge, page 28.)
Partial withdrawals will also affect Net Policy Funding for determining whether
the Guaranteed Death Benefit provision is met.
TRANSFERS
Accumulation Value may be transferred among the Subaccounts of the Separate
Account and to the Fixed Account as often as desired. Transfers out of the Fixed
Account may only be made during the 30 day period following the Policy
Anniversary Date, as noted below. The transfers may be ordered in person, by
mail or by telephone. The total amount transferred each time must be at least
$250, or the balance of the Subaccount, if less. The minimum amount that may
remain in a Subaccount or the Fixed Account after a transfer is $100. The first
fifteen transfers per Policy Year will be permitted free of charge. Thereafter,
a transfer charge of $10 may be imposed each additional time amounts are
transferred and will be deducted from the Accumulation Value on a prorata basis.
(See Transfer Charge, page 28.) Additional restrictions on transfers may be
imposed at the fund level. Specifically, fund managers may have the right to
refuse sales, or suspend or terminate the offering of portfolio shares, if they
determine that such action is necessary in the best interests of the portfolio's
shareholders. If a fund manager refuses a transfer for any reason, the transfer
will not be allowed. AVLIC will not be able to process the transfer if the fund
manager refuses. Transfers resulting from policy loans or exercise of the
exchange privilege will not be subject to a transfer charge and will not be
counted towards the fifteen free transfers per policy year.
22 APPLAUSE! II
<PAGE>
Transfers out of the Fixed Account, unless part of the dollar cost averaging
systematic program described below, may be made only during the 30 day period
following the Policy Anniversary Date in any Policy Year. However, transfers out
of the Fixed Account are limited to the greater of (i) 25% of the Fixed Account
attributable to the Policy; (ii) the largest transfer made by the Policyowner
out of the Fixed Account during the last 13 months; or (iii) $1,000. This
provision is not available while dollar cost averaging from the Fixed Account.
The privilege to initiate transactions by telephone will be made available to
Policyowners automatically. The registered representative designated on the
application will have the authority to initiate telephone transfers.
Policyowners who do not wish to authorize AVLIC to accept telephone transactions
from their registered representative must so specify on the application. AVLIC
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if it does not, AVLIC may be liable for any losses
due to unauthorized or fraudulent instructions. The procedures AVLIC follows for
transactions initiated by telephone include, but are not limited to, requiring
the Policyowner to provide the policy number at the time of giving transfer
instructions; AVLIC's tape recording of all telephone transfer instructions; and
the provision, by AVLIC, of written confirmation of telephone transactions.
SYSTEMATIC PROGRAMS
AVLIC may offer systematic programs as discussed below. These programs will be
subject to administrative guidelines established by AVLIC from time to time.
Transfers of Accumulation Value made pursuant to these programs will be counted
in determining whether the transfer fee applies. Lower minimum amounts may be
allowed to transfer as part of a systematic program. No other separate fee is
assessed when one of these options is chosen. All other normal transfer
restrictions, as described above, also apply.
PORTFOLIO REBALANCING. Under the Portfolio Rebalancing program, the Policyowner
can instruct AVLIC to reallocate Accumulation Value among the Subaccounts (but
not the Fixed Account) on a systematic basis, in accordance with allocation
instructions specified by the Policyowner.
DOLLAR COST AVERAGING. Under the Dollar Cost Averaging program, the Policyowner
can instruct AVLIC to automatically transfer, on a systematic basis, a
predetermined amount or percentage specified by the Policyowner from the Fixed
Account or the Money Market Subaccount to any other Subaccount(s). Dollar cost
averaging is permitted from the Fixed Account, if no more than 1/36th of the
value of the Fixed Account at the time dollar cost averaging is established is
transferred each month.
EARNINGS SWEEP. Permits systematic redistribution of earnings among Investment
Options.
The Policyowner can request participation in the available programs when
purchasing the Policy or at a later date. The Policyowner can change the
allocation percentage or discontinue any program by sending written notice or
calling the Home Office. Other scheduled programs may be made available. AVLIC
reserves the right to modify, suspend or terminate such programs at any time.
Use of Systematic Programs may not be advantageous, and does not guarantee
success.
FREE-LOOK PRIVILEGE
The Policyowner may cancel the Policy within 10 days after the Policyowner
receives it, within 10 days after AVLIC delivers a notice of the Policyowner's
right of cancellation, or within 45 days of completing Part I of the
application, whichever is later. The amount of the refund is the sum of all
charges deducted from premiums paid, plus the net premiums allocated to the
Investment Options adjusted by investment gains and losses, if allowed by state
law. Otherwise, the amount of the refund will equal the gross premiums paid. To
cancel the Policy, the Policyowner should mail or deliver it to the selling
agent, or 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 32.)
EXCHANGE PRIVILEGE
During the first 24 Policy Months after the Policy Date of the Policy, the
Policyowner may exchange the Policy for a flexible premium adjustable life
insurance policy approved for exchange and issued by AVLIC or an affiliate. No
new evidence of insurability will be required.
The Policy Date, Issue Age and rate class for the Insured will be the same under
the new Policy as under the old. In addition, the policy provisions and
applicable charges for the new Policy and its riders will be based on the same
Policy Date and Issue Age as under the Policy. Accumulation values for the
exchange and payments will be established after making adjustments for
investment gains or losses and after recognizing variance, if any, between
payment or charges, dividends or Accumulation
APPLAUSE! II 23
<PAGE>
Values under the flexible contract and under the new Policy. The Policyowner may
elect either the same Specified Amount or the same net amount at risk for the
new Policy as under the old.
To make the change, the Policy, a completed application for exchange and any
required payment must be received by AVLIC. The exchange will be effective on
the valuation date when all financial and contractual arrangements for the new
Policy have been completed.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and submit
it to AVLIC's Home Office (5900 "O" Street, P.O. Box 82550, Lincoln, Nebraska
68501). A Policy will generally be issued only to individuals 80 years of age or
less on their nearest birthday who supply satisfactory evidence of insurability
to AVLIC. Acceptance is subject to AVLIC's underwriting rules, and AVLIC
reserves the right to reject an application for any reason.
The Policy Date is the effective date of coverage for all coverage applied for
in the original application. The Policy Date is used to determine Policy
Anniversary Dates, Policy Years and Policy Months. The Issue Date is the date
that all financial, contractual and administrative requirements have been met
and processed for the Policy. The Policy Date and the Issue Date will be the
same unless: 1) an earlier Policy Date is specifically requested, or 2) when
additional premiums or application amendments are needed. When there are
additional requirements before issue (see below) the Policy Date will be when it
is sent for delivery and the Issue Date will be the date the requirements are
met.
When all required premiums and application amendments have been received by
AVLIC in its Home Office, the Issue Date will be the date the Policy is mailed
to the Policyowner or sent to the agent for delivery to the Policyowner. When
application amendments or additional premiums need to be obtained upon delivery
of the Policy, the Issue Date will be when the Policy receipt, Federal Funds
(monies of member banks within the Federal Reserve System which are held on
deposit at a Federal Reserve Bank) are received and available to AVLIC, and the
application amendments are received and reviewed in AVLIC's Home Office. On the
Issue Date, the initial premium payment will be allocated to the Money Market
Subaccount for 13 days. After the expiration of the 13-day period, the
Accumulation Value will be reallocated to the Investment Options as selected by
the Policyowner.
Subject to approval, a Policy may be backdated, but the Policy Date may not be
more than six months prior to the date of the application. Backdating can be
advantageous if the Insured's lower Issue Age results in lower cost of insurance
rates. If a Policy is backdated, the minimum initial premium required will
include sufficient premium to cover the backdating period. Monthly deductions
will be made for the period the Policy Date is backdated.
Interim conditional insurance coverage may be issued prior to the Policy Date,
provided that certain conditions are met, upon the completion of an application
and the payment of the required premium at the time of the application. The
amount of the interim coverage is limited to the smaller of (a) the amount of
insurance applied for, (b) $100,000, or (c) $25,000 if the proposed Insured is
under age 10 or over age 60 at his nearest birthday.
PREMIUMS
No insurance will take effect before the initial premium payment is received by
AVLIC in Federal Funds. The initial premium payment must be at least 1/12 of the
first year Guaranteed Death Benefit Premium times the number of months between
the Policy Date and the Issue Date, plus one. Subsequent premiums are payable at
AVLIC's Home Office. A Policyowner has flexibility in determining the frequency
and amount of premiums. However, unless the Policyowner has paid sufficient
premiums to pay the Monthly Deduction and Percent of Premium Charges, the Policy
may have a zero Net Cash Surrender Value and lapse. AVLIC agrees to keep the
Policy in force during the Guaranteed Death Benefit Period and provide a
Guaranteed Death Benefit so long as Net Policy Funding is equal to or greater
than the cumulative monthly pro rata Guaranteed Death Benefit Premium. In
certain instances, this Net Policy Funding will not, after the payment of
Monthly Deductions, generate positive Net Cash Surrender Values.
PLANNED PERIODIC PREMIUMS. At the time the Policy is issued each Policyowner may
determine a Planned Periodic Premium schedule that provides for the payment of
level premiums at selected intervals. The Planned Periodic Premium schedule may
include the Guaranteed Death Benefit Premium. The Policyowner is not required to
pay premiums in accordance with this schedule. The Policyowner has considerable
flexibility to alter the amount and frequency of premiums paid. AVLIC does
reserve the right to limit the number and amount of additional or unscheduled
premium payments.
24 APPLAUSE! II
<PAGE>
Policyowners can also change the frequency and amount of Planned Periodic
Premiums by sending a written request to the Home Office, although AVLIC
reserves the right to limit any increase. Premium payment notices will be sent
annually, semi-annually or quarterly, depending upon the frequency of the
Planned Periodic Premiums. Payment of the Planned Periodic Premiums does not
guarantee that the Policy remains in force unless the Guaranteed Death Benefit
provision is in effect. Instead, the duration of the Policy depends upon the
Policy's Net Cash Surrender Value. (See Duration of the Policy, page 19.) Unless
the Guaranteed Death Benefit provision is in effect, even if Planned Periodic
Premiums are paid by the Policyowner, the Policy will lapse any time the Net
Cash Surrender Value is insufficient to pay the Monthly Deduction, and the Grace
Period expires without a sufficient payment. (See Policy Lapse and
Reinstatement, page 25.)
PREMIUM LIMITATIONS. AVLIC's current minimum limitation is $45, $15 if paid by
automatic bank draft. AVLIC currently has no maximum limitation, other than the
current maximum premium limitations established by federal tax laws. AVLIC
reserves the right to change any limitation. In no event may the total of all
premiums paid, both planned and unscheduled, exceed the current maximum premium
limitations established by federal tax laws. (See Tax Status of the Policy, page
34.)
If at any time a premium is paid which would result in total premiums exceeding
the current maximum premium limitation, AVLIC will only accept that portion of
the premium which will make total premiums equal the maximum. Any part of the
premium in excess of that amount will be returned or applied as otherwise agreed
and no further premiums will be accepted until allowed by the current maximum
premium limitations prescribed by law. AVLIC may require additional evidence of
insurability if any premium payment would result in an increase in the Policy's
net amount at risk on the date the premium is received.
PREMIUMS UPON INCREASES IN SPECIFIED AMOUNT. Depending upon the Accumulation
Value of the Policy at the time of an increase in the Specified Amount of the
Policy and the amount of the increase requested by the Policyowner, an
additional premium payment may be required. AVLIC will notify the Policyowner of
any premium required to fund the increase, which premium must be made in a
single payment. The Accumulation Value of the Policy will be immediately
increased by the amount of the payment, less the applicable Percent of Premium
Charge.
ALLOCATION OF PREMIUMS AND ACCUMULATION VALUE
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the Policyowner
allocates Net Premiums to one or more Subaccounts and/or to the Fixed Account.
Allocations must be whole number percentages and must total 100%. The allocation
of future Net Premiums may be changed without charge by providing proper
notification to the Home Office. If there is any Outstanding Policy Debt at the
time of a payment, AVLIC will treat the payment as a premium payment unless
otherwise instructed in proper written notice.
On the Issue Date, the initial premium payment will be allocated to the Money
Market Subaccount for 13 days. Thereafter, the Accumulation Value will be
reallocated to the Investment Options as selected by the Policyowner. Premium
payments received by AVLIC prior to the Issue Date are held in the General
Account until the Issue Date and are credited with interest at a rate determined
by AVLIC for the period from the date the payment has been converted into
Federal Funds and is available to AVLIC. In no event will interest be credited
prior to the Policy Date.
The Accumulation Value of the Subaccounts will vary with the investment
performance of these Subaccounts and the Policyowner bears the entire investment
risk. This will affect the Policy's Accumulation Value, and may affect the Death
Benefit as well. Policyowners should periodically review their allocations of
premiums and values in light of market conditions and overall financial planning
requirements.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make a
Planned Periodic Premium payment will not itself cause the Policy to lapse.
Lapse will occur when the Net Cash Surrender Value is insufficient to cover the
Monthly Deduction and a Grace Period expires without a sufficient payment unless
the Guaranteed Death Benefit provision is in effect. The Grace Period is 61 days
from the date AVLIC mails a notice that the grace period has begun. AVLIC will
notify the Policyowner at the beginning of the Grace Period by mail addressed to
the last known address on file with AVLIC.
The notice will specify the premium required to keep the Policy in force. The
required premium will be equal to the greater of the amount necessary to cover
the Monthly Deductions and Percent of Premium Charges for the three Policy
Months after commencement of the Grace Period, or the amount necessary to raise
the Net Cash Surrender Value as of the date of reinstatement above zero. Failure
to pay the required premium within the Grace Period will result in lapse of the
Policy. If the Insured dies during the Grace Period, any overdue Monthly
Deductions and Outstanding Policy Debt will be deducted from the Death Benefit
Proceeds. (See Charges and Deductions, page 26.)
APPLAUSE! II 25
<PAGE>
REINSTATEMENT. A lapsed Policy may be reinstated any time within three years
(five years in Missouri) after the beginning of the Grace Period, but before the
Maturity Date. Reinstatement will be effected based on the Insured's rating
class at the time of the reinstatement.
Reinstatement is subject to the following:
a. Evidence of insurability of the Insured satisfactory to AVLIC (including
evidence of insurability of any person covered by a rider to reinstate the
rider);
b. Any Outstanding Policy Debt on the date of lapse will be reinstated with
interest due and accrued;
c. The Policy cannot be reinstated if it has been Surrendered for its full Net
Cash Surrender Value;
d. The minimum premium required at reinstatement is the greater of:
(1) the amount necessary to raise the Net Cash Surrender Value as of the
date of reinstatement to equal to or greater than zero; or
(2) three times the current Monthly Deduction.
The amount of Accumulation Value on the date of reinstatement will be equal to
the amount of the Net Cash Surrender Value on the date of lapse, increased by
the premium paid at reinstatement, less the Percent of Premium Charges and the
amounts stated above, plus that part of the Contingent Deferred Sales Charge and
Contingent Deferred Administrative Charge that would apply if the Policy were
Surrendered on the date of reinstatement. The last addition to the Accumulation
Value is designed to avoid duplicate Surrender Charges. The original Policy
Date, and the dates of increases in the Specified Amount (if applicable), will
be used for purposes of calculating the Surrender Charge. If any Outstanding
Policy Debt was reinstated, that debt will be held in AVLIC's General Account.
Accumulation Value calculations will then proceed as described under
"Accumulation Value" on page 19.
The effective date of reinstatement will be the first Monthly Activity Date on
or next following the date of approval by AVLIC of the application for
reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate AVLIC for:
(1) providing the insurance benefits set forth in the Policy and any optional
insurance benefits added by rider; (2) administering the Policy and payment of
applicable taxes; (3) assuming certain risks in connection with the Policy; and
(4) incurring expenses in distributing the Policy. The nature and amount of
these charges are described more fully below.
DEDUCTIONS FROM PREMIUM PAYMENTs
SALES CHARGE. A front-end sales load will be deducted from each premium payment
upon receipt and prior to allocation of Net Premium to any Investment Option.
AVLIC is authorized to deduct such a sales charge of up to 2.5% of the amount of
each premium; currently, no such sales charge is being applied. The Policy is
also subject to a Contingent Deferred Sales Charge, which is part of the
Surrender Charge. (See "Surrender Charge" on page 27.)
The sales charges applied in any Policy Year are not necessarily related to
actual distribution expenses incurred in that year. Instead, AVLIC expects to
incur the majority of distribution expenses in the early Policy Years and to
recover amounts to pay such expenses over the life of the Policy. To the extent
that sales and distribution expenses exceed sales charges in any year, AVLIC
will pay such expenses from its other assets or surplus in its General Account,
including amounts derived from mortality and expense risk charges, and other
charges made under the Policy. AVLIC believes that this distribution financing
arrangement will benefit the Separate Account and the Policyowners.
PREMIUM CHARGE FOR TAXES. A deduction of up to 5% of the premium is made from
each premium payment to pay applicable taxes; currently the charge is 3.5%. The
deduction represents an amount AVLIC considers necessary to pay all premium
taxes imposed by the states and their subdivisions, and to defray the tax cost
due to capitalizing certain policy acquisition expenses as required under
applicable Federal tax laws. (See Federal Tax Matters page 33.) AVLIC does not
expect to derive a profit from the Premium Charge for Taxes.
CHARGES FROM ACCUMULATION VALUE
MONTHLY DEDUCTION. Charges will be deducted as of the Policy Date and on each
Monthly Activity Date thereafter from the Accumulation Value of the Policy to
compensate AVLIC for administrative expenses and insurance provided. These
charges
26 APPLAUSE! II
<PAGE>
will be allocated among the Subaccounts, and the Fixed Account on a pro rata
basis. Each of these charges is described in more detail below.
ADMINISTRATIVE EXPENSE CHARGE. To compensate AVLIC for the ordinary
administrative expenses expected to be incurred in connection with a Policy, the
Monthly Deduction includes a $9.00 per policy charge (currently $9.00 the first
year and $4.50 during each year thereafter.) The Administrative Expense Charge
is levied throughout the life of the Policy and is guaranteed not to increase
above $9.00 per month. AVLIC does not expect to make any profit from the
Administrative Expense Charge.
COST OF INSURANCE. Because the Cost of Insurance depends upon several variables,
the cost for each Policy Month can vary from month to month. AVLIC will
determine the monthly Cost of Insurance by multiplying the applicable Cost of
Insurance Rate by the net amount at risk for each Policy Month. The net amount
at risk on any Monthly Activity Date is based on the amount by which the Death
Benefit which would have been payable on that Monthly Activity Date exceeds the
Accumulation Value on that date.
COST OF INSURANCE RATE. The Annual Cost of Insurance Rate is based on the
Insured's sex, Issue Age, policy duration, Specified Amount, and rating class.
The rate will vary depending upon tobacco use and other risk factors. For the
initial Specified Amount, the Cost of Insurance Rate will not exceed those shown
in the Schedule of Guaranteed Annual Cost of Insurance Rates shown in the
schedule pages of the Policy. These guaranteed rates are based on the Insured's
Attained Age and are equal to the 1980 Insurance Commissioners Standard Ordinary
Smoker and Non-Smoker, Male and Female Mortality Tables. The current rates range
between 40% and 100% of the rates based on the 1980 Commissioners Standard
Ordinary Tables, based on AVLIC's own mortality experience. Policies issued on a
unisex basis are based upon the 1980 Insurance Commissioners Standard Ordinary
Table B assuming 80% male and 20% female lives. The Cost of Insurance Rates,
Surrender Charges, and payment options for policies issued in Montana and
certain other states are on a sex-neutral (unisex) basis. Any change in the Cost
of Insurance Rates will apply to all persons of the same age, sex, Specified
Amount and rating class and whose policies have been in effect for the same
length of time.
If the rating class for any increase in the Specified Amount is not the same as
the rating class at issue, the Cost of Insurance Rate used after such increase
will be a composite rate based upon a weighted average of the rates of the
different rating classes. Decreases may be reflected in the Cost of Insurance
Rate as discussed earlier.
The actual charges made during the Policy Year will be shown in the annual
report delivered to Policyowners.
RATING CLASS. The rating class of an Insured will affect the Cost of Insurance
Rate. AVLIC currently places Insureds into both standard rating classes and
substandard rating classes that involve a higher mortality risk. In an otherwise
identical policy, an Insured in the standard rating class will have a lower Cost
of Insurance Rate than an Insured in a rating class with higher mortality risks.
If, when issued, a Policy is rated with a tabular extra rating, the guaranteed
rate is a multiple of the guaranteed rate for a standard issue. This multiple
factor is shown in the Schedule of Benefits in the Policy, and may be from 1.18
to 4 times the guaranteed rate for a standard issue.
Insureds may also be assigned a Flat Extra Rating Charge if appropriate to
reflect certain additional risks. The Flat Extra Rating Charge will be added to
the Cost of Insurance Rate and thus will be deducted as part of the Monthly
Deduction on each Monthly Activity Date.
SURRENDER CHARGE
If a Policy is Surrendered prior to the 15th Policy Anniversary Date, AVLIC will
assess a Surrender Charge based upon percentages of the premiums actually paid
and a charge per $1,000 of insurance issued based upon sex, Issue Age and
tobacco use.
The total Surrender Charge on the initial Specified Amount is made up of two
parts, the Contingent Deferred Administrative Charge and Contingent Deferred
Sales Charge.
The Contingent Deferred Administrative Charge is an amount per $1,000 of
Specified Amount that varies by Issue Age, sex and tobacco use. It is 60% of the
maximum Surrender Charge not to exceed $28.80 per $1,000 of Specified Amount.
The Contingent Deferred Sales Charge will be based upon the actual premiums
received. It will be calculated as the lesser of (i) 30% of the premiums
received up to the SEC Guideline Premium, plus 10% of the premiums received in
excess of the SEC Guideline, up to an amount equal to twice the SEC Guideline
Premium, plus 9% of the premiums received in excess of the second SEC Guideline
Premium; or (ii)40% of the maximum Surrender Charge not to exceed $19.20 per
$1,000 of Specified Amount.
The Surrender Charge, if applicable, will be applied in accordance with the
following schedule. Because the Surrender Charge may be significant upon early
Surrender, prospective Policyowners should purchase a Policy only if they do not
intend to Surrender the Policy for a substantial period.
APPLAUSE! II 27
<PAGE>
<TABLE>
<CAPTION>
Policy Year Percent of Surrender Policy Year Percent of Surrender
Charge maximum that Charge maximum that will
will apply during Policy apply during Policy Year
Year
<S> <C> <C> <C>
1 100% 9 50%
2 96% 10 42%
3 92% 11 33%
4 88% 12 25%
5 83% 13 17%
6 75% 14 8%
7 67% 15+ 0%
8 58%
</TABLE>
No Surrender Charge will be assessed upon decreases in the Specified Amount of
the Policy or partial withdrawals of Accumulation Value. AVLIC will, however,
assess Surrender Charges due to increases in Specified Amount. The Contingent
Deferred Sales Charge component of the Surrender Charge on such increases will
be assessed based on the premiums allocated to the increase, at the lesser of
(i) 15% of the allocated premiums received up to the SEC Guideline Premium, plus
5% of the allocated premiums received in excess of the SEC Guideline Premium for
the increase, up to an amount equal to twice the SEC Guideline Premium for the
increase, plus 4.5% of the allocated premiums received in excess of two SEC
Guideline Premium(s) for the increase; or (ii) 40% of the maximum Surrender
Charge applicable to the increase. The Contingent Deferred Administrative Charge
component of the Surrender Charge on increases in the Specified Amount will be
assessed as noted above with respect to the initial Specified Amount. It will be
based on the Attained Age at the time of the increase and the amount of the
increase in the Specified Amount. Surrender Charges in increases in the initial
Specified Amount will be applied with respect to Surrenders within 15 years of
the date of the increase.
TRANSFER CHARGE. A transfer charge of $10 (guaranteed not to increase) may be
imposed for each additional transfer among the Investment Options after fifteen
per Policy Year to compensate AVLIC for the costs of effecting the transfer.
Since the charge reimburses AVLIC for the cost of effecting the transfer only,
AVLIC does not expect to make any profit from the transfer charge. This charge
will be deducted pro rata from each Subaccount (and, if applicable, the Fixed
Account) in which the Policyowner is invested. The transfer charge will not be
imposed on transfers that occur as a result of policy loans or the exercise of
exchange rights.
PARTIAL WITHDRAWAL CHARGE. A charge will be imposed for each partial withdrawal
to compensate AVLIC for the administrative costs in effecting the requested
payment and in making necessary calculations for any reductions in Specified
Amount which may be required by reason of the partial withdrawal. This charge is
currently the lesser of $25 or 2% of the amount withdrawn (guaranteed not to be
greater than the lesser of $50 or 2% of the amount withdrawn). No Surrender
Charge is assessed on a partial withdrawal and a partial withdrawal charge is
not assessed when a Policy is Surrendered.
DAILY CHARGES AGAINST THE SEPARATE ACCOUNT
A daily Mortality and Expense Risk Charge will be deducted from the value of the
net assets of the Separate Account to compensate AVLIC for mortality and expense
risks assumed in connection with the Policy. This daily charge from the Separate
Account is currently at the rate of 0.001229% (equivalent to an annual rate of
0.45%) for Policy Years 1-20 and at the rate of 0.000820% (equivalent to an
annual rate of 0.30%) for the years thereafter, and will not exceed .90% of the
average daily net assets of the Separate Account. The daily charge will be
deducted from the net asset value of the Separate Account, and therefore the
Subaccounts, on each Valuation Date. Where the previous day or days was not a
Valuation Date, the deduction on the Valuation Date will be the applicable daily
rate multiplied by the number of days since the last Valuation Date. No
Mortality and Expense Risk Charges will be deducted from the amounts in the
Fixed Account.
AVLIC believes that this level of charge is within the range of industry
practice for comparable flexible premium variable universal life policies. The
mortality risk assumed by AVLIC is that Insureds may live for a shorter time
than assumed, and
28 APPLAUSE! II
<PAGE>
that an aggregate amount of Death Benefits greater than that assumed accordingly
will be paid. The expense risk assumed is that expenses incurred in issuing and
administering the policies will exceed the administrative charges provided in
the policies.
An Asset Based Administrative Expense Charge will also be deducted from the
value of the net assets of the Separate Account on a daily basis. Currently,
this charge is .000956% (equivalent to .35% annually for Policy Years 1-20 and
at a rate of .000409% (equivalent to .15% annually) for each Policy Year
thereafter. The rate of this charge will never exceed .35% annually. No Asset
Based Administrative Expense Charge will be deducted from the amounts in the
Fixed Account.
FUND EXPENSE SUMMARY
In addition to the charges against the Separate Account described just above,
management fees and expenses will be assessed by Fidelity, Alger, MFS Co. and
MSAM against the amounts invested in the various portfolios. No portfolio fees
will be assessed against amounts placed in the Fixed Account.
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, 1997, 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
FIDELITY
<S> <C> <C> <C>
VIP Money Market .21% .10% .31%
VIP Equity-Income .50% .07% .57%(1)
VIP Growth .60% .07% .67%(1)
VIP High Income .59% .12% .71%
VIP Overseas .75% .15% .90%(1)
VIP II Asset Manager .55% .09% .64%(1)
VIP II Investment Grade Bond .44% .14% .58%
VIP II Asset Manager: Growth .60% .16% .76%(1)
VIP II Index 500 .24% .04% .28%(2)
VIP II Contrafund .60% .08% .68%(1)
ALGER AMERICAN (3)
Growth .75% .04% .79%
Income and Growth .625% .115% .74%
Small Capitalization .85% .04% .89%
Balanced .75% .26% 1.01%
MidCap Growth .80% .04% .84%
Leveraged AllCap .85% .15% 1.00%
MFS
Emerging Growth .75% .12%(4) .87%(5)
Utilities .75% .25%(4) 1.00%(5)
World Governments .75% .25%(4) 1.00%(5)
Research .75% .13%(4) .88%(5)
Growth With Income .75% .25%(4) 1.00%(5)
</TABLE>
APPLAUSE! II 29
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT ADVISORY AND OTHER EXPENSES TOTAL
MANAGEMENT
FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED MAY REFLECT FIGURES PRESENTED
EXPENSE REIMBURSEMENT EXPENSE REIMBURSEMENT MAY REFLECT EXPENSE
<S> <C> <C> <C>
MORGAN STANLEY
Emerging Markets Equity(6) 0% 1.75% 1.75%
Global Equity(7) 0% 1.15% 1.15%
International Magnum(7) 0% 1.15% 1.15%
Asian Equity(7) 0% 1.20% 1.20%
U.S. Real Estate(7) 0% 1.10% 1.10%
</TABLE>
(1) A portion of the brokerage commissions that certain funds pay was used
to reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Without these reductions, the total operating
expenses presented in the table would have been .58% for Equity-Income
Portfolio, .69% for Growth Portfolio, .92% for Overseas Portfolio, .65%
for Asset Manager Portfolio, .71% for Contrafund Portfolio, and .77%
for Asset Manager: 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 .27%,
.13% and .40% respectively, on an annualized basis.
(3) Fred Alger Management, Inc. ("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 .04%
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 .45% and 1.20%, respectively,
for the Utilities Series; .40% and 1.15%, respectively, for the World
Governments Series; and .35% and 1.10%, 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) For the fiscal year ended December 31, 1997 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%, 2.87% and 4.12%, respectively.
(7) 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 as follows based on the annualized
period January 2, 1997 through December 31, 1997 for Global Equity and
International Magnum portfolios. The U.S. Real Estate and Asian Equity
portfolios were based on the annualized period March 3, 1997 through
December 31, 1997. Global Equity: .80%; 1.63%; and 2.43%. International
Magnum: .80%; 1.98%; and 2.78%. U.S. Real Estate: .80%; 1.52%; and
2.32%. Asian Equity: .80%; 2.30%; and 3.10%.
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.
- ---------------
30 APPLAUSE! II
<PAGE>
AVLIC may receive administrative fees from the investment advisers of certain
Funds. AVLIC currently does not assess a separate charge against the Separate
Account or the Fixed Account for any Federal, state or local income taxes. AVLIC
may, however, make such a charge in the future if income or gains within the
Separate Account will incur any Federal, or any significant state or local
income tax liability, or if the Federal, state or local tax treatment of AVLIC
changes.
GENERAL PROVISIONS
THE CONTRACT. The Policy, the application, any supplemental applications, and
any riders, amendments or endorsements make up the entire contract. Only the
President, Vice President, Secretary or Assistant Secretary can modify the
Policy. Any changes must be made in writing, and approved by AVLIC. No agent has
the authority to alter or modify any of the terms, conditions or agreements of
the Policy or to waive any of its provisions. The rights and benefits under the
Policy are summarized in this prospectus; however prospectus disclosure
regarding the policy is qualified in its entirety by the policy itself, a copy
of which is available upon request from AVLIC.
CONTROL OF POLICY. The Policyowner is as shown in the application or subsequent
written endorsement. Subject to the rights of any irrevocable beneficiary and
any assignee of record, all rights, options, and privileges belong to the
Policyowner, if living; otherwise to any successor-owner or owners, if living;
otherwise to the estate of the last owner to die.
BENEFICIARY. Policyowners may name both primary and contingent Beneficiaries in
the application. Payments will be shared equally among beneficiaries of the same
class unless otherwise stated. If a Beneficiary dies before the Insured,
payments will be made to any surviving beneficiaries of the same class;
otherwise to any Beneficiary(ies) of the next class; otherwise to the
Policyowner; otherwise to the estate of the Policyowner.
CHANGE OF BENEFICIARY The Policyowner may change the Beneficiary by written
request at any time during the Insured's lifetime unless otherwise provided in
the previous designation of Beneficiary. The change will take effect as of the
date the change is recorded at the Home Office. AVLIC will not be liable for any
payment made or action taken before the change is recorded.
CHANGE OF OWNER OR ASSIGNMENT. In order to change the owner of the Policy or
assign Policy rights, an assignment of the Policy must be made in writing and
filed with AVLIC at its Home Office. Any such assignment is subject to
Outstanding Policy Debt. The change will take effect as of the date the change
is recorded at the Home Office, and AVLIC will not be liable for any payment
made or action taken before the change is recorded. Payment of Death Benefit
Proceeds is subject to the rights of any assignee of record. A collateral
assignment is not a change of ownership.
PAYMENT OF PROCEEDS. The Death Benefit Proceeds are subject first to any
indebtedness to AVLIC and then to the interest of any assignee of record. The
balance of any Death Benefit Proceeds shall be paid in one sum to the designated
beneficiary unless an Optional Method of Payment is selected. If no beneficiary
survives the Insured, the Death Benefit Proceeds shall be paid in one sum to the
Policyowner, if living; otherwise to any successor-owner, if living; otherwise
to the Policyowner's estate. Any Death Benefit Proceeds payable on the Maturity
Date or upon Surrender shall be paid in one sum unless an Optional Method of
Payment is elected.
INCONTESTABILITY. The Policy or reinstated Policy is incontestable after it has
been in force for two years from the Policy Date (or reinstatement effective
date) during the lifetime of the Insured. An increase in the Specified Amount or
addition of a rider after the Policy Date shall be incontestable after such
increase or addition has been in force for two years from its effective date
during the lifetime of the Insured. However, this two year provision shall not
apply to riders with their own contestability provision.
MISSTATEMENT OF AGE AND SEX. If the age or sex of the Insured or any person
insured by rider has been misstated, the amount of the Death Benefit and any
added riders provided will those that would be purchased by the most recent
deduction for the Cost of Insurance and the cost of any additional riders at the
Insured's correct age or sex. The Death Benefit Proceeds will be adjusted
correspondingly.
SUICIDE. Suicide within two years of the Policy Date is not covered by the
Policy unless otherwise provided by a state's Insurance law. If the Insured,
while sane or insane, commits suicide within two years after the Policy Date,
AVLIC will pay only the premiums received less any partial withdrawals, the cost
for riders and any outstanding policy debt. If the Insured,
APPLAUSE! II 31
<PAGE>
while sane or insane, commits suicide within two years after the effective date
of any increase in the Specified Amount, AVLIC's liability with respect to such
increase will only be its total cost of insurance applicable to the increase.
The laws of Missouri provide that death by suicide at any time is covered by the
Policy, and further that suicide by an insane person may be considered an
accidental death.
POSTPONEMENT OF PAYMENTS. Payment of any amount upon Surrender, partial
withdrawal, policy loans, benefits payable at death or maturity, and transfers
may be postponed whenever: (i) the New York Stock Exchange is closed other than
customary weekend and holiday closings, or trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission;
(ii) the Commission by order permits postponement for the protection of
Policyowners; (iii) an emergency exists, as determined by the Commission, as a
result of which disposal of securities is not reasonably practicable or it is
not reasonably practicable to determine the value of the Separate Account's net
assets; or (iv) Surrenders, loans or partial withdrawals from the Fixed Account
may be deferred for up to 6 months from the date of written request. Payments
under the Policy of any amounts derived from premiums paid by check may be
delayed until such time as the check has cleared the Policyowner's bank.
REPORTS AND RECORDS. AVLIC will maintain all records relating to the Separate
Account and will mail to the Policyowner, at the last known address of record,
within 30 days after each Policy Anniversary, an annual report which shows the
current Accumulation Value, Net Cash Surrender Value, Death Benefit, premiums
paid, Outstanding Policy Debt and other information. Quarterly statements are
also mailed detailing Policy activity during the calendar quarter. Instead of
receiving an immediate confirmation of transactions made pursuant to some types
of periodic payment plan (such as a dollar cost averaging program, or payment
made by automatic bank draft or salary reduction arrangement), the Owner may
receive confirmation of such transactions in their quarterly statements. The
Owner should review the information in these statements carefully. All errors or
corrections must be reported to AVLIC immediately to assure proper crediting to
the Policy. AVLIC will assume all transactions are accurately reported on
quarterly statements unless AVLIC is otherwise notified within 30 days after
receipt of the statement. The Policyowner will also be sent a periodic report
for the Funds and a list of the portfolio securities held in each portfolio of
the Funds.
ADDITIONAL INSURANCE BENEFITS (RIDERS.) Subject to certain requirements, one or
more of the following additional insurance benefits may be added to a Policy by
rider. All riders are not available in all states. The cost, if any, of
additional insurance benefits will be deducted as part of the Monthly Deduction.
(See Charges From Accumulation Value - Monthly Deduction, page 26.)
ACCELERATED BENEFIT RIDER FOR TERMINAL ILLNESS (LIVING BENEFIT RIDER.) Upon
satisfactory proof of terminal illness after the two-year contestable period,
(no waiting period in certain states) AVLIC will accelerate the payment of up to
50% of the lowest scheduled Death Benefit as provided by eligible coverages,
less an amount up to two guideline level premiums.
Future premium allocations after the payment of the benefit must be allocated to
the Fixed Account. Payment will not be made for amounts less than $4,000 or more
than $250,000 on all policies issued by AVLIC or its affiliates. AVLIC may
charge the lesser of 2% of the benefit or $50 as an expense charge to cover the
costs of administration.
Satisfactory proof of terminal illness must include a written statement from a
licensed physician who is not related to the Insured or the Policyowner stating
that the Insured has a non-correctable medical condition that, with a reasonable
degree of medical certainty, will result in the death of the Insured in less
than 12 months (6 months in certain states) from the physician's statement.
Further, the condition must first be diagnosed while the Policy was in force.
The accelerated benefit first will be used to repay any Outstanding Policy Debt,
and will also affect future loans, partial withdrawals, and Surrenders. The
accelerated benefit will be treated as a lien against the policy Death Benefit
and will thus reduce the Death Benefit Proceeds. Interest on the lien will be
charged at the policy loan interest rate. There is no extra premium for this
rider.
ACCIDENTAL DEATH BENEFIT RIDER. Provides additional insurance if the Insured's
death results from accidental death, as defined in the rider. Under the terms of
the rider, the additional benefits provided in the Policy will be paid upon
receipt of proof by AVLIC that death resulted directly and independently of all
other causes from accidental bodily injuries incurred before the rider
terminates and within 91 days after such injuries were incurred.
CHILDREN'S PROTECTION RIDER. Provides for term insurance on the Insured's
children, as defined in the rider. Under the terms of the rider, the Death
Benefit will be payable to the named beneficiary upon the death of any insured
child. Upon receipt of proof of the Insured's death before the rider terminates,
the rider will be considered paid up for the term of the rider.
32 APPLAUSE! II
<PAGE>
WAIVER OF MONTHLY DEDUCTIONS ON DISABILITY RIDER. Provides for the waiver of
Monthly Deductions for the Policy and all riders while the Insured is disabled.
PAYOR WAIVER OF MONTHLY DEDUCTIONS ON DISABILITY. Provides for the waiver of
Monthly Deductions for the Policy and all riders while the covered person is
disabled. This rider is available for Insureds ages 0 to 14.
GUARANTEED INSURABILITY RIDER. Provides that the Policyowner can purchase
additional insurance for the Insured by increasing the Specified Amount of the
Policy at certain future dates without evidence of insurability.
DISABILITY BENEFIT PAYMENT RIDER. Provides for the payment by AVLIC of a
disability benefit in the form of premiums while the Insured is disabled. The
benefit amount may be chosen by the Policyowner at the issue of the rider. In
addition, while the Insured is totally disabled, the Cost of Insurance for the
rider will not be deducted from Accumulation Value.
PAYOR DISABILITY RIDER. Provides for the payment by AVLIC of a disability
benefit in the form of premiums while the Covered Person as defined in the rider
is totally disabled. The benefit amount may be chosen by the Policyowner when
the rider is issued. In addition, while the Covered Person is totally disabled,
the Cost of Insurance for the rider will not be deducted from Accumulation
Value.
TERM RIDER FOR COVERED INSURED. Provides the rider specified amount of insurance
to the Beneficiary upon receipt of Satisfactory Proof of Death of any Covered
Insured, as identified in the rider.
DISTRIBUTION OF THE POLICIES
The principal underwriter for the policies is AIC, a wholly owned subsidiary of
AMAL Corporation and an affiliate of AVLIC. AIC is registered as a broker-dealer
with the SEC and is a member of the National Association of Securities Dealers
("NASD"). AVLIC pays AIC for acting as the principal underwriter under an
Underwriting Agreement. In 1997, AIC received gross variable universal life
compensation of $11,639,404, and retained $438,745 in underwriting fees, and
$2,975 in brokerage commissions on AVLIC's variable universal life policies.
The Policies are sold through Registered Representatives of AIC or other
broker-dealers which have entered into selling agreements with AVLIC or AIC.
These Registered Representatives are also licensed by state insurance officials
to sell AVLIC's variable life policies. Each of the broker-dealers with a
selling agreement is registered with the SEC and is a member of the NASD.
Under these selling agreements, AVLIC pays commission to the broker-dealers,
which in turn pay commissions to the Registered Representative who sells this
Policy. During the first Policy Year, the commission may equal an amount up to
100% of the first year target premium paid plus the first year cost of any
riders and 4% for premiums paid in excess of the first year target premium. For
Policy Years two through seven, the commission may equal an amount up to 4% of
premiums paid. Broker-dealers may also receive a service fee up to an annualized
rate of .25% of the Accumulation Value beginning in the eighth Policy Year.
Compensation arrangements may vary among broker-dealers. In addition, AVLIC may
also pay override payments, expense allowances, bonuses, wholesaler fees, and
training allowances. Registered Representatives who meet certain production
standards may receive additional compensation. AVLIC may reduce or waive the
sales charge and/or other charges on any Policy sold to directors, officers or
employees of AVLIC or any of its affiliates, employees and registered
representatives of any broker dealer that has entered into a sales agreement
with AVLIC or AIC and the spouses or children of the above persons. In no event
will any such reduction or waiver be permitted where it would be unfairly
discriminatory to any person.
FEDERAL TAX MATTERS
The following discussion provides a general description of the federal income
tax considerations associated with the Policy and does not purport to be
complete or cover all situations. This discussion is not intended as tax advice.
No attempt has been made to consider in detail any applicable state or other tax
(except premium taxes, see discussion "Premium Charge for Taxes," page 26) laws.
This discussion is based upon AVLIC's understanding of the relevant laws at the
time of filing. Counsel and other competent tax advisors should be consulted for
more complete information before a Policy is purchased. AVLIC makes no
representation as to the likelihood of the continuation of present federal
income tax laws nor of the interpretations by the Internal Revenue Service.
Federal tax laws are subject to change and thus tax consequences to the Insured,
Policyowner or Beneficiary may be altered.
APPLAUSE! II 33
<PAGE>
(a) TAXATION OF AVLIC. AVLIC is taxed as a life insurance company under Part I
of Subchapter L of the Internal Revenue Code of 1986, (the "Code".) At this
time, since the Separate 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
Separate 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 Separate
Account net investment income and realized net capital gains will not be
taxable to the extent that such income and gains are retained as reserves
under the Policy.
AVLIC does not currently expect to incur any federal income tax liability
attributable to the Separate Account with respect to the sale of the
Policies. Accordingly, no charge is being made currently to the Separate
Account for federal income taxes. If, however, AVLIC determines that it
may incur such taxes attributable to the Separate Account, it may assess a
charge for such taxes against the Separate 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 Separate Account. If there is a material change
in state or local tax laws, charges for such taxes attributable to the
Separate Account, if any, may be assessed against the Separate Account.
(b) TAX STATUS OF THE POLICY. The Code (Section 7702) includes a definition of
a life insurance contract for federal tax purposes, which places
limitations on the amount of premiums that may be paid for the Policy and
the relationship of the Accumulation Value to the Death Benefit. AVLIC
believes that the Policy meets the statutory definition of a life
insurance contract. If the Death Benefit of a Policy is changed, the
applicable definitional limitations may change. In the case of a decrease
in the Death Benefit, a partial Surrender, a change in Death Benefit
option, or any other such change that reduces future benefits under the
Policy during the first 15 years after a Policy is issued and that results
in a cash distribution to the Policyowners in order for the Policy to
continue complying with the Section 7702 definitional limitations on
premiums and Accumulation Values, such distributions will be taxable as
ordinary income to the Policyowner (to the extent of any gain in the
Policy) as prescribed in Section 7702.
The Code (Section 7702A) also defines a "modified endowment contract" for
federal tax purposes. If a life insurance policy is classified as a
modified endowment contract, distributions from it (including loans) are
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 (but are not
limited to) changes in Death Benefits and changes in the Specified Amount.
Should the Policy become a "modified endowment contract" partial or full
Surrenders, assignments, pledges, and loans (including loans to pay loan
interest) under the Policy will be taxable to the extent of any gain under
the Policy. A 10% penalty tax also applies to the taxable portion of any
distribution prior to the taxpayer's age 59 1/2. The 10% penalty tax does
not apply if the taxpayer 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
taxpayer or the joint lives of the taxpayer 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. All modified endowment policies issued by AVLIC to the same
Policyowner in any 12 month period are treated as one modified endowment
contract for purposes of determining taxable gain under Section 72(e) of
the Internal Revenue Code. Any life insurance policy received in exchange
for a modified endowment contract will also be treated as 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 Separate Account to be "adequately diversified" in order
for the Policy to be treated as a life insurance contract for federal tax
purposes. The Separate 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.
34 APPLAUSE! II
<PAGE>
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 generally 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 previous discussion, "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." See
discussion of modified endowment contract distributions page 34, "Tax
Status of the Policy." Should the policy lapse while policy loans are
outstanding the portion of the loans attributable to earnings will become
taxable. Generally, interest paid on any loan under a Policy owned by an
individual will not be tax-deductible.
Except for Policies with respect to a limited number of key persons of an
employer (both as defined in the Internal Revenue Code), and subject to
applicable interest rate caps, the Health Insurance Portability and
Accountability Act of 1996 (the "Health Insurance Act") generally repeals
the deduction for interest paid or accrued after October 13, 1995 on loans
from corporate owned life insurance Policies on the lives of officers,
employees or persons financially interested in the taxpayer's trade or
business. 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. The Taxpayer Relief Act of 1997 ("TRA
'97"), further expanded the interest deduction disallowance for businesses
by providing, with respect to policies issued after June 8, 1997, that no
deduction is allowed for interest paid or accrued on any indebtedness with
respect to life insurance covering the life of any individual (except as
noted above under pre-'97 law with respect to key persons and pre-June 21,
1986 policies). TRA '97 also provides that no deduction is permissible for
premiums paid on a life insurance policy if the taxpayer is directly or
indirectly a beneficiary under the policy. Also under TRA '97 and subject
to certain exceptions, for contracts issued after June 8, 1997, no
deduction is allowed for that portion of a taxpayer's interest expense
that's allocable to unborrowed policy cash values. This disallowance
generally does not apply to policies owned by natural persons. 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 Death Benefit Proceeds depend on
applicable law and the circumstances of each Policyowner or Beneficiary. In
addition, if the Policy is used in connection with tax-qualified retirement
plans, certain limitations prescribed by the Internal Revenue Service on,
and rules with respect to the taxation of, life insurance protection
provided through such plans may apply. The advice of competent tax counsel
should be sought in connection with use of life insurance in a qualified
plan.
APPLAUSE! II 35
<PAGE>
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
AVLIC holds the assets of the Separate 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 Separate
Account and as such has the right to vote the shares; to elect Directors of the
Funds, to vote on matters that are required by the Investment Company Act of
1940 and upon any other matter that may be voted upon at a shareholders's
meeting. To the extent required by law, AVLIC will vote all shares of each of
the Funds held in the Separate Account at regular and special shareholder
meetings of the Funds in accordance with instructions received from Policyowners
based on the number of shares held as of the record date for such meeting.
The number of Fund shares in a Subaccount for which instructions may be given by
a Policyowner is determined by dividing the Accumulation Value held in that
Subaccount by the net asset value of one share in the corresponding portfolio of
the Fund. Fractional shares will be counted. Fund shares held in each Subaccount
for which no timely instructions from Policyowners are received and Fund shares
held in each Subaccount which do not support Policyowner interests will be voted
by AVLIC in the same proportion as those shares in that Subaccount for which
timely instructions are received. Voting instructions to abstain on any item to
be voted will be applied on a pro rata basis to reduce the votes eligible to be
cast. Should applicable federal securities laws or regulations permit, AVLIC may
elect to vote shares of the Fund in its own right.
DISREGARD OF VOTING INSTRUCTION. AVLIC may, if required by state insurance
officials, disregard voting instructions if those instructions would require
shares to be voted to cause a change in the subclassification or investment
objectives or policies of one or more of the Funds' Portfolios, or to approve or
disapprove an investment adviser or principal underwriter for the Funds. In
addition, AVLIC itself may disregard voting instructions that would require
changes in the investment objectives or policies of any portfolio or in an
investment adviser or principal underwriter for the Funds, if AVLIC reasonably
disapproves those changes in accordance with applicable federal regulations. If
AVLIC does disregard voting instructions, it will advise Policyowners of that
action and its reasons for the action in the next annual report or proxy
statement to Policyowners.
STATE REGULATION OF AVLIC
AVLIC, a stock life insurance company organized under the laws of Nebraska, is
subject to regulation by the Nebraska Department of Insurance. On or before
March 1 of each year an NAIC convention blank covering the operations and
reporting on the financial condition of AVLIC and the Separate 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 Separate Account.
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.
36 APPLAUSE! II
<PAGE>
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, 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.
WILLIAM J. ATHERTON, DIRECTOR, PRESIDENT, AND CHIEF OPERATING OFFICER*
Director: AMAL Corporation; President: North American Security Life Insurance
Company; also served as officer and/or director of other subsidiaries and/or
affiliates of North American.
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.
GARY R. MCPHAIL, DIRECTOR, EXECUTIVE VICE PRESIDENT****
Director, President, and Chief Executive Officer: AmerUs Life Insurance Company;
also serves as officer and/or director of other subsidiaries and/or affiliates
of AmerUs Life Insurance Company; Executive Vice President - Marketing and
Individual Operations: New York Life Insurance Company; President: Lincoln
National Sales Corporation.
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.
BRIAN J. CLARK, VICE PRESIDENT-FIXED ANNUITY PRODUCT DEVELOPMENT****
Senior Vice President - Product Management: AmerUs Life Insurance Company.
THOMAS C. GODLASKY, DIRECTOR, SENIOR VICE PRESIDENT AND CHIEF INVESTMENT
OFFICER****
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.
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*****).
APPLAUSE! II 37
<PAGE>
KENNETH R. JONES, VICE PRESIDENT-CORPORATE COMPLIANCE AND ASSISTANT SECRETARY*
Vice President, Corporate Compliance & Assistant Secretary: ALIC; also serves as
officer of other subsidiaries and/or affiliates of ALIC.
NORMAN M. KRIVOSHA, SECRETARY AND GENERAL COUNSEL*
Executive Vice President, Secretary & Corporate General Counsel: ALIC; also
serves as officer and/or director of other subsidiaries and/or affiliates of
ALIC.
CYNTHIA J. LAVELLE, VICE PRESIDENT - OPERATIONS AND SUPPORT*
Assistant Vice President - Variable Operations: 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.
SHIELA 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.
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
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: AmerUs Life Insurance Company
611 Fifth Avenue
Des Moines, Iowa 50309
***** Central Life Assurance Company merged with American Mutual Life
Insurance Company on December 31, 1994. Central Life Assurance Company
was the survivor of the merger. Contemporaneous with the merger,
Central Life Assurance Company changed its name to American Mutual
Life Insurance Company. (American Mutual Life Insurance Company
changed its name to AmerUs Life Insurance Company on July 1, 1996.)
LEGAL MATTERS
All matters of Nebraska law pertaining to the Policy, including the validity of
the Policy and AVLIC's right to issue the Policy under Nebraska Insurance Law,
have been passed upon by Norman M. Krivosha, Secretary and General Counsel of
AVLIC.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. AVLIC is not involved in
any litigation that is of material importance in relation to its total assets or
that relates to the Separate Account.
EXPERTS
The financial statements of AVLIC as of December 31, 1997 and 1996, and for each
of the three years in the period ended December 31, 1997, and the financial
statements of Separate Account V as of December 31, 1997, and for each of the
three
38 APPLAUSE! II
<PAGE>
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 Separate 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 Separate Account.
APPLAUSE! II 39
<PAGE>
This page left blank intentionally.
40 APPLAUSE! II
<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, 1997, and
the related statements of operations and changes in net assets for each of the
three years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997. 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, 1997, 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
Lincoln, Nebraska
February 2, 1998
APPLAUSE! II 41
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENT OF NET ASSETS
-----------------------
DECEMBER 31, 1997
-----------------
ASSETS
INVESTMENTS AT NET ASSET VALUE:
<S> <C>
Variable Insurance Products Fund:
---------------------------------
Money Market Portfolio - 7,552,485.910 shares at
$1.00 per share (cost $7,552,486) $ 7,552,486
Equity-Income Portfolio - 1,018,225.148 shares at
$24.28 per share (cost $17,057,993) 24,722,507
Growth Portfolio - 872,066.612 shares at
$37.10 per share (cost $19,311,493) 32,353,671
High Income Portfolio - 598,367.840 shares at
$13.58 per share (cost $6,613.479) 8,125,835
Overseas Portfolio - 695,077.235 shares at
$19.20 per share (cost $10,900,272) 13,345,483
Variable Insurance Products Fund II:
------------------------------------
Asset Manager Portfolio - 1,531,564.418 shares at
$18.01 per share (cost $21,257,550) 27,583,475
Investment Grade Bond Portfolio - 237,050.443 shares at
$12.56 per share (cost $2,804,441) 2,977,354
Contrafund Portfolio - 389,113.666 shares at
$19.94 per share (cost $6,496,810) 7,758,926
Index 500 Portfolio - 94,728.864 shares at
$114.39 per share (cost $8,735,694) 10,836,035
Asset Manager: Growth Portfolio - 140,054.018 shares at
$16.36 per share (cost $1,950,189) 2,291,284
Alger American Fund:
--------------------
Small Capitalization Portfolio - 403,465.664 shares at
$43.75 per share (cost $13,707,354) 17,651,623
Growth Portfolio - 300,282.630 shares at
$42.76 per share (cost $9,099,665) 12,840,085
Income and Growth Portfolio - 381,241.041 shares at
$10.99 per share (cost $3,864,736) 4,189,839
Midcap Growth Portfolio - 312,259.570 shares at
$24.18 per share (cost $5,997,773) 7,550,436
Balanced Portfolio - 125,291.131 shares at
$10.76 per share (cost $1,308,301) 1,348,133
Leveraged Allcap Portfolio - 104,973.976 shares at
$23.17 per share (cost $2,114,624) 2,432,247
The accompanying notes are an integral part of these financial statements.
</TABLE>
42 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENT OF NET ASSETS
-----------------------
DECEMBER 31, 1997
-----------------
ASSETS, CONTINUED
<S> <C>
MFS Variable Insurance Trust:
-----------------------------
Emerging Growth Series Portfolio - 415,653.648 shares at
$16.14 per share (cost $5,739,754) 6,708,650
World Governments Series Portfolio - 21,729.618 shares at
$10.21 per share (cost $221,949) 221,859
Utilities Series Portfolio - 94,348.503 shares at
$17.99 per share (cost $1,433,157) 1,697,330
Research Series Portfolio - 61,452.261 shares at
$15.79 per share (cost $952,090) 970,331
Growth with Income Series Portfolio - 99,317.062 shares at
$16.44 per share (cost $1,629,259) 1,632,772
Morgan Stanley Universal Funds:
-------------------------------
Asian Equity Portfolio - 33,225.337 shares at 187,391
$5.64 per share (cost $238,689)
Emerging Markets Equity Portfolio - 78,194.995 shares at 737,379
$9.43 per share (cost $881,793)
Global Equity Portfolio - 72,507.289 shares at 851,236
$11.74 per share (cost $849,086)
International Magnum Portfolio - 51,120.253 shares at 530,628
$10.38 per share (cost $575,396)
U.S. Real Estate Portfolio - 55,401.749 shares at 632,134
$11.41 per share (cost $613,044)
---------------
NET ASSETS REPRESENTING EQUITY OF POLICYOWNERS $ 197,729,129
===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! II 43
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND
--------------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ---------------- ---------------
1997
----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend distributions received $ 2,670,710 $ 463,675 $ 290,414 $ 177,070
Mortality and expense risk charge (1,574,558) (84,611) (201,066) (278,073)
---------------- ---------------- ---------------- ---------------
NET INVESTMENT INCOME(LOSS) 1,096,152 379,064 89,348 (101,003)
---------------- ---------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 6,045,040 ---- 1,460,138 792,600
Net change in unrealized appreciation (depreciation) 21,418,187 ---- 3,371,385 5,089,744
---------------- ---------------- --------------------------------
NET GAIN(LOSS) ON INVESTMENTS 27,463,227 ---- 4,831,523 5,882,344
---------------- ---------------- ---------------- ---------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 28,559,379 $ 379,064 $ 4,920,871 $ 5,781,341
================ ================ ================ ===============
1996
----
INVESTMENT INCOME:
Dividend distributions received $ 1,837,028 $ 383,333 $ 19,764 $ 56,401
Mortality and expense risk charge (1,085,616) (71,053) (141,453) (223,387)
---------------- ---------------- ---------------- ---------------
NET INVESTMENT INCOME(LOSS) 751,412 312,280 (121,689) (166,986)
---------------- ---------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 4,152,296 ---- 566,577 1,424,128
Net change in unrealized appreciation (depreciation) 7,185,902 ---- 1,388,228 1,591,342
---------------- ---------------- --------------------------------
NET GAIN(LOSS) ON INVESTMENTS 11,338,198 ---- 1,954,805 3,015,470
---------------- ---------------- ---------------- ---------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 12,089,610 $ 312,280 $ 1,833,116 $ 2,848,484
================ ================ ================ ===============
1995
----
INVESTMENT INCOME:
Dividend distributions received $ 1,293,935 $ 330,031 $ 223,698 $ 71,777
Mortality and expense risk charge (723,000) (57,621) (89,161) (160,505)
---------------- ---------------- ---------------- ---------------
NET INVESTMENT INCOME(LOSS) 570,935 272,410 134,537 (88,728)
---------------- ---------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 403,845 ---- 334,949 ----
Net change in unrealized appreciation (depreciation) 14,755,373 ---- 2,148,654 4,664,368
---------------- ---------------- --------------------------------
NET GAIN(LOSS) ON INVESTMENTS 15,159,218 ---- 2,483,603 4,664,368
---------------- ---------------- ---------------- ---------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 15,730,153 $ 272,410 $ 2,618,140 $ 4,575,640
================ ================ ================ ===============
(1) Commenced business 09/05/95
(2) Commenced business 10/17/95
(3) Commenced business 09/13/95
The accompanying notes are an integral part of these financial statements.
</TABLE>
44 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND VARIABLE INSURANCE PRODUCTS FUND II
------------------------------------- ------------------------------------------------------------------------------------------
INVESTMENT ASSET MANAGER
HIGH INCOME OVERSEAS ASSET MANAGER GRADE CONTRAFUND INDEX 500 GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 456,382 $ 183,138 $ 782,791 $ 138,030 $ 28,971 $ 32,977 $ ----
(65,009) (115,217) (232,839) (25,608) (50,896) (71,508) (14,685)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
391,373 67,921 549,952 112,422 (21,925) (38,531) (14,685)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
56,407 727,004 1,963,611 ---- 76,565 66,916 1,179
585,776 646,688 1,992,988 89,590 991,738 1,946,609 322,064
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
642,183 1,373,692 3,956,599 89,590 1,068,303 2,013,525 323,243
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
$ 1,033,556 $ 1,441,613 $ 4,506,551 $ 202,012 $ 1,046,378 $ 1,974,994 $ 308,558
================== ================= ================= ================== =============== ================ ===============
$ 346,977 $ 95,857 $ 701,929 $ 110,640 $ ---- $ 523 $ 8,340
(52,366) (87,506) (192,161) (22,366) (12,082) (6,403) (2,489)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
294,611 8,351 509,768 88,274 (12,082) (5,880) 5,851
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
67,887 105,443 578,783 ---- 1,845 1,346 14,028
303,796 931,213 1,567,972 (39,903) 270,650 153,497 19,517
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
371,683 1,036,656 2,146,755 (39,903) 272,495 154,843 33,545
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
$ 666,294 $ 1,045,007 $ 2,656,523 $ 48,371 $ 260,413 $ 148,963 $ 39,396
================== ================= ================= ================== =============== ================ ===============
$ 214,996 $ 19,894 $ 346,679 $ 34,269 $ 428 $ ---- $ 117
(40,007) (60,098) (164,848) (13,893) (119) (7) (25)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
174,989 (40,204) 181,831 20,376 309 (7) 92
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
---- 19,894 ---- ---- 856 ---- 447
542,261 616,308 2,471,611 183,723 (273) 236 (486)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
542,261 636,202 2,471,611 183,723 583 236 (39)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ---------------
$ 717,250 $ 595,998 $ 2,653,442 $ 204,099 $ 892 $ 229 $ 53
================== ================= ================= ================== =============== ================ ===============
</TABLE>
APPLAUSE! 45
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
ALGER AMERICAN FUND
--------------------------------------------------------------------
SMALL INCOME AND MIDCAP
CAPITALIZATION GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- --------------- ---------------- ---------------
1997
----
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Dividend distributions received $ ---- $ 32,883 $ 12,791 $ 3,623
Mortality and expense risk charge (142,416) (98,937) (28,862) (62,763)
---------------- --------------- ---------------- ---------------
NET INVESTMENT INCOME(LOSS) (142,416) (66,054) (16,071) (59,140)
---------------- --------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 550,941 59,552 105,818 88,340
Net change in unrealized appreciation (depreciation) 1,210,960 2,142,136 755,171 768,190
---------------- --------------- ---------------- ---------------
NET GAIN(LOSS) ON INVESTMENTS 1,761,901 2,201,688 860,989 856,530
---------------- --------------- ---------------- ---------------
NET INCREASE(DECREASE)IN NET ASSETS RESULTING FROM OPERATIONS $ 1,619,485 $ 2,135,634 $ 844,918 $ 797,390
================ =============== ================ ===============
1996
----
INVESTMENT INCOME:
Dividend distributions received $ ---- $ 3,908 $ 24,326 $ ----
Mortality and expense risk charge (118,508) (58,005) (13,912) (38,781)
---------------- --------------- ---------------- ---------------
NET INVESTMENT INCOME(LOSS) (118,508) (54,097) 10,414 (38,781)
---------------- --------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 51,224 165,191 813,188 74,978
Net change in unrealized appreciation (depreciation) 368,251 592,282 (557,847) 330,732
---------------- --------------- ---------------- ---------------
NET GAIN(LOSS) ON INVESTMENTS 419,475 757,473 255,341 405,710
---------------- --------------- ---------------- ---------------
NET INCREASE(DECREASE)IN NET ASSETS RESULTING FROM OPERATIONS $ 300,967 $ 703,376 $ 265,755 $ 366,929
================ =============== ================ ===============
1995
----
INVESTMENT INCOME:
Dividend distributions received $ ---- $ 7,679 $ 5,186 $ 142
Mortality and expense risk charge (67,150) (32,981) (5,765) (14,362)
---------------- --------------- ---------------- ---------------
NET INVESTMENT INCOME(LOSS) (67,150) (25,302) (579) (14,220)
---------------- --------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ---- 27,206 ---- ----
Net change in unrealized appreciation (depreciation) 2,184,006 924,176 146,805 430,138
---------------- --------------- ---------------- ---------------
NET GAIN(LOSS) ON INVESTMENTS 2,184,006 951,382 146,805 430,138
---------------- --------------- ---------------- ---------------
NET INCREASE(DECREASE)IN NET ASSETS RESULTING FROM OPERATIONS $ 2,116,856 $ 926,080 $ 146,226 $ 415,918
================ =============== ================ ===============
(1) Commenced business 09/13/95 (4) Commenced business 10/18/95
(2) Commenced business 09/12/95 (5) Commenced business 04/08/97
(3) Commenced business 09/13/95 (6) Commenced business 04/03/97
The accompanying notes are an integral part of these financial statements.
</TABLE>
46 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST
---------------------------------- ---------------------------------------------------------------------------------------------
LEVERAGED EMERGING WORLD UTILITIES RESEARCH GROWTH WITH
BALANCED ALLCAP GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES
PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO (6)
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 12,338 $ ---- $ ---- $ 3,537 $ ---- $ ---- $ 6,744
(10,092) (17,451) (44,359) (1,978) (7,542) (2,824) (2,761)
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
2,246 (17,451) (44,359) 1,559 (7,542) (2,824) 3,983
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
16,729 ---- ---- 1,603 ---- ---- 31,548
162,920 298,847 937,800 (6,568) 255,610 18,241 3,513
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
179,649 298,847 937,800 (4,965) 255,610 18,241 35,061
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
$ 181,895 $ 281,396 $ 893,441 $ (3,406)$ 248,068 $ 15,417 $ 39,044
================ ================ ================ ======================= =============== ================ ===============
$ 29,838 $ ---- $ ---- $ ---- $ 9,070 $ ---- $ ----
(6,215) (5,432) (9,549) (913) (1,520) ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
23,623 (5,432) (9,549) (913) 7,550 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
199,719 4,125 21,561 ---- 23,532 ---- ----
(168,250) 17,914 32,735 7,363 9,810 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
31,469 22,039 54,296 7,363 33,342 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
$ 55,092 $ 16,607 $ 44,747 $ 6,450 $ 40,892 $ ---- $ ----
================ ================ ================ ======================= =============== ================ ===============
$ 3,039 $ ---- $ 48 $ 1,440 $ 518 $ ---- $ ----
(2,251) (57) (118) (37) (10) ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
788 (57) (70) 1,403 508 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
---- ---- 2,586 ---- 1,227 ---- ----
45,544 863 (1,638) (885) (1,246) ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
45,544 863 948 (885) (19) ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
$ 46,332 $ 806 $ 878 $ 518 $ 489 $ ---- $ ----
================ ================ ================ ======================= =============== ================ ===============
</TABLE>
APPLAUSE! II 47
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS
-----------------------------------------------------
EMERGING GLOBAL
ASIAN EQUITY MARKETS EQUITY EQUITY
PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
---------------- ------------------ ----------------
1997
----
INVESTMENT INCOME:
<S> <C> <C> <C>
Dividend distributions received $ 232 $ 4,896 $ 5,533
Mortality and expense risk charge (495) (3,435) (2,294)
---------------- ------------------ ----------------
NET INVESTMENT INCOME(LOSS) (263) 1,461 3,239
---------------- ------------------ ----------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ---- 21,661 11,816
Net change in unrealized appreciation (depreciation) (51,298) (144,415) 2,150
---------------- ------------------ ----------------
NET GAIN(LOSS) ON INVESTMENTS (51,298) (122,754) 13,966
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (51,561)$ (121,293)$ 17,205
================ ================== ================
1996
----
INVESTMENT INCOME:
Dividend distributions received $ ---- $ ---- $ ----
Mortality and expense risk charge ---- ---- ----
---------------- ------------------ ----------------
NET INVESTMENT INCOME(LOSS) ---- ---- ----
---------------- ------------------ ----------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ---- ---- ----
Net change in unrealized appreciation (depreciation) ---- ---- ----
---------------- ------------------ ----------------
NET GAIN(LOSS) ON INVESTMENTS ---- ---- ----
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ ---- $ ---- $ ----
================ ================== ================
1995
----
INVESTMENT INCOME:
Dividend distributions received $ ---- $ ---- $ ----
Mortality and expense risk charge ---- ---- ----
---------------- ------------------ ----------------
NET INVESTMENT INCOME(LOSS) ---- ---- ----
---------------- ------------------ ----------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ---- ---- ----
Net change in unrealized appreciation (depreciation) ---- ---- ----
---------------- ------------------ ----------------
NET GAIN(LOSS) ON INVESTMENTS ---- ---- ----
---------------- ------------------ ----------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ ---- $ ---- $ ----
================ ================== ================
(1) Commenced business 04/22/97 (4) Commenced business 04/07/97
(2) Commenced business 04/08/97 (5) Commenced business 04/28/97
(3) Commenced business 04/17/97
The accompanying notes are an integral part of these financial statements.
</TABLE>
48 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
- ---------------------------------------- ----------------
INTERNATIONAL US REAL
MAGNUM ESTATE STOCK INDEX
PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO
------------------ ----------------- ----------------
<S> <C> <C>
$ 15,852 $ 9,641 $ 9,192
(1,903) (1,584) (5,350)
------------------ ----------------- ----------------
13,949 8,057 3,842
------------------ ----------------- ----------------
1,056 11,556 ----
(44,768) 19,091 54,025
------------------ ----------------- ----------------
(43,712) 30,647 54,025
------------------ ----------------- ----------------
$ (29,763)$ 38,704 $ 57,867
================== ================= ================
$ ---- $ ---- $ 46,122
---- ---- (21,515)
------------------ ----------------- ----------------
---- ---- 24,607
------------------ ----------------- ----------------
---- ---- 38,741
---- ---- 366,600
------------------ ----------------- ----------------
---- ---- 405,341
------------------ ----------------- ----------------
$ ---- $ ---- $ 429,948
================== ================= ================
$ ---- $ ---- $ 33,994
---- ---- (13,985)
------------------ ----------------- ----------------
---- ---- 20,009
------------------ ----------------- ----------------
---- ---- 16,680
---- ---- 401,208
------------------ ----------------- ----------------
---- ---- 417,888
------------------ ----------------- ----------------
$ ---- $ ---- $ 437,897
================== ================= ================
</TABLE>
APPLAUSE! II 49
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND
--------------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ------------------------------
1997
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income(loss) $ 1,096,152 $ 379,064 $ 89,348 $ (101,003)
Net realized gain(loss) on investments 6,045,040 ---- 1,460,138 792,600
Net change in unrealized appreciation(depreciation) 21,418,187 ---- 3,371,385 5,089,744
---------------- ---------------- --------------- -------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 28,559,379 379,064 4,920,871 5,781,341
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 33,090,017 (464,346) 2,617,832 382,227
---------------- ---------------- --------------- -------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 61,649,396 (85,282) 7,538,703 6,163,568
NET ASSETS AT JANUARY 1, 1997 136,079,733 7,637,768 17,183,804 26,190,103
---------------- ---------------- --------------- -------------
NET ASSETS AT DECEMBER 31, 1997 $ 197,729,129 $ 7,552,486 $ 24,722,507 $ 32,353,671
================ ================ =============== =============
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ 751,412 $ 312,280 $ (121,689)$ (166,986)
Net realized gain(loss) on investments 4,152,296 ---- 566,577 1,424,128
Net change in unrealized appreciation(depreciation) 7,185,902 ---- 1,388,228 1,591,342
---------------- ---------------- --------------- -------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 12,089,610 312,280 1,833,116 2,848,484
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 30,380,460 1,711,961 2,778,194 2,837,486
---------------- ---------------- --------------- -------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 42,470,070 2,024,241 4,611,310 5,685,970
NET ASSETS AT JANUARY 1, 1996 93,609,663 5,613,527 12,572,494 20,504,133
---------------- ---------------- --------------- -------------
NET ASSETS AT DECEMBER 31, 1996 $ 136,079,733 $ 7,637,768 $ 17,183,804 $ 26,190,103
================ ================ =============== =============
1995
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ 570,935 $ 272,410 $ 134,537 $ (88,728)
Net realized gain(loss) on investments 403,845 ---- 334,949 ----
Net change in unrealized appreciation(depreciation) 14,755,373 ---- 2,148,654 4,664,368
---------------- ---------------- --------------- -------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 15,730,153 272,410 2,618,140 4,575,640
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 19,763,147 (906,545) 3,658,409 3,565,603
---------------- ---------------- --------------- -------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 35,493,300 (634,135) 6,276,549 8,141,243
NET ASSETS AT JANUARY 1, 1995 58,116,363 6,247,662 6,295,945 12,362,890
---------------- ---------------- --------------- -------------
NET ASSETS AT DECEMBER 31, 1995 $ 93,609,663 $ 5,613,527 $ 12,572,494 $ 20,504,133
================ ================ =============== =============
(1) Commenced business 09/05/95
(2) Commenced business 10/17/95
(3) Commenced business 09/13/95
The accompanying notes are an integral part of these financial statements.
</TABLE>
50 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND VARIABLE INSURANCE PRODUCTS FUND II
- ---------------------------------------- ------------------------------------------------------------------------------------------
INVESTMENT ASSET MANAGER
HIGH INCOME OVERSEAS ASSET MANAGER GRADE CONTRAFUND INDEX 500 GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 391,373 $ 67,921 $ 549,952 $ 112,422 $ (21,925)$ (38,531)$ (14,685)
56,407 727,004 1,963,611 ---- 76,565 66,916 1,179
585,776 646,688 1,992,988 89,590 991,738 1,946,609 322,064
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
1,033,556 1,441,613 4,506,551 202,012 1,046,378 1,974,994 308,558
104,745 1,242,175 614,816 422,976 3,787,942 6,930,829 1,426,686
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
1,138,301 2,683,788 5,121,367 624,988 4,834,320 8,905,823 1,735,244
6,987,534 10,661,695 22,462,108 2,352,366 2,924,606 1,930,212 556,040
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
$ 8,125,835 $ 13,345,483 $ 27,583,475 $ 2,977,354 $ 7,758,926 $ 10,836,035 $ 2,291,284
================== ================= ================= ================== =============== ================ ================
$ 294,611 $ 8,351 $ 509,768 $ 88,274 $ (12,082)$ (5,880)$ 5,851
67,887 105,443 578,783 ---- 1,845 1,346 14,028
303,796 931,213 1,567,972 (39,903) 270,650 153,497 19,517
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
666,294 1,045,007 2,656,523 48,371 260,413 148,963 39,396
1,995,433 2,133,197 518,914 167,556 2,534,900 1,776,610 503,059
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
2,661,727 3,178,204 3,175,437 215,927 2,795,313 1,925,573 542,455
4,325,807 7,483,491 19,286,671 2,136,439 129,293 4,639 13,585
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
$ 6,987,534 $ 10,661,695 $ 22,462,108 $ 2,352,366 $ 2,924,606 $ 1,930,212 $ 556,040
================== ================= ================= ================== =============== ================ ================
$ 174,989 $ (40,204)$ 181,831 $ 20,376 $ 309 $ (7)$ 92
---- 19,894 ---- ---- 856 ---- 447
542,261 616,308 2,471,611 183,723 (273) 236 (486)
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
717,250 595,998 2,653,442 204,099 892 229 53
638,346 1,932,843 475,170 1,025,181 128,401 4,410 13,532
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
1,355,596 2,528,841 3,128,612 1,229,280 129,293 4,639 13,585
2,970,211 4,954,650 16,158,059 907,159 ---- ---- ----
------------------ ----------------- ----------------- ------------------ --------------- ---------------- ----------------
$ 4,325,807 $ 7,483,491 $ 19,286,671 $ 2,136,439 $ 129,293 $ 4,639 $ 13,585
================== ================= ================= ================== =============== ================ ================
</TABLE>
APPLAUSE! II 51
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
ALGER AMERICAN FUND
-------------------------------------------------------------------
SMALL INCOME AND MIDCAP
CAPITALIZATION GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- --------------- -------------
1997
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income(loss) $ (142,416)$ (66,054)$ (16,071)$ (59,140)
Net realized gain(loss) on investments 550,941 59,552 105,818 88,340
Net change in unrealized appreciation(depreciation) 1,210,960 2,142,136 755,171 768,190
---------------- ---------------- --------------- -------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,619,485 2,135,634 844,918 797,390
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 1,904,475 2,704,106 1,369,132 1,117,517
---------------- ---------------- --------------- -------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 3,523,960 4,839,740 2,214,050 1,914,907
NET ASSETS AT JANUARY 1, 1997 14,127,663 8,000,345 1,975,789 5,635,529
---------------- ---------------- --------------- -------------
NET ASSETS AT DECEMBER 31, 1997 $ 17,651,623 $ 12,840,085 $ 4,189,839 $ 7,550,436
================ ================ =============== =============
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (118,508)$ (54,097)$ 10,414 $ (38,781)
Net realized gain(loss) on investments 51,224 165,191 813,188 74,978
Net change in unrealized appreciation(depreciation) 368,251 592,282 (557,847) 330,732
---------------- ---------------- --------------- -------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 300,967 703,376 265,755 366,929
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 3,449,194 2,618,412 791,272 2,585,782
---------------- ---------------- --------------- -------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 3,750,161 3,321,788 1,057,027 2,952,711
NET ASSETS AT JANUARY 1, 1996 10,377,502 4,678,557 918,762 2,682,818
---------------- ---------------- --------------- -------------
NET ASSETS AT DECEMBER 31, 1996 $ 14,127,663 $ 8,000,345 $ 1,975,789 $ 5,635,529
================ ================ =============== =============
1995
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (67,150)$ (25,302)$ (579)$ (14,220)
Net realized gain(loss) on investments ---- 27,206 ---- ----
Net change in unrealized appreciation(depreciation) 2,184,006 924,176 146,805 430,138
---------------- ---------------- --------------- -------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,116,856 926,080 146,226 415,918
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 3,996,279 1,739,906 465,186 1,721,013
---------------- ---------------- --------------- --------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 6,113,135 2,665,986 611,412 2,136,931
NET ASSETS AT JANUARY 1, 1995 4,264,367 2,012,571 307,350 545,887
---------------- ---------------- --------------- -------------
NET ASSETS AT DECEMBER 31, 1995 $ 10,377,502 $ 4,678,557 $ 918,762 $ 2,682,818
================ ================ =============== =============
(1) Commenced business 09/13/95 (4) Commenced business 10/18/95
(2) Commenced business 09/12/95 (5) Commenced business 04/08/97
(3) Commenced business 09/13/95 (6) Commenced business 04/03/97
The accompanying notes are an integral part of these financial statements.
</TABLE>
52 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST
- ------------------------------------- ---------------------------------------------------------------------------------------------
LEVERAGED EMERGING WORLD UTILITIES RESEARCH GROWTH WITH
BALANCED ALLCAP GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES
PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO(5) PORTFOLIO (6)
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,246 $ (17,451)$ (44,359)$ 1,559 $ (7,542)$ (2,824)$ 3,983
16,729 ---- ---- 1,603 ---- ---- 31,548
162,920 298,847 937,800 (6,568) 255,610 18,241 3,513
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
181,895 281,396 893,441 (3,406) 248,068 15,417 39,044
253,322 962,301 3,250,610 41,843 1,057,600 954,914 1,593,728
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
435,217 1,243,697 4,144,051 38,437 1,305,668 970,331 1,632,772
912,916 1,188,550 2,564,599 183,422 391,662 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
$ 1,348,133 $ 2,432,247 $ 6,708,650 $ 221,859 $ 1,697,330 $ 970,331 $ 1,632,772
================ ================ ================ ======================= =============== ================ ===============
$ 23,623 $ (5,432)$ (9,549)$ (913)$ 7,550 $ ---- $ ----
199,719 4,125 21,561 ---- 23,532 ---- ----
(168,250) 17,914 32,735 7,363 9,810 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
55,092 16,607 44,747 6,450 40,892 ---- ----
421,333 1,071,187 2,401,694 161,157 332,223 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
476,425 1,087,794 2,446,441 167,607 373,115 ---- ----
436,491 100,756 118,158 15,815 18,547 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
$ 912,916 $ 1,188,550 $ 2,564,599 $ 183,422 $ 391,662 $ ---- $ ----
================ ================ ================ ======================= =============== ================ ===============
$ 788 $ (57)$ (70)$ 1,403 $ 508 $ ---- $ ----
---- ---- 2,586 ---- 1,227 ---- ----
45,544 863 (1,638) (885) (1,246) ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
46,332 806 878 518 489 ---- ----
263,981 99,950 117,280 15,297 18,058 ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
310,313 100,756 118,158 15,815 18,547 ---- ----
126,178 ---- ---- ---- ---- ---- ----
---------------- ---------------- ---------------- ----------------------- --------------- ---------------- ---------------
$ 436,491 $ 100,756 $ 118,158 $ 15,815 $ 18,547 $ ---- $ ----
================ ================ ================ ======================= =============== ================ ===============
</TABLE>
APPLAUSE! II 53
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS
------------------------------------------------------
EMERGING GLOBAL
ASIAN EQUITY MARKETS EQUITY EQUITY
PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3)
---------------- ------------------ ---------------
1997
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income(loss) $ (263)$ 1,461 $ 3,239
Net realized gain(loss) on investments ---- 21,661 11,816
Net change in unrealized appreciation(depreciation) (51,298) (144,415) 2,150
---------------- -----------------------------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (51,561) (121,293) 17,205
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS 238,952 858,672 834,031
---------------- ------------------ ---------------
TOTAL INCREASE(DECREASE) IN NET ASSETS 187,391 737,379 851,236
NET ASSETS AT JANUARY 1, 1997 ---- ---- ----
---------------- ------------------ ---------------
NET ASSETS AT DECEMBER 31, 1997 $ 187,391 $ 737,379 $ 851,236
================ ================== ===============
1996
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ ---- $ ---- $ ----
Net realized gain(loss) on investments ---- ---- ----
Net change in unrealized appreciation(depreciation) ---- ---- ----
---------------- ------------------ ---------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ---- ---- ----
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS ---- ---- ----
---------------- ------------------ ---------------
TOTAL INCREASE(DECREASE) IN NET ASSETS ---- ---- ----
NET ASSETS AT JANUARY 1, 1996 ---- ---- ----
---------------- ------------------ ---------------
NET ASSETS AT DECEMBER 31, 1996 $ ---- $ ---- $ ----
================ ================== ===============
1995
----
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ ---- $ ---- $ ----
Net realized gain(loss) on investments ---- ---- ----
Net change in unrealized appreciation(depreciation) ---- ---- ----
---------------- ------------------ ---------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ---- ---- ----
NET INCREASE(DECREASE) FROM POLICYHOLDER TRANSACTIONS ---- ---- ----
---------------- ------------------ ---------------
TOTAL INCREASE(DECREASE) IN NET ASSETS ---- ---- ----
NET ASSETS AT JANUARY 1, 1995 ---- ---- ----
---------------- ------------------ ---------------
NET ASSETS AT DECEMBER 31, 1995 $ ---- $ ---- $ ----
================ ================== ===============
(1) Commenced business 04/22/97 (4) Commenced business 04/07/97
(2) Commenced business 04/08/97 (5) Commenced business 04/28/97
(3) Commenced business 04/17/97
The accompanying notes are an integral part of these financial statements.
</TABLE>
54 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
- ---------------------------------------- -----------------
INTERNATIONAL US REAL
MAGNUM ESTATE STOCK INDEX
PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO
------------------ ----------------- -----------------
<S> <C> <C>
$ 13,949 $ 8,057 $ 3,842
1,056 11,556 ----
(44,768) 19,091 54,025
------------------ ----------------- -----------------
(29,763) 38,704 57,867
560,391 593,430 (2,270,889)
------------------ ----------------- -----------------
530,628 632,134 (2,213,022)
---- ---- 2,213,022
------------------ ----------------- -----------------
$ 530,628 $ 632,134 $ ----
================== ================= =================
$ ---- $ ---- $ 24,607
---- ---- 38,741
---- ---- 366,600
------------------ ----------------- -----------------
---- ---- 429,948
---- ---- (409,104)
------------------ ----------------- -----------------
---- ---- 20,844
---- ---- 2,192,178
================== ================= =================
$ ---- $ ---- $ 2,213,022
================== ================= =================
$ ---- $ ---- $ 20,009
---- ---- 16,680
---- ---- 401,208
------------------ ----------------- -----------------
---- ---- 437,897
---- ---- 790,847
------------------ ----------------- -----------------
---- ---- 1,228,744
---- ---- 963,434
================== ================= =================
$ ---- $ ---- $ 2,192,178
================== ================= =================
</TABLE>
APPLAUSE! II 55
<PAGE>
This page left blank intentionally.
56 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. 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, 1997, there are
twenty-six 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. Five 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. Five of the subaccounts invest only in a
corresponding Portfolio of Morgan Stanley Universal Funds, Inc. which is a
diversified open-end management investment company managed by Morgan
Stanley Asset Management, Inc. All five funds are registered under the
Investment Company Act of 1940, as amended. Each Portfolio is 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.
Pursuant to an order of the SEC allowing for the substitution, all
policyowner funds invested in a Portfolio of Dreyfus Stock Index Fund were
transferred to the Index 500 subaccount of the Fidelity Variable Insurance
Products Fund II as of March 31, 1997.
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.
VALUATION OF INVESTMENTS
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.
FEDERAL AND STATE TAXES
The operations of the Account are included in the federal income tax return
of AVLIC, which is taxed as a life insurance company under the Internal
Revenue Code. AVLIC has the right to charge the Account any federal income
taxes, or provision for federal income taxes, attributable to the
operations of the Account or to the policies funded in the Account.
Currently, AVLIC does not make a charge for income or other taxes. Charges
for state and local taxes, if any, attributable to the Account may also be
made.
2. POLICYOWNER 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 policyowner, including
the Fixed Account option which is not reflected in this separate account.
APPLAUSE! II 57
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED
- -----------------
The Account invests in shares of mutual funds. Share activity and total
shares were as follows:
VARIABLE INSURANCE PRODUCTS FUND
--------------------------------------------------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH HIGH INCOME OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Shares owned at January 1, 1997 7,637,767.850 817,109.096 841,043.772 558,109.727 565,907.403
Shares acquired 57,423,437.350 511,389.228 339,254.481 1,118,068.428 1,175,596.501
Shares disposed of (57,508,719.290) (310,273.176) (308,231.641) (1,077,810.315) (1,046,426.669)
---------------- ---------------- ---------------- --------------- ----------------
Shares owned at December 31, 1997 7,552,485.910 1,018,225.148 872,066.612 598,367.840 695,077.235
================ ================ ================ =============== ================
Shares owned at January 1, 1996 5,613,527.070 652,438.732 702,196.341 358,988.159 438,914.420
Shares acquired 47,496,829.850 398,549.753 641,337.814 1,195,240.651 726,524.452
Shares disposed of (45,472,589.070) (233,879.389) (502,490.383) (996,119.083) (599,531.469)
---------------- ---------------- ---------------- --------------- ----------------
Shares owned at December 31, 1996 7,637,767.850 817,109.096 841,043.772 558,109.727 565,907.403
================ ================ ================ =============== ================
Shares owned at January 1, 1995 6,247,661.970 410,159.302 569,981.087 276,041.963 316,186.952
Shares acquired 26,559,606.700 404,272.920 482,583.089 659,794.740 535,442.497
Shares disposed of (27,193,741.600) (161,993.490) (350,367.835) (576,848.544) (412,715.029)
---------------- ---------------- ---------------- --------------- ----------------
Shares owned at December 31, 1995 5,613,527.070 652,438.732 702,196.341 358,988.159 438,914.420
================ ================ ================ =============== ================
(1) Commenced business 09/05/95
(2) Commenced business 10/17/95
(3) Commenced business 09/13/95
</TABLE>
58 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
VARIABLE INSURANCE PRODUCTS FUND II ALGER AMERICAN FUND
- ---------------------------------------------------------------------------------------- ----------------------------------
ASSET INVESTMENT ASSET MANAGER SMALL
MANAGER GRADE CONTRAFUND INDEX 500 GROWTH CAPITALIZATION GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3) PORTFOLIO PORTFOLIO
- ----------------- ---------------- --------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1,326,763.623 192,186.776 176,606.628 21,656.138 42,445.800 345,335.196 233,042.387
598,138.814 120,594.995 358,431.197 129,171.432 137,282.584 311,521.638 204,589.158
(393,338.019) (75,731.328) (145,924.159) (56,098.706) (39,674.366) (253,391.170) (137,348.915)
- ----------------- ---------------- --------------- ---------------- ---------------- ---------------- ----------------
1,531,564.418 237,050.443 389,113.666 94,728.864 140,054.018 403,465.664 300,282.630
================= ================ =============== ================ ================ ================ ================
1,221,448.421 171,179.054 9,382.665 61.274 1,153.239 263,321.551 150,146.226
469,994.138 113,295.550 299,411.174 26,095.586 53,791.445 280,059.510 162,856.038
(364,678.936) (92,297.828) (132,187.211) (4,500.722) (12,498.884) (198,045.865) (79,959.877)
- ----------------- ---------------- --------------- ---------------- ---------------- ---------------- ----------------
1,326,763.623 192,176.776 176,606.628 21,656.138 42,445.800 345,335.196 233,042.387
================= ================ =============== ================ ================ ================ ================
1,171,722.945 82,319.293 ---- ---- ---- 156,146.723 87,011.270
546,123.126 128,355.920 10,842.924 292.067 1,233.249 194,345.591 128,233.290
(496,397.650) (39,486.159) (1,460.259) (230.793) (80.010) (87,170.763) (65,098.334)
- ----------------- ---------------- --------------- ---------------- ---------------- ---------------- ----------------
1,221,448.421 171,189.054 9,382.665 61.274 1,153.239 263,321.551 150,146.226
================= ================ =============== ================ ================ ================ ================
</TABLE>
APPLAUSE! II 59
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED, CONTINUED
- --------------------------------
The Account invests in shares of mutual funds. Share activity and total
shares were as follows:
ALGER AMERICAN FUND
--------------------------------------------------------------------
INCOME AND MIDCAP LEVERAGED
GROWTH GROWTH BALANCED ALLCAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (1)
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Shares owned at January 1, 1997 234,654.249 263,959.188 98,800.487 61,392.043
Shares acquired 389,297.914 245,052.311 64,650.229 108,499.936
Shares disposed of (242,711.122) (196,751.929) (38,159.585) (64,918.003)
--------------- ---------------- ---------------- ----------------
Shares owned at December 31, 1997 381,241.041 312,259.570 125,291.131 104,973.976
=============== ================ ================ ================
Shares owned at January 1, 1996 51,644.863 138,005.038 32,000.820 5,780.602
Shares acquired 238,851.986 257,678.903 91,879.454 94,532.096
Shares disposed of (55,842.600) (131,724.753) (25,079.787) (38,920.655)
--------------- ---------------- ---------------- ----------------
Shares owned at December 31, 1996 234,654.249 263,959.188 98,800.487 61,392.043
=============== ================ ================ ================
Shares owned at January 1, 1995 23,109.060 40,556.228 11,683.157 ----
Shares acquired 39,660.929 132,196.564 36,086.453 6,369.357
Shares disposed of (11,125.126) (34,747.754) (15,768.790) (588.755)
--------------- ---------------- ---------------- ----------------
Shares owned at December 31, 1995 51,644.863 138,005.038 32,000.820 5,780.602
=============== ================ ================ ================
(1) Commenced business 09/13/95 (5) Commenced business 04/08/97
(2) Commenced business 09/12/95 (6) Commenced business 04/03/97
(3) Commenced business 09/13/95 (7) Commenced business 04/22/97
(4) Commenced business 10/18/95 (8) Commenced business 04/08/97
</TABLE>
60 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
(CONTINUED)
MFS VARIABLE INSURANCE TRUST MORGAN STANLEY UNIVERSAL FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
EMERGING WORLD UTILITIES RESEARCH GROWTH WITH ASIAN EMERGING
GROWTH SERIES GOVERNMENTS SERIES SERIES INCOME SERIES EQUITY MARKETS EQUITY
PORTFOLIO (2) SERIES PORTFOLIO (3) PORTFOLIO (4) PORTFOLIO (5) PORTFOLIO (6) PORTFOLIO (7) PORTFOLIO (8)
- ----------------- --------------------- ---------------- ---------------- ---------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
193,700.823 17,336.705 28,672.191 ---- ---- ---- ----
457,734.629 37,542.368 107,581.620 72,826.540 110,180.302 51,430.390 140,386.479
(235,781.804) (33,149.455) (41,905.308) (11,374.279) (10,863.240) (18,205.053) (62,191.484)
- ----------------- --------------------- ---------------- ---------------- ---------------- --------------- -------------------
415,653.648 21,729.618 94,348.503 61,452.261 99,317.062 33,225.337 78,194.995
================= ===================== ================ ================ ================ =============== ===================
10,355.688 1,555.043 1,475.513 ---- ---- ---- ----
232,976.138 34,612.233 35,187.917 ---- ---- ---- ----
(49,631.003) (18,830.571) (7,991.239) ---- ---- ---- ----
- ----------------- --------------------- ---------------- ---------------- ---------------- --------------- -------------------
193,700.823 17,336.705 28,672.191 ---- ---- ---- ----
================= ===================== ================ ================ ================ =============== ===================
---- ---- ---- ---- ---- ---- ----
18,376.079 1,625.023 2,867.141 ---- ---- ---- ----
(8,020.391) (69.980) (1,391.628) ---- ---- ---- ----
- ----------------- --------------------- ---------------- ---------------- ---------------- --------------- -------------------
10,355.688 1,555.043 1,475.513 ---- ---- ---- ----
================= ===================== ================ ================ ================ =============== ===================
</TABLE>
APPLAUSE! II 61
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
SEPARATE ACCOUNT V
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. SHARES OWNED, CONTINUED
- --------------------------------
The Account invests in shares of mutual funds. Share activity and total
shares were as follows:
MORGAN STANLEY UNIVERSAL FUNDS DREYFUS
-------------------------------------------------------- -----------------
GLOBAL INTERNATIONAL US REAL
EQUITY MAGNUM ESTATE STOCK INDEX
PORTFOLIO (1) PORTFOLIO (2) PORTFOLIO (3) FUND PORTFOLIO
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Shares owned at January 1, 1997 ---- ---- ---- 109,123.387
Shares acquired 93,896.403 77,530.448 97,640.967 2,530.208
Shares disposed of (21,389.114) (26,410.195) (42,239.218) (111,653.595)
----------------- ------------------ ------------------ -----------------
Shares owned at December 31, 1997 72,507.289 51,120.253 55,401.749 0.000
================= ================== ================== =================
Shares owned at January 1, 1996 ---- ---- ---- 127,452.178
Shares acquired ---- ---- ---- 33,926.076
Shares disposed of ---- ---- ---- (52,254.867)
----------------- ------------------ ------------------ -----------------
Shares owned at December 31, 1996 ---- ---- ---- 109,123.387
================= ================== ================== =================
Shares owned at January 1, 1995 ---- ---- ---- 74,453.907
Shares acquired ---- ---- ---- 77,163.184
Shares disposed of ---- ---- ---- (24,164.913)
----------------- ------------------ ------------------ -----------------
Shares owned at December 31, 1995 ---- ---- ---- 127,452.178
================= ================== ================== =================
(1) Commenced business 04/17/97
(2) Commenced business 04/07/97
(3) Commenced business 04/28/97
</TABLE>
62 APPLAUSE! II
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ameritas Variable Life Insurance Company
Lincoln, Nebraska
We have audited the accompanying balance sheets of Ameritas Variable Life
Insurance Company as of December 31, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
February 2, 1998
APPLAUSE! II 63
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
BALANCE SHEETS
--------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
DECEMBER 31,
---------------------------------------------
1997 1996
--------------------- ------------------
ASSETS
------
<S> <C> <C>
Investments:
Fixed maturity securities, available for sale (amortized cost
$113,158 - 1997 and $62,048 - 1996) $ 115,955 $ 62,621
Equity securities, available for sale (amortized cost
$4,061 - 1997) 4,135 -
Loans on insurance policies 7,482 4,309
Other invested assets 2,206 -
---------------------- --------------------
Total investments 129,778 66,930
Cash and cash equivalents 13,711 10,684
Accrued investment income 1,801 1,096
Reinsurance recoverable-affiliates 514 9
Prepaid reinsurance premium-affiliates 2,298 2,156
Deferred policy acquisition costs 98,746 79,272
Other 199 483
Separate Accounts 1,265,348 947,580
---------------------- -------------------
$ 1,512,395 $ 1,108,210
====================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Policy and contract reserves $ 941 $ 749
Policy and contract claims 925 106
Accumulated contract values 154,281 77,560
Unearned policy charges 1,498 1,243
Unearned reinsurance ceded allowance 3,268 3,139
Federal income taxes--
Current 1,466 875
Deferred 9,326 9,921
Other 10,200 8,028
Separate Accounts 1,265,348 947,580
---------------------- -------------------
Total Liabilities 1,447,253 1,049,201
---------------------- -------------------
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 40,370
Retained earnings 20,180 14,510
Net unrealized investment gain 592 129
---------------------- -----------------
Total Stockholder's Equity 65,142 59,009
---------------------- -----------------
$ 1,512,395 $ 1,108,210
====================== =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
64 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF OPERATIONS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
--------------------- ------------------- ---------------
INCOME:
Insurance revenues:
<S> <C> <C> <C>
Contract charges $ 33,717 $ 26,345 $ 18,350
Premium-reinsurance ceded (6,840) (5,895) (4,289)
Reinsurance ceded allowance 2,752 2,235 1,859
Investment revenues:
Investment income, net 8,277 3,603 3,492
Realized gains, net 368 19 28
Other 980 567 261
------------------- -------------------- ---------------
39,254 26,874 19,701
BENEFITS AND EXPENSES: ------------------- -------------------- ---------------
Policy benefits:
Death benefits 1,356 716 268
Interest credited 7,258 2,736 1,995
Increase in policy and contract reserves 192 140 183
Other 92 52 32
Sales and operating expenses 11,641 10,041 6,815
Amortization of deferred policy acquisition costs 9,584 5,531 3,057
------------------- -------------------- ---------------
30,123 19,216 12,350
------------------- -------------------- ---------------
INCOME BEFORE FEDERAL INCOME TAXES 9,131 7,658 7,351
------------------- -------------------- ---------------
Income taxes - current 4,305 3,819 1,685
Income taxes - deferred (844) (811) 902
------------------- -------------------- ---------------
Total income taxes 3,461 3,008 2,587
------------------- -------------------- ---------------
NET INCOME $ 5,670 $ 4,650 $ 4,764
=================== ==================== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! II 65
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
---------------------------------------------------
(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, 1995 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
Net unrealized investment gain, net - - - - 463 463
Net income - - - 5,670 - 5,670
-------- ------------ -------------- ----------- ------------- -----------
BALANCE, December 31, 1997 40,000 $ 4,000 $ 40,370 $ 20,180 $ 592 $ 65,142
======== ============ ============== =========== ============= ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
66 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------- ----------- -------
OPERATING ACTIVITIES
--------------------
<S> <C> <C> <C>
Net Income $ 5,670 $ 4,650 $ 4,764
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs 9,584 5,531 3,057
Policy acquisition costs deferred (30,642) (26,596) (16,020)
Interest credited to contract values 7,258 2,736 1,995
Amortization of discounts or premiums (40) (83) (70)
Change in fair value of other invested assets (631) - -
Net realized gains on investment transactions (368) (19) (28)
Deferred income taxes (844) (811) 902
Change in assets and liabilities:
Accrued investment income (705) (306) (15)
Reinsurance recoverable-affiliates (505) 48 412
Prepaid reinsurance premium-affiliates (142) (650) (487)
Other assets 284 (377) (18)
Policy and contract reserves 192 140 183
Policy and contract claims 819 106 (57)
Unearned policy charges 255 279 234
Federal income tax payable-current 591 (310) 698
Unearned reinsurance ceded allowance 129 860 610
Other liabilities 2,172 3,762 1,996
------------ ----------------- ------------
Net cash used in operating activities (6,923) (11,040) (1,844)
------------ ----------------- -----------
INVESTING ACTIVITIES
--------------------
Purchase of fixed maturity securities available for sale (92,291) (31,514) (7,760)
Purchase of equity securities available for sale (4,311) - -
Purchase of other invested assets (1,611) - -
Proceeds from maturities or repayment of fixed maturity securities
available for sale 25,168 5,307 3,738
Proceeds from sales of fixed maturity securities available for sale 16,419 3,014 -
Proceeds from the sale of equity securities available for sale 252 - -
Proceeds from the sale of other invested assets 35 - -
Net change in loans on insurance policies (3,173) (1,670) (1,042)
----------- ---------------- -----------
Net cash used in investing activities (59,512) (24,863) (5,064)
----------- ---------------- -----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
APPLAUSE! II 67
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(IN THOUSANDS)
--------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- --------------
FINANCING ACTIVITIES
--------------------
<S> <C> <C> <C>
Return of capital - (15,000) -
Capital contribution - 25,670 -
Net change in accumulated contract values 69,462 30,257 4,448
------------- ------------- -------------
Net cash from financing activities 69,462 40,927 4,448
------------- ------------- -------------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 3,027 5,024 (2,460)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,684 5,660 8,120
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,711 $ 10,684 $ 5,660
============= ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
Cash paid for income taxes $ 3,714 $ 4,129 $ 987
The accompanying notes are an integral part of these financial statements.
</TABLE>
68 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(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), 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, fixed premium annuities in 1996 and equity indexed
annuities in 1997. The variable life, variable annuity, fixed premium
annuity and equity indexed 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 comprised of fixed maturity
securities which the 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 the Company. 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.
Other Invested Assets consist of exchange and privately traded options tied
to the Standard and Poor's Index and are valued at fair value with changes
in the fair value of these investments included in net investment income.
The Company records write-offs or allowances for its investments based upon
a evaluation of specific problem investments. The Company reviews, on a
continual basis, all invested assets to identify investments where the
Company may have 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, 1997, 1996 and 1995.
CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with
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.
APPLAUSE! II 69
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------
(CONTINUED)
-----------
PREMIUM REVENUE AND BENEFITS TO POLICYOWNERS
RECOGNITION OF UNIVERSAL LIFE-TYPE CONTRACTS REVENUE AND BENEFITS TO
POLICYOWNERS
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 policyowner, premiums paid by the
policyowner or interest accrued to policyowners 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.
RECOGNITION OF INVESTMENT CONTRACT REVENUE AND BENEFITS TO POLICYOWNERS
Contracts that do not subject the Company to risks arising from policyowner
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 directly
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 generally 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
periodically based on actual experience and changes in assumptions.
A roll-forward of the amounts reflected in the balance sheets as deferred
acquisition costs is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 79,272 $ 57,664 $ 45,940
Acquisition costs deferred 30,642 26,596 16,020
Amortization of deferred policy acquisition costs (9,584) (5,531) (3,057)
Adjustment for unrealized investment (gain)/loss (1,584) 543 (1,239)
-------------------------------------------------------------------------------------------------------------------------
Ending balance $ 98,746 $ 79,272 $ 57,664
-------------------------------------------------------------------------------------------------------------------------
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 investment gains or losses included in stockholder's
equity.
</TABLE>
70 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
--------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------
(CONTINUED)
-----------
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.
RECLASSIFICATIONS
Certain items on the prior year financial statements have been restated to
conform to current year presentation.
2. INVESTMENTS
---------------
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 6,622 $ 3,308 $ 2,819
Equity Securities available for sale 156 - -
Loans on insurance policies 370 214 128
Cash equivalents 643 618 597
Other invested assets 630 - -
------------------------------------------------------------------------------------------------------------------------
Gross investment income 8,421 4,140 3,544
Investment expenses 144 537 52
------------------------------------------------------------------------------------------------------------------------
Net investment income $ 8,277 $ 3,603 $ 3,492
------------------------------------------------------------------------------------------------------------------------
Net pretax realized investment gains (losses) were as follows:
YEARS ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
Net gains on disposals of fixed maturity securities
available for sale $ 365 $ 19 $ 28
Net gains on disposal of equity securities available for sale 3 - -
------------------------------------------------------------------------------------------------------------------------
Net gains on disposal of securities available for sale $ 368 $ 19 $ 28
------------------------------------------------------------------------------------------------------------------------
</TABLE>
APPLAUSE! II 71
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
2. INVESTMENTS (CONTINUED)
---------------------------
Proceeds from sales of securities available for sale and gross gains and
losses realized on those sales were as follows:
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------
PROCEEDS GAINS LOSSES
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 16,419 $ 161 $ 8
Equity securities available for sale 252 2 -
-----------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 16,671 $ 163 $ 8
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
PROCEEDS GAINS LOSSES
-----------------------------------------------------------------------------------------------------------------------------
Fixed maturity securities available for sale $ 3,014 $ 30 $ -
-----------------------------------------------------------------------------------------------------------------------------
There were no disposals of fixed maturity securities available for sale
during 1995 other than calls or maturities.
The amortized cost and fair value of investments in securities by type of
investment were as follows:
DECEMBER 31, 1997
----------------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
----------------
COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------------------
U. S. Corporate $ 75,705 $ 2,024 $ 16 $ 77,713
Mortgage-backed 25,518 592 - 26,110
U.S. Treasury securities and obligations of
U.S. government agencies 11,935 221 24 12,132
---------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities available for sale 113,158 2,837 40 115,955
---------------------------------------------------------------------------------------------------------------------
Equity securities available for sale 4,061 74 - 4,135
---------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 117,219 $ 2,911 $ 40 $ 120,090
---------------------------------------------------------------------------------------------------------------------
The December 31, 1997 balance of stockholder's equity was increased by $463
(comprised of an increase in the carrying value of the securities of $2,298,
reduced by $1,584 of related adjustments to deferred acquisition costs and
$251 in deferred income taxes) to reflect the net unrealized gain on
securities classified as available for sale.
</TABLE>
72 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
2. INVESTMENTS (CONTINUED)
---------------------------
DECEMBER 31, 1996
-----------------------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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
----------------------------------------------------------------------------------------------------------------------
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.
The amortized cost and fair value of fixed maturity securities available for
sale by contractual maturity at December 31, 1997 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.
AMORTIZED FAIR
COST VALUE
-------------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 7,376 $ 7,427
Due after one year through five years 21,509 21,841
Due after five years through ten years 42,116 43,252
Due after ten years 16,639 17,325
Mortgage-backed securities 25,518 26,110
-------------------------------------------------------------------------------------------------------------------------
Total $ 113,158 $ 115,955
-------------------------------------------------------------------------------------------------------------------------
The Company purchases exchange and privately traded options to support
certain equity index annuity policyowner liabilities. These derivatives,
reflected as other invested assets, are used to manage fluctuations in the
equity market risk granted to the policyowners of the equity advantage
annuities. These derivatives involve, to varying degrees, elements of credit
risk and market risk. Credit risk is the risk of loss from a private party
failing to perform according to the terms of the contract. Market risk is the
possibility that future changes in market prices may make the derivative
less valuable, which offset guarantees granted to policyowners.
The options value on the balance sheet reflects the risk of potential loss to the
entity.
The Company's outstanding positions, which expire over various terms ranging
from 1 to 7 years, shown in notional or contract amounts, along with their
cost and estimated fair values, are summarized as follows:
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------------------------------
NOTIONAL FAIR
AMOUNT COST VALUE
--------------------------------------------------------------------------------------------------------------------------
Options $ 1,340 $ 1,544 $ 2,206
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
APPLAUSE! II 73
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
3. INCOME TAXES
----------------
The items that give rise to deferred tax assets and liabilities relate
to the following:
YEARS ENDED DECEMBER 31
---------------------------
1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized investment gains on securites available for sale $ 1,080 $ 277
Deferred policy acquisition costs 29,271 23,727
Prepaid expenses 804 172
-----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 31,155 24,176
-----------------------------------------------------------------------------------------------------------------------------
Future policy and contract benefits 20,014 12,620
Deferred future revenues 1,668 1,534
Other 147 101
-----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 21,829 14,255
-----------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 9,326 $ 9,921
-----------------------------------------------------------------------------------------------------------------------------
The difference between the U.S. federal income tax rate and the consolidated tax provision rate is summarized as
follows:
YEARS ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
Federal statutory tax rate 35.0 % 35.0 % 35.0 %
Other 2.9 4.3 0.2
-----------------------------------------------------------------------------------------------------------------------------
Effective tax rate 37.9 % 39.3 % 35.2 %
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 3l, 1997, 1996 and l995 was $9,810, $8,907
and $4,858, respectively. The Company also leased office space and furniture
and equipment from affiliates during 1995. The cost of these leases to the
Company for the year ended December 31, 1995 was $37. Under the terms of
investment advisory agreements, the Company paid $144, $73, and $44 for the
years ended December 1997, 1996 and 1995, respectively 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 retenton limit. These reinsurance
contracts do not relieve the Company of its obligations to its
policyowners. The Company paid $3,810, $3,301 and $2,280 of net reinsurance
premiums to affiliates for the years ended December 3l, 1997, 1996 and l995
respectively. The Company has received reinsurance recoveries from
affiliates of $2,260, $659 and $1,472 for the years ended December 3l,1997,
1996 and 1995 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.
74 APPLAUSE! II
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
------------------------------------------
The Company's variable life and annuity products are distributed through
Ameritas Investment Corp., a wholly-owned subsidiary of AMAL Corporation.
The Company received $93, $54 and $192 for the years ended December 31,
1997, 1996 and 1995 respectively, from this affiliate to partially defray
the costs of materials and prospectuses. Policies placed by this affiliate
generated commission expense of $23,232, $20,373 and $14,028 for the years
ended December 31, 1997, 1996 and 1995 respectively.
Transactions with related parties are not necessarily indicative of revenues
and expenses which would have occurred had the parties not been related.
5. BENEFIT PLANS
-----------------
The Company provides retirement and postretirement medical benefits to
qualifying employees. Prior to August l, 1997 these benefits were provided
under plans which covered substantially all employees of Ameritas Life
Insurance Corp. and its subsidiaries. Concurrent with the transfer of a
significant number of employees to the Company, effective August 1, 1997,
AMAL Corporation assumed the benefit obligations associated with these
plans.
The Company is included in a multi-employer noncontributory defined benefit
plan that covers substantially all full-time employees of Ameritas Life
Insurance Corp. and its subsidiaries and AMAL Corporation and it's
subsidiaries. Pension costs include current service costs, which are accrued
and funded on a current basis, and post service costs, which are amortized
over the average remaining service life of all employees on the adoption
date. Total Company contributions for the year ended December 31, 1997 were
$29. The Company had no full time employees during 1996 or 1995.
The Company's employees also participate in a defined contribution thrift
plan that covers substantially all full time employees of Ameritas Life
Insurance Corp. and its subsidiaries. Company matching contributions under
the plan range from 1% to 3% of the participant's compensation. Total
Company contributions for the year ended December 31, 1997 were $24. The
Company had no full time employees during 1996 or 1995.
The Company is also included in the postretirement benefit plan providing
group medical coverage to retired employees of AMAL Corporation and it's
subsidiaries. Prior to August 1, 1997 these benefits were provided under a
plan with Ameritas Life Insurance Corp. 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. Total Company contributions for the year ended December
31, 1997 were $5. The Company had no full time employees during 1996 or
1995.
Expenses for the defined benefit plan and postretirement group medical plan
are allocated to the Company based on the number of associates in AMAL
Corporation and its subsidiaries.
APPLAUSE! II 75
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
6. STOCKHOLDER'S EQUITY
------------------------
Net income (loss), as determined in accordance with statutory accounting
practices, was $2,048, $855 and $(19) for 1997, 1996 and 1995 respectively.
The Company's statutory surplus was $45,265, $44,100 and $13,800 at
December 31, 1997, 1996 and 1995 respectively. Effective January 1, 1996
the Company changed reserving methods used for most existing products
resulting in an increase in statutory surplus of approximately $20,60l.
The Company is required to maintain a certain level of surplus to be in
compliance with state laws and regulations. Company surplus is monitored
by state regulators to ensure compliance with risk based capital
requirements.
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, 1997 and 1996. 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,
the value has been determined using an interest rate spread matrix
based upon quality, weighted average maturity and Treasury yields.
EQUITY SECURITIES AVAILABLE FOR SALE -- Fair value is determined
using an independent pricing source.
LOANS ON INSURANCE POLICIES -- Fair values for loans on insurance
policies are estimated using a discounted cash flow analysis at
interest rates currently offered for similar loans with similar
remaining terms. Loans on insurance policies with similar
characteristics are aggregated for purposes of the calculations.
OTHER INVESTED ASSETS -- Fair value is determined using an
independent pricing source.
CASH AND CASH EQUIVALENTS, ACCRUED INVESTMENT INCOME AND
REINSURANCE RECOVERABLE -- The carrying amounts equal fair value.
76 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
--------------------------------------------------
ACCUMULATED CONTRACT VALUES -- Funds on deposit which do not have
fixed maturities are carried at the amount payable on demand at the
reporting date, which approximates fair value.
DECEMBER 31
----------------------------------------------------------------
1997 1996
---------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturity securities,
available for sale $115,955 $115,955 $ 62,621 $ 62,621
Equity securities, available for sale 4,135 4,135 - -
Loans on insurance policies 7,482 6,657 4,309 3,843
Other invested assets 2,206 2,206 - -
Cash and cash equivalents 13,711 13,711 10,684 10,684
Accrued investment income 1,801 1,801 1,096 1,096
Reinsurance recoverable - affiliates 514 514 9 9
Financial liabilities:
Accumulated contract values excluding amounts
held under insurance contracts 144,109 144,109 70,640 70,640
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 l940,
as amended, as unit investment trusts. Account V and VA-2's assets and
liabilities are segregated from the other assets and liabilities of the
Company.
Amounts in the Separate Accounts are:
DECEMBER 31
-------------------------------
1997 1996
-------------------------------------------------------------------------------------------------------------------------------
Separate Account V $ 197,729 $ 136,079
Separate Account VA-2 1,067,619 811,501
-------------------------------------------------------------------------------------------------------------------------------
$1,265,348 $ 947,580
-------------------------------------------------------------------------------------------------------------------------------
The assets of Account V are invested in shares of the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, Alger American
Fund, Morgan Stanley Universal Funds 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,
</TABLE>
APPLAUSE! II 77
<PAGE>
AMERITAS VARIABLE LIFE INSURANCE COMPANY
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
(IN THOUSANDS)
8. SEPARATE ACCOUNTS (CONTINUED)
--------------------------------
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,
Balanced Portfolio 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 five portfolios: the Emerging Growth
Portfolio (effective August 25, 1995), World Governments Portfolio
(effective August 24, 1995), Utilities Portfolio (effective September 18,
1995), Growth with Income Portfolio (effective October 9, 1995) and the
Research Portfolio (effective July 26, 1995). The Morgan Stanley Universal
Funds managed by Morgan Stanley Asset Management Inc. and has five
portfolios: the Asian Equity Portfolio (effective March 3, 1997), Global
Equity Portfolio (effective January 2, 1997), International Magnum
Portfolio (effective January 21, 1997), Emerging Markets Portfolio
(effective October 1, 1996) and the U.S. Real Estate Portfolio (effective
March 3, 1997).
Pursuant to an order of the SEC allowing for the substitution, all
policyowner funds invested in a Portfolio of Dreyfus Stock Index Fund were
transferred to the Index 500 Portfolio of the Fidelity Variable Insurance
Products Fund II as of March 31, 1997. The Dreyfus Stock Index Portfolio
was an investment alternative through the date of transfer for policyowners
of Separate Account V and VA-2.
Separate Account VA-2 allows investment in the Variable Insurance Products
Fund, Variable Insurance Products Fund II, Alger American Fund, MFS
Variable Insurance Trust and the Morgan Stanley Universal Funds with the
same portfolios as described above.
78 APPLAUSE! II
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The following tables illustrate how the cash values and death benefits of a
Policy may change with the investment experience of the Fund. The tables show
how the cash values and death benefits of a Policy issued to an Insured of a
given age and specified underwriting risk classification who pays the given
premium at issue would vary over time if the investment return on the assets
held in each portfolio of the Funds were a uniform, gross, after-tax annual rate
of 0%, 6%, or 12%. The tables on pages 80 through 83 illustrate a Policy issued
to a male, age 45, under a Preferred rate non-tobacco underwriting risk
classification. This policy provides for a standard tobacco use and non-tobacco
use, and preferred non-tobacco classification and different rates for certain
specified amounts. The cash values and death benefits would be different from
those shown if the gross annual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above and below those averages for
individual policy years, or if the Insured were assigned to a different
underwriting risk classification.
The second column of the tables shows the accumulated value of the premiums paid
at 5%. The following columns show the death benefits and the cash values for
uniform hypothetical rates of return shown in these tables. The tables on pages
80 and 82 are based on the current cost of insurance rates, current expense
deductions and the maximum percent of premium loads. These reflect the basis on
which AVLIC currently sells its Policies. The maximum allowable cost of
insurance rates under the Policy are based upon the 1980 Commissioner's Standard
Ordinary Smoker and Non-Smoker, Male and Female Mortality Tables (Smoker is
referenced for tobacco use rates; Non-Smoker is referenced for non-tobacco use
rates). Since these are recent tables and are split to reflect tobacco use and
sex, the current cost of insurance rates used by AVLIC are at this time equal to
the maximum cost of insurance rates for many ages. AVLIC anticipates reflecting
future improvements in actual mortality experience through adjustments in the
current cost of insurance rates actually applied. AVLIC also anticipates
reflecting any future improvements in expenses incurred by applying lower
percent of premiums of loads and other expense deductions. The death benefits
and cash values shown in the tables on pages 81 and 83 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 expenses paid by each
portfolio available for investment (the equivalent to an annual rate of .86% of
the aggregate average daily net assets of the Fund), and the daily charge by
AVLIC to each Subaccount for assuming mortality and expense risks and
administrative expenses which is equivalent to a charge at an annual rate of
0.80% for policy years 1-20 and 0.45% thereafter on pages 80 and 82 and at an
annual rate of 1.25% on pages 81 and 83 of the average net assets of the
Subaccounts). A portion of the brokerage commissions that certain Fidelity Funds
pay was used to reduce funds expenses. In addition, certain Fidelity 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, expenses would have been
higher. The Investment Advisor or other affiliates of the various funds have
agreed to reimburse the portfolios to the extent that the aggregate operating
expenses (certain portfolios may exclude certain items) were in excess of an
annual rate of .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
- -1.66%, 4.34%, and 10.34% respectively, for years 1-20 and -1.31%, 4.69%, and
10.69% for the years thereafter respectively, on pages 80 and 82 and -2.11%,
3.89% and 9.89% respectively, on pages 81 and 83.
The hypothetical values shown in the tables do not reflect any charges for
Federal Income tax burden attributable to the Separate 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 33).
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 Separate Account, and if no policy loans
have been made. The tables are also based on the assumptions that the
policyowner has not requested an increase or decrease in the initial Specified
Amount, that no partial withdrawals have been made, and that no more than
fifteen transfers have been made in any policy year so that no transfer charges
have been incurred. Illustrated values would be different if the proposed
Insured were female, a tobacco user, in substandard risk classification, or were
another age, or if a higher or lower premium was illustrated.
Upon request, AVLIC will provide comparable illustration based upon the proposed
Insured's age, sex and underwriting classification, the Specified Amount, the
death benefit option, and planned periodic premium schedule requested, and any
available riders requested. In addition, upon client request, illustrations may
be furnished reflecting allocation of premiums to specified Subaccounts. Such
illustrations will reflect the expenses of the portfolio in which the Subaccount
invests.
APPLAUSE! II 79
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 100
Male Issue Age: 45 Nontobacco Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $2500
INITIAL SPECIFIED AMOUNT: $150000
DEATH BENEFIT OPTION: A
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-1.66% Net) ( 4.34% Net) (10.34% Net)
------------------------------ ----------------------------- -------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ------ ------ ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2625 1793 0 150000 1919 0 150000 2046 0 150000
2 5381 3611 1289 150000 3978 1657 150000 4362 2040 150000
3 8275 5391 3166 150000 6120 3895 150000 6911 4687 150000
4 11314 7127 5000 150000 8342 6214 150000 9714 7586 150000
5 14504 8816 6809 150000 10643 8636 150000 12791 10784 150000
6 17855 10454 8641 150000 13023 11210 150000 16168 14355 150000
7 21372 12036 10416 150000 15481 13861 150000 19874 18254 150000
8 25066 13558 12156 150000 18017 16614 150000 23941 22539 150000
9 28944 15019 13810 150000 20631 19422 150000 28406 27197 150000
10 33016 16414 15399 150000 23324 22309 150000 33311 32295 150000
15 56643 22325 22325 150000 38058 38058 150000 66353 66353 150000
20 86798 26263 26263 150000 55277 55277 150000 121106 121106 150000
Ages
60 56643 22325 22325 150000 38058 38058 150000 66353 66353 150000
65 86798 26263 26263 150000 55277 55277 150000 121106 121106 150000
70 125283 27628 27628 150000 76595 76595 150000 214763 214763 249126
75 174401 22915 22915 150000 101966 101966 150000 368408 368408 394197
</TABLE>
1) Assumes an annual $2500 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.
80 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 100
Male Issue Age: 45 Nontobacco Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $2500
INITIAL SPECIFIED AMOUNT: $150000
DEATH BENEFIT OPTION: A
USING MAXIMUM ALLOWABLE SCHEDULE OF COST OF INSURANCE RATES
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-2.11% Net) ( 3.89% Net) ( 9.89% Net)
---------------------------- ----------------------------- -------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2625 1793 0 150000 1919 0 150000 2046 0 150000
2 5381 3387 1065 150000 3743 1422 150000 4117 1795 150000
3 8275 4919 2694 150000 5612 3387 150000 6365 4141 150000
4 11314 6379 4252 150000 7515 5387 150000 8802 6674 150000
5 14504 7768 5761 150000 9451 7444 150000 11438 9431 150000
6 17855 9081 7268 150000 11419 9606 150000 14296 12483 150000
7 21372 10314 8694 150000 13413 11793 150000 17390 15770 150000
8 25066 11456 10054 150000 15426 14023 150000 20739 19337 150000
9 28944 12505 11296 150000 17451 16242 150000 24366 23157 150000
10 33016 13448 12433 150000 19481 18466 150000 28291 27275 150000
15 56643 16372 16372 150000 29486 29486 150000 53586 53586 150000
20 86798 15227 15227 150000 38311 38311 150000 93111 93111 150000
Ages
60 56643 16372 16372 150000 29486 29486 150000 53586 53586 150000
65 86798 15227 15227 150000 38311 38311 150000 93111 93111 150000
70 125283 7069 7069 150000 43499 43499 150000 158612 158612 183990
75 174401 0* 0* 0* 40109 40109 150000 263040 263040 281452
</TABLE>
* In the absence of an additional premium the Policy would lapse.
1) Assumes an annual $2500 premium is paid at the beginning of each policy year.
Values would be different if premiums with a different frequency or in different
amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, DEATH BENEFIT OPTION SELECTED,
PREVAILING INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH
VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS
CAN BE MADE BY AVLIC OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
APPLAUSE! II 81
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 100
Male Issue Age: 45 Nontobacco Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $6000
INITIAL SPECIFIED AMOUNT: $150000
DEATH BENEFIT OPTION: B
USING CURRENT SCHEDULE OF COST OF INSURANCE RATES
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-1.66% Net) ( 4.34% Net) (10.34% Net)
----------------------------- -------------------------------------------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6300 5108 2690 155108 5436 3018 155108 5765 3347 155765
2 12915 10179 7858 160179 11158 8837 160179 12177 9856 162177
3 19860 15153 12928 165153 17114 14889 165153 19238 17013 169238
4 27153 20023 17895 170023 23307 21179 170023 27006 24878 177006
5 34811 24786 22779 174786 29742 27735 174786 35550 33543 185550
6 42852 29438 27625 179438 36424 34610 179438 44944 43131 194944
7 51294 33975 32355 183975 43356 41736 183975 55269 53649 205269
8 60159 38394 36992 188394 50545 49142 188394 66615 65213 216615
9 69467 42691 41482 192691 57995 56786 192691 79083 77874 229083
10 79240 46863 45847 196863 65714 64698 196863 92784 91769 242784
15 135944 65748 65748 215748 108566 108566 215748 184518 184518 334518
20 208315 81128 81128 231128 159264 159264 231128 331916 331916 481916
Ages
60 135944 65748 65748 215748 108566 108566 215748 184518 184518 334518
65 208315 81128 81128 231128 159264 159264 231128 331916 331916 481916
70 300680 93278 93278 243278 221515 221515 243278 578857 578857 728857
75 418564 97495 97495 247495 291594 291594 247495 990661 990661 1140661
</TABLE>
1) Assumes an annual $6000 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.
82 APPLAUSE! II
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
AMERITAS VARIABLE LIFE INSURANCE COMPANY
ENDOWMENT AT AGE 100
Male Issue Age: 45 Nontobacco Preferred Underwriting Class
PLANNED PERIODIC ANNUAL PREMIUM: $6000
INITIAL SPECIFIED AMOUNT: $150000
DEATH BENEFIT OPTION: B
USING MAXIMUM ALLOWABLE SCHEDULE OF COST OF INSURANCE RATES
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Annual Investment Return Annual Investment Return Annual Investment Return
(-2.11% Net) ( 3.89% Net) ( 9.89% Net)
--------------------------------------------------------------------------------------------------
Accumulated
End Of Premiums At Accumu- Cash Accumu- Cash Accumu- Cash
Policy 5% Interest lation Surrender Death lation Surrender Death lation Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6300 5083 2665 155083 5412 2994 155412 5740 3322 155740
2 12915 9771 7450 159772 10729 8408 160730 11728 9407 161728
3 19860 14318 12093 164318 16211 13986 166210 18263 16038 168262
4 27153 18723 16595 168723 21857 19729 171857 25394 23266 175394
5 34811 22983 20976 172983 27670 25663 177670 33176 31169 183176
6 42852 27098 25285 177098 33653 31839 183653 41670 39857 191670
7 51294 31062 29442 181062 39801 38181 189801 50935 49315 200935
8 60159 34867 33465 184867 46111 44708 196111 61035 59633 211036
9 69467 38508 37299 188508 52579 51370 202579 72046 70837 222046
10 79240 41974 40958 191974 59199 58183 209199 84042 83027 234042
15 135944 56459 56459 206459 94384 94384 244384 162144 162144 312144
20 208315 65170 65170 215170 132025 132025 282025 281650 281650 431650
Ages
60 135944 56459 56459 206459 94384 94384 244384 162144 162144 312144
65 208315 65170 65170 215170 132025 132025 282025 281650 281650 431650
70 300680 65590 65590 215590 169069 169069 319069 463438 463438 613438
75 418564 53788 53788 203788 199965 199965 349965 738976 738976 888976
</TABLE>
1) Assumes an annual $6000 premium is paid at the beginning of each policy year.
Values would be different if premiums with a different frequency or in different
amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, DEATH BENEFIT OPTION SELECTED,
PREVAILING INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH
VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS
CAN BE MADE BY AVLIC OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
APPLAUSE! II 83
