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File Nos. 333-03963, 811-07627
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As filed with the Securities and Exchange Commission on July 29, 1996
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
Registration Statement Under the Securities Act of 1933 / /
Pre-Effective Amendment No. 1 /X/
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Post-Effective Amendment No. / /
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and/or
Registration Statement Under the Investment Company Act of 1940 / /
Amendment No. 1 /X/
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(Check appropriate box or boxes.)
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ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
(Exact Name of Registrant)
ACACIA NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
51 Louisiana Avenue, N.W.
Washington, D.C. 20001
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (800) 369-9407
Ellen Jane Abromson, Esquire
Acacia National Life Insurance Company
51 Louisiana Avenue, N.W.
Washington, D.C. 20001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D. C. 20004-2404
Approximate Date of Proposed Public Offering:
As soon as practicable after effectiveness of the Registration Statement.
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940, an indefinite
amount of securities has been registered under the Securities Act of 1933.
The filing fee of $500 has been paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
SHALL DETERMINE.
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CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Showing Location of Information Required by Form N-4
in Part A (Prospectus) and Part B (Statement of
Additional Information) of the Registration Statement
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<CAPTION>
Caption(s) in the Statement
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Item of Form N-4 Caption(s) in the Prospectus of Additional Information
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PART A: INFORMATION REQUIRED IN A PROSPECTUS
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1. Cover Page Cover page
2. Definitions Glossary of Defined Terms
3. Synopsis Summary
4. Condensed Financial N/A
Information
5. General Description of ANLIC and the Variable Account;
Registrant, Depositor and The Portfolios; Voting Rights;
Portfolio Companies Administration
6. Deductions Summary; Charges and Deductions; Surrender Charge Calculation
The Portfolios
7. General Description of Summary; The Policy; Annuity General Provisions; Fixed Account
Variable Annuity Contracts Payments; Voting Rights;
Additional Information
8. Annuity Period Annuity Payments
9. Death Benefit The Policy -- Death Benefit
10. Purchases and Contract Value ANLIC and the Variable Account;
The Policy
11. Redemptions The Policy -- Surrender and
Partial Withdrawals; The Policy
-- Free Look Period
12. Taxes Federal Tax Matters Federal Tax Matters
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement of Additional Table of Contents
Statement of Additional Information
Information
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<TABLE>
<CAPTION>
Caption(s) in the Statement
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Item of Form N-4 Caption(s) in the Prospectus of Additional Information
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PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and N/A
History
18. Services Administration Experts; Distribution of the
Policies; Records and Reports
19. Purchase of Securities Being Summary; The Policy General Provisions; Distribution
Offered of the Policies
20. Underwriters ANLIC and the Variable Account Distribution of the Policies
21. Calculation of Performance Performance Data Performance Data Calculations;
Data Performance Figures
22. Annuity Payments Annuity Payments General Provisions
23. Financial Statements Financial Statements
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PROSPECTUS
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
ISSUED BY
ACACIA NATIONAL LIFE INSURANCE COMPANY
51 LOUISIANA AVENUE, N.W., WASHINGTON, DC 20001
TELEPHONE: (202) 628-4506
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The flexible premium deferred variable annuity policy (the "Policy")
offered by Acacia National Life Insurance Company ("ANLIC") and described in
this prospectus is designed to provide you, as a policy owner, with maximum
flexibility in attaining your financial goals, together with the opportunity to
allocate net premium payments ("Premium Payments") among investment
alternatives with different investment objectives. The Policy can be purchased
with a minimum Premium Payment of $300 the first year. Additional Premium
Payments must be at least $30. We will not issue a Policy if you are over age
85, or accept additional Premium Payments after age 75.
Net Premium Payments are allocated to one of fourteen sub-accounts (each,
a "Sub-account") of Acacia National Variable Annuity Separate Account II (the
"Variable Account") or ANLIC's general account (the "Fixed Account"), or to any
combination of them. You can freely transfer values among the Sub-accounts,
and transfer values between a Sub-account and the Fixed Account subject to
certain restrictions. (See "The Policy - Transfers.")
Each Sub-account will invest solely in a series (each, a "Portfolio") of
various mutual funds ("Funds"). The accompanying prospectuses for the Funds
describe the investment objectives and the attendant risks of the Portfolios.
The Portfolios currently available under the Policy are:
ALGER AMERICAN GROWTH STRONG ADVANTAGE FUND II
ALGER AMERICAN MIDCAP GROWTH STRONG ASSET ALLOCATION FUND II
ALGER AMERICAN SMALL CAPITALIZATION STRONG INTERNATIONAL STOCK FUND II
DREYFUS STOCK INDEX FUND STRONG DISCOVERY FUND II
ACACIA CAPITAL CORPORATION CALVERT RESPONSIBLY INVESTED MONEY MARKET
ACACIA CAPITAL CORPORATION CALVERT RESPONSIBLY INVESTED BALANCED
ACACIA CAPITAL CORPORATION CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH
NEUBERGER & BERMAN ADVISORS MANAGEMENT TRUST LIMITED MATURITY BOND
NEUBERGER & BERMAN ADVISORS MANAGEMENT TRUST GROWTH
VAN ECK WORLDWIDE INSURANCE TRUST GOLD AND NATURAL RESOURCES FUND
The value of your investment will reflect the investment experience of
the Portfolios you select, as well as the frequency and amount of premium
payments you make, any partial surrenders, and the charges assessed in
connection with the Policy. YOU BEAR THE ENTIRE INVESTMENT RISK FOR ALL
AMOUNTS ALLOCATED TO THE VARIABLE ACCOUNT; NO MINIMUM POLICY ACCOUNT VALUE IS
GUARANTEED. Your Policy Account Value will also reflect the deduction of
certain fees and charges. If you make a partial or full surrender within five
years of making a Premium Payment, a surrender charge may be imposed on that
Premium Payment. (See "Charges and Deductions" for a description of these and
other charges imposed under the Policy.)
This Prospectus sets forth the information that a prospective investor
should consider before investing in a Policy. A Statement of Additional
Information about the Policy and the Variable Account, which has the same date
as this Prospectus, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The Statement of Additional
Information is available at no cost to any person requesting a copy by writing
ANLIC at its Service Office, P.O. Box 79574, Baltimore, Maryland 21279-0574, or
by calling 1-800-369-9407. The table of contents of the Statement of
Additional Information is included at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION, AND
THE POLICY IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, OR ANY OTHER
AGENCY, AND INVOLVES INVESTMENT RISK, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER,
SALESPERSON 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.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS FOR THE PORTFOLIOS.
This Prospectus and the Statement of Additional Information generally describe
only the Policies and the Variable Account, except
when the Fixed Account is specifically mentioned.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS ____________, 1996
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TABLE OF CONTENTS
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GLOSSARY OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Free Look Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Charges Associated with the Policy . . . . . . . . . . . . . . . . . . . . . . . 3
Partial Withdrawals and Surrender . . . . . . . . . . . . . . . . . . . . . . . . 4
Federal Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Summary of Fees and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ANLIC AND THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Acacia National Life Insurance Company . . . . . . . . . . . . . . . . . . . . . 8
The Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Alger American Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Acacia Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Dreyfus Stock Index Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . . . . . . 11
Strong Variable Insurance Funds, Inc. . . . . . . . . . . . . . . . . . . . . . . 12
Van Eck Worldwide Insurance Trust . . . . . . . . . . . . . . . . . . . . . . . . 15
Risks Attendant to Investments in Junk Bonds . . . . . . . . . . . . . . . . . . 16
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Resolving Material Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 17
THE POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Issuance of a Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Telephone Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Free Look Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Allocation of Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . 18
Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Surrender and Partial Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . 19
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Automatic Rebalancing, Dollar Cost Averaging, and Interest Sweep Programs . . . . 21
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Required Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Annual Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Administrative Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . 24
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Reduction In Charges For Certain Groups . . . . . . . . . . . . . . . . . . . . . 25
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Election of an Annuity Payment Option . . . . . . . . . . . . . . . . . . . . . . 26
Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Available Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Annuity Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Taxation of Annuities in General . . . . . . . . . . . . . . . . . . . . . . . . 27
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PUBLISHED RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
POLICY REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
iv
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Throughout this Prospectus, the words "us", "we", "our", and "ANLIC"
refer to Acacia National Life Insurance Company, and the words
"you", "your", and "Owner" refer to the policy owner.
GLOSSARY OF DEFINED TERMS
ACCUMULATION PERIOD The period before the Maturity Date and during the
lifetime of the Annuitant.
ACCUMULATION UNIT VALUE An accounting unit of measure used to calculate
the value of your interest in the Sub-accounts.
The initial number of Accumulation Units to be
credited to each Sub-account will be determined by
dividing the net Premium Payments allocated to
each Sub-account by the Accumulation Unit Value
for that Sub-account for that Valuation Period.
AGE Age at last birthday.
ANLIC Acacia National Life Insurance Company.
ANNUITANT The person(s) whose life is used to determine the
duration of Annuity Payments involving life
contingencies. The Annuitant must be a natural
person.
ANNUITY PAYMENT OPTIONS The options that are available for payment of the
Surrender Value of the Policy commencing upon the
Maturity Date.
BENEFICIARY The person(s) or legal entity that you designate
in the Application or thereafter in writing to our
Service Office as the Beneficiary.
DUE PROOF OF DEATH A certified copy of a death certificate, a
certified copy of a decree of a court of competent
jurisdiction as to the finding of death, a written
statement by the attending physician, or any other
proof satisfactory to us.
ELIGIBLE INVESTMENT(S) Those investments available under the Policy.
Current Eligible Investments are shown on the
Specifications Page.
FIXED ACCOUNT The account via which you may allocate or transfer
net Premium Payments to our General Account. An
initial allocation or transfer into the Fixed
Account does not entitle you to share in the
investment experience of the General Account.
Instead, we guarantee that any Policy Account
Value in the Fixed Account will accrue interest at
an annual rate of at least the Guaranteed Interest
Rate.
FREE WITHDRAWAL AMOUNT That portion of any Partial Withdrawal or
Surrender that is not subject to a Surrender
Charge under the terms of the Policy.
FUND A registered, open-end management investment
company (commonly called a "mutual fund"). Each
Sub-account invests exclusively in shares of a
single Portfolio of a Fund.
GENERAL ACCOUNT The assets of ANLIC other than those in the
Variable Account or any other separate account.
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GUARANTEED INTEREST RATE An interest rate established in good faith by
ANLIC applicable to the General Account for an
Interest Rate Guarantee Period. Your Fixed
Account Value will accrue interest at least at the
Guaranteed Interest Rate. The Guaranteed Interest
Rate is currently 4%, although we may declare
interest at a rate in excess of the Guaranteed
Interest Rate. Any such excess interest rate when
declared will remain in effect at least one year.
INTEREST RATE GUARANTEE A specified period whereby funds allocated to the
PERIOD General Account accumulate interest at a
Guaranteed Interest Rate. Interest rates will
be determined on no less than an annual basis.
INVESTMENT ALLOCATION The percent of each Premium Payment you choose to
allocate to the Sub-Accounts or the Fixed Account.
IRREVOCABLE BENEFICIARY A Beneficiary or Beneficiaries whose interest
cannot be changed without their, his or her
consent or as required by law.
JOINT ANNUITANT A person other than the Annuitant who may be
designated by the Owner and whose life is also
used to determine the duration of Annuity Payments
involving life contingencies. If one of the joint
Annuitants dies prior to the Maturity Date, the
survivor shall become the sole Annuitant.
MATURITY DATE The date upon which Annuity Payments begin. You
may choose a Maturity Date commencing no later
than the first day of the calendar month after the
Annuitant's 90th birthday.
NET ASSET VALUE For each Portfolio, the current price of one share
of that Portfolio. The Net Asset Value is
computed by adding the value of the Portfolio's
investments plus cash and other assets, deducting
liabilities and then dividing the result by the
number of its shares outstanding. The Net Asset
Value of each portfolio is generally calculated as
of the close of business on each day the New York
Stock Exchange is open.
NET PREMIUM PAYMENT The Premium Payment less any applicable tax
charges.
OWNER The person named on the Application as Owner or
the persons named on the Application as Joint
Owners. Any reference to Owner in this Prospectus
or in the Policy will include both Owners, if
there are Joint Owners. The Owner is entitled to
all of the ownership rights under the Policy. The
Owner has the legal right to make all changes in
the policy designations where permitted
specifically by the terms of the Policy. The
Owner is as specified in the Application, unless
changed. "You" and "your" are also used
throughout this Prospectus and the Policy to refer
to the Owner.
POLICY ACCOUNT VALUE The sum of the Variable Account Value and the
Fixed Account Value.
POLICY ANNIVERSARY Each anniversary of the Policy Date.
POLICY DATE The date set forth in the Policy that is used to
determine Policy years and months. Policy
Anniversaries are measured from the Policy Date.
PORTFOLIO A separate investment portfolio of a Fund in which
the Variable Account assets may be invested.
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PREMIUM PAYMENT An amount paid to ANLIC in accordance with the
provisions of the Policy.
SERVICE OFFICE The office where Policy administration is done,
whether at ANLIC or at the offices of a third
party administrator, as designated by ANLIC in
writing. The Service Office address is Acacia
National Life Insurance Company, P.O. Box 79574,
Baltimore, Maryland 21279-0574.
SINGLE PREMIUM POLICY Between issue ages 75 and 85, we will accept only
Single Premium Policies. The Premium Payment is
due on the Policy Date. The maximum Premium
Payment that can be paid without prior approval of
ANLIC is $500,000.
SUB-ACCOUNTS The sub-divisions of the Variable Account which
each invest exclusively in shares of a specified
Portfolio or any other investment portfolio with a
specific investment objective that we determine to
be suitable for the Policy's purposes.
SURRENDER VALUE The Policy Account Value as of any Valuation Date,
reduced by applicable Surrender Charges, the
Annual Policy Fee, and any premium or other taxes.
SYSTEMATIC PARTIAL Owners choosing this option will withdraw a level
WITHDRAWALS dollar amount of Policy Account Value on a
periodic basis. Systematic Partial Withdrawals
are subject to the same Surrender Charges as
partial withdrawals, as set forth on the
Specifications Page of the Policy.
VALUATION DATE Each regular business day that ANLIC and the New
York Stock Exchange is open for business,
excluding holidays and any other day in which
there is insufficient trading in the Portfolio
securities to materially affect the value of the
assets in the Variable Account.
VALUATION PERIOD The period between two successive Valuation Dates,
commencing at the close of business of a Valuation
Date and ending at the close of business for the
next succeeding Valuation Date.
VARIABLE ACCOUNT Acacia National Variable Annuity Separate Account
II, a separate investment account that has been
was established by ANLIC to receive and invest the
net Premium Payments paid under the Policy.
VARIABLE ACCOUNT VALUE The sum of the values held in all the Sub-accounts
of the Variable Account.
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SUMMARY
This is a brief summary of the Policy provisions and how they relate to
your rights and benefits. Complete details are contained elsewhere in the
Prospectus and should be read carefully in conjunction with this summary
information.
THE POLICY
The Policy is designed to aid individuals in long-term financial planning
and provides for the accumulation of capital on a tax-deferred basis for
retirement or other long-term purposes. The Policy also provides for annuity
payments ("Annuity Payments") to begin at maturity. You may select from a
number of Annuity Payment Options, including a life annuity, joint life
annuity, and life annuity for a guaranteed period. All Annuity Payment Options
are on a fixed basis. (See "Annuity Payments.")
The Policy is issued in consideration of the application and payment of
the initial Premium Payment. Premium Payments of at least $300 must be paid
during the first Policy year. (See "The Policy - Premium Payments.") The
Policy can be purchased for a single Premium Payment. However, additional
Premium Payments of at least $30 may be paid at your option. (See "The Policy
- - Premium Payments.") The Policy can be purchased on a non-qualified tax basis
(a "Nonqualified Policy") or it can be purchased and used in connection with
plans qualifying for favorable Federal income tax treatment (a "Qualified
Policy").
THE VARIABLE ACCOUNT
The Variable Account currently has fourteen Sub-accounts
("Sub-accounts"), each of which invests solely in shares of a portfolio of one
of several open-end, registered investment companies ("Funds"). Currently, the
following fourteen Portfolios are available under the Policy:
ALGER AMERICAN GROWTH STRONG ADVANTAGE FUND II
ALGER AMERICAN MIDCAP GROWTH STRONG ASSET ALLOCATION FUND II
ALGER AMERICAN SMALL CAPITALIZATION STRONG INTERNATIONAL STOCK FUND II
DREYFUS STOCK INDEX FUND STRONG DISCOVERY FUND II
ACACIA CAPITAL CORPORATION CALVERT RESPONSIBLY INVESTED MONEY MARKET
ACACIA CAPITAL CORPORATION CALVERT RESPONSIBLY INVESTED BALANCED
ACACIA CAPITAL CORPORATION CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH
NEUBERGER & BERMAN ADVISORS MANAGEMENT TRUST LIMITED MATURITY BOND
NEUBERGER & BERMAN ADVISORS MANAGEMENT TRUST GROWTH
VAN ECK WORLDWIDE INSURANCE TRUST GOLD AND NATURAL RESOURCES FUND
Each of these Portfolios has a different investment objective. (See "The
Portfolios.")
You determine the allocation of Premium Payments and Policy Account Value
among the Sub-accounts. Because the Policy Account Value depends on the
investment experience of the Sub-accounts you select, you bear the entire
investment risk under the Policy for all Premium Payments allocated to, and
amounts transferred to, the Variable Account. (See "The Policy - Allocation of
Premium Payments.") Prior to the Maturity Date, you may transfer amounts from
one Sub-account to one or more other Sub-accounts at no cost. In addition, you
may transfer amounts between a Sub-account and the Fixed Account, subject to
certain restrictions. (See "The Policy - Transfers.")
<PAGE> 12
THE FIXED ACCOUNT
The Fixed Account is a part of the general account of ANLIC (the "General
Account"). The General Account consists of all of ANLIC's assets other than
those in any separate account. We guarantee that we will credit interest at a
rate of not less than 4% per year (the "Guaranteed Interest Rate") to amounts
allocated to the Fixed Account. We may credit interest at a rate in excess of
the Guaranteed Interest Rate. Any excess interest credited will be determined
in our sole discretion. You assume the risk that interest credited to the
Fixed Account allocations may not exceed the Guaranteed Interest Rate. The
Fixed Account may not be available in all states. (See "Fixed Account," in the
Statement of Additional Information.)
You determine the allocation of Premium Payments and Policy Account Value
to the Fixed Account. Transfers out of the Fixed Account are subject to
certain limitations. (See "The Policy - Transfers.")
POLICY ACCOUNT VALUE
The Policy Account Value is the total of your Policy's value held in both
the Variable Account and the Fixed Account.
Your Policy's value in the Variable Account is the sum total of all
values held in the Sub-accounts. This value reflects the investment
performance of the Sub-accounts net of Premium Payments paid, transfers, and
partial surrenders. You bear the entire investment risk for amounts allocated
to the Variable Account and consequently there is no guaranteed minimum amount
of value for Premium Payments allocated to the Sub-accounts.
Your Policy's value in the Fixed Account will reflect net Premium
Payments allocated or transferred to it, plus credited interest, less any
amounts transferred or withdrawn (See "Fixed Account," in the Statement of
Additional Information). Interest credited to amounts in the Fixed Account
will be declared by ANLIC in advance and may from year to year in the complete
discretion of ANLIC, but is guaranteed to equal or exceed the Guaranteed
Interest Rate of 4% per year.
FREE LOOK PERIOD
If for any reason you are not satisfied with the Policy, you may cancel
it by returning it to us within 10 days after you receive it (the "Free Look
Period"). If you choose to do so, we will void the Policy and refund the
Policy Account Value (or the Premium Payments made to that point, where
required by state law). (See "The Policy - Free Look Period.")
TRANSFERS
Unlimited transfers are allowed from the Variable Account to the Fixed
Account or between Sub-accounts of the Variable Account. You may also
participate in three asset allocation programs under which you authorize
automatic transfers. (See "The Policy - Automatic Rebalancing, Dollar Cost
Averaging, and Interest Sweep Programs.")
The maximum amount allowed to be transferred out of the Fixed Account during
one Policy Year is 100% of Fixed Account interest accrued since the last Policy
Anniversary; plus 10% of:
(1) Account Value of the Fixed Account as of the last Policy Anniversary; plus
(2) Deposits and transfers made into the Fixed Account since the last Policy
Anniversary; minus
(3) All partial withdrawals from the Fixed Account since the last Policy
Anniversary.
You may also elect to systematically reallocate all interest generated from the
Fixed Account into the Sub-
2
<PAGE> 13
accounts of the Variable Account on an interest only basis according to your
allocation election. (See "Interest Sweep Program.")
DEATH BENEFIT
The Policy provides a Death Benefit if you or a Joint Owner dies before
the Maturity Date. You may choose whether the Death Benefit under the Policy
will be paid in a lump sum or under one of the Annuity Payment Options. If no
election is made, the Death Benefit will be paid in a lump sum. (See "The
Policy - Death Benefit," and "Annuity Payments.")
The amount of the Death Benefit is guaranteed not to be less than the
Policy Account Value or the cumulative Premium Payments made less cumulative
withdrawals (including Surrender Charges, if applicable). In addition, up to
age 75, we also guarantee that the amount of the Death Benefit will not be less
than the Minimum Guaranteed Death Benefit, which is calculated every five years
from the fifth Policy Anniversary through the Owner's age 75. (See "The Policy
- - Death Benefit.")
Certain distribution requirements under Federal income tax laws will
apply to payments of Death Benefits. (See "The Policy - Required
Distributions.")
CHARGES ASSOCIATED WITH THE POLICY
ANNUAL POLICY FEE - An annual charge of $42 is made on each Policy
Anniversary and at the time a Policy is surrendered and at the Maturity Date to
partially compensate ANLIC for the cost of administering the Policy. (See
"Charges and Deductions - Annual Policy Fee.") This annual deduction will be
made from the Sub-accounts in the same proportion that their values bear to the
total Variable Account Value. The Annual Policy Fee is waived if the Policy
Account Value exceeds $50,000 at the time the Annual Policy Fee would be
imposed.
ADMINISTRATIVE EXPENSE CHARGE - A monthly charge at an effective annual
rate of .10% of the average daily net asset value of the Variable Account will
be deducted from the Sub-accounts to partially compensate ANLIC for the costs
of administering the Variable Account and the Policies. (See "Charges and
Deductions - Administrative Expense Charge.")
MORTALITY AND EXPENSE RISK CHARGE - A monthly charge at an effective
annual rate of 1.25% of the average daily net asset value of the Sub-accounts
will be deducted from the Sub-accounts for ANLIC's assumption of certain
mortality and expense risks incurred in connection with the Policy. (See
"Charges and Deductions - Mortality and Expense Risk Charge.") There is no
Mortality and Expense Risk Charge for amounts in the Fixed Account.
The Mortality and Expense Risk Charge is guaranteed to decrease by .05%
on each Policy Anniversary beginning in year 16 until it reaches an effective
annual rate of .50% at the end of year 30.
SURRENDER CHARGE - A Surrender Charge is deducted on a percentage basis
from Premium Payments made within five years of surrender. The amount of the
Surrender Charge is equal to 8% of Premium Payments made within three years of
surrender, 6% of Premium Payments made during the fourth year prior to
surrender, and 4% of Premium Payments made during the fifth year prior to
surrender. The Surrender Charge is applied to Premium Payments on a first-in,
first-out basis. (See "Charges and Deductions - Surrender Charge.")
PREMIUM TAXES - Certain states impose premium taxes. ANLIC will deduct
amounts equal to these taxes as applicable. Premium tax rates vary from 0 to
3.5%. (See "Charges and Deductions - Premium Taxes.")
3
<PAGE> 14
FUND EXPENSES - Because the Variable Account purchases shares of the
Portfolios, the value of the net assets in the Sub-accounts will reflect the
investment management fee and other expenses of the Portfolios. (See "Charges
and Deductions - Fund Expenses" and the Fund prospectuses).
PARTIAL WITHDRAWALS AND SURRENDERS
You may, prior to the earlier of the Maturity Date or your death,
withdraw all or a portion of the current Surrender Value. If there are Joint
Owners, you both must agree to a withdrawal.
You may, prior to the earlier of the Maturity Date or your death,
withdraw 100% of earnings (since the last Policy Anniversary) in the Variable
Account and the Fixed Account free of Surrender Charges. Additionally, up to
10% of the Policy Account Value (as of the last Policy Anniversary); plus 10%
of:
(1) Deposits since the last Policy Anniversary; minus
(2) Withdrawals since the last Policy Anniversary
may also be withdrawn free of Surrender Charges.
Upon a Partial Withdrawal, Surrender, or Annuitization we will apply
the Surrender Charge Percentage shown on the Policy Specification Page to those
Premium Payments received within five years of the Partial Withdrawal or
Surrender Date. After the free amounts are determined, the calculation will be
based on a first-in, first-out basis. Also, Surrender Charges may be waived in
certain limited circumstances. (See "The Policy - Surrender and Partial
Withdrawals.")
Surrenders may be taxable transactions and subject to a tax penalty.
(See "Federal Tax Matters.") Payment of amounts from the Fixed Account upon
surrender and refund of premium may be delayed under certain circumstances.
(See "The Policy - Surrender and Partial Withdrawals.")
FEDERAL TAX MATTERS
With respect to Owners who are natural persons, under existing tax law
there should be no federal income tax on increases (if any) in the Policy
Account Value until a distribution under the Policy occurs (e.g., a withdrawal
or Annuity Payment) or is deemed to occur (e.g., a pledge or assignment of a
Policy). Generally, a portion of any distribution or deemed distribution will
be taxable as ordinary income. The taxable portion of certain distributions
will be subject to withholding unless the recipient (if permitted) elects
otherwise. In addition, a penalty tax of 10% of the amount withdrawn may apply
to certain distributions or deemed distributions under the Policy made prior to
the Owner's attaining age 59 1/2. (See "Federal Tax Matters.")
The ultimate effect of Federal income taxes on the Policy Account Value,
on Annuity Payments and on the economic benefit to you, the Annuitant or the
Beneficiary depends on whether Premium Payments are made pursuant to a
retirement plan, the type of retirement plan, the tax and employment status of
the individual concerned and ANLIC's tax status. In addition, certain
requirements must be satisfied in purchasing a Qualified Policy with proceeds
from a tax qualified plan in order to continue receiving favorable tax
treatment. Therefore, you should seek competent legal and tax advice regarding
the suitability of the Policy for your situation, the applicable requirements
and the tax treatment of the rights and benefits of a Policy.
4
<PAGE> 15
(See "Federal Tax Matters -- Taxation of Annuities in General.")
SUMMARY OF FEES AND CHARGES
The following information summarizes the fees and charges payable by the
Owner of a Policy:
CONTRACT OWNER TRANSACTION EXPENSES:
<TABLE>
<S> <C> <C>
Maximum Surrender Charge . . . . . . . 8.0%
Transfer fee . . . . . . . . . . . . . $00
ANNUAL POLICY FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES (expressed as a
percent of the average daily net assets of each
Sub-account of the Variable Account):
<TABLE>
<S> <C> <C>
Maximum Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.10%
Total Variable Account Annual Expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . 1.35%
</TABLE>
PORTFOLIO ANNUAL EXPENSES
(Expressed as a Percentage of Net Assets of each Portfolio)
<TABLE>
<CAPTION>
TOTAL
PORTFOLIO
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
Alger American Growth . . . . . . . . . . . . . . . . . . . . . . . . . 0.75% 0.10% 0.85%
Alger American MidCap Growth . . . . . . . . . . . . . . . . . . . . . 0.80% 0.10% 0.90%
Alger American Small Capitalization . . . . . . . . . . . . . . . . . . 0.85% 0.07% 0.92%
Acacia Capital Corporation Calvert Responsibly Invested Money Market . 0.50% 0.16% 0.66%
Acacia Capital Corporation Calvert Responsibly Invested Balanced . . . 0.70% 0.13% 0.83%
Acacia Capital Corporation Calvert Responsibly Invested Strategic Growth 1.50% 0.52% 2.02%
Dreyfus Stock Index Fund . . . . . . . . . . . . . . . . . . . . . . . 0.30% 0.12% 0.42%
Neuberger & Berman Advisors Management Trust Limited Maturity Bond . . 0.65% 0.10% 0.75%
Neuberger & Berman Advisors Management Trust Growth . . . . . . . . . . 0.84% 0.10% 0.94%
Strong Advantage Fund II . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.40% 1.00%
Strong Asset Allocation Fund II . . . . . . . . . . . . . . . . . . . . 0.85% 0.75% 1.60%
Strong International Stock Fund II . . . . . . . . . . . . . . . . . . 1.00% 0.30% 1.30%
Strong Discovery Fund II . . . . . . . . . . . . . . . . . . . . . . . 1.00% 0.30% 1.30%
Van Eck Worldwide Insurance Trust Gold and Natural Resources Fund . . . 0.75% 0.21% 0.96%
</TABLE>
The purpose of the following table is to assist you in understanding the
various costs and expenses that
5
<PAGE> 16
you will bear directly and indirectly. The Table reflects charges and expenses
of the Variable Account and charges and expenses of the Portfolios for the year
ended December 31, 1995; the Portfolios' charges and expenses for future years
may be higher or lower. For more information on the charges summarized in this
Table, see "Charges and Deductions," and the Prospectuses for the Funds. In
addition, premium taxes may be applicable.
EXAMPLE
If you surrender or annuitize your contract at the end of the applicable
time period, you would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS
<S> <C> <C>
Alger American Growth . . . . . . . . . . . . . . . . . . . . . . . . . $96 $148
Alger American MidCap Growth . . . . . . . . . . . . . . . . . . . . . 96 150
Alger American Small Capitalization . . . . . . . . . . . . . . . . . . 96 150
Acacia Capital Corporation Calvert Responsibly Invested Money Market . 94 142
Acacia Capital Corporation Calvert Responsibly Invested Balanced . . . 95 147
Acacia Capital Corporation Calvert Responsibly Invested Strategic 107 185
Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dreyfus Stock Index Fund . . . . . . . . . . . . . . . . . . . . . . . 91 134
Neuberger & Berman Advisors Management Trust Limited Maturity Bond . . 95 145
Neuberger & Berman Advisors Management Trust Growth . . . . . . . . . . 96 151
Strong Advantage Fund II . . . . . . . . . . . . . . . . . . . . . . . 97 153
Strong Asset Allocation Fund II . . . . . . . . . . . . . . . . . . . . 103 172
Strong International Stock Fund II . . . . . . . . . . . . . . . . . . 107 184
Strong Discovery Fund II . . . . . . . . . . . . . . . . . . . . . . . 100 162
Van Eck Worldwide Insurance Trust Gold and Natural Resources Fund . . . 97 152
</TABLE>
6
<PAGE> 17
If you do not surrender or annuitize your contract, you would pay the
following expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS
<S> <C> <C>
Alger American Growth . . . . . . . . . . . . . . . . . . . . . $24 $76
Alger American MidCap Growth . . . . . . . . . . . . . . . . . 24 78
Alger American Small Capitalization . . . . . . . . . . . . . . 24 79
Acacia Capital Corporation Calvert Responsibly Invested Money 22 70
Market . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acacia Capital Corporation Calvert Responsibly Invested 23 76
Balanced
Acacia Capital Corporation Calvert Responsibly Invested 35 113
Strategic Growth . . . . . . . . . . . . . . . . . . . . . . .
Dreyfus Stock Index Fund . . . . . . . . . . . . . . . . . . . 19 63
Neuberger & Berman Advisors Management Trust Limited Maturity 23 73
Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Neuberger & Berman Advisors Management Trust Growth . . . . . . 25 79
Strong Advantage Fund II . . . . . . . . . . . . . . . . . . . 25 81
Strong Asset Allocation Fund II . . . . . . . . . . . . . . . . 31 100
Strong International Stock Fund II . . . . . . . . . . . . . . 35 112
Strong Discovery Fund II . . . . . . . . . . . . . . . . . . . 28 91
Van Eck Worldwide Insurance Trust Gold and Natural Resources 25 80
Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
In addition, ANLIC will deduct a charge for premium taxes when they are
incurred.
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN. The
examples are based on an anticipated average initial Premium Payment of
approximately $25,000 and a pro rata portion of the Annual Policy Fee of $42.
7
<PAGE> 18
ANLIC AND THE VARIABLE ACCOUNT
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANLIC is a stock life insurance company incorporated in the Commonwealth
of Virginia on December 9, 1974. ANLIC is principally engaged in offering life
insurance policies and annuity contracts. ANLIC is admitted to do business in
46 states and the District of Columbia.
Acacia Mutual Life Insurance Company ("Acacia Mutual") owns all the
outstanding stock of ANLIC. The principal offices of both ANLIC and Acacia
Mutual are at 51 Louisiana Avenue, N.W., Washington, D.C. 20001. Acacia Mutual
is a mutual life insurance company chartered by a Special Act of Congress in
1869 and is subject to the laws of the District of Columbia. It is the only
life insurance company operating today under a Federal Charter. Acacia Mutual
is licensed in 41 states and in the District of Columbia and offers a complete
line of life insurance products. While ANLIC is a wholly-owned subsidiary of
Acacia Mutual, the assets of Acacia Mutual do not support the obligations of
ANLIC under the Policy.
A number of the directors and officers of ANLIC are also either directors
or officers or both of Acacia Mutual. Acacia Mutual's employees perform
certain administrative functions for ANLIC for which Acacia Mutual is
reimbursed.
Acacia Mutual also owns all of the outstanding stock of the Acacia
Financial Corporation, a holding company, which owns all of the stock of the
Calvert Group, Ltd. ("Calvert"), which in turn owns The Advisors Group, Inc.
and Calvert Asset Management Company, Inc. ("CAM"). CAM is the investment
adviser of Acacia Capital Corporation, one of the Funds available under the
Policies. The Advisors Group, Inc. is the principal underwriter for the
Policies described in this prospectus. The Advisors Group, Inc. sells shares
of other mutual funds and other securities, and may also sell variable annuity
or variable life policies of other issuers.
THE VARIABLE ACCOUNT
Acacia National Variable Annuity Separate Account II (the "Variable
Account") was established by ANLIC as a separate account on November 30, 1995.
The Variable Account will receive and invest the net Premium Payments paid
under this Policy.
Although the assets of the Variable Account are the property of ANLIC,
the Code of Virginia under which the Variable Account was established provides
that the assets in the Variable Account attributable to the Policies are
generally not chargeable with liabilities arising out of any other business
which ANLIC may conduct.
The Variable Account is currently divided into fourteen Sub-accounts.
Each Sub-account invests exclusively in shares of a single Portfolio of a
registered, open end investment management company (a "Fund" or the "Funds"
collectively). Income and both realized and unrealized gains or losses from
the assets of each Sub-account of the Variable Account are credited to or
charged against that Sub-account without regard to income, gains or losses from
any other Sub-account of the Variable Account or arising out of any other
business ANLIC may conduct. Each Sub-account reinvests all dividends and
income and capital gain distributions declared by the Portfolio.
The Variable Account has been registered as a unit investment trust under
the Investment Company Act of 1940. Registration with the Securities and
Exchange Commission does not involve supervision of the management or
investment practices or policies of the Variable Account or ANLIC by the
Commission.
8
<PAGE> 19
THE PORTFOLIOS
THE INVESTMENT OBJECTIVES OF EACH OF THE PORTFOLIOS ARE SUMMARIZED BELOW.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVE.
MORE DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING A DESCRIPTION OF THE
RISKS, MAY BE FOUND IN THE PROSPECTUS FOR EACH OF THE PORTFOLIOS WHICH MUST
ACCOMPANY OR PRECEDE THIS PROSPECTUS. IN ADDITION, THE VARIABLE ACCOUNT
PURCHASES SHARES OF EACH PORTFOLIO SUBJECT TO THE TERMS OF THE PARTICIPATION
AGREEMENTS BETWEEN ANLIC AND THE FUNDS. COPIES OF THOSE AGREEMENTS HAVE BEEN
FILED AS EXHIBITS TO THE REGISTRATION STATEMENT FOR THE VARIABLE ACCOUNT. EACH
OF THE FUNDS HAS OR MAY HAVE ADDITIONAL PORTFOLIOS THAT ARE NOT AVAILABLE TO
THE VARIABLE ACCOUNT.
THE ALGER AMERICAN FUND
The Variable Account has three Sub-accounts that invest exclusively in
shares of the Alger American Fund. The Large-Cap Growth Sub-account, the
Mid-Cap Growth Sub-account and the Small-Cap Growth Sub-account invest in the
Alger American Growth Portfolio, the Alger American Mid Cap Growth Portfolio,
and the Alger American Small Capitalization Portfolio, respectively, of the
Alger American Fund.
The Alger American Growth Portfolio seeks to provide long- term capital
appreciation by investing in equity securities, such as common or preferred
stocks, or securities convertible into or exchangeable for equity securities,
including warrants and rights, primarily of companies with total market
capitalization of $1 billion or greater. 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 of less than $1 billion and in
excess of that amount (up to 100% of its assets) during temporary defensive
periods. The Portfolio will invest primarily in companies whose securities are
traded on domestic stock exchanges or in the over-the-counter market. These
companies may still be in the developmental stage, may be older companies that
appear to be entering a new stage of growth progress owing to factors such as
management changes or development of new technology, products, or markets or
may be companies providing products or services with a high unit volume growth
rate. In order to afford the Portfolio the flexibility to take advantage of
new opportunities for investments in accordance with its investment objective,
it may hold up to 15% of its net assets in money market instruments and
repurchase agreements, and in excess of that amount (up to 100% of its assets)
during temporary defensive periods. This amount may be higher than that
maintained by other funds with similar investment objectives.
The Alger American Mid Cap Growth Portfolio seeks to provide long-term
capital appreciation by investing in equity securities, such as common or
preferred stocks, or securities convertible into or exchangeable for equity
securities, including warrants and rights. Except during temporary defensive
periods, the 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. As of March 31,
1996, the range of market capitalization of these companies was $153 million to
$8.88 billion. The Portfolio may invest up to 35% of its total assets in
equity securities of companies that, at the time of purchase, have total market
capitalization outside the range of companies included in the S&P MidCap 400
Index and in excess of that amount (up to 100% of its assets) during temporary
defensive periods. This amount may be higher than that maintained by other
funds with similar investment objectives.
The Alger American Small Capitalization Portfolio seeks to provide
long-term capital appreciation by investing in equity securities, such as
common or preferred stocks, or securities convertible into or exchangeable for
equity securities, including warrants and rights. The Portfolio will invest in
companies whose securities are traded on domestic stock exchanges or in the
over-the-counter market. These companies may still be in the developmental
stage, may be older companies that appear to be entering a new stage of growth
progress owing to factors such as management changes or development of new
technology, products, or
9
<PAGE> 20
markets or may be companies providing products or services with a high unit
volume growth rate. Except during temporary defensive periods, the Portfolio
invests at least 65% of its total assets in equity securities of companies
that, at the time of purchase, have "total market capitalization" - present
market value per share multiplied by the total number of shares outstanding -
within the range of companies included in the Russell 2000 Growth Index,
updated quarterly. The Russell 2000 Growth Index is designed to track the
performance of small capitalization companies. As of March 31, 1996, the range
of market capitalization of these companies was $20 million to $3.04 billion.
The Portfolio may invest up to 35% of its total assets in equity securities of
companies that, at the time of purchase, have total market capitalization
outside the range of companies included in the Russell 2000 Growth Index and in
excess of that amount (up to 100% of its assets) during temporary defensive
periods. This amount may be higher than that maintained by other funds with
similar investment objectives.
Alger Management, Inc. serves as investment manager to the Alger American
Fund.
ACACIA CAPITAL CORPORATION
The Variable Account has three Sub-accounts that invest exclusively in
shares of Acacia Capital Corporation. The Money Market Sub-account, the
Responsibly Balanced Growth Sub-account, and the Strategic Growth Sub-account
of the Variable Account invest in shares of the Calvert Responsibly Invested
Money Market Portfolio, the Calvert Responsibly Invested Balanced Growth
Portfolio and the Calvert Responsibly Invested Strategic Growth Portfolio,
respectively, of Acacia Capital Corporation. Acacia Capital Corporation is one
of eight registered investment companies in the Calvert Group of Funds.
Calvert is an indirect wholly-owned subsidiary of Acacia Mutual. Calvert is
the sponsor of the Fund.
These Portfolios seek to achieve competitive returns while encouraging
responsible corporate conduct. The Portfolios look for enterprises that make a
significant contribution to society through their products and the way they do
business. Each proposed portfolio investment that is deemed financially viable
is then screened according to the stated social criteria of the particular
Portfolio. Investments must, in the judgment of the investment adviser, be
consistent with these criteria. It should be noted that the Portfolios' social
criteria tend to limit the availability of investment opportunities more than
is customary with other investment portfolios. (See the individual Portfolio
Prospectuses for a complete description of each social screen).
The Calvert Responsibly Invested Money Market Portfolio ("CRI Money
Market") seeks to provide the highest level of current income, consistent with
liquidity, safety and security of capital, by investing in money market
instruments, including repurchase agreements with recognized securities dealers
and banks secured by such instruments, selected in accordance with the
Portfolios' investment and social criteria. CRI Money Market attempts to
maintain a constant net asset value of $1.00 per share. There can be no
assurance that the Portfolio will maintain a constant net asset value of $1.00
per share. An investment in the Portfolio is neither insured nor guaranteed by
the United States government.
Calvert Responsibly Invested Balanced Growth Portfolio ("CRI Balanced
Growth") seeks to achieve a total return above the rate of inflation through an
actively managed portfolio of stocks, bonds and money market instruments
(including repurchase agreements secured by such instruments) selected with a
concern for the investment and social impact of each investment.
CRI Balanced Growth may invest up to 20% of its assets in non-investment
grade debt obligations ("junk bonds"). (See "The Portfolios - Risks Attendant
to Investments in Junk Bonds.")
Calvert Responsibly Invested Strategic Growth ("CRI Strategic Growth")
seeks, with a concern for social impact, maximum long-term growth through
investments primarily in the equity securities of companies that have little or
no debt, high relative strength and substantial management ownership. The
Portfolio considers
10
<PAGE> 21
issuers of all sizes, industries, and geographic markets, and does not seek
interest income or dividends.
CRI Strategic Growth may invest up to 35% of its assets in debt
securities, excluding money market instruments. These debt securities may
consist of investment-grade obligations and junk bonds. (See "The Portfolios -
Risks Attendant to Investments in Junk Bonds.")
Calvert Asset Management Company, Inc. ("CAM") is the investment adviser
to all the Acacia Capital Corporation Portfolios. CAM is a wholly owned
subsidiary of Calvert which is in turn an indirect wholly owned subsidiary of
Acacia Mutual. Pursuant to its investment advisory agreement, CAM manages the
investment and reinvestment of the assets of each Portfolio and is responsible
for the overall business affairs of each Portfolio. Calvert Administrative
Services, an affiliate of CAM, provides administrative services to each
Portfolio and is paid a fee by CAM of a percentage of net assets per year.
On behalf of CRI Balanced Growth, CAM has entered into a subadvisory
agreement with United States Trust Company of Boston, a Massachusetts chartered
commercial bank with full trust powers. On behalf of CRI Strategic Growth, CAM
has entered into a subadvisory agreement with Portfolio Advisory Services, Inc.
of California. The subadvisers manage the investment and reinvestment of the
assets of the Portfolio, although CAM may screen potential investments for
compatibility with the Portfolio's social criteria. CAM continuously monitors
and evaluates the performance of the subadvisers.
DREYFUS STOCK INDEX FUND
The Variable Account has one Sub-account that invests exclusively in
shares of the Dreyfus Stock Index Portfolio.
Dreyfus Stock Index Portfolio has as an investment objective to provide
investment results that correspond to the price and yield performance of
publicly traded common stocks in the aggregate, as represented by the Standard
& Poor's 500 composite Price Index, which is composed of 100 selected common
stocks, most of which are listed on the New York Stock Exchange. Standard &
Poor's Corporation chooses the stocks to be included in the Index solely on a
statistical basis. The Portfolio attempts to be fully invested at all times in
the stocks that comprise the Index and stock index futures as described below
and, in any event, at least 80% of the Portfolio's net assets will be so
invested. Inclusion of a stock in the Index in no way implies an opinion by
Standard & Poor's Corporation as to its attractiveness as an investment. The
Portfolio uses the Index as the standard performance comparison because it
represents approximately 70% of the total market value of all common stocks and
is well known to investors. An investment in the Portfolio involves risks
similar to those of investing in common stocks.
The Fund Administrator is Dreyfus Corporation ("Dreyfus"), a wholly-owned
subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon
Bank Corporation, a publicly owned multibank holding company.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has two Sub-Accounts that invest exclusively in
shares of Portfolios of the Neuberger & Berman Advisers Management Trust
("AMT"). The Bond and Large Cap Value Sub-accounts of the Variable Account
invest in shares of the Limited Maturity Bond Portfolio and Growth Portfolio,
respectively, of AMT.
The Neuberger & Berman Limited Maturity Bond Portfolio. The investment
objective of the Limited Maturity Bond Portfolio is to provide the highest
current income consistent with low risk to principal and
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<PAGE> 22
liquidity; and secondarily, total return. Neuberger & Berman Limited Maturity
Bond invests in a diversified portfolio of fixed and variable rate debt
securities and seeks to increase income and preserve or enhance total return by
actively managing average portfolio maturity in light of market conditions and
trends.
The Neuberger & Berman Limited Maturity Bond Portfolio invests in a
diversified portfolio of short-to-intermediate-term U.S. Government and Agency
securities and debt securities issued by financial institutions, corporations,
and others, of at least investment grade. These securities include
mortgage-backed and asset-backed securities, repurchase agreements with respect
to U.S. Government and Agency securities, and foreign investments. The
Neuberger & Berman Limited Maturity Bond Portfolio may invest up to 5% of its
net assets in municipal securities when the Portfolio Manager believes such
securities may outperform other available issues. The Portfolio may purchase
and sell covered call and put options, interest-rate futures contracts, and
options on those futures contracts, and may engage in lending portfolio
securities. The Portfolio's dollar-weighted average portfolio maturity may
range up to five years.
The Neuberger & Berman Growth Portfolio seeks capital appreciation,
without regard to income. The Neuberger & Berman Growth Portfolio invests in
securities believed to have the maximum potential for long-term capital
appreciation. It does not seek to invest in securities that pay dividends or
interest, and any such income is incidental. The Portfolio expects to be
almost fully invested in common stocks, often of companies that may be
temporarily out of favor in the market. The Portfolios' aggressive growth
investment program involves greater risks and share price volatility than
programs that invest in more conservative securities. Moreover, the Portfolio
does not follow a policy of active trading for short-term profits.
Accordingly, the Series may be more appropriate for investors with a
longer-range perspective. While the Portfolio uses the AMT value-oriented
investment approach, when the Portfolio Manager believes that particular
securities have greater potential for long-term capital appreciation, the
Portfolio may purchase such securities at prices with higher multiples to
measures of economic value (such as earnings). In addition, the Portfolio
focuses on companies with strong balance sheets and reasonable valuations
relative to their growth rates. It also diversifies its investments into many
companies and industries.
The investment adviser for the Limited Maturity Bond and Growth
Portfolios of AMT is Neuberger & Berman Management Incorporated ("N&B
Management"). N&B Management retains Neuberger & Berman, L.P., without cost to
AMT, as subadviser to furnish it with investment recommendations and research
information. N&B Management provides investment management services to each
Portfolio that include, among other things, making and implementing investment
decisions and providing facilities and personnel necessary to operate the
Portfolio. N&B Management provides administrative services to each Portfolio
that include furnishing similar facilities and personnel for the Portfolio.
With the Portfolio's consent, N&B Management is authorized to subcontract some
of its responsibilities under its administration agreement with the Portfolio
to third parties.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Variable Account has four Sub-accounts that invest exclusively in
shares of Portfolios of the Strong Variable Insurance Funds, Inc. (the "Strong
Funds"). The Income, Balanced, International and Aggressive Growth
Sub-accounts of the Variable Account invest in shares of the Strong Advantage
Fund II, Strong Asset Allocation Fund II, Strong International Stock Fund II,
and Strong Discovery Fund II, respectively, of the Strong Funds.
Strong Advantage Fund II seeks to provide current income with a very low
degree of share-price fluctuation. The Portfolio invests primarily in ultra
short-term investment-grade debt obligations. The Portfolio is designed for
investors who seek higher yields than money market funds generally offer and
who are willing to accept some modest principal fluctuation in order to achieve
that objective. Because its share price will vary, the Portfolio is not an
appropriate investment for those whose primary objective is absolute
12
<PAGE> 23
principal stability. The Portfolio's investments include a combination of
high-quality money market instruments, as well as securities with longer
maturities and debt obligations of lower quality. Under normal market
conditions, it is anticipated that the portfolio will maintain an average
effective portfolio maturity of one year or less. When the investment adviser
determines market conditions warrant a temporary defensive position, the
Portfolio may invest without limitation in cash and short-term fixed income
securities.
Strong Advantage Fund II may invest up to 25% of its total assets in junk
bonds that are rated in the fifth-highest category (e.g. BB by Standard and
Poors Corporation) or in unrated securities of comparable quality. (See "The
Portfolios - Risks Attendant to Investments in Junk Bonds.") However, because
these securities compose the tier immediately below investment-grade, they are
considered the least speculative non-investment grade securities.
Although the net asset value of the Fund is expected to fluctuate, the
investment adviser actively manages the Fund's portfolio and adjusts its
average portfolio maturity according to the investment adviser's interest rate
outlook while seeking to avoid or reduce, to the extent possible, any negative
changes in net asset value.
Strong Asset Allocation Fund II seeks high total return consistent with
reasonable risk over the long term. The Portfolio allocates its assets
globally among a diversified portfolio of equity securities, bonds, and
short-term fixed income securities. Under normal market conditions, the
Portfolio's net assets will be allocated according to a benchmark of 40%
equities, 40% bonds, and 20% short-term fixed income securities. The
investment adviser intends to actively manage the Portfolio's assets,
maintaining a balance over time between investment opportunities and their
associated potential risks. In response to changing market and economic
conditions, the investment adviser may reallocate the Portfolio's net assets
among these asset categories. Those allocations normally will be within the
ranges listed below. However, in pursuit of total return, the investment
adviser may under-allocate or over-allocate the Portfolio's net assets in a
particular category.
ASSET-ALLOCATION CATEGORIES
<TABLE>
<CAPTION>
Percentage of Fund Net Assets
Category of Investment Benchmark Range
---------------------- --------- -----
<S> <C> <C>
Equities 40% 10% - 60%
Bonds 40% 20% - 60%
Short-Term Fixed Income Securities 20% 0% - 70%
</TABLE>
Furthermore, when the investment adviser determines that market
conditions warrant adopting a temporary defensive position, the Portfolio may
invest without limitation in cash and short-term fixed income securities.
Equity securities in which the Portfolio may invest include common
stocks, preferred stocks, and securities that are convertible into common
stocks, such as warrants and convertible bonds. Bonds purchased by the
Portfolio will be primarily investment-grade debt obligations, although the
Portfolio may invest up to, but not including, 35% of its total assets in junk
bonds. (See "The Portfolios - Risks Attendant to Investments in Junk Bonds.")
The Portfolio also has the flexibility to take advantage of investment
opportunities around the world by investing in foreign securities. While the
Portfolio may invest without limitation in foreign securities, the investment
adviser does not expect that, under normal market conditions, the Portfolio
will invest more than 40% of its total assets in foreign securities. Portfolio
investments involve risks not normally found when investing in securities of
U.S. issuers.
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<PAGE> 24
Within the asset-allocation categories described above, the investment
adviser will allocate the Portfolio's investments among countries, geographic
regions, and currencies in response to changing market and economic trends. In
making geographical allocations of investments, the investment adviser will
consider such factors as the historical and prospective relationships among
currencies and governmental policies that influence currency-exchange rates,
current and anticipated interest rates, inflation levels, and business
conditions within various countries, as well as other macro-economic, social,
and political factors. While there are no prescribed limits on the Portfolio's
geographic allocations, the investment adviser anticipates that the Portfolio
will generally invest in issuers in industrialized countries and in major
currencies, including the United States, Canada, the countries of Western
Europe, Japan, Australia, and New Zealand. The Portfolio may also, however,
invest in securities of issuers in developing countries.
Strong International Stock Fund II seeks capital growth. The Portfolio
invests primarily in the equity securities of issuers located outside the
United States. The Portfolio will invest at least 65% of its total assets in
foreign equity securities, including common stocks, preferred stocks, and
securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds, that are issued by companies whose principal
headquarters are located outside the United States.
Under normal conditions, the Portfolio expects to invest at least 90% of
its total assets in foreign equity securities. The Portfolio may, however,
invest up to 35% of its total assets in equity securities of U.S. issuers or
debt obligations, including intermediate to long-term debt obligations of U.S.
issuers or foreign-government entities. When the investment adviser determines
that market conditions warrant a temporary defensive position, the Portfolio
may invest without limitation in cash (U.S. dollars, foreign currencies, or
multi-currency units) and short-term fixed income securities. Although the
debt obligations in which it invests will be primarily investment-grade, the
Portfolio may invest up to 5% of its total assets in junk bonds. (See "The
Portfolios - Risks Attendant to Investments in Junk Bonds.")
The Portfolio will normally invest in securities of issuers located in at
least three different countries. The investment adviser expects that the
majority of the Portfolio's investments will be in issuers in the following
markets: Argentina, Australia, Brazil, Chile, Cambodia, the Czech Republic,
France, Germany, Hong Kong, Hungary, India, Indonesia, Italy, Japan, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland,
Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland,
Taiwan, the United Kingdom, and Vietnam. The Portfolio will also invest in
other European, Pacific Rim, and Latin American markets.
Strong Discovery Fund II seeks capital growth. The Portfolio invests in
securities that the investment adviser believes represent growth opportunities.
The Portfolio normally emphasizes equity securities, although it has the
flexibility to invest in any type of security that the investment adviser
believes has the potential for capital appreciation. The Portfolio may invest
up to 100% of its total assets in equity securities, including common stocks,
preferred stocks, and securities that are convertible into common or preferred
stocks, such as warrants and convertible bonds. The Portfolio may also invest
up to 100% of its total assets in debt obligations, including intermediate to
long-term corporate or U.S. government debt securities. When the investment
adviser determines that market conditions warrant a temporary defensive
position, the Portfolio may invest, without limitation, in cash and short-term
fixed income securities. Although the debt obligations in which it invests
will be primarily investment-grade, the Portfolio may invest up to 5% of its
total assets in junk bonds. (See "The Portfolios - Risks Attendant to
Investments in Junk Bonds.")
The Portfolio may invest up to 15% of its total assets directly in the
securities of foreign issuers. It may also invest without limitation in
foreign securities in domestic markets through depositary receipts. However,
as a maker of policy, the investment adviser intends to limit total foreign
exposure, including both direct investments and depositary receipts, to no more
than 25% of the Fund's total assets.
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<PAGE> 25
The investment adviser seeks to uncover emerging investment trends and
attractive growth opportunities. In its search for potential investments, the
investment adviser attempts to identify companies that are poised for
accelerated earnings growth due to innovative products or services, new
management, or favorable economic or market cycles. These companies may be
small, unseasoned firms in the early stages of development, or they may be
mature organizations. Whatever their size, history, or industry, the
investment adviser believes their potential earnings growth is not yet
reflected in their market value and that, over time, the market prices of these
securities will move higher.
Strong Capital Management, Inc. is the investment adviser for all the
Strong Funds pursuant to its investment advisory agreements, manages the
investment and reinvestment of the assets of each Portfolio, and is responsible
for the overall business affairs of each Portfolio.
VAN ECK WORLDWIDE INSURANCE TRUST
The Variable Account has one Sub-account that invests exclusively in
shares of a Portfolio of the Van Eck Worldwide Insurance Trust (the "Van Eck
Trust").
The Van Eck Gold and Natural Resources Sub-account of the Variable
Account invests in shares of the Van Eck Gold and Natural Resources Portfolio
of the Van Eck Trust.
Van Eck Gold and Natural Resources Portfolio. This Portfolio seeks
long-term capital appreciation by investing in equity and debt securities of
companies engaged in the exploration, development, production and distribution
of gold and other natural resources such as strategic and other metals,
minerals, forest products, oil, natural gas and coal. Current income is not an
investment objective. During normal market conditions, the Portfolio will have
at least 65% of its total assets invested in securities of companies engaged in
gold mining and natural resources activities. The Portfolio may also invest in
equity and debt securities of companies which themselves invest in companies
engaged in these activities. The Portfolio also has the right to invest up to
35% of its assets in the securities of non-precious metals and natural
resources companies.
The Portfolio may invest up to 35% of the value of its total assets in:
(a) securities of companies not in the gold mining/natural resources areas; (b)
high grade corporate debt securities; and (c) obligations issued or guaranteed
by the U.S. or foreign governments and repurchase agreements. The Portfolio
may invest up to 5% of its assets at the time of purchase in warrants. The
Portfolio may also invest up to 5% of its assets at the time of purchase in
preferred stocks and preferred stocks which may be converted into common stock.
The Portfolio has reserved the right to invest up to 10% of its net
assets, taken at market value at the time of investment in gold bullion and
coins.
Since the Portfolio may substantially invest all of its assets in
securities of companies engaged in gold mining and natural resources
activities, the Portfolio may be subject to greater risks and market
fluctuations than other investment companies with less concentrated portfolios.
The Portfolio has no restrictions on the amount of its assets that may be
invested in securities of foreign issuers and thus the relative amount of such
investments will change from time to time. Investments by the Portfolio in
securities of gold mining shares, coins and gold bullion, foreign issuers,
foreign currencies, and options and futures may involve particular investment
risks.
The investment adviser for the Van Eck Gold and Natural Resources
Portfolio is Van Eck Associates Corporation.
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<PAGE> 26
RISKS ATTENDANT TO INVESTMENTS IN JUNK BONDS
Investments in non-investment grade debt securities, commonly referred to
as "junk bonds", involve special risks in addition to the risks associated with
investments in higher rated debt securities. In general, non-investment grade
securities are regarded as predominately speculative with respect to the
capacity of the issuer to pay interest and repay principal.
CRI Balanced Growth, CRI Strategic Growth, Strong Advantage Fund II,
Strong Asset Allocation Fund II, Strong International Stock Fund II, and Strong
Discovery Fund II each may invest in junk bonds. These Portfolios each
describe the risks attendant to these investments in its prospectus. You
should review these prospectuses carefully and consider the risks associated
with junk bonds before investing in Sub-accounts corresponding to these
Portfolios.
INVESTMENT ADVISORY FEES
ALGER. Alger Management, Inc. ("Alger Management") serves as investment
adviser to the Alger American Fund. It receives a management fee of .75% of
the annual value of the Alger American Growth Portfolio's average daily net
assets. Alger American Mid Cap Growth Portfolio pays Alger Management a fee of
.80% of the annual value of the Portfolio's average daily net assets. Alger
American Small Capitalization Portfolio pays Alger Management a fee at an
annual rate of .85% of the value of the Portfolio's average daily net assets.
CALVERT. For its services, CAM is entitled to receive a fee based on a
percentage of the average daily net assets of each of the Portfolios. CAM is
currently entitled to receive a maximum fee of .50% of net assets from CRI
Money Market Portfolio, .70% of net assets of CRI Balanced Growth and 1.50% of
net assets of Strategy Growth Portfolio.
DREYFUS. Pursuant to the terms of an administration agreement, the
Dreyfus Stock Index Fund pays Dreyfus a monthly fee at the annual rate of .15
of 1.00% of the value of the Portfolio's average daily net assets.
NEUBERGER & BERMAN. For combined administrative and investment
management services, N&B Management is paid fees as a percentage of the average
daily net assets based upon the following schedules:
<TABLE>
<CAPTION>
For the Limited Maturity Bond Portfolio: For the Growth Portfolio:
Average Daily Net Assets Fee Average Daily Net Assets Fee
------------------------ --- ------------------------ ---
<S> <C> <C> <C>
First $500 million .65% First $250 million .85%
Next $500 million .615% Next $250 million .825%
Next $500 million .60% Next $500 million .75%
Next $500 million .575% Thereafter .725%
Thereafter .55%
</TABLE>
STRONG. For its services, Strong Capital Management, Inc. is entitled to
receive a fee based on a percentage of the average daily net assets of each of
the Portfolios that it manages. For its services to Strong Advantage Fund II,
it is entitled to receive an annual fee of .60% of the average daily net asset
value of the Portfolio. For its services to Strong Asset Allocation Fund II,
it is entitled to receive an annual fee of .85% of the Portfolio's average
daily net assets up to $35 million and .80% of the Portfolio's average daily
net assets in excess of $35 million. For its services to Strong International
Stock Fund II, it is entitled to receive an
16
<PAGE> 27
annual fee of 1.00% of the average daily net asset value of the Portfolio. For
its services to Strong Discovery Fund II, it is entitled to receive an annual
fee of 1.00% of the average daily net asset value of the Portfolio.
VAN ECK. The investment adviser for Gold and Natural Resources Portfolio
is Van Eck Associates Corporation ("Van Eck Associates"). As compensation for
its services, Van Eck Associates receives a monthly fee at an annual rate of
.75% of the first $500 million of the average daily net assets of the
Portfolio, .65% of the next $250 million of the daily net assets of the
Portfolio, and .50% of the average daily net assets of the Portfolio in excess
of $750 million.
RESOLVING MATERIAL CONFLICTS
In addition to variable annuity and variable life insurance policies
issued by ANLIC, the Funds are also available to registered separate accounts
of insurance companies other than ANLIC. As a result, there is a possibility
that a material conflict may arise between your interests and the owners of
life insurance policies and variable annuities issued by other companies whose
values are allocated to one or more other separate accounts investing in any
one of the Portfolios.
In addition, one or more of the Portfolios may sell shares to certain
retirement plans qualifying under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code") (including cash or deferred arrangements under
Section 401 (k) of the Code) or other sections of the Code. As a result, there
is a possibility that a material conflict may arise between your interests
generally and such retirement plans or participants in such retirement plans.
In the event of a material conflict, ANLIC will take any necessary steps,
including removing the Variable Account from that Portfolio, to resolve the
matter. The Board of Directors or Trustees of the Portfolios intend to monitor
events in order to identify any material conflicts that may possibly arise and
to determine what action, if any, should be taken in response to those events
or conflicts. (See the individual Fund Prospectuses for more information.)
THE POLICY
The Policy is a flexible premium deferred variable annuity. The rights
and benefits of the Policy are described below and in the Policy. The
obligations under the Policies are obligations of ANLIC. However, we reserve
the right to make any modification to conform the Policy to, or to give you or
other Owners the benefit of, any Federal or state statute or rule or
regulation.
The Policy may be purchased on a non-qualified tax basis ("Nonqualified
Policy"). The Policy may also be purchased and used in connection with plans
qualifying for favorable Federal income tax treatment ("Qualified Policy").
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and
send it to our Service Office. Acceptance is subject to our rules, and we
reserve the right to reject any application or Premium Payment. If your
application can be accepted in the form received, your initial Premium Payment
will be applied within two business days after its receipt at our Service
Office. If your initial Premium Payment cannot be applied after receipt
because of deficiencies in the application or other issuing requirements, you
will be contacted within five business days and given an explanation for the
delay. The initial Premium Payment will be returned to you at that time unless
you consent to our retention of it and our crediting of it as soon as the
necessary requirements are fulfilled. If you are between the ages of 75 and 85
when you purchase a Policy, you can only
17
<PAGE> 28
make a single Premium Payment. You cannot purchase a Policy if you are over
age 85.
TELEPHONE REQUESTS
At the time an application for a Policy is completed, or at any
subsequent time, you may request a telephone transfer authorization form. If
the form is properly completed and on file with us, transfers may be made
pursuant to telephone instructions, subject to the above terms and the terms of
the authorization form. Otherwise, transfer requests must be in writing in a
form acceptable to us. Transfer requests made by telephone are processed upon
the date of receipt, if received prior to 4:00 p.m. EST. We may, at any time,
revoke or modify the transfer privilege.
FREE LOOK PERIOD
If for any reason you are not satisfied with the Policy, you may return
it to us within 10 days after you receive it. If you cancel the Policy within
this 10-day Free Look Period, we will refund the Policy Account Value at the
end of the Valuation Period during which the Policy was received by us (or,
where required by state law, the greater of the Policy Account Value or the
Premium Payments that were paid), and the Policy will be void from the Policy
Date. (See "The Policy - Allocation of Premium Payments.") To cancel the
Policy, you must mail or deliver it to either our Service Office or the
registered agent who sold it to you within 10 days after you receive it. The
Free Look Period may be longer where required by state law.
Certain states require us to refund the greater of Premium Payments made
or the Policy Account Value at the end of the Free Look Period. Under Policies
issued in these states, we reserve the right to allocate the initial Premium
Payment and any additional Premium Payments received during the Free Look
Period in their entirety to the Money Market Sub-account until the end of the
Free Look Period. For administrative reasons, the Free Look Period is assumed
to be fifteen days for this purpose.
PREMIUM PAYMENTS
The minimum Premium Payments during the first Policy year must be at
least $300. Additional Premium Payments may be made in amounts of $30 or more.
If, after the first five Policy anniversaries, you have made no Premium
Payments during a 24-month period and your then-current Policy Account Value
totals less than $2,000, we have the right to pay you the total value of your
account in a lump sum.
ALLOCATION OF PREMIUM PAYMENTS
You determine in the application how the initial net Premium Payment will
be allocated among the Sub-accounts and the Fixed Account. You may allocate
any whole percentage of net Premium Payments, from 5% to 100%. Additional net
Premium Payments will be allocated to the Sub-accounts and the Fixed Account
according to the allocation percentage specified in your application, unless
subsequently changed.
Notwithstanding the foregoing, all Premium Payments made on Policies in
certain states may be allocated to the Money Market Sub-account during the Free
Look Period. (See "The Policy - Free Look Period.")
The Policy Account Value will vary with the investment performance of the
Sub-accounts you select, and you bear the entire risk for amounts allocated to
the Variable Account. You should periodically review your allocations of
Policy Account Value in light of all relevant factors, including market
conditions and your overall financial planning requirements.
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<PAGE> 29
POLICY ACCOUNT VALUE
The Policy Account Value prior to the Maturity Date is equal to the
Variable Account Value plus the Fixed Account Value. Variable Account Values
are not guaranteed. The Variable Account Value is equal to the sum of the
values of the Sub-accounts under the Policy. The value of each Sub-account is
calculated first on the Policy Date and thereafter on each normal business day
("Valuation Date").
Variable Account Value. On any Valuation Date, each Sub-account's value
is equal to the number of Accumulation Units in that Sub-account multiplied by
the Accumulation Unit Value. The number of Accumulation Units to be credited
to the Policy for each Sub-account is determined at the time of initial Premium
Payment by dividing the net Premium Payments allocated to each Sub-account by
the Accumulation Unit Value for that Sub-account for the Valuation Period
during which the Application is accepted. For additional Premium Payments, the
number of units of each Sub-account credited under the Policy is determined by
dividing the net Premium Payments allocated to that Sub-account by the unit
value for that Sub-account at the end of the Valuation Period during which the
Premium Payment was received at our Service Office.
Each Sub-account's Accumulation Unit Value for any Valuation Period is
determined by multiplying its Accumulation Unit Value for the immediately
preceding Valuation Period by the "net investment factor" for the Valuation
Period for which the value is being determined. The net investment factor is
an index that measures the investment performance of a Sub-account from one
Valuation Period to the next. For a complete description on how the net
investment factor is calculated, see "Net Investment Factor" in the Statement
of Additional Information.
Fixed Account Value. At the end of any Valuation Period, the Fixed
Account Value is equal to: (1) the sum of your net Premium Payments allocated
to the Fixed Account; plus (2) any amounts that you transferred from the
Variable Account to the Fixed Account; plus (3) the total interest credited to
your Policy Account Value in the Fixed Account; less (4) any amounts that you
transferred from the Fixed Account to the Variable Account; less (5) the
portion of any withdrawals and Surrender Charges allocated to your Policy
Account Value in the Fixed Account; less (6) the portion of the Annual Policy
Fee which is allocated to your Policy Account Value in the Fixed Account.
SURRENDER AND PARTIAL WITHDRAWALS
Surrender. You may, prior to the earlier of the Maturity Date or the
date of your death, withdraw all or a portion of your then-current Surrender
Value, upon written request to our Service Office. If there are Joint Owners,
both of you must agree to the withdrawal. We may defer payment of your
Surrender Value allocated to the Fixed Account for a period not longer than six
months after you request its withdrawal. Payment of amounts from the Variable
Account will normally be made within seven days, but may be delayed in certain
circumstances. (See "Delay or Suspension of Payments" in the Statement of
Additional Information.)
You may, prior to the earlier of the Maturity Date or your death,
withdraw 100% of earnings (since the last Policy Anniversary) in all
Sub-accounts and the Fixed Account free of Surrender Charges. Additionally, up
to 10% of the Policy Account Value (as of the last Policy Anniversary); plus
10% of:
(1) Deposits since the last Policy Anniversary; minus
(2) Withdrawals since the last Policy Anniversary
may also be withdrawn free of Surrender Charges.
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<PAGE> 30
Upon a Partial Withdrawal, Surrender, or Annuitization We will apply
the Surrender Charge Percentage shown on the Policy Specification Page to those
Premium Payments received within five years of the Partial Withdrawal or
Surrender Date. After the free amounts are determined, the calculation will be
based on a first-in, first-out basis.
Full surrenders and partial withdrawals may be subject to the 10% Federal
tax penalty on early withdrawals and to income tax. (See "Federal Tax
Matters.")
Surrender Value. The Surrender Value is equal to the Policy Account
Value less any applicable Surrender Charges, the Annual Policy Fee, and any
premium or other taxes. (See "Charges and Deductions.")
Partial Withdrawal. You may also request to make a Partial Withdrawal,
and may direct us to allocate the withdrawal amount among the Fixed Account and
the Sub-accounts in a particular manner. If no allocation is specified, the
partial withdrawal will be prorated among the Fixed Account and the
Sub-accounts based upon your current Policy Account Value allocated to each
account.
Restrictions Under the Texas Optional Retirement Program and Section
403(b) Plans. The Texas Educational Code permits participants in the Texas
Optional Retirement Program ("ORP") to withdraw or surrender their interest in
a variable annuity contract issued under the ORP only upon (1) termination of
employment in the Texas public institutions of higher education, (2)
retirement, or (3) death. Accordingly, a participant in the ORP (or the
participant's estate if the participant has died) will be required to obtain a
certificate of termination from the employer or a certificate of death before
the account can be redeemed.
Similar restrictions apply to variable annuity contracts used as
funding vehicles for retirement plans qualifying under Section 403(b) of the
Internal Revenue Code of 1986, as amended (the "Code"). Section 403(b)
provides for tax-deferred retirement savings plans for employees of certain
non-profit and educational organizations. In accordance with the requirements
of Section 403(b), any Policy used for a Section 403(b) plan will prohibit
distributions of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributable to elective contributions held as of the end of the
last year beginning before January 1, 1989. However, distributions of such
amounts will be allowed upon death of the employee, attainment of age 59-1/2,
separation from service, disability, or financial hardship, except that income
attributable to elective contributions may not be distributed in the case of
hardship.
Restrictions Under Other Qualified Policies. Other restrictions on
surrenders or with respect to the election, commencement, or distributions of
benefits may apply under Qualified Policies or under the terms of the plans in
respect of which Qualified Policies are issued.
TRANSFERS
You may transfer all or part of the value of a Sub-account of the
Variable Account to one or more of the other Sub-accounts or the Fixed Account
at any time prior to the Maturity Date, free of charge. The minimum for each
transfer is $50. The transfer will be made as of the date we receive the
written request for such transfer at our Service Office.
The maximum amount allowed to be transferred out of the Fixed Account
during one Policy Year is 100% of Fixed Account interest accrued since the last
Policy Anniversary; plus 10% of:
(1) Account Value of the Fixed Account as of the last Policy Anniversary; plus
(2) Deposits and transfers made into the Fixed Account since the last Policy
Anniversary; minus
(3) All partial withdrawals from the Fixed Account since the last Policy
Anniversary.
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You may also elect to systematically reallocate all interest generated from the
Fixed Account into the Sub-accounts of the Variable Account on an interest only
basis according to your allocation election. (See "Interest Sweep Program.")
Transfers may be made by a written request or by calling our Service
Office if a written authorization for telephone transfers is on file. We may
honor any telephone transfer request believed to be authentic. We employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. For example, a personal identification number is required in
order to initiate a transfer. We will not be liable for the consequences of a
fraudulent telephone transfer request that we believe to be authentic when
those procedures have been followed. As a result, you bear the risk of loss
arising from such a fraudulent request if you authorize telephone transfers.
Each transfer will be made, without the imposition of any fee or charge,
at the end of the Valuation Period during which we receive a valid, complete
transfer request at our Service Office. We may suspend or modify this transfer
privilege at any time, and we may postpone transfers under certain
circumstances. (See "Delay or Suspension of Payments" in the Statement of
Additional Information.)
AUTOMATIC REBALANCING, DOLLAR COST AVERAGING, AND INTEREST SWEEP PROGRAMS
The Automatic Rebalancing, Dollar Cost Averaging, and Interest Sweep
Programs are three asset allocation programs available to you under the Policy.
You may elect to participate in one or more of these programs by filing a
written authorization with us. We reserve the right to alter, assess a charge,
or terminate these programs upon thirty days advance written notice.
Under the Automatic Rebalancing Program, you may have automatic transfers
made on a monthly, quarterly, semi-annual or annual basis to adjust the values
among the Sub-accounts and the Fixed Account to meet your designated Investment
Allocation percentages. The allocations are subject to a minimum 5% designated
percentage proportion per Sub-account.
The Dollar Cost Averaging Program is an option under which you may
"dollar cost average" your allocations to the Variable Account by authorizing
us to make periodic transfers of specific dollar amounts from the Money Market
Sub-account to one or more other designated Sub-accounts, on a monthly,
quarterly, semi-annual, or annual basis. Each transfer pursuant to this
program is subject to the $50 minimum transfer amount. Dollar cost averaging
does not guarantee profits, nor does it assure that you will not lose
principal.
The Interest Sweep Program allows you to systematically reallocate
interest earnings from the Fixed Account to one or more of the Sub-accounts on
a monthly, quarterly, semi-annual, or annual basis to meet your Investment
Allocation percentages.
If a periodic transfer would reduce the value in the Money Market
Sub-account below the minimum dollar amount, we reserve the right to transfer
the entire remaining Policy Account Value allocated to the Money Market
Sub-account. We also reserve the right to establish a minimum Money Market
Sub-account balance before allowing you or any other Owner to elect to
participate in the Dollar cost Averaging Program.
Transfers and adjustments pursuant to these Programs will occur on the
monthly Policy Anniversary date in the month in which the transaction is to
take place, or the next succeeding business day if the monthly Policy
Anniversary Date falls on a day other than a Valuation Date.
DEATH BENEFIT
The Policy pays a Death Benefit to a beneficiary you designate (the
"Beneficiary") if any Owner or any Joint Owner dies prior to the Maturity Date
while the Policy is in force (unless the Beneficiary is the
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decedent's spouse, in which case the spouse may elect to continue the Policy in
force).
During the first five years of the Policy, the Death Benefit will be
equal to the greater of the Policy Account Value or the value of the cumulative
Premium Payments made less cumulative withdrawals. On the fifth Policy
Anniversary a "Minimum Guaranteed Death Benefit" is calculated as the greater
of these values. Every five years thereafter through the Maturity Date, a new
Minimum Guaranteed Death Benefit is calculated as the greater of the current
Minimum Guaranteed Death Benefit or the then-current Policy Account Value.
For Owners up to issue age 75, the Death Benefit will be the highest of:
1. the Minimum Guaranteed Death Benefit (increased for Premium Payments
made and decreased for cumulative withdrawals since the most recent
fifth Policy Anniversary);
2. the Policy Account Value (as of the date of payment); or
3. the cumulative Premium Payments made less cumulative withdrawals
(including Surrender Charges).
For Owners over issue age 75, the Death Benefit is the greater of:
1. the Policy Account Value (as of the date of payment); or
2. the cumulative Premium Payments made less cumulative withdrawals
(including Surrender Charges).
ANLIC will pay the Death Benefit proceeds to the Beneficiary upon
receiving due proof of death. The Death Benefit will be paid in a lump sum or
under one of the Annuity Payment Options. (See "Annuity Payments.") If you or
the Annuitant dies after the Maturity Date, the amount payable, if any, will be
as provided in the Annuity Payment Option then in effect.
If the death of the Annuitant occurs prior to the Maturity Date and the
Annuitant is also an Owner or Joint Owner of the Policy, the rules governing
distribution of death benefit proceeds in the event of the death of the Owner
shall apply. (See "Required Distributions," below.) If there is a surviving
Joint Owner at the Annuitant's death, the surviving Joint Owner is the
Beneficiary. If, upon your death your spouse, as designated Beneficiary,
elects to continue the Policy in accordance with the required distributions
rules, the named Beneficiary does not have a right to receive the death benefit
proceeds.
If both Joint Owners die simultaneously, the Death Benefit will be paid
to the named Beneficiary.
If the Owner is a corporation or other entity, the Annuitant will be
treated as an Owner for purposes of the timing or the amount of any payout
under the Policy.
As far as permitted by law, the proceeds under the Policy will not be
subject to any claim of the Beneficiary's creditors.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for Federal income tax
purposes, Section 72(s) of the Code requires any Nonqualified Policy to provide
that (a) if any Owner dies on or after the annuity starting date but prior to
the time the entire interest in the Policy has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death; and (b)
if any Owner dies prior to the annuity starting date, the entire interest in
the
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Policy will be distributed within five years after the date of that Owner's
death.
These requirements will be considered satisfied as to any portion of the
Owner's interest that is payable as annuity payments which will begin within
one year of that Owner's death and which will be made over the life of the
Owner's Designated Beneficiary or over a period not extending beyond his life
expectancy.
If the designated Beneficiary is your surviving spouse, the Policy may be
continued with the surviving spouse as the new Owner and no distributions will
be required.
If any Owner or Joint Owner dies prior to the Maturity Date, and if the
designated Beneficiary does not elect to receive the Death Benefit in a lump
sum at that time, then we will increase the Policy Account Value so that it
equals the Death Benefit amount, if that amount is higher than the Policy
Account Value. This would occur if the Owner's designated Beneficiary elects
to delay receipt of the proceeds for up to five years, or is the deceased
Owner's spouse and elects to continue the Policy, or elects to receive the
proceeds as Annuity Payments. Any such increase in the Policy Account Value
would be paid by us, and allocated to the Sub-accounts in proportion to the
pre-existing Policy Account Value unless we are instructed otherwise.
Other rules may apply to Qualified Policies.
CHARGES AND DEDUCTIONS
We do not impose any charge or deduction against a Premium Payment prior
to its allocation to the Variable Account or the Fixed Account (except for a
charge, in some states, for any premium taxes incurred when the Premium Payment
is accepted). However, certain charges (explained below) will be deducted in
connection with the Policy to compensate us for administering and distributing
the Policy, for providing the insurance benefits set forth in the Policy, for
assuming certain risks in connection with the Policy, and for any applicable
taxes.
ANNUAL POLICY FEE
An annual charge of $42, which meets the "at cost" standards of Rule
26a-1 under the Investment Company Act of 1940, is deducted to partially
compensate us for expenses incurred in administering the Policy. These
expenses include costs of maintaining records, processing Death Benefit claims,
surrenders, transfers and Policy changes, providing reports to Owners, and
overhead costs. This charge is guaranteed not to increase during the life of
the Policy. This deduction will be made from the Sub-accounts in the same
proportion that the values in the Sub-accounts bear to the total Variable
Account Value. This charge is deducted on each Policy Anniversary, the
Maturity Date, and a full surrender.
The Annual Policy Fee is waived if the Policy Account Value exceeds
$50,000 at the time the Annual Policy Fee would be imposed.
ADMINISTRATIVE EXPENSE CHARGE
In addition to the Annual Policy Fee, we deduct a monthly charge from the
Sub-accounts at an effective annual rate of .10% of the average daily net
assets of each Sub-account to partially compensate us for expenses incurred in
administering the Variable Account and the Policy. These expenses include
costs of maintaining records, processing Death Benefit claims, surrenders,
transfers and Policy changes, providing reports to Owners, and overhead costs.
This charge is guaranteed not to increase during the life of the Policy.
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<PAGE> 34
MORTALITY AND EXPENSE RISK CHARGE
A monthly charge is deducted from the Sub-accounts at an effective annual
rate of 1.25% of the average daily net assets of each Sub-account to compensate
us for assuming certain mortality and expense risks under the Policy. The
Mortality and Expense Risk Charge is guaranteed to decrease by .05% on each
Policy Anniversary beginning in year 16 until it reaches an effective annual
rate of .50% at the end of year 30. There is no Mortality and Expense Risk
Charge for amounts in the Fixed Account. We may realize a profit from this
charge. However, the level of this charge is guaranteed for the life of the
Policy and may not be increased. We will continue to deduct this charge after
the Maturity Date.
The mortality risk we bear arises in part from our obligation to make
monthly Annuity Payments (determined in accordance with the annuity tables and
other provisions contained in the Policy) regardless of how long all Annuitants
or any individual may live. This undertaking assures that neither an
Annuitant's own longevity, nor an improvement in general life expectancy
greater than expected, will have any adverse effect on the monthly Annuity
Payments the Annuitant will receive under the Policy. It therefore relieves
the Annuitant from the risk that he or she will outlive the funds accumulated
for retirement. The mortality risk also arises in part because of the risk
that the Death Benefit may be greater than the Policy Account Value. We also
assume the risk that the other expense charges may be insufficient to cover the
actual expenses incurred in connection with the Policy.
SURRENDER CHARGE
If you make partial withdrawals under the Policy, surrender the Policy,
or annuitize the Policy, then a Surrender Charge may be imposed, measured as a
percent of the Premium Payments included in the withdrawal (in the case of a
partial withdrawal) or the amount of the total Premium Payments (in the case of
a surrender or annuitizing) as specified in the following table of Surrender
Charges:
<TABLE>
<CAPTION>
NUMBER OF POLICY ANNIVERSARIES 5 OR
SINCE RECEIPT OF PREMIUM PAYMENT: 0 1 2 3 4 MORE
--------------------------------- --- --- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C>
Surrender Charge Rate 8% 8% 8% 6% 4% none
</TABLE>
Free Withdrawal Amount. You may, prior to the earlier of the Maturity Date or
your death, withdraw 100% of earnings (since the last Policy Anniversary) in
the Variable Account and the Fixed Account free of Surrender Charges.
Additionally, up to 10% of the Policy Account Value (as of the last Policy
Anniversary); plus 10% of:
(1) Deposits since the last Policy Anniversary; minus
(2) Withdrawals since the last Policy Anniversary
may also be withdrawn free of Surrender Charges. However, income taxes and a
tax penalty may apply.
Amounts withdrawn in addition to the Free Withdrawal Amount may be
subject to a Surrender Charge. The Surrender Charge is determined by
multiplying each Premium Payment included in the withdrawal by the Surrender
Charge rate applicable to the year in which the Premium Payment was received.
For purposes of calculating the Surrender Charge, (1) the oldest Premium
Payments will be treated as the first withdrawn; (2) amounts withdrawn up to
the Free Withdrawal Amount will not be considered a withdrawal of Premium
Payments; and (3) if the Surrender Value is withdrawn or applied under an
Annuity Payment Option, the Surrender Charge will apply to all Premium Payments
not previously assessed with a Surrender Charge. Thus, the Surrender Charges
are applied to Premium Payments on a first-in, first-out basis.
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<PAGE> 35
As shown above, the Surrender Charge percentage varies, depending on the
Policy Year in which the Premium Payment included in the withdrawal was made.
A Surrender Charge rate of 8% applies to Premium Payments withdrawn that are
less than three years old. Thereafter the Surrender Charge rate decreases to
6% in the fourth year and 4% in the fifth year. Amounts representing Premium
Payments five years old or older may be withdrawn without charge.
The Surrender Charge will be deducted from the remaining Policy Account
Value, or from the amount paid if the remaining value is insufficient. The
Surrender Charge partially compensates us for sales expenses with regard to the
Policy, including agent sales commissions, the cost of printing prospectuses
and sales literature, advertising, and other marketing and sales promotional
activities.
The amounts we receive from the Surrender Charge may not be sufficient to
cover sales expenses. We expect to recover any deficiency from our general
assets (which include amounts derived from the Mortality and Expense Risk
Charge). We believe that this distribution financing arrangement will benefit
you, the Variable Account, and all other Owners.
Waiver of Surrender Charges. ANLIC may waive the Surrender Charge described
above provided that certain conditions described in the Policy are met,
including: (a) you are confined to a "hospital", "nursing home", or a "Long
Term Care Facility" (as defined in the Policy) for at least 30 days; (b)
written notice and satisfactory proof of confinement are received no later than
91 days after confinement ends; and (c) confinement was recommended by a
physician for medically necessary reasons. We will not accept any additional
Premium Payments on a Policy after this waiver has been exercised under that
Policy.
This Waiver is not available if you were confined to a nursing home,
hospital, or Long Term Care Facility on the Policy Date.
PREMIUM TAXES
We will deduct a charge for any premium taxes when (and if) incurred.
Depending on state and local law, premium taxes can be incurred when a Premium
Payment is accepted, when Policy Account Value is withdrawn or surrendered, or
when annuity payments start.
FEDERAL TAXES
Currently no charge is made to the Variable Account for Federal income
taxes that may be attributable to the Variable Account. We may, however, make
such a charge in the future. Charges for other taxes, if any, attributable to
the Variable Account may also be made. (See "Federal Tax Matters.")
FUND EXPENSES
The value of the assets of the Variable Account will reflect the
investment management fee and other expenses incurred by the Portfolios. See
the Fund prospectuses for complete information on these fees and expenses.
REDUCTION IN CHARGES FOR CERTAIN GROUPS
We may reduce or eliminate the Annual Policy Fee, Administrative Expense
Charge, or Surrender Charge on policies that have been sold to (1) employees
and sales representatives of ANLIC or its affiliates; (2) customers of ANLIC or
distributors of the Policies who are transferring existing policy values to a
Policy; (3) individuals or groups of individuals when sales of the contract
result in savings of sales or administrative expenses; or (4) individuals or
groups of individuals where Premium Payments are to be made through an
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<PAGE> 36
approved group payment method and where the size and type of the group results
in savings of administrative expenses.
In no event will reduction or elimination of any fees or charges be
permitted where such reduction or elimination will be unfairly discriminatory
to any person.
ANNUITY PAYMENTS
ELECTION OF AN ANNUITY PAYMENT OPTION
You have the sole right to elect or change one of the Annuity Payment
Options listed below during the lifetime of the Annuitant and prior to the
Maturity Date, either in the application or by written request to our Service
Office any time at least 30 days before the Maturity Date. We may require the
exchange of the Policy for a contract covering the option selected.
MATURITY DATE
The first annuity payment will be made as of the Maturity Date. You
select the Maturity Date in the application for the Policy. You may change the
Maturity Date at any time by giving us written notice of the change at least 30
days prior to the new Maturity Date. A Maturity Date may be the first day of
any calendar month commencing no later than the first day of the calendar month
after the Annuitant's 90th birthday. If the Maturity Date occurs during the
first five Policy Years after receipt of a Premium Payment, a Surrender Charge
will apply. (See "Charges and Deductions - Surrender Charge.") If the net
amount to be applied to an option is less than $2,000 or if payments under any
option would be less than $20, we have the right to pay the net amount to be
applied to the option to you or the Annuitant in one sum.
AVAILABLE OPTIONS
On the Maturity Date, the Surrender Value will be applied to make fixed
annuity payments. Fixed annuity payments provide guaranteed annuity payments
which remain fixed in amount throughout the payment period. Fixed annuity
payments do not vary with the investment experience of the Sub-accounts.
The amount and duration of Annuity Payments will depend on the Annuity
Payment Option that you select. Once an Annuity Payment Option is selected, the
Surrender Value for the Valuation Period which ends immediately before the
Maturity Date will be transferred to our general account and the Annuity
Payments will be fixed in amount by the Annuity Payment Option selected and the
age and sex (if sex distinction is allowed under state law) of the Annuitant.
ANNUITY PAYMENT OPTIONS
The Annuity Payment Options currently available are:
OPTION A -- INTEREST FOR LIFE. We will pay interest on the amount
retained for the lifetime of the Annuitant. At the Annuitant's death, we will
pay the principal amount to the Beneficiary or as otherwise agreed.
OPTION B -- INTEREST FOR A FIXED PERIOD. We will pay interest on the
retained amount for a fixed period of not more than 30 years. At the end of
the period we will pay the principal amount to you or as otherwise agreed.
OPTION C -- PAYMENTS FOR A FIXED PERIOD. We will pay the amount
retained, with interest, in equal monthly
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payments, for a period of not more than 30 years. The amount of each payment
will be based on a payment schedule set forth in the Policy.
OPTION D -- PAYMENTS OF A FIXED AMOUNT. We will pay the amount retained,
with interest, in equal payments until the amount retained has been paid in
full. The total payments in any year must be at least 5% of the amount
retained.
OPTION E -- LIFE INCOME. We will pay the amount retained in monthly
installments, adjusted to reflect the crediting of interest as set forth in the
Policy, for the guaranteed period elected and continuing during the lifetime of
a person that you designate. You may elect to have no guaranteed period or a
guaranteed period of 5, 10, or 15 years, or the period in which the total
payments would equal the amount retained (an installment refund). If no
guaranteed period is elected, only one payment will be made if the Annuitant
dies before the second payment is made, only two payments will be made if the
Annuitant dies before the third payment is made, and so on.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
INTRODUCTION
This discussion is not intended to address the tax consequences resulting
from all of the situations in which a person may be entitled to or may receive
a distribution under a Policy. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon ANLIC's understanding of the
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
the continuation of the present Federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
Both Nonqualified Policies and Qualified Policies may be purchased. The
Qualified Policies were designed for use by individuals whose Premium Payments
are comprised solely of proceeds from and/or contributions under retirement
plans which are intended to qualify as plans entitled to special income tax
treatment under Sections 401(a), 403(b), 408, or 457 of the Internal Revenue
Code of 1986, as amended (the "Code"). The ultimate effect of Federal income
taxes on the Policy Account Value, on Annuity Payments and on the economic
benefit to an Owner, the Annuitant or the Beneficiary depends on the type of
retirement plan, on the tax and employment status of the individual concerned
and on ANLIC's tax status. In addition, certain requirements must be satisfied
in purchasing a Qualified Policy with proceeds from a tax qualified plan in
order to continue receiving favorable tax treatment. Therefore, purchasers of
Qualified Policies should seek competent legal and tax advice regarding the
suitability of the Policy for their situation, the applicable requirements and
the tax treatment of the rights and benefits of a Policy. The following
discussion assumes that Qualified Policies are purchased with proceeds from
and/or contributions under retirement plans that qualify for the intended
special Federal income tax treatment.
TAXATION OF ANNUITIES IN GENERAL
The following discussion assumes that the Policy will qualify as an
annuity contract for Federal income tax purposes. The Statement of Additional
Information describes such qualifications.
Section 72 of the Code governs taxation of annuities in general. ANLIC
believes that an annuity owner who is a natural person generally is not taxed
on increases in the value of a Policy until distribution occurs either in the
form of a lump sum received by withdrawing all or part of the cash value (i.e.,
withdrawals) or
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<PAGE> 38
as Annuity Payments under the Annuity Payment Option elected. For this
purpose, the assignment, pledge, or agreement to assign or pledge any portion
of the Policy Account Value generally will be treated as a distribution. The
taxed portion of a distribution (in the form of a lump sum payment or an
annuity) is taxed as ordinary income.
An owner of any deferred annuity contract who is not a natural person
generally must include in income any increase in the excess of the owner's cash
value over the owner's investment in the contract during the taxable year.
However, there are some exceptions to this rule and you may wish to discuss
these with your tax adviser.
In recent years, legislation has been proposed that would have adversely
modified the Federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of nonqualified annuities that
did not have "substantial life contingencies" by taxing income as it is
credited to the annuity. Although as of the date of this Prospectus Congress
is not considering any legislation regarding the taxation of annuities, there
is always the possibility that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, it is also possible that any legislative change
could be retroactive (that is, effective prior to the date of such change).
The following discussion applies to Policies owned by natural persons.
In the case of a withdrawal under a Qualified Policy, a ratable portion
of the amount received is taxable, generally based on the ratio of the
"investment in the contract" to the total Policy Account Value. The
"investment in the contract" equals the portion, if any, of any Premium
Payments paid by or on behalf of an individual under a Policy which was not
excluded from the individual's gross income. For Policies issued in connection
with qualified plans, the "investment in the contract" can be zero. Special
rules may apply to a withdrawal from a Qualified Policy with respect to
"investment in the contract" as of December 31, 1986, and in other
circumstances.
Generally, in the case of a withdrawal under a Nonqualified Policy before
the Maturity Date, amounts received are first treated as taxable income to the
extent that the Policy Account Value immediately before the withdrawal exceeds
the "investment in the contract" at that time. Any additional amount withdrawn
is not taxable.
In the case of a full surrender under a Qualified or Nonqualified Policy,
the amount received generally will be taxable only to the extent it exceeds the
"investment in the contract".
Although the tax consequences may vary depending on the Annuity Payment
Option elected under the Policy, generally only the portion of the annuity
payment that represents the amount by which the Policy Account Value exceeds
the "investment in the contract" will be taxed. For fixed annuity payments, in
general there is no tax on the amount of each payment which represents the same
ratio that the "investment in the contract" bears to the total expected value
of annuity payments for the term of the payments; however, the remainder of
each payment is taxable. After the "investment in the contract" is recovered,
the full amount of any additional annuity payments is taxable.
In the case of a distribution pursuant to a Nonqualified Policy, there
may be imposed a Federal penalty tax equal to 10% of the amount treated as
taxable income. In general, however, there is no penalty tax on distributions:
(1) made on or after the taxpayer attains age 59-1/2, (2) made as a result of
the owner's death or is attributable to the taxpayer's disability, or (3)
received in substantially equal periodic payments as a life annuity.
The tax rules applicable to a Qualified Policy vary according to the type
of plan and the terms and conditions of the plan. Special favorable tax
treatment may be available for certain types of contributions and
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<PAGE> 39
distributions. Adverse tax consequences may result from contributions in
excess of specified limits; distributions prior to age 59-1/2 (subject to
certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; aggregate distributions in excess
of a specified annual amount; and in other specified circumstances.
We make no attempt to provide more than general information about the use
of the Policy with the various types of retirement plans. Owners and
participants under retirement plans as well as Annuitants and Beneficiaries are
cautioned that the rights of any person to any benefits under a Qualified
Policy may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Policy issued in connection with
such a plan. Some retirement plans are subject to distribution and other
requirements that are not incorporated into our Policy administration
procedures. Owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Qualified Policy comply with applicable law. Purchasers of
annuity contracts for use with any qualified retirement plan should consult
their legal counsel and tax adviser regarding the suitability of the annuity
contract.
Code Section 401(a) permits employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish retirement plans for themselves and their employees. These
retirement plans may permit the purchase of the Policies to accumulate
retirement savings under the plans. Adverse tax or other legal consequences to
the plan, to the participant or to both may result if this Policy is assigned
or transferred to any individual as a means to provide benefit payments, unless
the plan complies with all legal requirements applicable to such benefits prior
to transfer of the Policy.
Tax Sheltered Annuity (TSA) Section 403(b) payments made by public school
systems and certain tax exempt organizations are excludable from the gross
income of the employee, subject to certain limitations. However, these
payments may be subject to FICA (Social Security) taxes. Code Section 403(b)
(11) restricts the distribution under Code Section 403(b) annuity contracts of:
(1) elective contributions made in years beginning after December 31, 1988; (2)
earnings on those contributions; and (3) earnings in such years on amounts held
as of the last year beginning before January 1, 1989. Distribution of those
amounts may only occur upon death of the employee, attainment of age 59-1/2,
separation from service, disability, or financial hardship. In addition,
income attributable to elective contributions may not be distributed in the
case of hardship.
Individual Retirement Annuities ("IRAs") are subject to limitations on
the amount which may be contributed and deducted and the time when
distributions may commence. In addition, distributions from certain other
types of retirement plans may be placed into an Individual Retirement Annuity
on a tax deferred basis. The Internal Revenue Service has not addressed in a
ruling of general applicability whether a death benefit provision such as the
provision in the Policy comports with IRA qualification requirements.
Code Section 457 provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. These plans are
subject to various restrictions on contributions and distributions. These
plans may permit participants to specify the form of investments for their
deferred compensation account. All investments under such Plans are owned by
the sponsoring employer and are subject to the claims of general creditors of
the employer. Depending on the terms of the particular plan, the employer may
be entitled to draw on deferred amounts for purposes unrelated to its Section
457 plan obligations. In general, all amounts received under a Section 457
plan are taxable and are subject to Federal income tax withholding as wages.
All nonqualified deferred annuities entered into after October 21, 1988
that are issued by ANLIC (or its affiliates) to the same owner during any
calendar year are treated as one annuity contract for purposes of determining
the amount includable in gross income under Section 72(e) of the Code. In
addition, there may
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be other situations in which the Treasury Department may (under its authority
to issue regulations or otherwise) conclude that it would be appropriate to
aggregate two or more annuity contracts purchased by the same owner.
Accordingly, a Policy Owner should consult a competent tax adviser before
purchasing more than one annuity contract.
A transfer or assignment of ownership of a Policy, or designation of an
Annuitant or other Beneficiary who is not also the Owner, may result in certain
tax consequences to the Owner that are not discussed herein. An Owner
contemplating any such transfer, assignment or designation should contact a
competent tax adviser with respect to the potential tax effects of such
transaction.
Amounts may be distributed from a Contract because of the death of an
Owner or an Annuitant. Generally, such amounts are includable in the income of
the recipient as follows: (1) if distributed in a lump sum, they are taxed in
the same manner as a full surrender of the Policy, as described above, or (2)
if distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above.
As noted above, the foregoing comments about the Federal tax consequences
under these Policies are not exhaustive and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
Federal tax consequences discussed herein reflect our understanding of current
law and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Policy depend on the individual circumstances of each owner of the
Policy or recipient of the distribution. A competent tax adviser should be
consulted for further information.
VOTING RIGHTS
To the extent deemed to be required by law, we will vote the Portfolios'
shares held in the Variable Account at regular and special shareholder meetings
of the Funds in accordance with instructions received from persons having
voting interests in the corresponding Sub-accounts. If, however, the 1940 Act
or any regulation thereunder should be amended or if the present interpretation
thereof should change, or if we determine that it is allowed to vote the
Portfolio shares in its own right, we may elect to do so.
The number of votes which are available to you will be calculated
separately for each Sub-account. That number will be determined by applying
your percentage interest, if any, in a particular Sub-account to the total
number of votes attributable to that Sub-account. Prior to the Maturity Date,
you hold a voting interest in each Sub-account to which your Policy Account
Value is allocated. After the Maturity Date, the person receiving variable
annuity payments has the voting interest. The number of votes prior to the
Maturity Date will be determined by dividing the value of the Policy allocated
to the Sub-account by the net asset value per share of the corresponding
Portfolio. After the Maturity Date, you have no voting rights.
The number of votes of a Portfolio which are available will be determined
as of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communication prior to such meeting
in accordance with procedures established by the Fund.
Portfolio shares attributable to the Policies as to which no timely
instructions are received will be voted in proportion to the voting
instructions which are received with respect to all Policies participating in
the Sub-account. Voting instructions to abstain on any item to be voted upon
will be applied on a pro rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in an Sub-account will receive proxy
material, reports and other
30
<PAGE> 41
materials relating to the appropriate Portfolio.
PERFORMANCE DATA
We may advertise yields and total returns for the Sub-accounts. In
addition, we may advertise the effective yield of the Money Market Sub-account.
These figures will be based on historical earnings and are not intended to
indicate future performance.
The yield of the Money Market Sub-account refers to the annualized income
generated by an investment in the Sub-account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven-day period over a 52-week period and
is shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in the
Sub-account is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The total return calculation of a Sub-account other than the Money Market
Sub-account assumes an investment has been held in the Sub-account for various
periods of time including: (a) one year; (b) five years; (c) ten years; and (d)
a period measured from the date the Sub-account commenced operations. The
total return will represent the average annual compounded rates of return that
would equate an initial investment of $1,000 to the redeemable value of that
investment as of the last day of each of the periods referenced above.
Total return figures in non-standard formats for the Sub-accounts other
than the Money Market Sub-account may also be disclosed from time to time. The
non-standard total return will assume that no surrender occurs at the end of
the applicable period. All non-standard performance data disclosed will be
accompanied by standard performance data for the same period.
ANLIC may also advertise performance figures for the Sub-accounts based
on the performance of a Portfolio prior to the time the corresponding
Sub-account commenced operations.
Performance data calculations are discussed in further detail in the
Statement of Additional Information.
PUBLISHED RATINGS
We may publish in advertisements, sales literature, and reports to
Owners, the ratings and other information assigned to ANLIC by one or more
independent insurance industry analyst or rating organizations such as A. M.
Best Company, Standard & Poor's Corporation, and Weiss Research, Inc. These
ratings reflect the current opinion of an insurance company's financial
strength and operating performance in comparison to the norms for the insurance
industry; they do not reflect the strength, performance, or safety (or lack
thereof) of the Variable Account. The claims-paying ability rating as measured
by Standard & Poor's is an opinion of an operating insurance company's
financial capacity to meet the obligations of its insurance and annuity
policies in accordance with their terms. These ratings should not be
considered as bearing on the investment performance of the assets held in the
Variable Account or the degree of risk associated with an investment in the
Variable Account.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
to or to which the assets of the Variable Account are subject. We are not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Variable Account.
31
<PAGE> 42
FINANCIAL STATEMENTS
The financial statements for ANLIC (as well as the Auditors' Report
thereon) are in the Statement of Additional Information. Neither this
Prospectus nor the Statement of Additional Information contains financial
statements for the Variable Account because it has not yet commenced
operations, has no assets or liabilities, and has received no income and
incurred no expenses as of the date of this Prospectus.
ADMINISTRATION
We have contracted with Financial Administrative Services, Inc. ("FAS"),
having its principal place of business at 95 Bridge Street, Haddam,
Connecticut, for it to provide us with certain administrative services for the
Policies. Pursuant to the terms of a Service Agreement, FAS will act as a
record keeping service agent for the policies and riders for an initial term of
three years and any subsequent renewals thereof. FAS, under our guidance and
direction, will perform Administration functions including: generation of
billing and posting of premium, computation of valuations, calculation of
benefits payable, maintenance of administrative controls over all activities,
correspondence, and data, and providing management reports to us.
POLICY REPORTS
At least once each Policy Year a statement will be sent to you describing
the status of the Policy, including setting forth the current Death Benefit,
the current Policy Account Value, the value in the Fixed Account, the value in
each Sub-account, Premium Payments paid since the last report, charges deducted
since the last report, any partial surrenders since the last report, and the
current Surrender Value. In addition, a statement will be sent to your showing
the status of the Policy following the transfer of amounts from one Sub-account
to another, a partial surrender and the payment of any Premium Payments
(excluding those paid by bank draft). You may request that a similar report be
prepared at other times. We may charge a reasonable fee for such requested
reports and may limit the scope and frequency of such requested reports.
You will be sent a semi-annual report containing the financial statements
of the Funds as required by the 1940 Act.
STATE REGULATION
We are subject to regulation and supervision by the Insurance Department
of the Commonwealth of Virginia which periodically examines our affairs. We
are also subject to the insurance laws and regulations of all jurisdictions
where we are authorized to do business. A copy of the Policy form has been
filed with and, where required, approved by insurance officials in each
jurisdiction where the Policies are sold. We are required to submit annual
statements of our operations, including financial statements, to the insurance
departments of the various jurisdictions in which we do business for the
purposes of determining solvency and compliance with local insurance laws and
regulations.
EXPERTS
The statement of our financial condition as of December 31, 1995 and the
statements of operations and changes in surplus and cash flows for the year
then ended as found in the Statement of Additional Information have been
included herein in reliance upon the report of Coopers & Lybrand, LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on
legal matters relating to
32
<PAGE> 43
certain aspects of Federal securities laws applicable to the issue and sale of
the Policies. Matters of the Commonwealth of Virginia law pertaining to the
Policies, including ANLIC's right to issue the Policies and its qualification
to do so under applicable laws and regulations issued thereunder, have been
passed upon by Ellen Jane Abromson, our Legal Officer.
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 Variable Account, ANLIC 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.
33
<PAGE> 44
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is
the Table of Contents for that Statement:
<TABLE>
<S> <C>
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . . . . B - 3
Nonparticipating . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Policy Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
Owner and Joint Owner . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
Beneficiary Change . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
Delay or Suspension of Payments . . . . . . . . . . . . . . . . . . . . . B - 4
ACCUMULATION UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 5
Accumulation Units . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 5
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . B - 5
FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 6
General Description . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 6
Transfer Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 6
Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 7
PERFORMANCE DATA CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . B - 9
Money Market Sub-account's Yield Calculation . . . . . . . . . . . . . . B - 9
Other Sub-accounts' Yield Calculations . . . . . . . . . . . . . . . . . B - 10
Average Annual Total Return Calculations . . . . . . . . . . . . . . . . B - 11
Cumulative Total Return Calculations . . . . . . . . . . . . . . . . . . B - 11
PERFORMANCE FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 12
Historical Performance Figures . . . . . . . . . . . . . . . . . . . . . B - 12
Hypothetical Performance Data . . . . . . . . . . . . . . . . . . . . . . B - 12
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 13
Taxation of ANLIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 13
Tax Status of the Policies . . . . . . . . . . . . . . . . . . . . . . . B - 13
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 14
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS . . . . . . . . . . . . . . . B - 14
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . B - 14
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
</TABLE>
34
<PAGE> 45
<TABLE>
<S> <C>
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
</TABLE>
35
<PAGE> 46
Front side of postcard:
Place
STAMP
Here
ACACIA NATIONAL LIFE INSURANCE COMPANY
Variable Product Service Center
P.O. Box 79574
Baltimore, Maryland 21279-0574
Back side of postcard:
Allocator 2000 Annuity Logo
(Put in the upper left corner)
/ / I wish to receive the Statement of Additional Information.
Send To:
Name:
----------------------------------
Address:
-------------------------------
---------------------------------------
<PAGE> 47
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
ALLOCATOR 2000 FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
Offered by
Acacia National Life Insurance Company
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Allocator 2000 Flexible Premium Deferred Variable
Annuity Policy ("Policy") offered by Acacia National Life Insurance Company.
You may obtain a copy of the Prospectus dated ________, 1996, by writing to the
Acacia National Life Insurance Company Service Office, P.O. Box 79574,
Baltimore, Maryland 21279-0574 or telephoning 1-800-369-9407. Terms used in
the current Prospectus for the Policy are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated _________, 1996
B - 1
<PAGE> 48
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Nonparticipating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Policy Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 3
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
Owner and Joint Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
Beneficiary Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
Delay or Suspension of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 4
ACCUMULATION UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 5
Accumulation Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 5
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 5
FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 6
General Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 6
Transfer Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 6
Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 7
PERFORMANCE DATA CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 9
Money Market Sub-account's Yield Calculation . . . . . . . . . . . . . . . . . . . . . B - 9
Other Sub-accounts' Yield Calculations . . . . . . . . . . . . . . . . . . . . . . . B - 10
Average Annual Total Return Calculations . . . . . . . . . . . . . . . . . . . . . . B - 11
Cumulative Total Return Calculations . . . . . . . . . . . . . . . . . . . . . . . . B - 11
PERFORMANCE FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 12
Historical Performance Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 12
Hypothetical Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 12
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 13
Taxation of ANLIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 13
Tax Status of the Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 13
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 14
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . B - 14
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 14
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B - 15
</TABLE>
B - 2
<PAGE> 49
Throughout this Statement of Additional Information, the words "us", "we",
"our", and "ANLIC" refer to Acacia National Life
Insurance Company, and the words "you", "your", and "Owner" refer to
the policy owner.
GENERAL PROVISIONS
THE POLICY
The Allocator 2000 Annuity (the "Policy") is a flexible premium
deferred variable annuity policy.
(a) The Policy may be purchased on a non-tax qualified basis
("Non-qualified Policy"). The Policy may also be purchased and
used in connection with retirement plans or individual
retirement accounts that qualify for favorable federal income
tax treatment ("Qualified Policy").
(b) Before it will issue a Policy, we must receive a completed
Policy Application. A minimum Premium Payment of $300 during
the first Policy year is required.
(c) The Policy and the copy of the Application attached thereto
(except as otherwise may be required by law), and any
applicable riders are the entire contract. Only our Elected
Officers can agree to change or waive any provisions of the
Policy. Any change or waiver must be in writing and signed by
such Elected Officer.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, the benefits
payable under the Policy will be equal to the benefits which the Premium
Payments would have provided for the correct age or sex (if such distinction
based upon sex is allowed by law).
We may require proof of the age of the Annuitant before making any
Annuity Payments provided for by the Policy.
If a misstatement of age or sex results in monthly income payments
that are too large, the overpayments will be deducted from future payments. If
we have made payments that are too small, the underpayment will be added to the
next payment. Adjustments for overpayments or underpayment will include the
compound interest rate used to determine the Annuity Payments.
NONPARTICIPATING
No dividends will be paid. Neither you nor the Beneficiary will have
the right to share in our surplus earnings or profits.
PERIODIC REPORTS
At least once each Policy Year we will send you a statement showing
your Policy Account Value as of a date not more than two months prior to the
date of mailing. We will also send such statements as may be required by
applicable state and federal laws, rules, and regulations.
POLICY DATES
Policy months, years and Policy Anniversaries are measured from the
Policy Date shown on the Policy.
B - 3
<PAGE> 50
TERMINATION
The Policy will remain in force until surrendered for its Surrender
Value, an Annuity Payment Option has been elected, or the Death Benefit has
been paid.
After the first five Policy years, we may cancel the Policy if for two
subsequent years you have not made any Premium Payments and the Policy Account
Value is less than $2,000 or would provide for less than $20 monthly payments
under any Annuity Payment Option. We will then pay you the Surrender Value in
one lump sum.
OWNER AND JOINT OWNER
The Owner is the individual named as such in the Application or in any
later change shown in ANLIC's records. There may be Joint Owners. Prior to the
Maturity Date and during any Annuitant's lifetime, only the Owner has the right
to receive all benefits and may exercise the rights under this Policy. If there
are Joint Owners, the signatures of both Owners are needed to exercise rights
under the Policy.
If the Annuitant is not an Owner and the Annuitant dies before the
Maturity Date, the Owner may name a new Annuitant. If the Owner doesn't name a
new Annuitant, the Owner will become the Annuitant. If one of the Joint
Annuitants dies prior to the Maturity Date, the survivor shall become the sole
Annuitant.
Joint Owners are not permitted for Policies issued in connection with
Qualified Plans. If there are Joint Owners, the signatures of both Owners are
needed to exercise rights under the Policy.
BENEFICIARY CHANGE
You may change the named Beneficiary by sending a written request in a
form acceptable to us to our Service Office unless the Beneficiary is
irrevocable. If the named Beneficiary is irrevocable, you may change the named
Beneficiary only by joint written request from you and such named Beneficiary.
You need not send us the Policy unless we request it. When recorded and
acknowledged by us, the change will be effective as of the date you signed the
request. The change will not apply to any payments made or other action taken
by us before we recorded and acknowledged the request.
ASSIGNMENT
You may assign this policy as collateral, unless prohibited elsewhere
in this Policy or applicable rider. We will not be bound by the Assignment
until a copy is filed with us. We assume no responsibility for determining
whether an Assignment is valid or the extent of the assignee's interest.
No Beneficiary may assign any benefits under the Policy until they are
due, and to the extent permitted by law payments are not subject to the debts
of any Beneficiary nor to any judicial process for payment of the Beneficiary's
debts.
DELAY OR SUSPENSION OF PAYMENTS
We will normally pay a surrender or any withdrawal within seven days
after we receive your Written Request in our Service Office. However,
transfers and payment of any amount from the Sub-accounts of the Variable
Account may be delayed or suspended whenever:
a) the New York Stock Exchange is closed other than customary weekend and
holiday closing, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange
B - 4
<PAGE> 51
Commission ("Commission");
b) the Commission by order permits postponement for the protection of
Owners; or
c) an emergency exists, as determined by the Commission, as a result of
which disposal of the securities held in the Sub-accounts is not
reasonably practicable or it is not reasonably practicable to
determine the value of the Variable Account's net assets.
Payment of any amounts from the Fixed Account may be deferred for up
to six months from the date of the request to surrender. If payment is
deferred for more than 30 days, we will pay interest on the amount deferred at
a rate not less the Guaranteed Minimum Interest Rate.
Payments under the Policy of any amounts derived from Premium Payments
paid by check may be delayed until such time as the check has cleared your
bank.
ACCUMULATION UNITS
ACCUMULATION UNITS
An Accumulation Unit is an accounting unit of measure used to
calculate the value of your interest in Sub-accounts of the Variable Account.
The portion of a net Premium Payment that you allocate to a Sub-account of the
Variable Account is credited as Accumulation Units in that Sub-account.
Similarly, the value that you transfer to a Sub-account of the Variable Account
is credited as Accumulation Units in that Sub-account. The number of
Accumulation Units to be credited to the Policy for each Sub-account is
determined by dividing (1) the net Premium Payments allocated to each
Sub-account by (2) the Accumulation Unit Value for that Sub-account for the
Valuation Period during which we received the Premium Payment or transfer
request at our Service Office, or in the case of the initial Premium Payment,
for the Valuation Period during which the Application is accepted.
The value of an Accumulation Unit for each Sub-account was initially
arbitrarily set at $1 when the first investments were bought. The value for
any later Valuation Period is found by multiplying the Accumulation Unit Value
for a Sub-account for the last prior Valuation Period by such Sub-account's
"net investment factor" for the following Valuation Period. Like the Policy
Account Value, the value of an Accumulation Unit may increase or decrease from
one Valuation Period to the next.
NET INVESTMENT FACTOR
The "net investment factor" is an index that measures the investment
performance of a Sub-account from one Valuation Period to the next. The net
investment factor may be greater or less than one, so the value of a
Sub-account may increase or decrease.
The net investment factor for each Sub-account for any Valuation
Period is determined by dividing (a) by (b), where:
(a) is the net result of:
(1) the net asset value per share of the Portfolio shares held in
the Sub-account determined as of the end of the current
Valuation Period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the Portfolio on shares held in the
Sub-account, if the "ex-dividend" date occurs during the
current Valuation
B - 5
<PAGE> 52
Period; plus or minus
(3) a per unit charge or credit for any taxes incurred by or
reserved for in the Sub-account, which is determined by ANLIC
to have resulted from the maintenance of the Sub-account; and
(b) is the net result of:
(1) the net asset value per share of the Portfolio shares held in
the Sub-account, determined as of the end of the immediately
preceding Valuation Period; plus or minus
(2) the per unit charge or credit for any taxes reserved for the
immediately preceding Valuation Period.
FIXED ACCOUNT
This Prospectus is generally intended to serve as a disclosure
document only for the Policy and the Variable Account. For complete details
regarding the Fixed Account, see the Policy itself.
Premium Payments allocated and amounts transferred to the Fixed
Account become part of the General Account assets of ANLIC. Interests in the
General Account have not been registered under the Securities Act of 1933 (the
"1933 Act"), nor is the General Account registered as an investment company
under the 1940 Act. Accordingly, neither the General Account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts, and
ANLIC has been advised that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus which relate to the Fixed
Account.
GENERAL DESCRIPTION
The General Account consists of all assets owned by ANLIC other than
those in the Variable Account and other separate accounts. Subject to
applicable law, ANLIC has sole discretion over the investment of the assets in
the General Account.
The General Account is supported by ANLIC's assets that are held in
the General Account. Premium Payments applied and any amounts transferred to
the General Account are credited with a fixed rate of interest for a specified
period. This is the account known as the "Fixed Account".
The allocation of Premium Payments and/or transfer of Policy Account
Value to the Fixed Account does not entitle an Owner to share in the investment
experience of the General Account. Instead, the guaranteed interest rate used
in the calculation of the Fixed Account Value is the amount stated in the
Policy, compounded annually, or any higher amount of interest in excess of the
guaranteed rate may be used in the calculation of the Fixed Account Value at
such times and in such a manner as we may determine. Interest rates will be
determined on no less than an annual basis.
Prior to the Maturity Date you may elect to allocate net Premium
Payments to the Fixed Account or to transfer Accumulation Value to or from the
Fixed Account (subject to certain restrictions upon transfers from the Fixed
Account, as discussed, below).
TRANSFER LIMITATION
The maximum amount allowed to be transferred out of the Fixed Account
during one Policy Year is 100% of Fixed Account interest accrued since the last
Policy Anniversary; plus 10% of:
B - 6
<PAGE> 53
(1) Account Value of the Fixed Account as of the last Policy Anniversary; plus
(2) Deposits and transfers made into the Fixed Account since the last Policy
Anniversary; minus
(3) All partial withdrawals from the Fixed Account since the last Policy
Anniversary.
You may also elect to systematically reallocate all interest generated from the
Fixed Account into the Sub-accounts of the Variable Account on an interest only
basis according to your allocation election. (See "Interest Sweep Program" in
the prospectus.)
FIXED ACCOUNT VALUE
We will credit all net Premium Payments allocated to the Fixed Account
to your Fixed Account Value. The Fixed Account Value at any time equals:
(1) The net Premium Payments allocated to the Fixed Account; plus
(2) The total of all amounts transferred to the Fixed Account from
the Variable Account; minus
(3) The total of all amounts transferred from the Fixed Account to
the Variable Account, minus
(4) The total of all Policy fees attributable to the Fixed
Account; minus
(5) The total of all partial withdrawals from the Fixed Account
(including any Surrender charges); plus
(6) Interest.
ANLIC'S MANAGEMENT HAS COMPLETE AND SOLE DISCRETION TO DETERMINE THE
CURRENT INTEREST RATES. ANLIC CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE
CURRENT INTEREST RATES, EXCEPT THAT ANLIC GUARANTEES THAT FUTURE CURRENT
INTEREST RATES WILL NOT BE BELOW AN EFFECTIVE RATE OF 4% PER YEAR COMPOUNDED
ANNUALLY. THE OWNER BEARS THE RISK THAT CURRENT INTEREST RATES WILL NOT EXCEED
AN EFFECTIVE RATE OF 4% PER YEAR.
SURRENDER CHARGE CALCULATION
Owners may, prior to the earlier of the Maturity Date or death,
withdraw 100% of earnings (since the last Policy Anniversary) in all
Sub-accounts of the Variable Account and the Fixed Account free of Surrender
Charges. Additionally, up to 10% of the Policy Account Value (as of the last
Policy Anniversary); plus 10% of:
(1) Deposits since the last Policy Anniversary; minus
(2) Withdrawals since the last Policy Anniversary
may also be withdrawn free of Surrender Charges.
Upon a Partial Withdrawal, Surrender, or Annuitization We will apply
the Surrender Charge Percentage shown below to those Premium Payments received
within five years of the Partial Withdrawal or Surrender or Annuitization Date.
After the free amounts are determined, the calculation will be based on a
first-in, first-out basis.
Surrender Charges are assessed on Premium Payments made within five
years of a surrender or partial withdrawal. To determine the Surrender Charge
for a particular Premium Payment, the Surrender Charge
B - 7
<PAGE> 54
percentage is multiplied by the Premium Payment less any withdrawals previously
allocated to the Premium Payment. The total Surrender Charge is then
determined by summing the previous result over all Premium Payments used in the
calculation. The Surrender Charge will be based on the excess of the Surrender
amount over the Free Withdrawal Amounts. This excess is distributed over the
Premium Payments on a first-in, first-out basis until the excess is exhausted.
Partial surrenders will be charged based on the above method. There are no
Surrender Charges assessed on distributions made pursuant to the death of the
Owner. The Surrender Charge percentages are as follows:
<TABLE>
<S> <C>
Years 1-3 . . . . . . . . 8%
Year 4 . . . . . . . . . 6%
Year 5 . . . . . . . . . 4%
Year 6 . . . . . . . . . 0%
</TABLE>
Example:
ISSUE DATE: 02/10/1990
<TABLE>
<CAPTION>
Premium Payments:
<S> <C>
02/10/90 $4,000
12/10/90 $1,000
06/02/91 $1,500
08/21/92 $3,000
10/02/95 $2,000
01/12/95 $1,000
</TABLE>
WITHDRAWAL ONE - 05/12/92
<TABLE>
<S> <C> <C>
Requested Withdrawal Amount (not including the Surrender Charge) $3,000.00
Policy Account Value (before withdrawal) 7,114.45
Policy Year Gain (free of charge) 109.22
Gross Premium Payments 6,500.00
10% Free Withdrawal Amount 6,500 X 0.10 = 650.00
Total Free Amount 109.22 + 650 = 759.22
Non-Free Amount 3,000 - 759.22 = 2,240.78
Surrender Surrender
Premium Payment Charge % Charge
--------------- -------- ------
$4,000 x .08 = 320
1,000 x .08 = 80
1,500 x .08 = 120
Total Surrender Charge 520.00
Partial Surrender Charge (2,240.78/.92) x .08 = 194.85
</TABLE>
B - 8
<PAGE> 55
<TABLE>
<S> <C>
Total Withdrawal 3,194.85
Policy Account Value (after withdrawal) 3,919.60
</TABLE>
Only those Premium Payments made before 5/12/92 will be used to
determine the Surrender Charge. The $3,000 withdrawal is less than the first
Premium Payment, therefore, we will use the Surrender Charge percentage on that
Premium Payment. However, it seems that we are applying one surrender Charge
percentage for all premiums. The reason is that the Surrender Charge for the
first three years is 8%.
Assume that your Policy Account Value is split among four Sub-accounts
in the following proportions:
<TABLE>
<S> <C> <C>
Sub-account 1 $ 784.02 .1102%
Sub-account 2 $ 3,111.15 .4373%
Sub-account 3 $ 1,730.23 .2432%
Sub-account 4 $ 1,489.05 .2093%
----------- ------
$ 7,114.45 1.000%
</TABLE>
The process for allocating the Surrender Charge among the Sub-accounts
is as follows:
STEP ONE - REMOVAL OF CONTRACT GAIN $109.22
<TABLE>
<S> <C> <C> <C>
.1102 Sub-account 1 $ 784.01 - 12.04 = $ 771.97
.4373 Sub-account 2 $3,111.15 - 47.76 = $3,063.39
.2432 Sub-account 3 $1,730.23 - 26.56 = $1,703.67
.2093 Sub-account 4 $1,489.05 - 22.86 = $1,466.19
</TABLE>
STEP TWO - REMOVAL OF 10% FREE WITHDRAWAL AMOUNT $650
<TABLE>
<S> <C> <C> <C>
.1102 Sub-account 1 $ 771,97 - 71.63 = $ 700.34
.4373 Sub-account 2 $3,063.39 - 284.25 = $2,779.14
.2432 Sub-account 3 $1,703,67 - 158.08 = $1,545.59
.2093 Sub-account 4 $1,466.19 - 136.04 = $1,330.15
</TABLE>
STEP THREE - REMOVAL OF NON-FREE $2,435.63
<TABLE>
<S> <C> <C> <C>
.1102 Sub-account 1 $ 700.34 - 268.41 = $ 431.93
.4373 Sub-account 2 $2,779.14 - 1,065.10 = $1,714.04
.2432 Sub-account 3 $1,545.59 - 592.35 = $ 953.25
.2093 Sub-account 4 $1,330.15 - 509.78 = $ 820.38
---------
$3,919.60
</TABLE>
PERFORMANCE DATA CALCULATIONS
We may advertise the yield and effective yield of the Acacia Capital
Corporation Calvert Responsibly Invested Money Market Sub-account (the "Money
Market Sub-account"). In addition, we may advertise yield and the total
returns for other Sub-accounts. All performance data calculations for
Sub-accounts or the Variable Account will be in accordance with SEC
regulations.
MONEY MARKET SUB-ACCOUNT'S YIELD CALCULATION
In accordance with regulations adopted by the SEC, if we disclose the
annualized yield of the Money Market Sub-account for a seven-day period, it is
required to be in a manner which does not take into consideration any realized
or unrealized gains or losses of the Money Market Portfolio or on its portfolio
securities. The annualized yield is computed by determining the net change
(exclusive of realized gains and
B - 9
<PAGE> 56
losses on the sale of securities and unrealized appreciation and depreciation)
in the value of a hypothetical account having a balance of one unit of the
Money Market Sub-account at the beginning of the seven-day period, dividing the
net change in Sub-account Value by the value of the account at the beginning of
the period to determine the base period return, and annualizing this quotient
on a 365-day basis. The net change in Sub-account Value reflects the deduction
for the Mortality and Expense Risk Charge and the Administration Fee as well as
reflecting income and expenses accrued during the period. Because of these
deductions, the yield for the Money Market Sub-account will be lower than the
yield for the Money Market Portfolio of the Fund.
The SEC also permits us to disclose the effective yield of the Money
Market Sub-account for the same seven-day period, determined on a
weekly-compounded basis. The effective yield is calculated by compounding the
base period return by adding one to the base period return, raising the sum to
a power equal to 365 divided by 7, and subtracting one from the result
according to the following formula:
365/7
Effective Yield = [(Base period return + 1) ] - 1
The actual yield of the Money Market Sub-account is affected by: (l)
changes in interest rates on money market securities; (2) the average portfolio
maturity of the Money Market Portfolio; (3) the types and quality of securities
held by the Money Market Portfolio; and (4) its operating expenses. The yield
on amounts held in the Money Market Sub-account normally will fluctuate on a
daily basis. Therefore, the disclosed yields for any given past period is not
an indication or representation of future yields or rates of return.
OTHER SUB-ACCOUNTS' YIELD CALCULATIONS
We may from time to time advertise or disclose the annualized yield
for each Sub-account other than the Money Market Sub-account for 30-day (or
one-month) periods. Calculation of the yield of a Sub-account begins with the
income generated by an investment in the Sub-account over a specific 30-day (or
one-month) period. This income is then annualized. That is, the amount of
income generated by the investment during that 30-day (or one-month) period is
assumed to be generated during, and reinvested at the end of, each such period
over a 360-day (or twelve-month) year. The 30-day (or one-month) yield is
calculated according to the following formula:
6
Yield = 2[({a-b}/cd + 1) - 1]
where
a = net investment income earned during the period by the Portfolio
attributable to shares owned by the Sub-account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of Accumulation Units outstanding during the
period; and
d = the maximum offering price per Accumulation Unit (i.e., net asset
value per Accumulation Unit) the last day in the period.
Because of the charges and deductions imposed by the Variable Account,
the yield for a Sub-account will be lower than the yield for its corresponding
Portfolio. The yield calculations do not reflect the effect of any premium
taxes or Surrender Charge that may be applicable to a particular Policy.
Surrender Charges range from 8% to 0% of the Premium Payments included in the
Withdrawal, depending on the number of years since each Premium Payment was
received. The yield on amounts held in the Sub-accounts of the
B - 10
<PAGE> 57
Variable Account normally will fluctuate over time. Therefore, the disclosed
yield for any given past period is not an indication or representation of
future yields or rates of return. A Sub-account's actual yield is affected by
the types and quality of the Portfolio's investments and the Portfolio's
operating expenses.
AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
For each Sub-account other than the Money Market Sub-account, an
average annual total return may be calculated for a given period. It is
computed by finding the average annual compounded rate of return over one-,
five-, and ten-year periods (or, where a Sub-account has been in existence for
a period less than one, five, or ten years, for such lesser period) that would
equate the initial amount invested to the ending redeemable value (i.e.,
Surrender Value), according to the following formula:
n
P(1 + T) = ERV
where
P = a hypothetical initial Premium Payment of $1,000;
T = average annual total return;
n = number of years in the period; and
ERV = ending redeemable value of a hypothetical $1,000 Premium
Payment made at the beginning of the one-, five-, or ten-year
periods (or fractional portion thereof) at the end of such
period.
All recurring fees that are charged to all Policy Owner accounts are
recognized in the ending redeemable value. The average annual total return
calculation will also reflect the effect of Surrender Charges that may be
applicable due to surrender of the Policy at the end of a particular period.
From time to time we may also disclose average annual total returns in
a non-standard format in conjunction with the standard format described above.
The only difference between the two methods is that the non-standard format
assumes a Surrender Charge of 0%.
CUMULATIVE TOTAL RETURN CALCULATIONS
We may from time to time also disclose cumulative total return for
each Sub-account in conjunction with the standard format described above. The
cumulative returns will be calculated using the following formula:
CTR = (ERV / P) - 1
where
CTR = the cumulative total return net of Sub-account recurring
charges for the period;
ERV = ending redeemable value of a hypothetical $1,000 Premium
Payment made at the beginning of the one-, five-, or ten-year
period (or fractional portion thereof) at the end of such
period; and
P = a hypothetical initial Premium Payment of $1,000.
B - 11
<PAGE> 58
PERFORMANCE FIGURES
The performance information provided below reflects only the
performance of a Policy's allocation to the stated Sub-account during the time
period on which the calculations are based. Performance information provided
for any given past period is not an indication or representation of future
yields or rates of return.
HISTORICAL PERFORMANCE FIGURES
There are no historical performance figures for the Sub-accounts, as
no Sub-account invested in its corresponding Portfolio in 1995 because the
Variable Account had not yet commenced operations.
HYPOTHETICAL PERFORMANCE DATA
We may also disclose "hypothetical" performance data for a
Sub-account, for periods before the Sub-account commenced operations. Such
performance information for the Sub-account will be calculated based on the
performance of the corresponding Portfolio and the assumption that the
Sub-account was in existence for the same periods as its corresponding
Portfolio, with the level of Policy charges currently in effect. The Portfolio
used for these calculations is the actual Portfolio in which the Sub-account
invests. This type of hypothetical performance data, with respect to the total
return for each Sub-account other than the Money Market Sub-account, may be
disclosed on both an average annual total return and a cumulative total return
basis.
These figures are not an indication of past, present or future
performance of the Sub-accounts. The figures may reflect the waiver of
advisory fees and reimbursement of other expenses.
The hypothetical yield for the Money Market Sub-account for the
seven-day period ending December 31, 1995, on an annualized basis, was 3.59%.
The hypothetical effective yield for the Money Market Sub-account for the
seven-day period ending December 31, 1995, on an annualized basis, was 3.65%.
B - 12
<PAGE> 59
FEDERAL TAX MATTERS
TAXATION OF ANLIC
ANLIC is taxed as a life insurance company under Part 1 of Subchapter
L of the Internal Revenue Code of 1986 (the "Code"). Since the Variable
Account is not an entity separate from ANLIC and its operations form a part of
ANLIC, it will not be taxed separately as a "regulated investment company"
under Subchapter M of the Code. Investment income and realized net capital
gains on the assets of the Variable Account are reinvested and taken into
account in determining the Policy Account Value. As a result, such investment
income and realized net capital gains are automatically retained as part of the
reserves under the Policy. Under existing federal income tax law, we believe
that Variable Account investment income and realized net capital gains should
not be taxed to the extent that such income and gains are retained as part of
the reserves under the Policy.
TAX STATUS OF THE POLICIES
Section 817(h) of the Code provides that the investments of the
Variable Account must be "adequately diversified" in accordance with Treasury
regulations in order for the Policies to qualify as annuity contracts under
Section 72 of the Code. The Variable Account, through each Portfolio of the
Funds, intends to comply with the diversification requirements prescribed by
the Treasury in Treas. Reg. Section 1.817-5, which affect how the Portfolios'
assets may be invested. We do not control any of the Funds or their
Portfolios' investments. However, we have entered into an agreement regarding
participation in each Fund, which requires each participating Portfolio of the
Funds to be operated in compliance with the diversification requirements
prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of separate
account assets if the contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets.
The Treasury Department also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
policyholder), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular subaccounts without
being treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating premium payments
and Policy Account Values. These differences could result in an Owner being
treated as the owner of a pro rata portion of the assets of the Variable
Account. In addition, we do not know what standards will be set forth, if any,
in the regulations or rulings which the Treasury Department has stated it
expects to issue. We therefore
B - 13
<PAGE> 60
reserve the right to modify the Policy as necessary to attempt to prevent an
Owner from being considered the owner of a pro rata share of the assets of the
Variable Account.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding
for the recipient's federal income tax liability at rates that vary according
to the type of distribution and the recipient's tax status. Generally, the
recipient is given the opportunity to elect not to have tax withheld from
distributions. However, certain distributions from Section 401(a) and 403(b)
plans are subject to mandatory withholding.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We cannot guarantee that shares of the Portfolios currently being
offered will be available in the future for investment of Premium Payments or
for transfers. We reserve the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for, the shares of
the Funds that are held by the Variable Account (or any Sub-account) or that
the Variable Account (or any Sub-account) may purchase. We reserves the right
to eliminate the shares of any of the Portfolios of the Funds and to substitute
shares of another Portfolio of the Funds or any other investment vehicle or of
another open-end, registered investment company if laws or regulations are
changed, if the shares of any of the Funds or a Portfolio are no longer
available for investment, or if in our judgment further investment in any
Portfolio should become inappropriate in view of the purposes of the
Sub-account. We will not substitute any shares attributable to an Owner's
interest in a Sub-account without notice and prior approval of the Commission
and the insurance regulator of the state where the Policy was delivered, where
required. Nothing contained herein shall prevent the Variable Account from
purchasing other securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies on the basis of
requests made by Owners.
We also reserve the right to establish additional Sub-accounts of the
Variable Account, each of which would invest in a new Portfolio of one of the
Funds, or in shares of another investment company or suitable investment, with
a specified investment objective. New Sub-accounts may be established when, in
our sole discretion, marketing needs or investment conditions warrant, and any
new Sub-accounts will be made available to existing Owners on a basis to be
determined by us. We may also eliminate one or more Sub-accounts if, in its
sole discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, we may, by
appropriate endorsement, make such changes in the Policies as may be necessary
or appropriate to reflect such substitution or change. If deemed by us to be
in the best interests of persons having voting rights under the Policies, the
Variable Account may be operated as a management company under the Investment
Company Act of 1940, it may be deregistered under that Act in the event such
registration is no longer required, or it may be combined with other ANLIC
separate accounts.
DISTRIBUTION OF THE POLICIES
Applications for the Policies are solicited by agents who are licensed
by state insurance authorities to sell our variable annuity insurance policies,
and who are also registered representatives of The Advisors Group, Inc. ("TAG")
or registered representatives of broker/dealers who have Selling Agreements
with TAG or registered representatives of broker/dealers who have Selling
Agreements with such broker/dealers. TAG, whose address is 51 Louisiana
Avenue, N.W., Washington, D.C. 20001, is a registered broker/dealer under the
Securities Exchange Act of 1934 ("1934 Act") and a member of the National
Association of Securities Dealers, Inc. ("NASD"). TAG is an indirect
wholly-owned subsidiary of Acacia Mutual Life Insurance Company of Washington,
D.C. TAG acts as the principal underwriter, as defined in the 1940 Act, of the
Policies (as well as other variable life policies) pursuant to an Underwriting
Agreement with ANLIC. The Policies are offered
B - 14
<PAGE> 61
and sold only in those states where their sale is lawful.
We will refund any Premium Payments paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is cancelled during
the Free Look Period.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. Agent commissions will
vary, but in any event will not exceed 5% of Premium Payments made:
STATE REGULATION
We are subject to the insurance laws and regulations of states within
which we are licensed or may become licensed to operate. Generally, the
insurance department of a state applies the laws of the state of the insurance
company's domicile in determining permissible investments by that insurance
company. A Policy is governed by the law of the state in which it is
delivered. The values and benefits of each Policy are at least equal to those
required by the state in which it is delivered.
RECORDS AND REPORTS
All records and accounts relating to the Variable Account will be
maintained by ANLIC. As presently required by the Investment Company Act of
1940 and regulations promulgated thereunder, reports containing such
information as may be required under that Act or by any other applicable law or
regulation will be sent to Owners at their last known address of record.
LEGAL MATTERS
Legal advice regarding certain matters relating to federal securities
laws applicable to the issuance of the Policy described in the Prospectus have
been provided by Sutherland, Asbill & Brennan of Washington, D.C.
EXPERTS
The balance sheets of ANLIC as of December 31, 1995 and 1994, and the
related statements of operations, shareholder's equity, and cash flows for each
of the years in the three-year period ended December 31, 1995 have been
included herein in reliance upon the report of Coopers & Lybrand L.L.P.,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
OTHER INFORMATION
A Registration Statement has been filed with the Commission under the
Securities Act of 1933, as amended, with respect to the Policies discussed in
this Statement of Additional Information. Not all of the information set forth
in the Registration Statement, amendments and exhibits thereto has been
included in this Statement of Additional Information. Statements contained in
this Statement of Additional Information concerning the content of the Policies
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the Commission.
FINANCIAL STATEMENTS
The financial statements of ANLIC, which are included in this
Statement of Additional Information,
B - 15
<PAGE> 62
should be considered only as bearing on ANLIC's ability to meet ANLIC's
obligations under the Policies. They should not be considered as bearing on
the investment performance of the assets held in the Variable Account.
B - 16
<PAGE> 63
Coopers COOPERS & LYBRAND L.L.P.
& Lybrand a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Acacia National Life Insurance Company
We have audited the accompanying statements of financial condition of Acacia
National Life Insurance Company as of December 31, 1995 and 1994, and the
related statements of operations and changes in surplus, and cash flows for the
years 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. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Acacia National Life Insurance
Company as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with accounting practices
prescribed or permitted by the Insurance Department of the Commonwealth of
Virginia, which are considered generally accepted accounting principles for
wholly-owned subsidiaries of mutual life insurance companies.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Assets and
Liabilities is presented for purposes of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by the National Association of Insurance Commissioners.
Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and in our opinion is fairly stated, in
all material respects, in relation to the basic financial statements taken as a
whole.
/s/ COOPERS & LYBRAND LLP
Washington, D.C.
February 14, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE> 64
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Debt securities $ 484,895 $ 455,445
Equity securities 2,272 1,252
Policy loans 6,701 6,340
Cash and cash equivalents 19,987 25,329
Accrued investment income 8,558 8,206
Other assets 1,151 2,653
------------ -------------
TOTAL ASSETS $ 523,564 $ 499,225
============ =============
LIABILITIES
Insurance and annuity reserves $ 447,081 $ 418,474
Deposit administration contracts and other
deposit reserves 24,683 27,659
Other policyowner funds 14,405 11,166
Policy claims 880 1,980
Interest maintenance reserve 2,213 2,114
Asset valuation reserve 4,645 3,998
Other liabilities 2,882 8,791
------------ -------------
TOTAL LIABILITIES 496,789 474,182
STOCKHOLDER'S EQUITY
Common stock, 1995 and 1994 par value of $105 and $100
respectively; 15,000 authorized, issued and outstanding 1,575 1,500
Additional paid-in capital 8,425 8,500
Surplus 16,775 15,043
------------ -------------
TOTAL STOCKHOLDER'S EQUITY 26,775 25,043
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 523,564 $ 499,225
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE> 65
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN SURPLUS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1995 1994
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 41,281 $ 35,899
Net investment income 40,888 37,536
Supplementary contracts 9,388 5,583
Other fund deposits 4,172 4,345
------------ -------------
95,729 83,363
BENEFITS AND EXPENSES
Benefits for policyholders and beneficiaries:
Benefit payments and withdrawals 53,831 33,243
Increase in insurance and annuity reserves 31,851 33,404
(Decrease) increase in deposit administration funds (2,977) 3,862
------------ -------------
82,705 70,509
Commissions to managing directors
and account managers 2,045 2,035
Operating expenses allocated
from Acacia Mutual 7,223 7,427
Other operating expenses and taxes 915 611
------------ -------------
92,888 80,582
------------ -------------
NET GAIN FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES AND REALIZED CAPITAL GAINS 2,841 2,781
Federal income tax benefit 53 297
------------ -------------
NET GAIN FROM OPERATIONS BEFORE
REALIZED CAPITAL LOSSES 2,894 3,078
REALIZED CAPITAL LOSSES
Net realized capital losses (418) (1,350)
Capital (losses) gains taxes (228) 159
Transferred to interest maintenance reserve (433) (207)
------------ -------------
NET REALIZED CAPITAL LOSSES (1,079) (1,398)
------------ -------------
NET INCOME 1,815 1,680
Surplus, beginning of year 15,043 14,041
Increase in asset valuation reserve (647) (1,596)
Increase in net unrealized capital gains 564 918
------------ -------------
SURPLUS, END OF YEAR $ 16,775 $ 15,043
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 66
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1995 1994
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations $ 41,430 $35,899
Other premiums, considerations and deposits 9,388 5,583
Net investment income received 39,845 36,883
Annuity and other fund deposits 4,161 4,317
Benefits paid to policyholders (50,714) (29,693)
Commissions and other expenses paid (9,975) (10,219)
Surrender benefits and other fund withdrawals paid (1,551) (2,334)
Federal and state income tax paid (recovered) (9) 1,688
Net change in policy loans and premium notes (361) (111)
Other cash (used) provided (8,220) 2,778
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,994 44,791
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 44,150 47,326
Stocks and other 1,569 300
Cost of investments acquired:
Bonds (72,499) (76,244)
Stocks (2,556) (1,561)
------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (29,336) (30,179)
------------ -------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,342) 14,612
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 25,329 10,717
------------ -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $19,987 $25,329
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 67
ACACIA NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Acacia National Life Insurance Company (the Company), a wholly-owned subsidiary
of Acacia Mutual Life Insurance Company (Acacia Mutual), underwrites and
markets deferred and immediate annuities and life insurance products within the
United States. On December 1, 1995 operations began for the Acacia National
Variable Life Insurance Separate Account I which is a separate investment
account within the Company. Acacia Mutual and its wholly-owned subsidiaries
are collectively known as The Acacia Group (the Group). Other members of the
Group include Acacia Financial Corporation and its subsidiaries, Acacia Federal
Savings Bank, Calvert Group, Ltd. and The Advisors Group, Inc.
The Company, domiciled in Virginia, prepares its statutory financial statements
in accordance with accounting practices prescribed or permitted by the Virginia
State Insurance Department. Prescribed statutory accounting practices include
a variety of publications of the National Association of Insurance
Commissioners (NAIC), as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed.
Statutory accounting practices are regarded as generally accepted accounting
principles (GAAP) for mutual life insurance companies and their subsidiaries.
The Financial Accounting Standards Board (FASB) has indicated that the
financial statements of mutual life insurance companies and their stock life
insurance company subsidiaries financial statements prepared on the basis of
statutory accounting principles will no longer be considered to be in
conformity with GAAP for fiscal years ended after 1995. The effects of the
changes from existing statutory practices required upon adoption of GAAP have
not been determined at this time.
The Board of Directors amended the Articles of Incorporation of the Company
effective August 1, 1995 to increase the par value of each share of the
company's common stock from $100 to $105. The impact of this change increased
total common stock $75 thousand with a corresponding decrease to additional
paid-in capital.
The preparation of the 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.
5
<PAGE> 68
VALUATION OF ASSETS
Debt and equity securities are valued in accordance with rules prescribed by
the NAIC. Debt securities are generally stated at amortized cost, preferred
stocks at cost and common stocks at market value. Mortgage loans and policy
loans are recorded at their unpaid balance. Discount or premium on debt
securities is amortized using the interest method. Unrealized capital gains and
losses are reflected directly in surplus and are not included in net income.
Realized gains and losses are determined on a first-in, first-out basis and are
presented in the statements of operations, net of taxes and excluding amounts
transferred to the Interest Maintenance Reserve.
As prescribed by the NAIC, the Company maintains an Asset Valuation Reserve
(AVR). The purpose of the AVR is to stabilize surplus against fluctuations in
the value of stocks and declines in the value of bonds, mortgage loans and
other invested assets. Changes to the AVR are charged or credited directly to
surplus.
As also prescribed by the NAIC, the Company maintains an Interest Maintenance
Reserve, which represents the net accumulated unamortized realized capital
gains and losses attributable to changes in the general level of interest rates
on sales of fixed income investments, principally bonds and mortgage loans.
Such gains or losses are amortized into income using schedules prescribed by
the NAIC over the remaining period to expected maturity of the individual
securities sold.
CASH EQUIVALENTS
The Company considers overnight repurchase agreements, money market funds and
short-term investments with original maturities of less than three months at
the time of acquisition to be cash equivalents. Cash equivalents are carried
at cost.
POLICY RESERVES
Life policy reserves are computed by using the Commissioners Reserve Valuation
Method and the Commissioners Standard Ordinary Mortality table. Annuity
reserves are calculated using the Commissioners Annuity Reserve Valuation
Method and the maximum valuation interest rate; for annuities with life
contingencies, the prescribed valuation mortality table is used.
Policy claims in process of settlement include provision for reported claims
and claims incurred but not reported.
PREMIUMS AND RELATED EXPENSE
Premiums are recognized as income over the premium paying period of the
policies. Annuity considerations and fund deposits are included in revenue as
received. Commissions and other policy acquisition costs are expensed as
incurred.
6
<PAGE> 69
REINSURANCE
The Company cedes reinsurance to provide for greater diversification of
business, additional capacity for growth as well as a way for management to
control exposure to potential losses arising from large risks. A significant
portion of reinsurance is ceded to Acacia Mutual.
FEDERAL INCOME TAXES
The Company files a consolidated tax return with the Group. Under statutory
accounting practices, no provision is made for deferred federal income taxes
related to temporary differences between financial reporting and taxable
income. Such temporary differences arise primarily from Internal Revenue Code
requirements regarding the capitalization and amortization of deferred policy
acquisition costs, calculation of life insurance reserves and recognition of
realized gains or losses on bond sales.
RECLASSIFICATIONS
Certain reclassifications of 1994 amounts were made to conform with the 1995
financial statement presentation.
2. INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Debt securities $484,895 $525,694 $455,445 $446,148
Equity securities 2,272 2,573 1,252 1,296
Mortgage loans 47 45 107 99
Cash and cash equivalents 19,987 19,987 25,329 25,329
FINANCIAL LIABILITIES:
Investment-type insurance
contracts $381,515 $408,583 $358,536 $324,838
</TABLE>
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
7
<PAGE> 70
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks and mortgage backed securities) are based on quoted
market prices, where available. For fixed maturity securities not actively
traded and for private placements, fair values are estimated using values
obtained from independent pricing services. The fair values for equity
securities are based on quoted market prices.
CASH AND CASH EQUIVALENTS. The statement values reported in the Statements of
Financial Condition for these instruments approximate their fair values.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. The statement values for supplementary contracts without life
contingencies approximate their fair values.
INVESTMENTS
The statement values and estimated fair values of the Company's investments in
debt securities are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1995
- --------------------
U.S. government and agencies $ 78,649 $10,904 $ --- $ 89,553
Other government 3,300 20 $ --- 3,320
Mortgaged backed securities 129,879 4,857 (312) 134,424
Corporate 273,067 26,113 (783) 298,397
-------- ------- -------- --------
$484,895 $41,894 $(1,095) $525,694
======== ======= ======== ========
AT DECEMBER 31, 1994
- --------------------
U.S. government and agencies $ 75,629 $4,859 $ (2,829) $ 77,659
Other government 1,300 --- (96) 1,204
Mortgaged backed securities 136,650 668 (7,402) 129,916
Corporate 241,866 3,450 (7.947) 237,369
-------- ------- -------- --------
$455,445 $8,977 $(18,274) $446,148
======== ======= ======== ========
</TABLE>
8
<PAGE> 71
The amortized cost and estimated fair value of debt securities, by contractual
maturity at December 31, 1995 are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
($ IN THOUSANDS)
STATEMENT FAIR
VALUE VALUE
--------- -----
<S> <C> <C>
Maturities in 1996 $ 6,381 $ 6,499
In 1997 to 2000 99,480 109,484
In 2001 to 2005 158,542 171,929
After 2005 90,613 103,358
Mortgaged-backed securities 129,879 134,424
--------- ---------
$ 484,895 $ 525,694
========= =========
</TABLE>
Proceeds from dispositions of investments in debt securities during 1995 were
$44.2 million; gross gains of $770 thousand and gross losses of $1.2 million
were realized on those sales. Proceeds from the sales of investments in debt
securities during 1994 were $47.3 million; gross gains of $208 thousand and
gross losses of $1.5 million were on those sales.
Investment income is net of expenses of $969 thousand in 1995 and $901 thousand
in 1994.
INVESTMENT PORTFOLIO CREDIT RISK
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1995 and 1994, approximately $5.7
million and $13.6 million, respectively, in debt security investments (1.2% and
2.9%, respectively, of the total debt security portfolio) are considered "below
investment grade." Securities are classified as "below investment grade" by
utilizing rating criteria established by the NAIC.
4. REINSURANCE
The Company reinsures all life insurance risks over its retention limit of $10
thousand per policy under yearly renewable term insurance agreements with
Acacia Mutual and several other nonaffiliated companies. The Company remains
obligated for amounts ceded in the event that reinsurers do not meet their
obligations. Reinsurance premiums are recorded as a reduction of premium
income. Commission and expense allowances are recorded as an increase in
income. Benefits are reported net of amounts received from reinsurers.
9
<PAGE> 72
Premiums and benefits have been reduced by amounts reinsured as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
1995 1994
------ ------
<S> <C> <C>
Premiums ceded:
Acacia Mutual $3,488 $4,585
Others 535 486
------ ------
Total premium ceded $4,023 $5,071
====== ======
Death benefits reimbursed:
Acacia Mutual $2,018 $1,846
Other 2,213 378
------ ------
Total benefits reimbursed $4,231 $2,224
====== ======
Amounts recoverable on paid and unpaid losses:
Acacia Mutual $358 $567
Other 377 355
---- ----
Total amounts recoverable on paid
and unpaid losses $735 $922
==== ====
Policy reserves $3,486 $3,347
====== ======
</TABLE>
5. ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposit liabilities withdrawal characteristics as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
PERCENT
AMOUNT OF TOTAL
------ --------
<S> <C> <C>
Subject to discretionary withdrawal with adjust-
ment, at book value less surrender charge $202,015 50%
Subject to discretionary withdrawal without adjust-
ment, at book value (minimal or no charge) 193,905 48%
Not subject to discretionary withdrawal provision 8,837 2%
-------- ---
Total annuity actuarial reserves and deposit
fund liabilities $404,757 100%
======== ====
</TABLE>
10
<PAGE> 73
6. FEDERAL INCOME TAXES
Under a tax sharing agreement between the Company and other members of the
Group, Acacia Mutual reimburses or receives from the Company an amount
representing the taxes that would have been paid or refunded had the Company
filed a separate income tax return.
The statute of limitations has expired with respect to all tax years prior to
1992. There were no proposed adjustments from any examinations. In the
opinion of management adequate provision has been made for any additional taxes
which may become due with respect to open years.
Under the statutes in effect before the Deficit Reduction Act of 1984, a
portion of "net income" was not subject to current income taxation for stock
life insurance companies, but was accumulated for tax purposes in a memorandum
tax account. The 1984 Act prohibited any additions to the memorandum tax
account after 1983. The balance in this account for the Company was $6.6
million at December 31, 1995 and 1994. In the event that either cash
distributions from the Company to Acacia Mutual or the balance in the
memorandum tax account exceeds certain stated minimums, such amounts
distributed would become subject to federal income taxes at rates then in
effect.
7. OTHER RELATED PARTY TRANSACTIONS
The Company has entered into an agreement whereby Acacia Mutual provides such
services and facilities as are necessary for the operation of the Company. Net
amounts payable to Acacia Mutual at December 31, 1995 and 1994 are $647
thousand and $6.0 million, respectively.
8. CONTINGENCIES
LITIGATION AND UNASSERTED CLAIMS
The Company is involved in various lawsuits that have arisen in the ordinary
course of business. Management believes that its defenses are meritorious and
the eventual outcome of these lawsuits will not have a material effect on the
Company's financial position.
The Company is also subject to insurance guaranty laws in the states in which
it does business. Periodically, the Company is assessed by various state
guaranty funds as part of those funds' activities to collect funds from solvent
insurance companies to cover losses to policyholders that resulted from the
insolvency or rehabilitation of other insurance companies. The Company has
established an estimated liability for guaranty fund assessments for those
insolvencies or rehabilitations that have actually occurred prior to that date.
Because of the many uncertainties regarding the amounts that will be assessed
against the Company, the ultimate assessments may vary from the estimated
liability included in the accompanying financial statements.
11
<PAGE> 74
Assessments accrued, net of expected premium tax effects, at December 31, 1995
and 1994 were $805 thousand and $625 thousand, respectively.
DIVIDEND RESTRICTIONS
Statutory requirements place limitations on the maximum amount of annual
dividends and other distributions which can be remitted by the Company to its
shareholder without prior approval of the appropriate state insurance
commissioner. The Company has total shareholder equity of $26.8 million at
December 31, 1995, of which approximately $2.7 million is available for payment
of dividends in 1996.
9. SUBSEQUENT EVENT
On December 20, 1995, the Company entered into an agreement with the insurance
commissioner of the Commonwealth of Pennsylvania and the National Organization
of Life and Health Insurance Guaranty Associations (NOLGHA) to assume certain
assets and liabilities relating to annuities previously underwritten by the
National American Life Insurance Company (NALICO), which is in rehabilitation.
Under the agreement, the Company will assume approximately $130.0 million of
liabilities, which principally consists of deferred annuities similar to the
Company's products. The Company will receive from NALICO approximately $110.0
million in assets, consisting principally of investment grade bonds and
short-term investments. Approximately $15.0 million in cash and promissory
notes will be contributed by NOLGHA, subject to final settlement and regulatory
approvals. The actual contribution from NOLGHA is contingent on a subsequent
valuation of the assets received from NALICO. This transaction is expected to
close during 1996. No amounts have been reflected in the Company's financial
statements to reflect this agreement.
12
<PAGE> 75
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS)
<TABLE>
<S> <C>
INVESTMENT INCOME EARNED:
Government bonds $ 5,715
Other bonds (unaffiliated) 34,641
Preferred stocks (unaffiliated) 82
Preferred stocks of affiliates ---
Common stocks (unaffiliated) ---
Common stocks of affiliates ---
Mortgage loans 7
Real estate ---
Premium notes, policy loans and liens 368
Collateral loans ---
Cash on hand and on deposit ---
Short-term investments 857
Other invested assets ---
Derivative instruments ---
Aggregate write-ins for investment income ---
-------
Gross investment income $41,670
=======
REAL ESTATE OWNED - BOOK VALUE LESS ENCUMBRANCES ---
======
MORTGAGE LOANS - BOOK VALUE:
Farm mortgages ---
Residential mortgages $ 47
Commercial mortgages ---
------
Total mortgage loans $ 47
======
MORTGAGE LOANS BY STANDING - BOOK VALUE:
Good standing $ 47
======
Good standing with restructured terms ---
======
Interest overdue more than three months, ---
======
not in foreclosure ---
======
Foreclosure in process ---
======
OTHER LONG TERM ASSETS - BOOK VALUE ---
======
COLLATERAL LOANS ---
======
</TABLE>
13
<PAGE> 76
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS) - CONTINUED
<TABLE>
<S> <C>
BONDS AND STOCKS OF PARENTS, SUBSIDIARIES AND
AFFILIATES - BOOK VALUE:
Bonds ---
========
Preferred stocks ---
========
Common stocks ---
========
BONDS AND SHORT-TERM INVESTMENTS BY CLASS AND MATURITY:
BONDS BY MATURITY - Statement Value
Due within one year $ 32,381
Over 1 year through 5 years 87,143
Over 5 years through 10 years 204,060
Over 10 years through 20 years 107,145
Over 20 years 72,451
--------
Total by Maturity $503,180
========
BONDS BY CLASS - Statement Value
Class 1 $311,231
Class 2 178,186
Class 3 8,076
Class 4 5,687
Class 5 ---
Class 6 ---
--------
Total by Class $503,180
========
TOTAL BONDS PUBLICLY TRADED $491,142
========
TOTAL BONDS PRIVATELY PLACED $ 12,038
========
PREFERRED STOCKS - STATEMENT VALUE $ 996
========
COMMON STOCKS - MARKET VALUE $ 1,276
========
SHORT-TERM INVESTMENTS - BOOK VALUE $18,285
========
FINANCIAL OPTIONS OWNED - STATEMENT VALUE ---
========
FINANCIAL OPTIONS WRITTEN AND IN-FORCE - STATEMENT VALUE ---
========
FINANCIAL FUTURES CONTRACTS OPEN - CURRENT PRICE ---
========
CASH ON DEPOSIT $ 1,702
========
</TABLE>
14
<PAGE> 77
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS) - CONTINUED
<TABLE>
<S> <C>
LIFE INSURANCE IN FORCE:
Industrial ---
========
Ordinary $951,627
========
Credit Life ---
========
Group Life ---
========
SUPPLEMENTARY CONTRACTS IN FORCE:
ORDINARY - NOT INVOLVING LIFE CONTINGENCIES
Amount on Deposit $ 2,208
========
Income Payable $ 12,197
========
ORDINARY - INVOLVING LIFE CONTINGENCIES
Income Payable $8,836
======
GROUP - NOT INVOLVING LIFE CONTINGENCIES
Amount on Deposit ---
========
Income Payable ---
========
GROUP - INVOLVING LIFE CONTINGENCIES
Income Payable ---
========
ANNUITIES:
ORDINARY
Immediate - Amount of Income Payable $ 691
=========
Deferred - Fully Paid Account Balance $ 298,394
=========
Deferred - Not Fully Paid - Account Balance $ 52,764
=========
GROUP
Amount of Income Payable ---
=========
Fully Paid Account Balance ---
=========
Not Fully Paid - Account Balance $ 292
=========
ACCIDENT AND HEALTH INSURANCE - PREMIUM IN FORCE:
Ordinary ---
=========
Group ---
=========
Credit ---
=========
</TABLE>
15
<PAGE> 78
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS) - CONTINUED
<TABLE>
<S> <C>
DEPOSIT FUNDS AND DIVIDEND ACCUMULATIONS:
Deposits Funds - Account Balance $ 24,669
========
Dividend Accumulations - Account Balance ---
========
CLAIM PAYMENTS - YEAR ENDED DECEMBER 31, 1995:
GROUP ACCIDENT AND HEALTH
1994 ---
========
1993 ---
========
1992 ---
========
OTHER ACCIDENT AND HEALTH
1994 ---
========
1993 ---
========
1992 ---
========
OTHER COVERAGE THAT USE DEVELOPMENTAL METHODS TO
CALCULATE CLAIMS RESERVES
1994 ---
========
1993 ---
========
1992 ---
========
</TABLE>
16
<PAGE> 79
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
FINANCIAL STATEMENTS ARE INCLUDED IN PART B.
(b) Exhibits
(1) Resolution of the Board of Directors of Acacia National Life
Insurance Company ("ANLIC") authorizing establishment of the
Acacia National Variable Annuity Separate Account II.*
(2) N/A
(3) (A) Principal Underwriting Agreement.
(B) Form of Broker-Dealer Sales Agreement.
(C) Commission Schedule.
(4) Form of Annuity Policy.*
(5) Form of Application.*
(6) (A) Certificate of Incorporation of ANLIC is incorporated
by reference to Registration Statement on Form S-6
(No. 33-90208) filed on March 10, 1995.
(B) By-Laws of ANLIC.*
(7) N/A
(8) (A) Participation Agreements.
(B) Form of Administration Agreement.
(9) Opinion and Consent of Ellen Jane Abromson, Esq.
(10) (A) Consent of Sutherland, Asbill & Brennan.
(B) Consent of Coopers & Lybrand L.L.P.
(11) N/A
(12) N/A
(13) N/A
(14) N/A
- -----------
* Incorporated by reference to the initial filing of the Form N-4 Registration
Statement (File No. 333-03963) on May 16, 1996.
C - 1
<PAGE> 80
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name, Address and Principal Occupation
Position(s) With Depositor Last Five Years
-------------------------- ---------------
<S> <C>
CHARLES T. NASON (1) President and Chief Executive Officer since June 1988
Chairman of the Board, President, Acacia Mutual Life Insurance Company.
Chief Executive Officer, and
Director
ROBERT-JOHN H. SANDS (1) Senior Vice President and General Counsel since 1991
Senior Vice President, General Acacia Mutual Life Insurance Company.
Counsel, and Director
ROBERT W. CLYDE (1) Executive Vice President, Marketing and Sales since
Executive Vice President, Marketing September 1994 Acacia Mutual Life Insurance Company;
and Sales, and Director Vice President, Retail Long-Term Care
September 1993 until August 1994, Vice President, General
Agency July 1991 until August 1993, John Hancock Mutual
Life; Managing General Agent March 1989 until July 1991,
Mutual Benefit Life Insurance Company.
PAUL L. SCHNEIDER (1) Senior Vice President, Chief Financial Officer since March
Senior Vice President, Chief 1989; Treasurer since December 1994; Vice President,
Financial Officer, Treasurer, and Financial Analysis April 1988 to March 1989 Acacia Mutual
Director Life Insurance Company.
STEPHEN B. COUCH (1) Vice President and Chief Investment Officer since April
Vice President, Chief Investment 1988 Acacia Mutual Life Insurance Company.
Officer, and Director
HALUK ARITURK (1) Senior Vice President, Operations and Chief Actuary since
Senior Vice President, Operations, June 1989 Acacia Mutual Life Insurance Company.
Chief Actuary, and Director
</TABLE>
(1) The principal business address of each person listed is Acacia National
Life Insurance Company, 51 Louisiana Avenue, N.W., Washington, D.C. 20001.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
<TABLE>
<CAPTION>
Acacia Mutual
Life Insurance Company
(a mutual life insurance company)
1869 D.C.
<S> <C>
__________________________________________________________________________________________________________
| |
100% 100%
Acacia Acacia
Financial National
Corporation Life Insurance Company
(Holding Company) (Life Insurance & Annuity Sales)
1991 MD 1974 VA
|
<C> | <C> <C>
____________________________________________________________________________________________________________________________________
| | | | | | |
100% 100% 100% 100% 100% 100% 100%
Enterprise Calvert, Ltd. Acacia Acacia Ins. Gardener Acacia The Advisors Group, Inc.
(Resources, Inc. Group, Ltd. Realty Corporation Management Montgomery Federal (Broker Dealer and
(Business (Holding (Joint Ventures Services Corp. Company Savings Bank Investment Advisor)
Support Serv./ Company) in Real Estate (Management (Tax Return) Federal VA 1982 | DE
Agent, Broker) 1991 DE 1984 DC Services) Prep. Services 1985
1978 DC | 1992 PA 1994 DE |
|
___________________________________________________________________________________________ ______________________
| | | | | | | |
100% 100% 100% 100% 50% 100% 100% 100 Shares***
Calvert Asset Calvert Calvert Calvert Calvert-Sloan Acacia The Acacia 90C1.A Non
Management Shareholder Administrative Distributors Advisers, LLC** Services Insurance Voting TAG
Company Services Services Company Inc. (Investment Corporation Agency of 10 C1.B Voting
(Investment Inc. (Legal & Accounting (Broker Dealer) Advisor) (Solicits Massachusetts, V. Frye
Advisor) (Transfer Services) 1994 DE 1995 VA Deposits) Inc. The Advisors
1981 DE Agent) 1980 DE 1985 VA (Agent, Broker) Group
1980 DE 1996 MA Insurance
Agency of
Ohio, Inc.
(Agent, Broker)
1995 OH
</TABLE>
<TABLE>
<S> <C>
- ----------------------------
1) AIMCo a subsidiary of AFC merged into its affiliate CAMCo 2/29/88 *Investment Advisor to the following funds:
2) AESCo a subsidiary of AFC merged into its affiliate CSC 12/29/89 1) First Variable Rate Fund for Gov't Income
3) AISCo a subsidiary of AFC merged into its parent AFC 8/1/91 2) Calvert Tax-Free Reserves
4) AIMC a subsidiary of AFSB dissolved 9/4/91 3) Calvert Social Investment Fund
5) AFC a subsidiary of AMLIC, a 1974 DC Corporation merged into AFC, 4) Calvert Cash Reserves (d/b/a Money Management
a MD Corporation organized in 1991 Plus)
6) CSC changed its name to the Advisors Group, Inc. 3-1-95. 5) The Calvert Fund
7) The Advisors Group, Inc. reorganized under AFC 3-31-95 6) Calvert Municipal Fund, Inc.
8) Griffin Realty Corporation changed its name to Acacia Realty 7) Calvert World Values Fund, Inc.
Corporation 5-24-95 8) Acacia Capital Corporation
**Investment Advisor to the Following fund:
1) Calvert New World Fund
*** Through a Voting Agreement among the
shareholders, TAG controls the corporation.
</TABLE>
ITEM 27. NUMBER OF POLICY OWNERS
(Not Applicable)
ITEM 28. INDEMNIFICATION
Article VII of ANLIC's By-Laws provides, in part:
Section 2 Indemnification. In the event any action, suit or
proceeding is brought against a present or former Director, elected
officer, appointed officer or other employee because of any action
taken by such person as a Director, officer or employee of the
Company, the Company shall reimburse or indemnify him for all loss
reasonably incurred by him in connection with such action to the
fullest
C - 2
<PAGE> 81
extent permitted by Section 13.1-3.1 of the Code of Virginia, as is
now or hereafter amended, except in relation to matters as to which
such person shall have been finally adjudged to be liable by reason of
having been guilty of gross negligence or willful misconduct in the
performance of duties as such director, officer or employee. In case
any such suit, action or proceeding shall result in a settlement prior
to final judgment and if, in the judgment of the Board of Directors,
such person in taking the action or failing to take the action
complained of was not grossly negligent or guilty of wilful misconduct
in the performance of his duty, the Company shall reimburse or
indemnify him for the amount of such settlement and for all expenses
reasonably incurred in connection with such action and its settlement.
This right of indemnification shall not be exclusive of any other
rights to which any such person may be entitled.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Directors, officers and controlling persons, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification may be against public policy as expressed in
the Act and may be, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ANLIC Officers and Directors are covered under a Fidelity Bond issued
by Chubb Group of Insurance Companies with an aggregate limit of $8,000,000, a
single loss limit of $4,000,000, and a deductible of $50,000.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The Advisors Group, Inc. is the principal underwriter of the Policies
as defined in the Investment Company Act of 1940, andis also the principle
underwriter, depositor, sponsor, or investment adviser for the following
investment companies:
<TABLE>
<CAPTION>
Investment Company Product
------------------ -------
<S> <C>
Acacia National Life Insurance Company Individual Flexible Premium Variable Life Insurance
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address* With Underwriter
------------------ ---------------------
<S> <C>
Charles T. Nelson Chairman of the Board
Robert W. Clyde Director
Robert-John H. Sands Director
Paul L. Schneider Director
Jeffrey W. Helms President and Chief Executive Officer
Curtis J. Baugh Vice President, Trading and Operations
Victor M. Frye Vice President, Counsel and Compliance Officer
Leona Glowicz, Vice President Vice President, Tax and Treasurer
Robert Taylor Vice President, Marketing and Sales
James B. Brown Assistant Vice President and Director of Asset
Management
Scott A. Grebenstein Assistant Vice President and Director of Business
Development
M. Catherine Hill Secretary
W. Nicholas Goetz, Assistant Secretary
</TABLE>
- -----------------------------------------------
* The principal business address of each person listed is:
The Advisors Group, Inc.
51 Louisiana Avenue, N.W.
Washington, DC 20001
(c) Commissions Received by Each
Principal Underwriter from the Registrant
during the Registrant's Last Fiscal Year
<TABLE>
<CAPTION>
Net Underwriting
Name of Principal Discounts and Compensation on
Underwriter Commissions Redemption Commissions Compensation
----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
The Advisors Group, (N/A) (N/A) (N/A) (N/A)
Inc.
</TABLE>
C - 3
<PAGE> 82
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section
31(a) of the 1940 Act and the rules under it are maintained by ANLIC at its
Service Office, P.O. Box 79574, Baltimore, MD 21270-0574, and at its Home
Office, 51 Louisiana Avenue, N.W., Washington, D.C. 20001.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a Post-Effective Amendment to
this Registration Statement as frequently as necessary to ensure that
the audited financial statements in the Registration Statement are
never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written communication
affixed to or included in the Prospectus that the applicant can remove
to send for a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request to ANLIC at the
address or phone number listed in the Prospectus.
STATEMENT PURSUANT TO RULE 6c-7
ANLIC and the Variable Account rely on 17 C.F.R. Sections
270.6c-7 and represent that the provisions of that Rule have been or will be
complied with. Accordingly, ANLIC and the Variable Account are exempt from the
provisions of Sections 22(e), 27(c)(1) and 27(d) of the Investment Company Act
of 1940 with respect to any variable annuity contract participating in such
account to the extent necessary to permit compliance with the Texas Optional
Retirement Program.
SECTION 403(b) REPRESENTATIONS
ANLIC represents that it is relying on a no-action letter
dated November 28, 1988, to the American Council of Life Insurance (Ref. No.
IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment
Company Act of 1940, in connection with redeemability restrictions on Section
403(b) policies, and that paragraphs numbered (1) through (4) of that letter
will be complied with.
C - 4
<PAGE> 83
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, Acacia National Life Insurance Company Separate
Account II, has duly caused this Registration Statement to be signed on its
behalf in the City of Washington and the District of Columbia on the 17th day
of July, 1996.
ACACIA NATIONAL LIFE INSURANCE
COMPANY SEPARATE ACCOUNT II
By: ACACIA NATIONAL LIFE
INSURANCE COMPANY
By: /s/ Ellen Jane Abromson
-------------------------
Ellen Jane Abromson
Second Vice President and
Associate Counsel
Attest: /s/ W. Nicholas Goetz
------------------------
<PAGE> 84
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles T. Nelson Chairman of the Board, President, July 17, 1996
---------------------------------- Chief Executive Officer, and
Charles T. Nason Director
/s/ Robert W. Clyde Executive Vice President, Marketing July 17, 1996
---------------------------------- and Sales, and Director
Robert W. Clyde
/s/ Paul L. Schneider Senior Vice President, Chief July 17, 1996
---------------------------------- Financial Officer, Treasurer, and
Paul L. Schneider Director
/s/ Robert-John H. Sands Senior Vice President, General July 17, 1996
---------------------------------- Counsel, and Director
Robert-John H. Sands
/s/ Haluk Ariturk Senior Vice President, Operations, July 17, 1996
---------------------------------- Chief Actuary, and Director
Haluk Ariturk
/s/ Stephen B. Couch Vice President, Chief Investment July 17, 1996
---------------------------------- Officer, and Director
Stephen B. Couch
</TABLE>
<PAGE> 85
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3(A) Principal Underwriting Agreement
(B) Form of Broker-Dealer Sales Agreement
(C) Commission Schedule
8(A) Participation Agreements
(B) Administration Agreement
9 Opinion and Consent of Ellen Jane Abromson
10(A) Consent of Sutherland, Asbill & Brennan
(B) Consent of Coopers & Lybrand L.L.P.
<PAGE> 1
EXHIBIT 3(A)
PRINCIPAL UNDERWRITING AGREEMENT
Underwriting Agreement made this 25th day of October ,
1995, by and between The Advisor's Group, Inc. (hereinafter the "Underwriter")
and Acacia National Life Insurance Company (hereinafter the "Insurance
Company"), on its own behalf and on behalf of Acacia National Variable Life
Insurance Separate Account I (hereinafter the "Account"), a separate account of
the Insurance Company, as follows:
WHEREAS, the Account was established under authority of a
resolution of the Insurance Company's Board of Directors on January 31, 1995,
in order to set aside and invest assets attributable to certain variable
policies (hereinafter "Policies") issued by the Insurance Company;
WHEREAS, the Insurance Company has registered the Account as a
unit investment trust under the Investment Company Act of 1940 (the "Investment
Company Act") and has registered the Policies under the Securities Act of 1933;
WHEREAS, the Underwriter is registered as a broker-dealer with
the Securities and Exchange Commission (the "SEC") under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and is a member of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Insurance Company and the Account desire to have
Policies sold and distributed through the Underwriter and the Underwriter is
willing to sell and distribute such Policies under the terms stated herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Insurance Company grants to the Underwriter the
right to be, and the Underwriter agrees to serve as, distributor and principal
underwriter of the Policies
<PAGE> 2
during the term of this agreement. The Underwriter agrees to use its best
efforts to solicit applications for the Policies, and to undertake, at its own
expense, to provide all sales services relative to the Policies and otherwise
to perform all duties and functions which are necessary and proper for the
distribution of the Policies.
2. All premiums for Policies shall be remitted promptly
in full together with such application, forms and any other required
documentation to the Insurance Company. Checks or money orders in payment of
premiums shall be drawn to the order of "Acacia National Life Insurance
Company."
3. The Underwriter agrees to offer the Policies for sale
in accordance with the prospectus therefor then in effect. The Underwriter is
not authorized to give any information or to make any representations
concerning the Policies other than those contained in the current prospectus
therefor filed with the Securities and Exchange Commission or in such sales
literature as may be authorized by the Insurance Company.
4. On behalf of the Account, the Insurance Company shall
furnish the Underwriter with copies of all prospectuses, financial statements
and other documents which the Underwriter reasonably requests for use in
connection with the distribution of the Policies.
5. The Underwriter represents that it is duly registered
as a broker-dealer under the Securities Exchange Act of 1934 ("1934 Act") and
is a member in good standing of the National Association of Securities Dealers,
Inc. ("NASD") and, to the extent necessary to offer the Policies, shall be duly
registered or otherwise qualified under the securities laws of any state or
other jurisdiction. The Underwriter shall be responsible for carrying out its
sales and underwriting obligations hereunder in continued compliance with the
NASD Rules of Fair Practice and federal and state securities laws and
regulations. Without limiting the generality of the foregoing, the
2
<PAGE> 3
Underwriter agrees that it shall be fully responsible for:
(a) ensuring that no person shall offer or sell the
Policies on its behalf until such person is duly registered as a
representative of the Underwriter, duly licensed and appointed by the
Insurance Company, and appropriately licensed, registered or otherwise
qualified to offer and sell such Polices under the federal securities
laws and any applicable securities laws of each state or other
jurisdiction in which such Policies may be lawfully sold, in which the
Insurance Company is licensed to sell the Policies and in which such
persons shall offer or sell the Policies; and
(b) training, supervising, and controlling of all
such persons for purposes of complying on a continuous basis with the
NASD Rules of Fair Practice and with federal and state securities law
requirements applicable in connection with the offering and sale of the
Policies. In this connection, the Underwriter shall:
(1) conduct such training (including the preparation
and utilization of training materials) as in the opinion of the
Underwriter is necessary to accomplish the purpose of this Agreement;
(2) establish and implement reasonable written
procedures for supervision of sales practices of agents,
representatives or brokers selling the Policies; and
(3) take reasonable steps to ensure that its
associated persons shall not make recommendations to an applicant to
purchase a Policy and shall not sell a Policy in the absence of
reasonable grounds to believe that the purchase of the Policy is
suitable for such applicant.
6. Notwithstanding anything in this Agreement to the
contrary, the
3
<PAGE> 4
Underwriter or the Insurance Company may enter into sales agreements with other
independent broker-dealers for the sale of the Policies. All such sales
agreements entered into by the Insurance Company or the Underwriter shall
provide that each independent broker-dealer will assume full responsibility for
continued compliance by itself and its associated persons with the NASD Rules
of Fair Practice and applicable federal and state securities laws. All
associated persons of such independent broker-dealers soliciting applications
for the Policies shall be duly and appropriately licensed or appointed for the
sale of the Policies under the insurance laws of the applicable states or
jurisdictions in which such Policies may be lawfully sold.
7. The Insurance Company shall apply for the proper
insurance licenses in the appropriate states or jurisdictions for the
designated persons associated with the Underwriter or with other independent
broker-dealers which have entered into agreements with the Underwriter for the
sale of the Policies, provided that the Insurance Company reserves the right to
refuse to appoint any proposed registered representative as an agent or broker,
and to terminate an agent or broker once appointed.
8. The Insurance Company and the Underwriter shall cause
to be maintained and preserved for the periods prescribed such accounts, books,
and other documents as are required of them by the Investment Company Act of
1940, the 1934 Act, and any other applicable laws and regulations. The books,
accounts and records of the Insurance Company, the Account, and the
Underwriter as to all transactions hereunder shall be maintained so as to
disclose clearly and accurately the nature and details of the transactions.
The Insurance Company shall maintain such books and records of the Underwriter
pertaining to the sale of the Policies and required by the 1934 Act as may be
mutually agreed upon from time to time by the Insurance Company and the
Underwriter; provided that such books and records shall be the property of the
Underwriter, and shall at all times be subject to such reasonable periodic,
special or other examination by the SEC and all other regulatory bodies
4
<PAGE> 5
having jurisdiction. The Insurance Company shall be responsible for sending
all required confirmations on customer transactions in compliance with
applicable regulations, as modified by an exemption or other relief obtained by
the Insurance Company or Underwriter. The Underwriter shall cause the
Insurance company to be furnished with such reports as the Insurance Company
may reasonably request for the purpose of meeting its reporting and
recordkeeping requirements under the insurance laws of the Commonwealth of
Virginia and any other applicable states or jurisdictions.
9. The Underwriter shall have the responsibility for
paying (i) all commissions or other fees to its associated persons which are
due for the sale of the Policies and (ii) any compensation to other independent
broker-dealers and their associated persons due under the terms of any sales
agreements between the Underwriter and such broker-dealers. Notwithstanding
the preceding sentence, no associated person or broker-dealer shall have an
interest in any deductions or other fees payable to the Underwriter as set
forth herein. The Underwriter shall have the responsibility for calculating
and furnishing periodic reports to the Insurance Company as to the sale of the
Policies, and as to the commissions and service fees payable to persons selling
the Policies.
The Underwriter has responsibility for paying compensation and furnishing
reports to the Insurance Company; however, the Insurance Company, as a purely
ministerial service (through Acacia Mutual Life Insurance Company in a purely
ministerial capacity) will pay compensation and furnish reports on behalf of
the Underwriter.
10. The Underwriter shall be compensated for its
distribution services in the amount of $15,000 per year and reasonable out of
pocket expenses payable on December 31st of each year this agreement remains in
force. Any commission paid to the Underwriter in connection with a Policy must
be returned to the Insurance Company if the Policy is tendered for redemption
within 20 days after issuance of a Policy.
5
<PAGE> 6
11. The service of the Underwriter to the Account
hereunder are not deemed exclusive and the Underwriter shall be free to render
similar services to others so long as its services hereunder are not impaired
or interfered with thereby.
12. (a) This Agreement may be terminated by either party
hereto upon 60 days written notice to the other party.
(b) This Agreement may be terminated upon written
notice of one party to the other party hereto in the event of bankruptcy or
insolvency of such party to which notice is given.
(c) This Agreement may be terminated at any time
upon the mutual written consent of the parties thereto.
(d) This Agreement shall automatically be terminated
in the event of its assignment.
(e) Upon termination of this Agreement, all
authorizations, rights and obligations shall cease except the obligations to
settle accounts hereunder, including payments or premiums or contributions
subsequently received for Policies in effect at the time of termination or
issued pursuant to applications received by the Insurance Company prior to
termination.
13. This Agreement shall be subject to the provisions of
the Investment Company Act and the Securities Exchange Act and the rules,
regulations, and rulings thereunder and of the NASD, from time to time in
effect, including such exemptions from the Investment Company Act as the
Securities and Exchange Commission may grant, and the terms hereof shall be
interpreted and construed in accordance therewith. Without limiting the
generality of the foregoing, the term "assigned" shall not include any
transaction exempted from section 15(b)(2) of the Investment
6
<PAGE> 7
Company Act.
The Underwriter shall submit to all regulatory and
administrative bodies having jurisdiction over the operations of the Account,
present or future, any information, reports or other material which any such
body by reason of this Agreement may request or require pursuant to applicable
laws or regulations.
14. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
15. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officials thereunder duly authorized
and seals to be affixed, as of the day and year first above written.
ACACIA NATIONAL LIFE INSURANCE COMPANY
Attest:
By: [SIG]
---------------------------------
THE ADVISOR'S GROUP, INC.
Attest:
By: [SIG]
----------------------------------
7
<PAGE> 1
EXHIBIT 3(B)
ACACIA NATIONAL LIFE INSURANCE COMPANY
THE ADVISORS GROUP, INC.
NATIONAL BROKER-DEALER AGREEMENT
This Agreement, made as of the _________________ day of
________, 19______, by and between Acacia National Life Insurance Company, 51
Louisiana Avenue, N.W., Washington, D.C. 20001 ("Acacia National"), The
Advisors Group, Inc., 51 Louisiana Avenue, N.W., Washington, DC 20001 ("TAG");
and
- --------------------------------------------------------------------------------
(Broker-Dealer)
("Broker-Dealer"), of
-----------------------------------------------------------
(Address)
WHEREAS, TAG is the principal underwriter and distributor of
Flexible Premium Variable Life Insurance policies (the "Policies") issued by
Acacia National Life Insurance Company ("Acacia National") through the Acacia
National Variable Life Insurance Separate Account I,
WHEREAS, the Broker-Dealer desires to offer certain of the
Policies to the public and receive compensation for its distribution and
administrative service assistance;
NOW, THEREFORE, in consideration of the premises and the terms
and conditions herein set forth, IT IS AGREED AS FOLLOWS:
1. OFFERING OF THE POLICIES BY BROKER-DEALER
TAG and Acacia National hereby appoint Broker-Dealer
to supervise solicitations for and sales of the Policies and
to perform certain administrative duties with respect to the
Policies provided for in this Agreement. The Policies to
which this Agreement applies are listed in Exhibit A. Exhibit
A may be amended from time to time by Acacia National or
Broker-Dealer. Acacia National in its sole discretion and
without notice to Broker-Dealer, may suspend sales of Policies
or may amend such Policies.
2. STATUS AND COMPLIANCE OF BROKER-DEALER
Broker-Dealer represents that it is a registered
broker-dealer under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of
the National Association of Securities Dealers, Inc. (the
"NASD"). Broker-Dealer hereby acknowledges that in acting as
a broker-dealer in connection with the offering of the
Policies, it is Broker-Dealer's responsibility, and
Broker-Dealer hereby certifies that it shall, maintain its
registration under the 1934 Act and its membership in good
standing with the NASD and comply with all applicable rules
and regulations of the NASD, all applicable state and federal
laws, and the rules and regulations of any regulatory agencies
having jurisdiction which may affect the sale of the Policies.
3. STATUS AND COMPLIANCE OF BROKER-DEALER'S
REPRESENTATIVES
Broker-Dealer agrees to select persons associated
with it ("Representatives") who Broker-Dealer shall train and
qualify as agents to solicit applications for the Policies in
conformance with applicable state and federal laws, rules and
regulations. Such Representatives of Broker-Dealer shall be
permitted to solicit sales of Policies only in States where
Acacia National is authorized to transact variable life and/or
variable annuity business and where the registered
representative is licensed by appointment with Acacia National
to solicit the Policies in accordance with the
<PAGE> 2
requirements of the proper governmental authorities.
Solicitations for the Policies hereunder will be made
only by Representatives who are NASD Registered
Representatives of Broker-Dealer who posses the required
licenses and appointments, including but not limited to,
registration with the NASD and the States in which the
Representative solicit sales of the Policies. Continued
solicitation for the Policies shall be contingent upon the
continued qualification of such Representatives under all
applicable laws including but not limited to possession of the
required securities representative and insurance agent
registrations and licenses.
Broker-Dealer shall assist Acacia National in the
appointment of Representatives under the applicable insurance
laws to sell the Policies. Broker-Dealer shall fulfill all
requirements set forth in the Representative Certification,
attached as Exhibit B, in conjunction with the submission of
licensing/appointment papers for all applicants as insurance
agents of Acacia National. All such licensing/appointment
papers should be submitted to TAG for processing.
4. BROKER-DEALER'S SUPERVISION OF REPRESENTATIVES
The activities of all Representatives of
Broker-Dealer will be under the direct and diligent
supervision of Broker-Dealer. Broker-Dealer shall perform its
supervisory duties in strict compliance with Acacia National's
rules and procedures for the writing of applications and the
handling of policies and premiums collected, the laws, rules
and regulations of the NASD, the Securities and Exchange
Commission, and any other government or other agencies that
have jurisdiction over the sale of the Policies.
Broker-Dealer agrees that its Representatives will
offer and sell the Policies only in accordance with the terms
and conditions of the then current prospectus for the Policies
and will make no representation not included in the prospectus
or in any authorized supplementary material approved by Acacia
National and TAG. Broker-Dealer shall not use or permit to be
used sales literature or advertising with regard to the
Policies other than with the prior written approval of Acacia
National or TAG. Broker-Dealer shall indemnify and hold
Acacia National, TAG and their affiliates harmless from any
wrongful act or violation of any law, rule, regulation, or
provision of this Agreement committed by Broker-Dealer, its
Representatives, or its affiliates in the solicitation for the
Policies.
Broker-Dealer shall cause each such Representative to
execute a Representative's Agent Agreement with Acacia
National before a Representative shall be permitted to solicit
for sales of the Policies. Acacia National shall furnish
Broker-Dealer with copies of Representative's Agent Agreements
for execution by the Representatives.
5. BROKER-DEALER ACTIVITIES
Broker-Dealer also agrees to perform, at its own
expense, the following administrative duties in connection
with the solicitation, sale and servicing of the Policies by
its duly licensed and appointed Representatives.
A. Broker-Dealer will review all
applications for the Policies and the Products for
completeness and will promptly forward such
applications, together with all gross purchase
payments and any other documents concerning such
applications, to Acacia National. It is expressly
understood that either Acacia National or
Broker-Dealer in its sole discretion reserves the
right to reject any such application or payments
remitted by Representative through Broker-Dealer and
may refund an applicant's payments to the
2
<PAGE> 3
applicant. In the event such refunds are made and if
Representative has received compensation based on an
applicant's payment that is refunded, Representative
shall promptly repay such compensation to
Broker-Dealer. If repayment is not promptly made,
Broker-Dealer may at its sole option deduct any
amounts due it from Representative from future
commissions otherwise payable to Representative.
B. All money payable in connection with
any of the policies, whether as premium, purchase
payment or otherwise, and whether paid by or on
behalf of any policyholder or anyone else having an
interest in the Policies, is the property of Acacia
National, and shall be transmitted immediately in
accordance with the administrative procedures of
Acacia National without any deduction or offset for
any reason including for example, but not by way of
limitation, any deduction or offset for compensation
claimed by Broker-Dealer.
C. Broker-Dealer will maintain
appropriate books and records concerning the
activities of its Representatives authorized to
solicit and sell the Policies, as required by the
SEC, NASD and other regulatory agencies that have
jurisdiction, or as may be reasonably required by
Acacia National or TAG.
D. Broker-Dealer will review for
completeness all applications for licensing submitted
by its Representatives for initial appointment and
renewal as variable annuity and/orVariable Life
agents with Acacia National. Broker-Dealer will also
maintain variable annuity and/or Variable Life agent
records and may notify Acacia National of any notice
Broker-Dealer may receive concerning the suspension
or revocation of any Representative's variable
annuity and/or Variable Life license.
E. Broker-Dealer will establish such
rules and procedures as may be necessary to supervise
diligently the sales activities of its agents and
employees. Upon written request by Acacia National
or TAG, Broker-Dealer shall promptly furnish such
appropriate records as may be necessary to insure
such diligent supervision.
F. Broker -Dealer will maintain
facilities on behalf of Acacia National and provide
competent personnel to respond to Policy owners'
routine requests for information and forms in
connection with the exercise of rights and privileges
afforded under the Policies. Broker-Dealer shall
perform such Policy owners' servicing in a manner (i)
as is necessary to assure prompt and satisfactory
attention to Policy owners' needs and (ii) in
accordance with the rules and procedures as may be
established from time to time by Acacia National or
TAG.
G. Broker-Dealer will disseminate all
directives, procedural rules and information releases
that may be issued by Acacia National or TAG from
time to time, to appropriate administrative personnel
and Representatives, and maintain a record thereof.
6. COMPENSATION
Compensation for sales of the Policies and for the
Broker-Dealer's diligent supervision of sales personnel shall
be in accordance with the published Broker-Dealer Compensation
Schedule and Rules as of the date of the application for such
placed Contract. Acacia National may change the Commission
Schedule and Rules from time to time, with such change being
applicable to Policies issued on the basis of applications
written by Broker-Dealer or its representatives after the date
such new Schedule and Rules become effective.
3
<PAGE> 4
Compensation shall be paid to the Broker-Dealer
within 15 days after the end of the semimonthly period (ending
on the 15th or last day of the calendar month) in which such
compensation is credited to the Broker-Dealer's account.
Acacia National's Rules concerning the payment of commissions
or compensation on Policies resulting from reinstatements,
conversions, replacement of Acacia National's policies with
new policies, and the charging back of commissions or
compensation where premiums on a Policy are refunded, shall be
applicable. Such a chargeback and any other chargeback of
commissions or compensation shall constitute an indebtedness
due Acacia National by Broker-Dealer. Broker-Dealer shall pay
to the Representative the commission owed by the Broker-Dealer
to the Representative pursuant to the Broker-Dealer commission
schedule for the sale of Policies. The Broker-Dealer agrees
that Acacia National and TAG are not responsible for the
payment to the Representative. Broker-Dealer agrees to
indemnify and hold Acacia National and TAG harmless from any
and all claims made by a Representative on account of the
payment of commissions.
7. RELATIONSHIP
Broker-Dealer understands and agrees that in
performing the services covered by this Agreement, it is
acting in the capacity of an independent contractor and not as
agent or employee of Acacia National or TAG. Broker-Dealer
acknowledges that it has no authority to accept risks, enter
into or modify contracts, or incur any liability on behalf of
Acacia National or TAG, nor to extend the time of payment of a
premium or waive any forfeiture or any of Acacia National's
rights or requirements with respect to any Policy.
8. GENERAL PROVISIONS
A. Accounting Statements. The
Broker-Dealer's commission accounting statements
produced by TAG shall be conclusive evidence of the
statements of accounts between the Broker-Dealer and
TAG.
B. Indebtedness of the Broker Dealer.
Acacia National shall have a first lien and right of
set-off on all commission and other compensation
payable hereunder for any debt due from the
Broker-Dealer to TAG or to any other person or
corporation acting for TAG. Such debt shall include
loans and advances made to the Broker-Dealer and
charges made to the Broker-Dealer's accounting
statements. TAG may at any time deduct from any
moneys payable under this Agreement and any
supplement and/or amendment hereto, any such debt or
debts due from the Broker-Dealer,along with interest
on all such debts. This lien shall not be
extinguished by the termination of the
Broker-Dealer's appointment under this Agreement.
This provision shall not be construed in any way to
limit any indebtedness of the Broker-Dealer to the
value of commissions and other compensation payable
under this Agreement. In the event of the
termination of the Broker-Dealer's appointment, all
compensation to the Broker-Dealer shall cease and the
unpaid balance of the Broker-Dealer's indebtedness
shall be immediately due and payable without demand
or notice. All reasonable expenses, including
attorneys' fees, incurred by TAG in instituting and
prosecuting any action or proceeding against the
Broker-Dealer, whether terminated or not, shall be
the obligation of the Broker-Dealer, who hereby
assumes liability for all such expenses.
C. Unauthorized acts. The
Broker-Dealer is without authority to do or perform
and expressly agrees not to do or perform the
following acts, on behalf of TAG: (1) hold itself
out as an agent or representative of TAG in any
manner, or for any other purpose than is expressly
prescribed in this Agreement; (2) make, alter or
discharge Policies; (3) initiate any legal action in
any matter pertaining to TAG's business without
proper written
4
<PAGE> 5
consent from TAG; (4) quote rates other than as
quoted by TAG; (5) extend the time for payment of any
premium; (6) waive payment in cash; (7) guarantee
dividends; or (8) act as administrator for group
insurance, accept group premiums, or submit group
premiums on Broker-Dealer's check. In addition the
Broker-Dealer agrees not to: (9) violate any
insurance law of the state(s) in which the
Broker-Dealer may be soliciting applications for
insurance; (10) withhold any moneys or property of
TAG; (11) rebate or offer to rebate all or any part
of a premium on a Policy of insurance or annuity
contract issued or to be issued by Acacia National;
(12) induce or endeavor to induce any Policyholder of
Acacia National to discontinue payment of premiums or
relinquish any Policy; or (13) within a period of
ninety days after termination of the Broker-Dealer's
appointment, induce or endeavor to induce any agent
of TAG or Acacia National to leave its service. In
the event unauthorized acts (9), (10), (11) or (12)
occur, whether before or after termination of the
Broker-Dealer's appointment, or in the event
unauthorized act (13) should occur, the obligation of
TAG to pay compensation in respect of any and all
Policies to the Broker-Dealer or any of its
Representatives shall cease and terminate
immediately.
D. Advertising. Any form of
advertising used by the Broker-Dealer in its
business, other than that furnished by TAG, shall be
submitted to and approved by TAG before use in
negotiations, solicitations, or advertising. The
terms "advertising" includes all forms of
communication by any medium, including but not
limited to print, radio, television, billboards,
direct mail, booklets, leaflets, business cards, and
stationery.
E. Legal Actions. The Broker-Dealer
shall pay to TAG on demand any sums expended by TAG
in answering or defending any attachment,
garnishment, or other legal proceedings involving the
Broker-Dealer or its Representative(s), and all such
sums shall be a debt hereunder. If any legal action
is brought against either party hereto, or against
both parties jointly, or against any company
affiliate, or by TAG against the Broker-Dealer or any
employee or agent of the Broker-Dealer, by reason of
any alleged act, fault or failure of the
Broker-Dealer or its employee or agent in connection
with the Broker-Dealer's activities hereunder, TAG
may require each Broker-Dealer to defend such action,
or at its sole option may defend such action and
expend such sums as may be reasonably advisable
therefor, including reasonable attorneys' fees and
the Broker-Dealer shall be chargeable therewith as
well as with any amount which may be recovered
against TAG, by judgment, settlement, or otherwise,
in any such action, which amount the Broker-Dealer
shall pay to TAG on demand.
F. Assignments. Neither this Agreement
nor any of its benefits may be assigned by
Broker-Dealer without the written consent of Acacia
National and TAG and any assignment of this
Agreement, compensation or other benefits or
obligations hereunder shall be void if made without
such consent.
G. Submission of proposals and delivery
of policies. The Broker-Dealer shall submit to
Acacia National all applications for insurance
annuities taken by the Broker-Dealer. No Policy
shall be delivered by the Broker-Dealer unless no
change shall have occurred in the health or in any
other factor affecting the insurability of the
proposed insured at the time of the delivery and
unless the first premium has been fully paid.
Delivery of a Policy after sixty days from and
including the date of mailing by Acacia National is
not permitted unless the time for delivery has been
extended by Acacia National.
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<PAGE> 6
9. SETTLEMENTS WITH ACACIA NATIONAL
The Broker-Dealer has no right or authority to
receive or collect moneys for or on behalf of TAG, except the
initial premium as allowed by Acacia National rules on
insurance or annuities solicited by the Broker-Dealer
necessary to put the policy in force, unless otherwise
directed by Acacia National. All moneys or other settlements
received by the Broker-Dealer for or on behalf of Acacia
National shall be received by the Broker-Dealer in a fiduciary
capacity and immediately paid over in cash to Acacia National,
except as otherwise directed by the Company.
10. USE OF NAMES
Broker-Dealer shall not use the names of Acacia
National, TAG, or their affiliates in any material relating to
Broker-Dealer in any manner not approved prior thereto by
Acacia National or TAG; provided, however, that such consent
shall not be unreasonably withheld or delayed, and Acacia
National and TAG shall approve all uses of their names or
names of their affiliates which are required by regulatory
authority.
Except as may be required by law, Acacia National,
TAG, and their affiliates shall maintain in confidence all
information relating to Policies, and the holders of such
Policies and the Products, sold through Broker-Dealer. Acacia
National, TAG, and their affiliates agree that they will not,
without the prior consent of Broker-Dealer, solicit purchases
of Acacia National or TAG products or services from such
holders.
11. ENTIRE AGREEMENT
This Agreement including Exhibits A and B shall
supersede and revoke all prior agreements, discussions or
understandings, whether written or oral, concerning services
to be provided with respect to the offer and sale of the
Policies.
12. TERMINATION
This Agreement may be terminated by either party
without payment of any penalty upon 30 days' prior written
notice to the other. The Agreement shall terminate
automatically in the event of its assignment, as defined in
Section 2(a)(4) of the Investment Company Act of 1940, as
amended, or in the event that Broker-Dealer ceases to be a
member of the NASD or fails to maintain the requisite licenses
and appointments for the offering of the Policies and the
Products.
The indemnification provisions of paragraphs 4 and 8E
of this Agreement shall continue in full force and effect
notwithstanding the termination of the Agreement. The
termination of this Agreement shall not operate to relieve
Acacia National or TAG of the obligation to pay Broker-Dealer
the compensation earned under the terms of the Agreement but
remaining unpaid at the date of termination.
13. AMENDMENT
This Agreement (except the Broker-Dealer Compensation
Schedule and Rules referred to in paragraph 6) may be amended
only by written agreement of the parties hereto.
14. APPLICABLE LAW
This Agreement shall be construed in accordance with
the laws of the State of Virginia, and shall be binding upon
receipt by TAG of a counterpart duly signed by the
Broker-Dealer and Acacia
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<PAGE> 7
National.
IN WITNESS WHEREOF, the parties have hereunto set their hands
and seals.
ACACIA NATIONAL LIFE INSURANCE COMPANY
By:
----------------------------------
THE ADVISORS GROUP, INC.
By:
---------------------------------
BROKER-DEALER
-------------------------------------
(Name of Broker-Dealer)
By:
----------------------------------
Signature (Title)
7
<PAGE> 8
ACACIA NATIONAL LIFE INSURANCE COMPANY
THE ADVISORS GROUP, INC.
NATIONAL BROKER-DEALER AGREEMENT
EXHIBIT A
Acacia National and TAG hereby appoint Broker-Dealer to
supervise offers, solicitations, and sales with respect to the following
Policies which Broker-Dealer has elected to permit its Representatives to offer
and sell:
(Individual Flexible Premium Variable Life Insurance Policy)
- ---------------
Individual Variable Annuity Policies
- ---------------
Other (specify)
- --------------- --------------------------------------------
-----------------------------------------------------------
The Policies to which the National Broker-Dealer Agreement applies, under the
terms of this Exhibit A, may be amended from time to time by Acacia National or
Broker-Dealer.
-----------------------------------
BROKER-DEALER
By:
--------------------------------
Title
ACACIA NATIONAL LIFE INSURANCE COMPANY
By:
---------------------------------
Title
<PAGE> 9
ACACIA NATIONAL LIFE INSURANCE COMPANY
THE ADVISORS GROUP, INC.
NATIONAL BROKER-DEALER AGREEMENT
EXHIBIT B
REPRESENTATIVE CERTIFICATION
Broker-Dealer hereby certifies that each Representative it
recommends to Acacia National and TAG to offer and sell the Policies specified
in Exhibit A to the National Broker-Dealer Agreement is fully qualified to
engage in such sales activities and, accordingly, that all the following
requirements have been or will be met in connection with the submission of
necessary securities and insurance licensing and appointment papers for all
applicants recommended by Broker-Dealer. Broker-Dealer will, upon request,
forward proof of compliance with same to Acacia National or TAG in a timely
manner.
1. Broker-Dealer has made a thorough and
diligent inquiry and investigation relative to each
applicant's identity, residence and business reputation and
represents that each applicant is personally known to
Broker-Dealer, has been examined by Broker-Dealer, is known to
be of good moral character, has a good business reputation, is
reliable, is financially responsible and is worthy of a
license. Each individual Broker-Dealer recommends each
applicant is trustworthy, competent and qualified to act as an
agent for Acacia National to hold himself out in good faith to
the general public. Broker-Dealer vouches for each applicant.
2. Broker-Dealer has on file a Form U-4 which
was completed by each applicant. Broker-Dealer has fulfilled
all the necessary investigative requirements for the
registration of each applicant as a Registered Representative
of Broker-Dealer through the NASD, and each applicant is
presently registered as an NASD Registered Representative.
The above information in Broker-Dealer's
files indicates no fact or condition which would disqualify
the applicant from receiving either a securities or insurance
license and all the findings of all investigative information
is favorable.
3. Broker-Dealer certifies that each applicant
has met all educational requirements for both securities and
insurance licensing in the specific State(s) each applicant is
requesting a license in, and that all such persons have
fulfilled the appropriate examination, education and training
requirements.
4. If the applicant is required to submit his
picture, his signature, and securities registration in the
state in which he is applying for a license, Broker-Dealer
certifies that those items forwarded to TAG or Acacia National
are those of
<PAGE> 10
the applicant and the securities registration is a true copy
of the original.
5. Broker-Dealer hereby warrants that the
applicant is not applying for a license with Acacia National
in order to place insurance chief and solely on his life or
the lives or property of his relatives or associates.
6. Broker-Dealer hereby certifies that each
applicant will receive close and adequate supervision, and
that Broker-Dealer will make inspection when needed of any or
all risks written by these applicants, to the end that the
insurance interest of the public will be properly protected.
7. Broker-Dealer will not permit any applicant
to transact insurance as an agent until duly licensed
therefore. No applicants have been given a contract or
furnished supplies, nor have any applicants been permitted to
write, solicit business, or act as an agent in any capacity,
and they will not be so permitted until the certificate of
authority or license applied for is received.
3
<PAGE> 1
EXHIBIT 3(C)
ACACIA NATIONAL LIFE INSURANCE COMPANY
THE ADVISORS GROUP, INC.
REPRESENTATIVE AGENT AGREEMENT
AGREEMENT by and between the Acacia National Life Insurance
Company ("Acacia National"), The Advisors Group, Inc. ("TAG"); and
Representative ("Representative") of _______________________________________
("Broker-Dealer").
Acacia National, in consideration of and subject to the terms
and conditions set forth below, appoints Representative as its agent solely for
the solicitation of applications for and sales of certain insurance and annuity
contract ("Policies") which are deemed to be securities under the Securities
Act of 1933.
1. BROKER-DEALER
The Broker-Dealer shall at all times during the
continuance of this Agreement be a registered broker-dealer
with the Securities and Exchange Commission ("SEC"), a member
of the National Association of Securities Dealers, Inc.,
("NASD") and shall have a National Broker-Dealer Agreement in
effect with Acacia National and TAG.
2. THE POLICIES
The Policies, to which this Agreement applies, are
listed in Exhibit A to the National Broker-Dealer Agreement
currently in effect between Broker-Dealer, and Acacia National
and TAG. TAG is the principal underwriter and distributor of
the Policies.
3. REGISTRATION AND LICENSING
(a) Representative, when soliciting for sales or
selling the Policies, shall at all times be associated with an
SEC and NASD registered Broker-Dealer as an NASD Registered
Representative, and, if the particular State or jurisdiction
in which Representative solicits sales of Policies so
required, shall be licensed or registered in such State or
jurisdiction as a securities agent of the Broker-Dealer with
which the Representative is associated.
(b) Representative, when soliciting for sales or
selling the Policies, must at all times be validly licensed,
registered or appointed by Acacia National as a variable
annuity and/or variable life agent in accordance with the
jurisdictional requirements of the place where the
solicitations take place.
(c) Representatives may solicit for and sell the
Policies any place the Policies are filed or approved for sale
by the governmental authorities having
<PAGE> 2
jurisdiction; provided Representative, the Broker-Dealer with
whom the Representative is associated, and Acacia National are
all validly licensed, registered or otherwise qualified, as
required for the solicitation and sales of the Policies.
4. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
Representative shall comply strictly with: (a) the
laws, rules and regulations of all state or local governmental
jurisdictions in which Representative solicits applications
for and sells the Policies; (b) the laws, rules and
regulations of the SEC; (c) the rules of the NASD; (d) the
rules of the Broker-Dealer with which he or she is associated;
(e) the rules of Acacia National, and (f) the rules of TAG.
Representatives understand that failure to comply with such
laws, rules and regulations may result in disciplinary action
against the Representative by the SEC, a state or other local
regulatory agency that has jurisdiction, the NASD, the
Broker-Dealer with which the Representative is associated,
Acacia National or TAG. Before any solicitations or sales of
the Plans are made, Representative shall become familiar with
and abide by the laws, rules and regulations of all of the
above mentioned agencies or parties as are currently in effect
and as they may be changed from time to time.
5. COMPENSATION
Representative shall be entitled to receive through
the Broker-Dealer with which he or she has been associated,
compensation based on all premiums and/or purchase payments
received by Acacia National, while this Agreement is in force,
from applicants pursuant to applications for the Policies
issued by Acacia National; provided, that such applications
were obtained by Representative and submitted to Acacia
National through the Broker-Dealer with which Representative
is associated.
The amount of compensation Representative shall
receive from the Broker-Dealer with which he or she is
associated shall be determined in accordance with the
Broker-Dealer's Compensation Schedule for the Policies in
effect at the time a premium or a purchase payment is received
by Acacia National. Representative also agrees that Acacia
National is not responsible for Representative's compensation
and that Representative shall look to and seek such
compensation only from the Broker-Dealer with which
Representative is associated. Representative shall not be
entitled to any compensation based on premiums and/or purchase
payments received by Acacia National after termination of this
Agreement.
2
<PAGE> 3
6. RIGHT TO REJECT
Broker-Dealer and/or Acacia National, each in its
sole discretion, may reject any applications or payments
remitted by Representative through the Broker-Dealer and may
refund an applicant's payments to the applicant. In the event
such refunds are made and Representative has received
compensation based on an applicant's payment that is refunded,
Representative shall promptly repay such compensation to
Broker-Dealer. If repayment is not promptly made,
Broker-Dealer may at its sole option deduct any amounts due it
from Representative from future commissions otherwise payable
to Representative.
7. APPLICATION PROCEDURES
Representative shall have all applications for the
Policies accurately completed or reviewed and signed by the
applicant and shall submit the applications to Acacia National
through the Broker-Dealer with which Representative is
associated, together with all payments received from
applicants without any reductions. Representative shall cause
all checks or orders to be made payable to Acacia National
Life Insurance Company. Representative shall also comply with
any other application procedures that may be established by
Broker-Dealer, TAG, or Acacia National which may be in effect
from time to time and of which Representative is notified.
8. SUITABILITY
Representative agrees that no recommendation shall be
made to an applicant to purchase a variable life or annuity
policy, and no variable life or annuity policy shall be
issued, in the absence of reasonable grounds to believe that
the purchase of such a policy is suitable for such applicant
on the basis of information furnished after reasonable inquiry
into the following subjects of concern to the applicant:
1) the applicant's insurance and investment
objectives;
2) the applicant's financial situation and needs;
and
3) other relevant information known to Acacia or the
Representative making the recommendation.
9. REPRESENTATIVE'S METHOD OF OPERATIONS
Representative has the sole responsibility for
developing prospects for sales and is free to determine,
subject to any applicable regulatory requirements, to whom,
where and how solicitations and sales shall be made.
Representative is
3
<PAGE> 4
not required to devote any particular portion of
Representative's time to developing Policies business or
acting as agent of Acacia National and shall not be reimbursed
for any operational or administrative expenses, but must pay
such expenses out of compensation which are described in
Paragraph 5 above.
10. REPRESENTATIONS
Representative shall not make any statements
concerning the Policies except those that are contained in the
current prospectuses and sales literature approved by the
Broker-Dealer, TAG and Acacia National, and shall not solicit
for applications or make sales through the use of mailings,
advertisements or other methods of contact unless the material
and method has the written approval of the Broker-Dealer.
11. RELATIONSHIP
The relationship of Representative to Acacia National
and TAG is that of independent contractor solely for the sale
of the Policies and nothing herein shall be construed to
create an employee-employer relationship between
Representative and TAG or Acacia National.
This Agreement does not create any exclusive rights
of any kind for Representative, Broker-Dealer, TAG or Acacia
National.
12. RETURN OF MATERIALS
Upon termination of this Agreement, any prospectus,
applications or other material and supplies furnished by TAG,
Acacia National or Broker-Dealer shall be promptly returned to
TAG or the Broker-Dealer.
13. TERMINATION
This Agreement may be terminated by Acacia National,
or on Acacia National's behalf by TAG or by the
Representative, upon 30 days written notice sent by certified
mail to the last address of record of the other party, and
automatically terminates if: (a) Representative ceases to be
validly licensed, appointed and NASD registered, or (b) the
Broker-Dealer with which Representative is associated ceases
to have a National Broker-Dealer Agreement for the Policies in
effect or ceases to be SEC or NASD registered.
14. ASSIGNMENT
Neither this Agreement nor any of its benefits may be
assigned by Representative without the written consent of TAG
and Acacia National and any
4
<PAGE> 5
assignment of this Agreement, compensation or other benefits
or obligations hereunder shall not be valid if made without
such consent.
15. AMENDMENT OF AGREEMENT
Acacia National reserves the right to amend this
Agreement at any time and the submission of an application by
a Representative of a Broker-Dealer after notice of any such
amendment has been sent to the other parties shall constitute
the other parties' agreement to any such amendment.
16. GOVERNING LAW
This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
17. EFFECTIVENESS OF AGREEMENT
This Agreement shall be effective upon execution by
Acacia National and TAG.
Approved and Accepted:
-----------------------------------
Broker-Dealer
By:
--------------------------------
Signature Date
-----------------------------------
Name of Registered Representative
(please type or print)
-----------------------------------
Signature
ACACIA NATIONAL LIFE INSURANCE COMPANY
By:
--------------------------------
Secretary
THE ADVISORS GROUP, INC.
By:
-------------------------------
Title
Date
-------------------------------
5
<PAGE> 6
COMPENSATION:
The Account Managers will be able to select between two compensation schedules.
The main difference between the two schedules is the percentage of premium.
Schedule A has a higher percentage of premium with a lower trailer that begins
in a later year. This is referred to as the "Heaped" Schedule. Schedule B is
referred to as "Levelized" because the compensation is lower on each deposit
but the trailer begins at the end of the first year at a higher rate resulting
in a compensation package that is more level from year to year.
Commissions will be paid on an attained age basis. If the policy is issued to
a 65 year old and no further premiums are received until age 70, the commission
on the new premium will be based on the age 70 and over rates.
SCHEDULE A - "HEAPED":
Ages up to 70
3.00% of Premium paid at the time the premium is
received.
10 Basis Points are applied to the Account Value
effective on the 5th policy anniversary and will
continue to be paid for the life of the contract.
Ages 70 and over
2.25% of Premium paid at the time the premium is
received.
10 Basis Points are applied to the Account Value
effective on the 5th policy anniversary and will
continue to be paid for the life of the contract.
SCHEDULE B - "LEVELIZED":
Ages up to 70
1.50% of Premium paid at the time the premium is
received.
25 Basis Points are applied to the Account Value
effective on the 1st policy anniversary and will
continue to be paid for the life of the contract.
Ages 70 and over
1.125% of Premium paid at the time the premium is
received.
25 Basis Points are applied to the Account Value
effective on the 1st policy anniversary and will
continue to be paid for the life of the contract.
<PAGE> 1
EXHIBIT 8(A)
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this _____ day of ______________________ 1996,
by and among The Alger American Fund (the "Trust"), an open-end
management investment company organized as a Massachusetts business trust,
Acacia National Life Insurance Company, a life insurance company organized as
a corporation under the laws of the State of Virginia, (the "Company"), on its
own behalf and on behalf of Acacia National Separate Account II and of each
segregated asset Sub-account of the Company set forth in Schedule A, as may be
amended from time to time (the "Accounts"), and Fred Alger and Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company
under the investment Company Act of 1940, as amended (the "1940"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the " 1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be
used as an investment vehicle for separate accounts established for variable
life insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
the following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income & Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of
Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(I 5)
and 6e-3 (T)(b)(I 5) thereunder, to the extent necessary to permit shares of
the Portfolios of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933
Act certain variable life insurance policies and variable annuity contracts to
be issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
1
<PAGE> 2
WHEREAS, the Company desires to use shares of one or more Portfolios
as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be the Trust's
agent for the receipt from each account of purchase orders and
requests for redemption pursuant to the Contracts relating to
each Portfolio, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 9:30 a.m.
Eastern time on the next following Business Day, as defined in
Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next computed after receipt of a
purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of
the Trust (which has been distributed) describing Portfolio
purchase procedures. The Company will transmit orders from time
to time to the Trust for the purchase and redemption of shares of
the Portfolios. The Trustees of the Trust (the "Trustees") may
refuse to sell shares of any Portfolio to any person, or suspend
or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having
jurisdiction or if, in the sole discretion of the Trustees acting
in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in
the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio
on behalf of an Account with federal funds to be transmitted by
wire to the Trust, with the reasonable expectation of receipt by
the Trust by 2:00 p.m. Eastern time on the next Business Day
after the Trust (or its agent) receives the purchase order. Upon
receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall
become the responsibility of the Trust for this purpose.
"Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates
its net asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of
any Portfolio, when requested by the Company on behalf of an
Account, at the net asset value next computed after receipt by
the Trust (or its agent) of the request for redemption, as
established in accordance with the provisions of the then current
prospectus of the Trust describing Portfolio redemption
procedures. The Trust shall make payment for such shares in the
manner established from time to time by the Trust. Proceeds of
redemption with respect to a Portfolio will normally be paid to
the Company for an Account in federal funds transmitted by wire
to the Company by order of the Trust with the reasonable
expectation
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of receipt by the Company by 2:00 p.m. Eastern time on the next
Business Day after the receipt by the Trust (or its agent) of the
request for redemption. Such payment may be delayed if, for
example, the Portfolio's cash position so requires or if
extraordinary market conditions exist, but in no event shall
payment be delayed for a greater period than is permitted by the
1940 Act. The Trust reserves the right to suspend the right of
redemption, consistent with Section 22(e) of the 1940 Act and any
rules thereunder.
1.5 Payments for the purchase of shares of the Trust's Portfolios by
the Company under Section 1.3 and payments for the redemption of
shares of the Trust's Portfolios under Section 1.4 on any
Business Day may be netted against one another for the purpose of
determining the amount of any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by
book entry only. Stock certificates will not be issued to the
Company or the Accounts. Portfolio Shares purchased from the
Trust will be recorded in the appropriate title for each Account
or the appropriate subaccount of each Account.
1.7. The Trust shall furnish, on or before the ex-dividend date,
notice to the Company of any income dividends or capital gain
distributions payable on the shares of any Portfolio of the
Trust. The Company hereby elects to receive all such income
dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of that Portfolio. The
Trust shall notify the Company of the number of shares so issued
as payment of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio
on each Business Day, as defined in Section 1.3. The Trust shall
make the net asset value per share for each Portfolio available
to the Company or its designated agent on a daily basis as soon
as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset
value per share available to the Company by 6:30 p.m. Eastern
time each Business Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset
accounts, to the Fund Sponsor or its affiliates and to such other
entities as may be permitted by Section 817(h) of the Code, the
regulations hereunder, or judicial or administrative
interpretations thereof. No shares of any Portfolio will be sold
directly to the general public. The Company agrees that it will
use Trust shares only for the purposes of funding the Contracts
through the Accounts listed in Schedule A, as amended from time
to time.
1.10. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through
voting and conflicts of interest corresponding materially to
those contained in Section 2.9 and Article IV of this Agreement.
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ARTICLE II.
OBLIGATIONS OF THE PARTIES
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar
materials such as voting instruction solicitation materials),
prospectuses and statements of additional information of the
Trust. The Trust shall bear the costs of registration and
qualification of shares of the Portfolios, preparation and filing
of the documents listed in this Section 2.1 and all taxes to
which an issuer is subject on the issuance and transfer of its
shares.
2.2. The Company shall distribute such prospectuses, proxy statements
and periodic reports of the Trust to the Contract owners as
required to be distributed to such Contract owners under
applicable federal or state law.
2.3. The Trust shall provide such documentation (including a final
copy of the Trust's prospectus as set in type or in camera-ready
copy) and other assistance as is reasonably necessary in order
for the Company to print together in one document the current
prospectus for the Contracts issued by the Company and the
current prospectus for the Trust. The Trust shall bear the
expense of printing copies of its current prospectus that will be
distributed to existing Contract owners, and the Company shall
bear the expense of printing copies of the Trust's prospectus
that are used in connection with offering the Contracts issued by
the company.
2.4. The Trust and the Distributor shall provide (1) at the Trust's
expense, one copy of the Trust's current Statement of Additional
Information ("SAI") to the Company and to any Contract owner who
requests such SAI, (2) at the Company's expense, such additional
copies of the Trust's current SAI as the Company shall reasonably
request and that the Company shall require in accordance with
applicable law in connection with offering the Contracts issued
by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies
of its proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company
shall reasonably require for purposes of distributing to Contract
owners. The Trust, at the Company's expense, shall provide the
Company with copies of its periodic reports to shareholders and
other communications to shareholders in such quantity as the
Company shall reasonably request for use in connection with
offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Trust shall provide such
documentation (including a final copy of the Trust's proxy
materials, periodic reports to shareholders and other
communications to shareholders, as set in type or in camera-ready
copy) and other assistance as reasonably necessary in order for
the Company to print such shareholder communications for
distribution to Contract owners.
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2.6. The Company agrees and acknowledges that the Distributor is the
sole owner of the name and mark "Alger" and that all use of any
designation comprised in whole or part of such name or mark under
this Agreement shall insure to the benefit of the Distributor.
Except as provided in Section 2.5, the Company shall not use any
such name or mark on its own behalf or on behalf of the Accounts
or Contracts in any registration statement,advertisement, sales
literature or other materials relating to the Accounts or
Contracts without the prior written consent of the Distributor.
Upon termination of this Agreement for any reason, the Company
shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust
or its designee a copy of each Contract prospectus and/or
statement of additional information describing the Contracts,
each report to Contract owners, proxy statement, application for
exemption or request for no-action letter in which the Trust or
the Distributor is named contemporaneously with the filing of
such document with the Commission. The Company shall furnish, or
shall cause to be furnished, to the Trust or its designee each
piece of sales literature or other promotional material in which
the Trust or the Distributor is named, at least five Business
Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8. The Company shall not give any information or make any
representations or statements on behalf of the Trust or
concerning the Trust or the Distributor in connection with the
sale of the Contracts other than information or representations
contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or
supplemented from time to time), annual and semi-annual reports
of the Trust, Trust-sponsored proxy statements, or in sales
literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory
authorities or with the prior written permission of the Trust,
the Distributor or their respective designees. The Trust and the
Distributor agree to respond to any request for approval on a
prompt and timely basis. The Company shall adopt and implement
procedures reasonably designed to ensure that "broker only"
materials including information therein about the Trust or the
Distributor are not distributed to existing or prospective
Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the
Portfolios and the Distributor, in such form as the Company may
reasonably require, as the Company shall reasonably request in
connection with the preparation of registration statements,
prospectuses and annual and semi-annual reports pertaining to the
Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give, any information or make
any representations or statements on behalf of the Company or
concerning the Company, the Accounts or the Contracts other than
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<PAGE> 6
information or representations contained in and accurately
derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be
amended or supplemented from time to time), or in materials
approved by the Company for distribution including sales
literature or other promotional materials, except as required by
legal process or regulatory authorities or with the prior written
permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets the
1940 Act to require passthrough voting privileges for Contract
owners, the Company will provide pass-through voting privileges
to Contract owners whose cash values are invested, through the
registered Accounts, in shares of one or more Portfolios of the
Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and
the Company shall be responsible for assuring that the Accounts
calculate voting privileges in the manner established by the
Trust. With respect to each registered Account, the Company will
vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract
owners are received in the same proportion as those shares for
which voting instructions are received. The Company and its
agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Portfolio shares held to fund the
Contacts without the prior written consent of the Trust, which
consent may be withheld in the Trust's sole discretion. The
Company reserves the right, to the extent permitted by law, to
vote shares held in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other
information about the results of any regulatory examination
relating to the Contracts or the Trust, including relevant
portions of any "deficiency letter" and any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by
the Company to the Trust, under this Agreement (except for
specified expense reimbursements). However, nothing herein shall
prevent the parties hereto from otherwise agreeing to perform,
and arranging for appropriate compensation for, other services
relating to the Trust, the Accounts or both.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the
State of Virginia and that it has legally and validly established
Acacia National Separate Account II and each Sub-account as a
segregated asset account under such law as of the date set forth
in Schedule A, and that,The Advisors Group, Inc, the principal
underwriter for the Contracts, is registered as a broker-dealer
under the Securities Exchange Act of 1934 and is a member in good
standing of the National Association of Securities Dealers, Inc.
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3.2. The Company represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the
provisions of the 1940 Act and cause each Account to remain so
registered to serve as a segregated asset account for the
Contracts, unless an exemption from registration is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from
registration is available prior to any issuance or sale of the
Contracts; the Contracts will be issued and sold in compliance in
all materials respects with all applicable federal and state
laws; and the sale of the Contracts shall comply in all material
respects with state insurance law suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the Commonwealth of
Massachusetts and that it does and will comply in all material
respects with the 1940 Act and the rules and regulations
thereunder.
3.5. The Trust and the Distributor represent and warrant that the
Portfolio shares offered and sold pursuant to this Agreement will
be registered under the 1933 Act and sold in accordance with all
applicable federal and state laws, and the Trust shall be
registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its
registration statement under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its
shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth
in Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the rules and regulations thereunder,
including without limitation Treasury Regulation 1.817-5, and
will notify the Company immediately upon having a reasonable
basis for believing any Portfolio has ceased to comply or might
not so comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance within
the grace period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified
as a "regulated investment company" under Subchapter M of the
Code, that it will make every effort to maintain such
qualification and will notify the Company immediately upon having
a reasonable basis for believing it has ceased to so qualify or
might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors,
officers, employees and others dealing with the money or
securities, or both, of a Portfolio shall at all times be covered
by a blanket fidelity bond or similar coverage for the benefit of
the Trust in an amount not less than the minimum coverage
required by Rule 17g-1 or other applicable
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regulations under the 1940 Act. Such bond shall include coverage
for larceny and embezzlement and be issued by a reputable bonding
company.
3.9. The Distributor represents that it is duly organized and validly
existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act
of 1934 and is a member in good standing of the National
Association of Securities Dealers, Inc.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1. The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance
Companies. In such event, the Trustees will monitor the Trust
for the existence of any material irreconcilable conflict between
the interests of the contract owners of all Participating
Insurance Companies. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action
or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e)
a difference in voting instructions given by variable annuity
contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of
contract owners. The Trust shall promptly inform the Company of
any determination by the Trustees that a material irreconcilable
conflict exists and of the implications thereof.
4.2. The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will
assist the Trustees in carrying out their responsibilities under
the Shared Funding Exemptive Order by providing the Trustees with
all information reasonably necessary for and requested by the
Trustees to consider any issues raised including, but not limited
to, information as to a decision by the Company to disregard
Contract owner voting instructions. All communications from the
Company to the Trustees may be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority
of the disinterested Trustees, that a material irreconcilable
conflict exists that affects the interests of contract owners,
the Company shall, in cooperation with other Participating
Insurance Companies whose contract owners are also affected, at
its own expense and to the extent reasonably practicable (as
determined by the Trustees) take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which
steps could include: (a) withdrawing the assets allocable to some
or all of the Accounts from the Trust or any Portfolio and
reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or
submitting the question of whether or not
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such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life
insurance contract owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected Contract owners the
option of making such a change; and (b) establishing a new
registered management investment company or managed separate
account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting
instructions and that decision represents a minority position or
would preclude a majority vote, the Company may be required, at
the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect
to such Account; provided, however that such withdrawal and
termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented.
Until the end of such six (6) month period, the Trust shall
continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company,
conflicts with the majority of other state regulators, then the
Company will withdraw the affected Account's investment in the
Trust and terminate this Agreement with respect to such Account
within six (6) months after the Trustees inform the Company in
writing that the Trust has determined that such decision has
created a material irreconcilable conflict; provided, however,
that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Until
the end of such six (6) month period, the Trust shall continue to
accept and implement orders by the Company for the purchase and
redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether
any proposed action adequately remedies any material
irreconcilable conflict, but in no event will the Trust be
required to establish a new funding medium for any Contract. The
Company shall not be required to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by
the material irreconcilable conflict. In the event that the
Trustees determine that any proposed action does not adequately
remedy any material irreconcilable conflict, then the Company
will withdraw the Account's investment in the Trust and terminate
this Agreement within six (6) months after the Trustees inform
the Company in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict
as determined by a majority of the disinterested Trustees.
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4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request
so that the Trustees may fully carry out the duties imposed upon
them by the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if
reasonably deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3
is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules,promulgated thereunder with respect to
mixed or shared funding (as defined in the Shared Funding
Exemptive Order) on terms and conditions materially different
from those contained in the Shared Funding Exemptive Order, then
the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply
with Rule 6e-3(T), as amended, or Rule 6e-3, as adopted, to the
extent such rules are applicable.
ARTICLE V.
INDEMNIFICATION
5.1. Indemnification By the Company. The Company agrees to indemnity
and hold harmless the Distributor, the Trust and each of its
Trustees, officers, employees and agents and each person, if any,
who controls the Trust within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of
this Section 5.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Company, which consent shall not be
unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees
incurred in connection therewith) (collectively, "Losses"), to
which the Indemnified Parties may become subject under any
statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in a registration statement or prospectus
for the Contracts or in the Contracts themselves or
in sales literature generated or approved by the
Company on behalf of the Contracts or Accounts (or
any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes
of this Article V), or arise out of or are based upon
the omission or the alleged omission to state therein
a material fact required to be stated therein or
necessary to make the statements therein not
misleading, provided that this indemnity shall not
apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from
written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the
Contracts or Trust shares; or
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(b) arise out of or result from statements or
representations (other than statements or
representations contained in and accurately derived
from Trust Documents as defined in Section 5.2(a)) or
wrongful conduct of the Company or persons under its
control, with respect to the sale or acquisition of
the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained
in Trust Documents as defined in Section 5.2(a) or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading if such statement or omission was made in
reliance upon and accurately derived from written
information furnished to the Trust by or on behalf of
the Company; or
(d) arise out of or result from any failure by the
Company to provide the services or furnish the
materials required under the terms of this Agreement;
or
(e) arise out of or result from any material breach of
any representation and/or warranty made by the
Company in this Agreement or arise out of or result
from any other material breach of this Agreement by
the Company; or
(f) arise out or result from the provision by the Company
to the Trust of insufficient or incorrect information
regarding the purchase or sale of shares of any
Portfolio, or the failure of the Company to provide
such information on a timely basis.
5.2. Indemnification by the Distributor, The Distributor agrees to
indemnity and hold harmless the Company and each of its
directors, officers, employees, and agents and each person, if
any, who controls the Company within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for the
purposes of this Section 5.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor, which consent shall not
be unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees
incurred in connection therewith) (collectively, "Losses"), to
which the Indemnified Parties may become subject under any
statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement or prospectus
for the Trust (or any amendment or supplement
thereto) (collectively, "Trust Documents" for the
purposes of this Article V), or arise out of or are
based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading, provided that this indemnity shall
not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and
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was accurately derived from written information
furnished to the Distributor or the Trust by or on
behalf of the Company for use in Trust Documents or
otherwise for use in connection with the sale of the
Contracts or Trust shares and; or
(b) arise out of or result from statements or
representations (other than statements or
representations contained in and accurately derived
form Company Documents) or wrongful conduct of the
Distributor or persons under its control, with
respect to the sale or acquisition of the Contracts
or Portfolio shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained
in Company Documents or the omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading if such statement or omission
was made in reliance upon and accurately derived from
written information furnished to the Company by or on
behalf of the Trust; or
(d) arise out of or result from any failure by the
Distributor or the Trust to provide the services or
furnish the materials required under the terms of
this Agreement; or
(e) arise out of or result from any material breach of
any representation and/or warranty made by the
Distributor or the Trust in this Agreement or arise
out of or result from any other material breach of
this Agreement by the Distributor or the Trust.
5.3. None of the Company, the Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as
applicable, with respect to any Losses incurred or assessed
against an Indemnified Party that arise from such Indemnified
Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as
applicable, with respect to any claim made against an Indemnified
party unless such Indemnified Party shall have notified the other
party in writing within a reasonable time after the summons, or
other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise
received by such Indemnified Party (or after such Indemnified
Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the
party against whom indemnification is sought of any such claim
shall not relieve that party from any liability which it may have
to the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party,
the indemnifying party shall be entitled to participate, at its
own expense, in the defense of such action. The
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indemnifying party also shall be entitled to assume the defense
thereof, with counsel reasonably satisfactory to the party named
in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party
will not be liable to the Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of investigation.
ARTICLE VI.
TERMINATION
6.1. This Agreement shall terminate:
(a) at the option of any party upon 60 days advance
written notice to the other parties, unless a shorter
time is agreed to by the parties;
(b) at the option of the Trust or the Distributor if the
Contracts issued by the Company cease to qualify as
annuity contracts or life insurance contracts, as
applicable, under the Code or if the Contracts are
not registered, issued or sold in accordance with
applicable state and/or federal law; or
Trustees of the Trust, or a majority of its
disinterested Trustees, that a material
irreconcilable conflict exists; or
(c) at the option of any party upon a determination by a
majority of the Trustees of the Trust, or a majority
of its disinterested Trustees, that a material
irreconcilable conflict exists; or
(d) at the option of the Company upon institution of
formal proceedings against the Trust or the
Distributor by the NASD, the SEC, or any state
securities or insurance department or any other
regulatory body regarding the Trust's or the
Distributor's duties under this Agreement or related
to the sale of Trust shares or the operation of the
Trust; or
(e) at the option of the Company if the Trust or a
Portfolio fails to meet the diversification
requirements specified in Section 3.6 hereof; or.
(f) at the option of the Company if shares of the Series
are not reasonably available to meet the requirements
of the Variable Contracts issued by the Company, as
determined by the Company, and upon prompt notice by
the Company to the other parties; or
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(g) at the option of the Company in the event any of the
shares of the Portfolio are not registered, issued or
sold in accordance with applicable state and/or
federal law, or such law precludes the use of such
shares as the underlying investment media of the
Variable Contracts issued or to be issued by the
Company; or
(h) at the option of the Company, if the Portfolio fails
to qualify as a Regulated Investment Company under
Subchapter M of the Code; or
(i) at the option of the Distributor if it shall
determine in its sole judgment exercised in good
faith, that the Company and/or its affiliated
companies has suffered a material adverse change in
its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust
shall, at the option of the Company, continue to make available
additional shares of any Portfolio and redeem shares of any
Portfolio pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination
of this Agreement.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall
survive the termination of this Agreement as long as shares of
the Trust are held on behalf of Contract owners in accordance
with Section 6.2.
ARTICLE VII.
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Legal Department
Acacia National Life Insurance Company
14
<PAGE> 15
51 Louisiana Avenue, N.W.
Washington, DC 20001
ARTICLE VIII.
MISCELLANEOUS
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or
effect.
8.2. This Agreement may be executed in two or more counterparts, each
of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
Virginia. It shall also be subject to the provisions of the
federal securities laws and the rules and regulations thereunder
and to any orders of the Commission granting exemptive relief
therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the Trust to the Company.
8.5. All liabilities of the Trust arising, directly or indirectly,
under this Agreement, of any and every nature whatsoever, shall
be satisfied solely out of the assets of the Trust and no
Trustee, officer, agent or holder of shares of beneficial
interest of the Trust shall be personally liable for any such
liabilities.
8.6. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without
limitation the Commission, the National Association of Securities
Dealers, Inc. and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties
hereto are entitled to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the prior written
approval of the other party.
15
<PAGE> 16
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and
executed by both parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by any other
party hereto, and shall not disclose such confidential
information without the written consent of the affected party
unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Fred Alger and Company, Incorporated
By:
-------------------------------
Name:
Title:
Alger American Fund
By:
------------------------------
Name:
Title:
Acacia National Life Insurance Company
By:
------------------------------
Name: Robert W. Clyde
Title: Executive Vice President
Marketing and Sales
16
<PAGE> 17
SCHEDULE A - ACACIA PORTFOLIOS
Alger American Growth Portfolio Large Cap Growth Portfolio Number ____________.
Alger American Mid Cap Growth Portfolio Mid Cap Growth Portfolio Number ______.
Alger American Small Capitalization Portfolio Small Cap Growth Portfolio
Number ________.
<PAGE> 18
PARTICIPATION AGREEMENT
This Agreement is made this ________ day of ___________1996, by and
among the Acacia Capital Corporation ("The Corporation") an open-end management
investment company organized as a Maryland Corporation, Acacia National Life
Insurance Company organized as a corporation under the laws of the State of
Virginia, ("Acacia National"), on its own behalf and on behalf of Acacia
National Separate Account II, a segregated asset account of Acacia National,
and Calvert Distributors, Inc.("Distributor") collectively, ("Parties").
WHEREAS, the Corporation is registered with the Securities and
Exchange Commission (the "Commission") as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has an effective registration statement relating to the offer and sale of
the various series of its shares under the Securities Act of 1933, as amended
(the "1933 Act");
WHEREAS, the Corporation and the Distributor desire that Corporation
shares be used as an investment vehicle for separate accounts established for
variable life insurance policies and variable annuity contracts to be offered
by life insurance companies which have entered into fund participation
agreements with the Corporation (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Corporation are divided
into the following series which are available for purchase by the Acacia
National for the Accounts:
Acacia Capital Corporation Calvert Responsibly
Invested Money Market Portfolio
Acacia Capital Corporation Calvert Responsibly
Invested Strategic Growth Portfolio
Calvert Responsibly Invested Balanced Portfolio
WHEREAS, the Corporation has received an order from the commission
dated November 21, 1988, (File No. 812-7095) granting participating insurance
companies and their separate accounts exemptions from the provisions of
sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder to the extent necessary to permit all of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance, separate accounts of life
<PAGE> 19
insurance companies.
WHEREAS, Acacia National has registered or will register under the
1933 Act certain variable life insurance policies and variable annuity
contracts to be issued by Acacia National under which the Portfolios are to be
made available as investment vehicles (the "Contracts");
WHEREAS, Acacia National has registered or will register each Account
as a unit investment trust under the 1940 Act unless an exemption from
registration under the 1940 Act is available and the Trust has been so advised;
WHEREAS, Acacia National desires to use shares of one or more
Portfolios as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
1.1 Transactions in Fund Shares. Fund shares shall be sold on
behalf of the Fund by Distributor and purchased by Acacia National for the
Account and, indirectly for the appropriate subaccount thereof at the net asset
value next computed after receipt by Distributors of each order of the Account
or its designee, in accordance with the provisions of this Agreement, the then
current prospectuses of the Fund, and the variable annuity contract that uses
the Fund as an underlying investment medium (the "Contracts"). Acacia National
may purchase Fund shares for its own account subject to (a) receipt of prior
written approval by Distributor and (b) such purchases being in accordance with
the then current prospectuses of the Fund and the Contracts. The Board of
Directors of Fund ("Directors") may refuse to sell shares of Fund to any
person, or suspend or terminate the offering of shares of the Fund if such
action is required by law or by regulatory authorities having jurisdiction.
Acacia National agrees to purchase and redeem the shares of the Fund in
accordance with the provisions of this Agreement, of the Contracts and of the
then current prospectuses for the Contracts and Fund. Except as necessary to
implement transactions initiated by purchasers of Contracts ("Owners"), or as
otherwise permitted by state and/or federal laws or regulations, Acacia
National shall not redeem Fund shares attributable to the Contracts.
2
<PAGE> 20
1.2 Purchase and Redemption Orders. On each day that the Fund is
open for business (a "Business Day"), Acacia National shall aggregate and
calculate the net purchase or redemption order it receives for the Account from
the owners of the Contracts ("Owners") for shares of the Fund that it received
prior to 3:00 p.m., Eastern Standard Time, (i.e., the close of trading) and
communicate to Distributor, by telephone or facsimile (or by such other means
as the parties hereto may agree to in writing), the net aggregate purchase or
redemption order (if any) for the Account for such Business Day (such Business
Day is sometimes referred to herein as the "Trade Date"). Acacia National will
communicate such orders to Distributor prior to 8:00 a.m., Eastern Standard
Time, on the next Business Day following the Trade Date. All trades
communicated to Distributor by the foregoing deadline shall be treated by
Distributor as if they were received by Distributor prior to 3:00 p.m., Eastern
Standard Time, on the Trade Date.
1.3 Settlement of Transactions.
(a) Purchases. Acacia National will wire, or arrange for
the wire of, the purchase price of each purchase order to the custodian for the
Fund in accordance with written instructions provided by Distributor to Acacia
National so that either (1) such funds are received by the custodian for the
Fund prior to 10:30 a.m., Eastern Standard Time, on the next business day
following the Trade Date, or (2) Distributor is provided with a Federal Funds
wire system reference number prior to such 10:30 a.m. deadline evidencing the
entry of the wire transfer of the purchase price to the applicable custodian
into the Federal Funds wire system prior to such time. Acacia National agrees
that if (1) the wire for payment of purchase price is not received by the
custodian for the applicable Fund before such 10:30 a.m. deadline or (ii)
Distributor fails to receive the Federal Funds wire system reference number for
such transfer prior to such 10:30 a.m. deadline, it will indemnity and hold
harmless Distributor, and/or the Fund from any liabilities, costs and damages
either may suffer as a result of such failure.
(b) Redemptions. Acacia National will use its best
efforts to cause to be transmitted to such custodial account as Adviser shall
direct in writing, the proceeds of all redemption
3
<PAGE> 21
orders placed by Acacia National by 8:00 a.m., Eastern Standard Time, on the
Business Day immediately following the Trade Date, by wire transfer on that
Business Day. Should Acacia National need to extend the settlement on a trade,
it will contact Adviser to discuss the extension. For purposes of determining
the length of settlement, Acacia National agrees to treat the Account no less
favorably than other shareholders of the Fund. Each wire transfer of
redemption proceeds shall indicate, on the Federal Funds wire system, the
amount thereof attributable to each Fund; provided, however, that if the number
of entries would be too great to be transmitted through the Federal Funds wire
system, the Adviser shall, on the day the wire is sent, fax such entries to
Acacia National or if possible, send via direct or indirect until otherwise
directed by Acacia National in writing.
1.4 Book Entry Only. Issuance and transfer of Fund shares will be
by book entry only. Stock certificates will not be issued to Acacia National
or the Account. Shares of the Fund ordered from Distributor will be recorded
in the appropriate book entry title for the Account.
1.5 Distribution Information. The Distributor shall provide
Acacia National with all distribution announcement information as soon as it is
announced by the Fund. The distribution information shall set forth, as
applicable, ex-dates, record date, payable date, distribution rate per share,
record date share balances, cash and reinvested payment amounts and all other
information reasonably requested by Acacia National. Where possible, the
Distributor shall provide Acacia National with direct or indirect systems
access to the Adviser's systems for obtaining such distribution information.
1.6 Reinvestment. All dividends and capital gains distributions
will be automatically reinvested on the payable date in additional shares of
the Fund at net asset value in accordance with each Fund's then current
prospectus. Advisor shall notify Acacia National or its delegates of the
number of shares so issued as payment of such dividends and distributions.
1.7 Pricing Information. Distributor shall use its best efforts
to furnish to Acacia National prior to 6:00 p.m., Eastern Standard Time, on
each Business Day the Fund's closing net asset value for that day. Such
information shall be communicated via
4
<PAGE> 22
fax, or indirect or direct systems access acceptable to Recordkeeper.
1.8 Price Errors.
(a) In the event adjustments are required to correct any
error in the computation of the net asset value of Fund shares, Fund shall
promptly notify Acacia National after discovering the need for any adjustments
which result in a reimbursement of $150 or more to the Account. Notification
may be made orally or via direct or indirect systems access. The letter shall
be written on Fund letterhead and must state for each day for which an error
occurred the incorrect price, the correct price, and, to the extent
communicated to the Fund's shareholder, the reason for the price change. Fund
agrees that Acacia National may send this writing, or derivation thereof (so
long as such derivation is approved in advance by Fund, which approval shall
not be unreasonably withheld) to Owners that are affected by the price change.
(b) If the Account received amounts in excess of the
amounts to which it otherwise would have been entitled prior to an adjustment
for an error, Acacia National, when requested by Fund or Adviser, will make a
good faith attempt to collect such excess amounts from the accounts of the
Owners. In no event, however, shall Acacia National be liable to Fund for any
such amounts.
(c) If an adjustment is to be made in accordance with
subsection i(a) above to correct an error which has caused the Account to
receive an amount less than that to which it is entitled, Fund shall make all
necessary adjustments (within the parameters specified in subsection i(a)) to
the number of shares owned in the Account and, to the extent of any
underpayment, distribute to Acacia National the amount of such underpayment for
credit to the accounts of the Owners.
1.9 Agency. Distributor hereby appoints Acacia National as its
agent for the limited purpose of accepting purchase and redemption instructions
from the Owners for the purchase and redemption of shares of the Funds by
Acacia National on behalf of Account.
5
<PAGE> 23
1.10 Quarterly Reports. Fund agrees to provide Acacia National a
statement of Fund's assets as soon as practicable and in any event within 30
days after the end of each calendar quarter, and a statement certifying the
Fund's compliance during that fiscal quarter with the diversification
requirements and qualification as a regulated investment company. In the event
of a breach of this Section 3.3(e) Fund will take all reasonable steps (a) to
notify Acacia National of such breach and (b) to adequately diversify the Fund
so as to achieve compliance with the grace period afforded by Treasury
Regulation 1. 817-5.
2. Proxy Solicitations and Voting. Acacia National shall:
2.1 Solicit voting instructions from Owners,
2.2 Vote the Fund shares in accordance with instructions received
from Owners; and
2.3 Vote Fund shares for which no instructions have been received,
as well as shares attributable to it, in the same proportion as Fund shares for
which instructions have been received from Owners, so long as and to the extent
that the Securities and Exchange Commission (the "SEC") continues to interpret
the 1940 Act to require pass-through voting privileges for various contract
owners. Acacia National and its agents will not recommend action in connection
with, or oppose or interfere with, the solicitation of proxies for the Fund
shares held for Owners.
3.1 Representations and Warranties of Acacia National.
Acacia National represents and warrants that:
(a) It is an insurance company duly organized and in
good standing under the laws of the State of Virginia and that it has
legally and validly established the Account prior to any issuance or
sale thereof as a segregated asset account and that Acacia National
has and will maintain the capacity to issue all Contracts that may be
sold; and that it is and will remain duly registered, licensed,
qualified and in good standing to sell the Contracts in all the
jurisdictions in which such Contracts are to be offered or sold;
6
<PAGE> 24
(b) It is and will remain duly registered and licensed in
all material respects under all applicable federal and state
securities and insurance laws and shall perform its obligations
hereunder in compliance in all material respects with any applicable
state and federal laws.
(c) The Contracts are registered under the Securities Act
of 1933 (the "1933 Act") and registered and qualified for sale in the
states where so required, and the Account is registered as a unit
investment trust in accordance with the 1940 Act.
(d) It has, or will have, prior to the offer or sale of
any Contracts, registered the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts,
(e) The Contracts are currently treated as annuity
contracts, under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and it will maintain such treatment and
that it will notify Distributor and Fund promptly upon having a
reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future; and
(f) Its directors, officers, employees, and investment
advisers, and other individuals/entities dealing with the money and/or
securities of Fund are and shall continue to be at all times covered
by a blanket fidelity bond or similar coverage for the benefit of Fund
in an amount not less than the amount required by the applicable rules
of the NASD and the federal securities laws, which bond shall include
coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
3.2 Representations and Warranties of the Fund.
(a) It is lawfully established and validly existing under
the laws of the State of Maryland;
7
<PAGE> 25
(b) It is currently qualified as a regulated Investment
Company under Subchapter M of the Code, and that it will maintain
such qualification (under Subchapter M or any successor or similar
provision) and that it will promptly notify Acacia National upon
having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future;
(c) Fund shares sold pursuant to this Agreement are duly
authorized for issuance and that it complies and will comply in all
material respects with, the 1940 Act;
(d) Its operations are and shall at all times remain in
material compliance with the laws of the State of Maryland to the
extent required to perform this Agreement.
3.3 Representations and Warranties of the Distributor.
(a) Fund shares sold pursuant to this Agreement are
registered under the 1933 Act, that it will sell Fund shares in
compliance with all applicable federal and state laws-, and that Fund
is and will remain registered under the 1940 Act;
(b) It is and will be a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and is and
will be registered as a broker-dealer with the SEC;
(c) It will sell and distribute Fund shares in accordance
with all applicable state and federal laws and regulations, including
without limitation the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), and the 1940 Act; and
(d) It is and will remain duly registered and licensed in
all material respects under all applicable federal and state
securities and insurance laws and shall perform its obligations
hereunder in compliance in all material respects with any applicable
state and federal laws;
(e) It will cause Fund to invest money from the Contracts
in such a manner as to ensure that the Contracts
8
<PAGE> 26
will be treated as variable annuity contracts under the Code and the
regulations issued thereunder, and that Fund will comply with the
diversification requirements for variable annuity endowment or life
insurance contracts set forth in Section 817(h) of the Code as amended
from time to time and with all applicable regulations promulgated
thereunder;
(f) It is and will remain duly registered and licensed in
all material respects under all applicable federal and state
securities and insurance laws and shall perform its obligations
hereunder in compliance in all material respects with any applicable
state and federal laws, and
(g) Its directors, officers, employees, and investment
advisers, and other individuals/entities dealing with the money and/or
securities of Fund are and shall continue to be at all times covered
by a blanket fidelity bond or similar coverage for the benefit of Fund
in an amount not less than the amount required by the applicable rules
of the NASD and the federal securities laws, which bond shall include
coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
4. Sales Material and Information
4.1 NASD Filings. Acacia National shall promptly inform
Distributor as to the status of all sales literature filings and shall promptly
notify Distributor of all approvals or disapprovals of sales literature filings
with the NASD. For purposes of this Section 4, the phrase "sales literature or
other promotional material, shall be construed in accordance with all
applicable securities laws and regulations.
4.2 Acacia National Representations. Acacia National shall not
make any material representations concerning the Distributor or the Fund other
than the information or representations contained in: (a) a registration
statement or prospectus for the Fund, as amended or supplemented from time to
time, (b) published reports or statements of the Fund which are in the public
domain or are approved by Distributor and/or the Fund or (c) sales literature
or other promotional material of the Fund.
9
<PAGE> 27
4.3 The Corporation, Distributor and Fund Representations.
Neither, Distributor nor the Fund shall make any material representations
concerning Acacia National other than the information or representations
contained in: (a) a registration statement or prospectus for the Contracts, as
amended or supplemented from time to time; (b) published reports or statements
of the Contracts or the Account which are in the public domain or are approved
by Acacia National or (c) sales literature or other promotional material of the
Acacia National.
4.4 Trademarks, etc. Except to the extent required by applicable
law, no Party shall use any other Party's names, logos, trademarks or service
marks, whether registered or unregistered, without the prior consent of such
Party.
4.5 Information From Distributor and Adviser. Corporation will
provide to Acacia National at least one complete copy of all registration
statements, prospectuses, Statements of Additional Information, reports, proxy
statements, solicitations, for voting instructions, sales literature and other
promotional materials involving the Fund or the Contracts, applications for
exemptions, requests for no action letters, and all amendments to any of the
above, that relate to Fund or its shares, in final form as filed with the SEC,
NASD and other regulatory authorities.
4.6 Information From Acacia National. Acacia National will
provide to Distributor at least one complete copy of all registration
statements, prospectuses, Statements of Additional Information, reports,
solicitations for voting instructions, sales literature and other promotional
materials, applications for exemptions, requests for no action letters and all
amendments to any of the above, that relate to the Fund and the Contracts, in
final form as filed with the SEC, NASD and other regulatory authorities.
5. Fees and Expenses.
5.1 Fund Registration Expenses. Fund or Distributor shall bear
the cost of registration and qualification of Fund's shares-preparation and
filing of Fund's prospectus and registration statement, proxy materials and
reports preparation of all other statements and notices relating to Fund or
Distributor required by any federal or state law; payment of all applicable
fees,
10
<PAGE> 28
including, without limitation, all fees due under Rule 24f-2 relating to Fund;
and all taxes on the issuance or transfer of Fund's shares on the Fund's
records.
5.2 Contract Registration Expenses. Acacia National shall bear
the expenses for the costs of preparation and filing of Acacia National's
prospectus and registration statement with respect to the Contracts,
preparation of all other statements and notices relating to the Account or the
Contracts required by any federal or state law, expenses for the solicitation
and sale of the Contracts, including all costs of printing and distributing all
copies of advertisements, prospectuses, Statements of Additional Information,
proxy materials, and reports to Owners or potential purchasers of the Contracts
as required by applicable state and federal law; payment of all applicable
fees, including, without limitation, all fees due under Rule 24f-2 relating to
the Contracts; all costs of drafting, filing and obtaining approvals of the
Contracts in the various states under applicable insurance laws, filing of
annual reports on form N-SAR, and all other costs associated with ongoing
compliance with all such laws and its obligations hereunder.
6. Indemnification.
6.1 Indemnification By Acacia National.
(a) Acacia National agrees to indemnity and hold harmless
Fundr and Distributor and each of their directors, officers, employees
and agents, and each person, if any, who controls any of them within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 6. 1) against any
and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Acacia National), and
expenses (including reasonable legal fees and expenses), to which the
Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages,
liabilities and expenses.
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or sales literature for
the
11
<PAGE> 29
Contracts or contained in the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this paragraph 6.1(a) shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with written information furnished to Acacia
National by or on behalf of Fund or Distributor for use in the
registration statement or prospectus for the Contracts or in
the Contracts (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares, or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Acacia National or its
agents, with respect to the sale or distribution of the
Contracts or Fund shares, or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Fund
or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the
statements therein not misleading, if such a statement or
omission was made in reliance upon written information
furnished to Fund or Distributor by or on behalf of Acacia
National, or
(iv) arise out of, or as a result of, any failure by Acacia
National or persons under its control to provide the services
and furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach of any
representation and/or warranty made by Acacia National or
persons under its control in this
12
<PAGE> 30
Agreement or arise out of or result from any other material
each of this Agreement by Acacia National or persons under its
control as limited by and in accordance with the provisions of
sections 6.1(b) and 6.1(c) hereof This indemnification
provision is in addition to any liability which Acacia
National may otherwise have.
(b) Acacia National shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
(c) Acacia National shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
Acacia National in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify Acacia National of any
such claim shall not relieve Acacia National from any liability which
it may have to the Indemnified Party otherwise than on account of this
indemnification provision. In case any such action is brought against
the Indemnified Parties, Acacia National shall be entitled to
participate, at its own expense, in the defense of such action.
Acacia National also shall be entitled to assume and to control the
defense thereof After notice from Acacia National to such Party of
Acacia National's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and Acacia National will not be liable to such
Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with
the defense thereof other than reasonable costs of investigation.
13
<PAGE> 31
(d) The Indemnified Parties will promptly notify Acacia
National of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of Fund shares or the
Contracts or the operation of Fund.
6.2 Indemnification by Distributor.
(a) Distributor agrees to indemnify and hold harmless
Acacia National and each of its directors, officers, employees and
agents and each person, if any, who controls Acacia National within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 6.2) against any
and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Distributor, and expenses
(including reasonable legal fees and expenses) to which the
Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages,
liabilities and expenses:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in
the registration statement or prospectus or sales literature
of Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this section 6.2(a)
shall not apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was made in
reliance upon and in conformity with written information
furnished to Fund or Distributor by or on behalf of Acacia
National for use in the registration statement or prospectus
for Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or arise out of, or as a
result of, statements or representations or wrongful conduct
of Distributor or Fund or persons under their control, with
respect to the sale or distribution of
14
<PAGE> 32
the Contracts or Fund shares, or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Distributor or persons
under its control, with respect to the saleor distribution of
Fund shares;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the
statements therein not misleading, if such statement or
omission was made in reliance upon written information
furnished to Acacia National by or on behalf of Distributor;
or
(iv) arise out of, or as a result of, any failure by
Distributor or persons under its control to provide the
services and furnish the materials contemplated under the
terms of this Agreement, or
(v) arise out of or result from any material breach of
any representation and/or warranty made by Distributor or
persons under its control in this Agreement or arise out of or
result from any other material breach of this Agreement by
Distributor or persons under its control, as limited by and in
accordance with the provisions of Sections 6.2(b) and 6.2(c)
hereof. This indemnification provision is in addition to any
liability which Distributor may otherwise have.
(b) Distributor shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to Acacia
National.
15
<PAGE> 33
(c) Distributor shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
Distributor in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify Distributor of any such
claim shall not relieve Distributor from any liability which it may
have to the Indemnified Party otherwise than on account of this
indemnification provision. In case any such action is brought against
the Indemnified Parties, Distributor will be entitled to participate,
at its own expense, in the defense thereof Distributor also shall be
entitled to assume and to control the defense thereof after notice
from Distributor to such Party of Distributor' election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and Distributor
will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(d) The Indemnified Parties will promptly notify Distributor
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Contracts or the operation
of the Account.
7. Potential Conflicts.
7.1 Monitoring by Directors for Conflicts of Interest. The
Directors will monitor the Fund for any potential or existing material
irreconcilable conflict of interest between the interests of the contract
owners of all separate accounts investing in the Fund, including such conflict
of interest with any other separate account of any other insurance Acacia
National investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state
16
<PAGE> 34
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretive letter, or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of the Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners or by contract owners of different life insurance
companies utilizing the Fund; or (f) a decision by Acacia National to disregard
the voting instructions of owners. The Directors shall promptly inform Acacia
National, in writing, if they determine that an irreconcilable material
conflict exists and the implications thereof.
7.2 Monitoring by Acacia National for Conflicts of Interest.
Acacia National will promptly notify the Directors, in writing, of any
potential or existing material irreconcilable conflicts of interest, as
described in Section 7.1 above, of which it is aware. Acacia National will
assist the Directors in carrying out their responsibilities under any
applicable provisions of the federal securities laws and/or any exemptive
orders granted by the SEC ("Exemptive Order"), by providing the Directors, in a
timely manner, with all information reasonably necessary for the Directors to
consider any issues raised. This includes, but is not limited to, an
obligation by Acacia National to inform the Directors whenever Owner voting
instructions are disregarded.
7.3 Remedies. If it is determined by a majority of the Directors,
or a majority of disinterested Directors, that a material irreconcilable
conflict exists, as described in Section 7.1 above, Acacia National shall, at
its own expense take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including, but not limited to: (a),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund and reinvesting such assets in a different investment medium,
including (but not limited to) another fund distributed by the Distributor, or
submitting the question whether such segregation should be implemented to a
vote of all affected Owners and, as appropriate, segregating the assets of any
particular group that votes in favor of such segregation, or offering to the
affected owners the option of making such a change; and (b), establishing a new
registered management investment Acacia National or managed
17
<PAGE> 35
separate account.
8.1 This Agreement shall terminate:
(a) at the option of any party upon 60 days advance
written notice to the other parties, unless a shorter time is agreed to by the
parties;
(b) at the option of the Corporation or the Distributor
if the Contracts issued by Acacia National cease to qualify as annuity
contracts or life insurance contracts, as applicable, under the Code
or if the Contracts are not registered, issued or sold in accordance
with applicable state and/or federal law; or
(c) at the option of any party upon a determination by a
majority of the Directors of the Corporation or a majority of its
disinterested Directors, that a material irreconcilable conflict
exists; or
(d) at the option of Acacia National upon institution of
formal proceedings against the Corporation or the Distributor by the
NASD, the SEC, or any state securities or insurance department or any
other regulatory body regarding the Corporation's or the Distributor's
duties under this Agreement or related to the sale of Fund shares or
the operation of the Fund; or
(e) at the option of Acacia National if the Trust or a
Portfolio fails to meet the diversification requirements specified in
Section 3.2(e) hereof; or.
(f) at the option of Acacia National if shares of the
Series are not reasonably available to meet the requirements of the
Variable Contracts issued by Acacia National, as determined by Acacia
National, and upon prompt notice by Acacia National to the other
parties; or
(g) at the option of Acacia National in the event any of
the shares of the Portfolio are not registered, issued or sold in
accordance with applicable state and/or federal law, or such law
precludes the use of such shares as the underlying investment media of
the Variable Contracts issued
18
<PAGE> 36
or to be issued by Acacia National; or
(h) at the option of Acacia National, if the Portfolio
fails to qualify as a Regulated Investment Acacia National under
Subchapter M of the Code; or
(i) at the option of the Distributor if it shall
determine in its sole judgment exercised in good faith, that Acacia
National and/or its affiliated companies has suffered a material
adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity.
8.2 Notwithstanding any termination of this Agreement, the
Corporation shall, at the option of Acacia National, continue to make available
additional shares of any Portfolio and redeem shares of any Portfolio pursuant
to the terms and conditions of this Agreement for all Contracts in effect on
the effective date of termination of this Agreement.
8.3 Limit on Termination. Notwithstanding the termination of this
Agreement, each Party shall continue, for so long as any Contracts remain
outstanding, to perform such of its duties hereunder as are necessary to ensure
the continued tax deferred status thereof and the payment of benefits
thereunder, except to the extent proscribed by law, the SEC or other regulatory
body.
9. Notices. Any notice shall be deemed sufficiently given when
sent by registered or certified mall to the other Party at the address of such
Party set forth below or at such other address as such Party may from time to
time specify in writing to the other Party.
If to Distributor:
General Counsel
Calvert Distributors, Inc.
4550 Montgomery Avenue
Bethesda, MD 20814
19
<PAGE> 37
If to Fund:
General Counsel
Acacia Capital Corporation
4550 Montgomery Avenue, Suite 1000 N
Bethesda, MD 20814
If to Acacia National:
General Counsel
Acacia National Life Insurance Acacia National
51 Louisiana Avenue, N.W.
Washington, DC 20001
With a copy to:
Fred Bellamy
Sutherland, Asbill and Brennan
1275 Pennsylvannia Avenue NW
Washington, DC 20004-2404
10. Miscellaneous.
10.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no way affect the construction or effect
of any provisions hereof.
10.2 Enforceability. If any portion of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
10.3 Counterparts. This Agreement may be executed simultaneously
IN two or more counterparts, each of which taken together shall constitute one
and the same instrument.
10.4 Cooperation. Each Party shall cooperate with each other Party
and all appropriate governmental authorities (including, without limitation,
the SEC, the NASD and state insurance and securities regulators) and shall
permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement.
10.5 Audit. Each Party hereto grants to the other the right to
audit, at the expense of the party requesting the audit, its records relating
to the terms and conditions of this Agreement
20
<PAGE> 38
upon reasonable notice during reasonable business hours in order to confirm
compliance with this Agreement.
10.6 Remedies not Exclusive. The rights, remedies and obligations
contained in this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
10.7 Confidentiality. Subject to the requirements of legal process
and regulatory authority, the Fund and Distributor shall treat as confidential
the names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by Acacia National hereto and,
except as permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential information without the
express written until consent of Acacia National until such time as it may come
into the public domain.
10.8 Assignability. This Agreement or any of the rights and
obligations hereunder may not be assigned by any party without the prior
written consent of all parties hereto.
10.9 Trial. In any dispute arising hereunder, each party waives
its right to demand a trial by jury and hereby consents to a bench trial of all
such disputes.
10.10 Governing Law. The terms of this Agreement shall be construed
and the provisions hereof interpreted under and in accordance with the laws of
Maryland, provided, however, that all performances rendered hereunder shall be
subject to compliance with all applicable state and federal laws and
regulations.
10.11 Each party hereto shall, except as required by law or
otherwise permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto, and shall not
disclose such confidential information without the written consent of the
affected party unless such information has become publicly available.
21
<PAGE> 39
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed as of the date first set forth above.
ACACIA NATIONAL LIFE INSURANCE COMPANY
By:
------------------------
Name:
Title:
Distributor:
CALVERT DISTRIBUTORS, INC.
By:
------------------------
Name:
Title:
Fund:
ACACIA CAPITAL CORPORATION
By:
------------------------
Name:
Title:
22
<PAGE> 40
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the _____ day of __________, 1996, between
Acacia National Life Insurance Company ("Insurance Company"), a life insurance
company organized under the laws of the State of Virginia and DREYFUS LIFE AND
ANNUITY INDEX FUND, INC.(d/b/a DREYFUS STOCK INDEX FUND), a corporation
organized under the laws of the State of Maryland (the "Fund").
ARTICLE
IDEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors of the Fund having the
responsibility for management and control of the Fund.
1.3 "Business Day" shall mean any day for which the Fund calculates
net asset value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange commission.
1.5 "Contract" shall mean a variable annuity or life insurance
contract that uses the Fund as an underlying investment medium.
Individuals who participate under a group Contract are
"Participants."
1.6 "Contractholder" shall mean any entity that is a party to a
Contract with a Participating Company.
1.7 "Disinterested Board Members" shall mean those members of the
Board that are not deemed to be "interested persons" of the Fund,
as defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service corporation.
1.9 "Participating Companies" shall mean any insurance company
(including Insurance Company), which offers variable annuity
and/or variable life insurance contracts to the public and which
has entered into an agreement with the Fund for the
<PAGE> 41
purpose of making Fund shares available to serve as the
underlying investment medium for the aforesaid Contracts.
1.10 "Prospectus" shall mean the Fund's current prospectus and
statement of additional information, as most recently filed with
the Commission.
1.11 "Separate Account(s)" shall mean the following separate
account(s) established by Insurance company in accordance with
the laws of the State of Virginia:
Acacia National Separate Account II
1.12 "Software Program" shall mean the software program used by the
Fund for providing Fund and account balance information including
net asset value per share. Such Program may include the Lion
System. In situations where the Lion System or any other
Software Program used by the Fund is not available, such
information may be provided by telephone. The Lion System shall
be provided to Insurance Company at no charge.
1.13 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an
insurance company duly organized and in good standing under
applicable law; (b) it has legally and validly established the
Separate Accounts pursuant to the Ohio Insurance Code for the
purpose of offering to the public certain individual and group
variable annuity and life insurance contracts; (c) it has
registered each Separate Account as a unit investment trust under
the Act to serve as the segregated investment account for the
Contracts (or has relied on an exemption from registration under
the Act); and (d) each Separate Account is eligible to invest in
shares of the Fund without such investment disqualifying the Fund
as an investment medium for insurance company separate accounts
supporting variable annuity contracts or variable life insurance
contracts.
<PAGE> 42
2.2 Insurance Company represents and warrants that (a) the Contracts
will be described in a registration statement filed under the
Securities Act of 1933, as amended ("1933 Act"), unless such
Contracts qualify under an exemption from registration under the
1933 Act; (b) the Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state
laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements.
Insurance Company agrees to notify the Fund promptly of any
investment restrictions imposed by state insurance law and
applicable to the Fund.
2.3 Insurance Company represents and warrants that the income, gains
and losses, whether or not realized, from assets allocated to the
Separate Accounts are, in accordance with the applicable
Contracts, to be credited to or charged against such Separate
Accounts without regard to other income, gains or losses from
assets allocated to any other accounts of Insurance Company.
Insurance Company represents and warrants that the assets of the
Separate Accounts are and will be kept separate from Insurance
Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with
liabilities from any business that Insurance Company may conduct
or the liabilities of any companies affiliated with Insurance
Company. Insurance Company agrees that no Fund shares shall be
purchased by the Insurance Company's General Account unless this
Agreement is appropriately amended in accordance with the
provisions of Article XI hereof.
2.4 Fund represents that it is registered with the Commission under
the Act as an open-end, non-diversified management investment
company and possesses, and shall maintain, all legal and
regulatory licenses, approvals, consents and/or exemptions
required for Fund to operate and offer its shares as an
underlying investment medium for Participating Companies.
2.5 Fund represents that it is currently qualified as a regulated
investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make
every effort to maintain such qualification (under Subchapter M
or any successor or similar provision) and that it will
3
<PAGE> 43
notify Insurance Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is
appropriate, under applicable provisions of the Code, and that it
will make every effort to maintain such treatment and that it
will notify the Fund and Dreyfus immediately upon having a
reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
Insurance Company agrees that any prospectus offering a Contract
that is a "modified endowment contract," as that term is defined
in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy).
2.7 Fund represents and agrees that the Fund's assets shall be
managed and invested in a manner that complies with the
requirements of Section 817(h) of the Code. Upon Insurance
Company's request, within fifteen (15) Business Days after the
end of each calendar quarter the Fund or its designee shall
provide Insurance company with a letter certifying to the
continued accuracy of the representations contained in Sections
2.5 and 2.7 hereof.
2.8 Insurance Company-agrees that the Fund shall be permitted(subject
to the other terms of this Agreement) to make Fund shares
available to other Participating Companies and Contractholders.
2.9 Fund represents and warrants that any of its directors, officers,
employees, investment advisers, and other individuals/entities
who deal with the money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount
not less than that required by Rule 17g-I under the Act. The
aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
4
<PAGE> 44
2.10 Insurance Company represents and warrants that all of its
employees and agents who deal with the money and/or securities of
the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage in an amount not less
than the coverage required to be maintained by the Fund. The
aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third
party beneficiary under this Agreement and may enforce any and
all rights conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Accounts will provide
for the investment of certain amounts in shares of the Fund.
3.2 Fund agrees to make its shares available for purchase at the then
applicable net asset value per share by Insurance Company and the
Separate Accounts on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse
to sell its shares to any person, or suspend or terminate the
offering of its shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws,
necessary and in the best interests of the Fund's shareholders.
3.3 Fund agrees that shares of the Fund will be sold only to
Participating Companies and their separate accounts. No shares
of the Fund will be sold to the general accounts of those
Participating Companies and their affiliates or to the general
public.
3.4 Fund shall use its best efforts to provide closing net asset
value, dividend and capital gain information on a per-share and
Fund basis to Insurance Company by 6:00 p.m. Eastern Time on each
Business Day. Any material errors in the calculation of net
asset value, dividend and capital gain information
5
<PAGE> 45
shall be reported immediately upon discovery to Insurance
Company. Non-material errors will be corrected in the next
Business Day's net asset value per share.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the
unit values of the Separate Accounts for the day. Using these
unit values, Insurance Company will process the day's Separate
Accounts transactions received by it by the close of trading on
the floor of the New York Stock Exchange (currently 4:00 p.m.
Eastern time) to determine the net dollar amount of Fund shares
which will be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders will
be transmitted to the Fund by Insurance Company by 11:00 a.m.
Eastern Time on the Business Day next following Insurance
Company's receipt of that information.
3.6 Fund appoints Insurance Company as its agent for the limited
purpose of accepting orders for the purchase and redemption of
Fund shares for the Separate Accounts. Fund will execute orders
at the applicable net asset value per share determined as of the
close of trading on the day of receipt of such orders by
Insurance Company acting as agent ("effective trade date"),
provided that the Fund receives notice of such orders by 11:00
a.m. Eastern Time on the next following Business Day and, if such
orders request the purchase of Fund shares, the conditions
specified in Section 3.8, as applicable, are satisfied. A
redemption or purchase request that does not satisfy the
conditions specified above and in Section 3.8, as applicable,
will be effected at the net asset value per share computed on the
Business Day immediately preceding the next following Business
Day upon which such conditions have been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in
advance of any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Fund
shares, Insurance Company will pay for such purchases by wiring
Federal Funds to Fund or its designated custodial account on the
day the order is transmitted. Insurance
6
<PAGE> 46
Company shall make all reasonable efforts to transmit to the Fund
payment in Federal Funds by 12:00 noon Eastern Time on the
Business Day the Fund receives the notice of the order pursuant
to Section 3.5. Fund will execute such orders at the applicable
net asset value per share determined as of the close of trading
on the effective trade date if Fund receives payment in Federal
Funds by 12:00 midnight Eastern Time on the Business Day the Fund
receives the notice of the order pursuant to Section 3.5. If
payment in Federal Funds for any purchase is not received or is
received by the Fund after 12:00 noon Eastern Time on such
Business Day, Insurance Company shall promptly upon the Fund's
request, reimburse the Fund for any charges, costs, fees,
interest or other expenses incurred by the Fund in connection
with any advances to, or borrowings or overdrafts by, the Fund,
or any similar expenses incurred by the Fund, as a result of
portfolio transactions effected by the Fund based upon such
purchase request. If Insurance Company's order requests the
redemption of Fund shares valued at or greater than $1 million
dollars, the Fund will wire such amount to Insurance Company
within seven days of the order.
3.9 Fund has the obligation to ensure that Fund shares are registered
with applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by
Insurance Company. Transfer of Fund shares will be by book entry
only. No share certificates will be issued to Insurance Company.
Insurance Company will record shares ordered from Fund in an
appropriate title for the corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number
of shares.
3.12 on each ex-dividend date of the Fund or, if not a Business Day,
on the first Business Day thereafter, Fund shall communicate to
Insurance Company the amount of dividend and capital gain, if
any, per share. All dividends and capital gains shall be
automatically reinvested in additional shares of the Fund at the
net asset value per share on the ex dividend date. Fund shall,
on the day after the ex-dividend date or, if not a Business Day,
on the first Business Day
7
<PAGE> 47
thereafter, notify Insurance Company of the number of shares so
issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of
each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and
other printed materials (which the Fund customarily provides to
its shareholders) in quantities as Insurance Company may
reasonably request for distribution to each Contractholder and
Participant.
4.3 Fund will provide to Insurance Company at least one complete copy
of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for noaction letters, and
all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document
with the Commission or other regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of
all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no action letters, and
all amendments to any of the above, that relate to the Contracts
or the Separate Accounts, contemporaneously with the filing of
such document with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Fund,
including but not limited to management fees, administrative
expenses and legal and regulatory costs, will be made in the
determination of the Fund's daily net asset value per share so as
to accumulate to an annual charge at
8
<PAGE> 48
the rate set forth in the Fund's Prospectus. Excluded from the
expense limitation described herein shall be brokerage
commissions and transaction fees and extraordinary expenses.
5.2 Except as provided in this Article V and, in particular in the
next sentence, Insurance Company shall not be required to pay
directly any expenses of the Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the
following expenses or costs:
a. Such amount of the production expenses of any Fund
materials (other than expenses for printing the Fund's
Prospectus) or marketing materials for prospective
Insurance Company Contractholders and Participants as
Dreyfus and Insurance Company shall agree from time to
time.
b. Distribution expenses of any Fund materials or marketing
materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of Fund materials or marketing
materials for Insurance Company Contractholders and
Participants.
Except as provided herein, all other Fund expenses shall not be
borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated August
23, 1989 of the securities and Exchange Commission under Section
6(c) of the Act and, in particular, has reviewed the conditions
to the relief set forth in the related Notice. As set forth
therein, Insurance Company agrees to report any potential or
existing conflicts promptly to the Board, and in particular
whenever contract voting instructions are disregarded, and
recognizes that it will be responsible for assisting the Board in
carrying out its responsibilities under such application.
Insurance Company agrees to carry out such responsibilities with
a view to the
9
<PAGE> 49
interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict
exists with regard to Contractholder investments in the Fund, the
Board shall give prompt notice to all Participating Companies.
If the Board determines that Insurance Company is responsible for
causing or creating said conflict, Insurance Company shall at its
sole cost and expense, and to the extent reasonably practicable
(as determined by a majority of the Disinterested Board Members),
take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may
include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Accounts
from the Fund and reinvesting such assets in a different
investment medium, or submitting the question of whether
such segregation should be implemented to a vote or all
affected Contractholders; and/or
b. Establishing a new registered management investment
company.
6.3 If a material irreconcilable conflict arises as a result of a
decision by Insurance Company to disregard Contractholder voting
instructions and said decision represents a minority position or
would preclude a majority vote by all Contractholders having an
interest in the Fund, Insurance Company may be required, at the
Board's election, to withdraw the investments of the Separate
Accounts in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested
Board Members shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to bear the expense of
establishing a new funding medium for any Contract. Insurance
Company shall not be required by this Article to establish a new
funding medium for any Contract if an offer to do so has been
declined by vote of a majority of the Contractholders materially
adversely affected by the irreconcilable material conflict.
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6.5 No action by Insurance Company taken or omitted, and no action
by the Separate Accounts or the Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to
this Article VI shall relieve Insurance Company of its
obligations under, or otherwise affect the operation of, Article
V.
ARTICLE VII
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such
quantity as Insurance Company shall reasonably require for
distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with
applicable law;
(b) vote Fund shares in accordance with instructions received
from Contractholders or Participants; and
(c) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares for which
instructions have been received.
Insurance Company agrees to be responsible for assuring that
voting Fund shares for the Separate Accounts is conducted in a
manner consistent with other Participating companies.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
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Expenses for the production of such documents may be borne by
Insurance Company in accordance with Section 5.2 of this
Agreement.
8.2 Insurance Company shall designate certain persons or entities
which shall have the requisite licenses to solicit applications
for the sale of Contracts. No representation is made as to the
number or amount of Contracts that are to be sold by Insurance
Company. Insurance Company shall make reasonable efforts to
market the Contracts and shall comply with all applicable federal
and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished,
to the Fund or its designee, each piece of sales literature or
other promotional material in which the Fund, its investment
adviser or the administrator is named, at least fifteen Business
Days prior to its use. No such material shall be used unless the
Fund or its designee approves such material. Such approval (if
given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material.
The Fund or its designee, as the case may be, shall use all
reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning
the Fund in connection with the sale of the Contracts other than
the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or
in sales literature or other promotional material approved by the
Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other
promotional material in which Insurance Company or a Separate
Account is named, at least fifteen Business Days prior to its
use. No such material shall be used unless Insurance Company
approves such material. Such approval (if given) must be in
writing and shall be presumed not given if not received within
ten Business Days after receipt of such material. Insurance
Company shall use all reasonable efforts
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<PAGE> 52
to respond within ten days of receipt.
8.6 Fund shall not, in connection with the sale of Fund shares, give
any information or make any representations on behalf of
Insurance Company or concerning Insurance Company, the Separate
Accounts, or the Contracts other than the information or
representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented
from time to time, or in published reports for the Separate
Accounts which are in the public domain or approved by Insurance
Company for distribution to Contractholders or Participants, or
in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include,
without limitation, advertisements (such as material published,
or designed for use, in a newspaper, magazine or other
periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written
communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints
or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or
all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales
literature or advertising under National Association of
Securities Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund,
Dreyfus, the Fund's investment adviser and any sub investment
adviser, the Fund's distributor, and their respective affiliates,
and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated
with any of the foregoing entities
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<PAGE> 53
or persons within the meaning of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of Section 9.1), against any
and all losses, claims, damages or liabilities joint or several
(including any investigative legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement
of, any action, suit or proceeding or any claim asserted) for
which the Indemnified Parties may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of
or are based upon any untrue statement or alleged untrue
statement of any material fact contained in information furnished
by Insurance Company for use in the registration statement or
Prospectus or sales literature or advertisements of the Fund or
with respect to the Separate Accounts or Contracts, or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii)
arise out of or as a result of conduct, statements or
representations (other than statements or representations
contained in the Prospectus and sales literature or
advertisements of the Fund) of Insurance Company or its agents,
with respect to the sale and distribution of Contracts for which
Fund shares are an underlying investment; (iii) arise out of the
wrongful conduct of Insurance Company or persons under its
control with respect to the sale or distribution of the Contracts
or Fund shares; (iv) arise out of Insurance Company's incorrect
calculation and/or untimely reporting of net purchase or
redemption orders; or (v) arise out of any breach by Insurance
Company of a material term of this Agreement or as a result of
any failure by Insurance Company to provide the services and
furnish the materials or to make any payments provided for in
this Agreement. Insurance Company will reimburse any Indemnified
Party in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that
with respect to clauses (i) and (ii) above Insurance Company will
not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any
untrue statement or omission or alleged omission made in such
registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the Fund
14
<PAGE> 54
specifically for use therein. This indemnity agreement will be
in addition to any liability which Insurance Company may
otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company
and each of its directors, officers, employees, agents and each
person, if any, who controls Insurance Company within the meaning
of the 1933 Act against any losses, claims, damages or
liabilities to which Insurance Company or any such director,
officer, employee, agent or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements of the Fund; (2) arise out of or are based upon
the omission to state in the registration statement or Prospectus
or sales literature or advertisements of the Fund any material
fact required to be stated therein or necessary to make the
statements therein not misleading; or (3) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in the registration statement or
Prospectus or sales literature or advertisements with respect to
the Separate Accounts or the Contracts and such statements were
based on information provided to Insurance Company by the Fund;
and the Fund will reimburse any legal or other expenses
reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Fund will not be
liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue
statement or omission or alleged omission made in such
registration statement, Prospectus, sales literature or
advertisements in conformity with written information furnished
to the Fund by Insurance Company specifically for use therein.
This indemnity agreement will be in addition to any liability
which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless
against any and all liability, loss, damages, costs or
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<PAGE> 55
expenses which Insurance Company may incur, suffer or be required
to pay due to the Fund's (1) incorrect calculation of the daily
net asset value, dividend rate or capital gain distribution rate;
(2) incorrect reporting of the daily net asset value, dividend
rate or capital gain distribution rate; and (3) untimely
reporting of the net asset value, dividend rate or capital gain
distribution rate; provided that the Fund shall have no
obligation to indemnify and hold harmless Insurance Company if
the incorrect calculation or incorrect or untimely reporting was
the result of incorrect information furnished by Insurance
Company or information furnished untimely by Insurance Company or
otherwise as a result of or relating to a breach of this
Agreement by Insurance Company.
9.4 Promptly after receipt by an indemnified party under this Article
of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against
the indemnifying party under this Article, notify the
indemnifying party of the commencement thereof. The omission to
so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Article IX,
except to the extent that the omission results in a failure of
actual notice to the indemnifying party and such indemnifying
party is damaged solely as a result of the failure to give such
notice. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume
the defense thereof, with counsel satisfactory to such
indemnified party, and to the extent that the indemnifying party
has given notice to such effect to the indemnified party and is
performing its obligations under this Article, the indemnifying
party shall not be liable for any legal or other expenses
subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of
investigation. Notwithstanding the foregoing, in any such
proceeding, any indemnified party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties
to any such proceeding
16
<PAGE> 56
(including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding
effected without its written consent.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this
Article IX. The provisions of this Article IX shall survive
termination of this Agreement.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the
provisions herein.
10.2 This Agreement shall terminate without penalty:
a. At the option of Insurance Company or the Fund at any time
from the date hereof upon 60 days, notice, unless a
shorter time is agreed to by the parties;
b. At the option of Insurance Company, if shares of the Fund
are not reasonably available to meet the requirements of
the Contracts as determined by Insurance Company. Prompt
notice of election to terminate shall be furnished by
Insurance company, said termination to be effective ten
days after receipt of notice unless the Fund makes
available a sufficient number of shares to meet the
requirements of the Contracts within said ten- day period;
c. At the option of Insurance Company, upon the institution
of formal proceedings against the Fund by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in Insurance Company's
reasonable judgment, materially
17
<PAGE> 57
impair the Fund's ability to meet and perform the Fund's
obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by Insurance
Company with said termination to be effective upon receipt
of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in the Funds
reasonable judgment, materially impair Insurance Company's
ability to meet and perform Insurance Company's
obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by the Fund with
said termination to be effective upon receipt of notice;
e. At the option of the Fund, if the Fund shall determine, in
its sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change
in its business or financial condition or is the subject
of material adverse publicity and such material adverse
change or material adverse publicity is likely to have a
material adverse impact upon the business and operation of
the Fund or Dreyfus, the Fund shall notify Insurance
Company in writing of such determination and its intent to
terminate this Agreement, and after considering the
actions taken by Insurance Company and any other changes
in circumstances since the giving of such notice, such
determination of the Fund shall continue to apply on the
sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of
termination;
f. Upon termination of the Investment Advisory Agreement
between the Fund and Dreyfus or its successors unless
Insurance Company specifically approves the selection of a
new Fund investment adviser. The Fund shall promptly
furnish notice of such termination to Insurance Company;
g. In the event the Funds shares are not registered, issued
or sold in accordance with applicable federal law, or
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<PAGE> 58
such law precludes the use of such shares as the
underlying investment medium of Contracts issued or to be
issued by Insurance Company. Termination shall be
effective immediately upon such occurrence without notice;
h. At the option of either party if the contracts cease to
qualify as annuity contracts or life insurance policies,
as applicable, under the Code, or if either party
reasonably believes that the Contracts may fail to so
qualify;
i. At the option of either party to this Agreement, upon
another party's breach of any material provision of this
Agreement;
j. At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law; or
k. Upon assignment of this Agreement, unless made with the
written consent of the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e,
10.2f or 10.2k herein shall not affect the operation of Article V
of this Agreement. Any termination of this Agreement shall not
affect the operation of Article IX of this Agreement.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.
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<PAGE> 59
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by
certified mail, return receipt requested, to the appropriate
parties at the following addresses:
Insurance Company: Legal Department
Acacia National Life Insurance Company
51 Louisiana Avenue, N.W.
Washington, DC 20001
Fund: Dreyfus Stock Index Fund
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue, 6th Floor West New York,
New York 10166
Attn: Eric B. Fischman, Esq.
with copies to: Dreyfus Stock Index Fund
c/o The Dreyfus Corporation 200 Park
Avenue New York, New York 10166
Attn: Daniel C. Maclean, Esq.
Michael Rosenberg, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of
the Fund. The obligations of this Agreement shall only be
binding upon the assets and property of the Fund and shall not be
binding upon any director, officer or
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<PAGE> 60
shareholder of the Fund individually.
ARTICLE XIV
LAW
14.1 This Agreement shall be construed in accordance with the
internal laws of the State of New York without giving effect to
principles of conflict of laws. The parties do not intend by
this choice of law provision to subject the Insurance Company or
concede that it may be subject to the insurance laws of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
duly executed and attested as of the date first above written.
ACACIA NATIONAL LIFE INSURANCE
COMPANY
By:
-------------------------------
Its:
------------------------------
Attest:
---------------
FUND: DREYFUS LIFE AND ANNUITY INDEX
FUND,INC.
(d/b/a DREYFUS STOCK INDEX FUND)
By:
-----------------------------
Its:
-----------------------------
Attest:
----------------
21
<PAGE> 61
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the____ day of ____________, 1996, by and
between NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST ("TRUST"), a Delaware
business trust, ADVISERS MANAGERS TRUST ("Managers Trust"), a New York common
law trust, NEUBERGER & BERMAN MANAGEMENT INCORPORATED ("N&B MANAGEMENT"), a New
York corporation, and Acacia National Life Insurance Company ("LIFE COMPANY"), a
life insurance company organized under the laws of the State of Virginia.
WHEREAS, TRUST and MANAGERS TRUST are registered with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940, as
amended ("'40 Act") as open-end, diversified management investment companies;
and
WHEREAS, TRUST is organized as a series fund comprised of several
portfolios (Portfolios"), the currently available of which are listed on
Appendix A hereto, and
WHEREAS, MANAGERS TRUST is organized as a series fund, comprised of
several portfolios ("Series"), the currently operational of which are listed on
Appendix A hereto; and
WHEREAS, each Portfolio of TRUST will invest all of its net investable
assets in a corresponding Series of MANAGERS TRUST; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts of
such life insurance companies ("Participating Insurance Companies") and also
offers its shares to certain qualified pension and retirement plans; and
WHEREAS, TRUST has received an order from the SEC, dated May 5,1995
(File No. 812-9164), granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the '40 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Portfolios of the TRUST to be
sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
certain qualified pension and retirement plans (the "Order"); and
<PAGE> 62
WHEREAS, LIFE COMPANY has established or will establish Acacia National
Separate Account II("Separate Accounts") to offer Variable Contracts and is
desirous of having TRUST as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, N&B MANAGEMENT is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940 and as a broker-dealer under
the Securities Exchange Act of 1934, as amended; and
WHEREAS, N&B MANAGEMENT is the administrator and distributor of the
shares of each Portfolio of TRUST and investment manager of the corresponding
Series of MANAGERS TRUST; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned Variable Contracts and TRUST is authorized to sell such shares
to LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE
COMPANY, TRUST, MANAGERS TRUST and N&B MANAGEMENT agree as follows:
Article 1. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts of
LIFE COMPANY shares of the selected Portfolios as listed on Appendix B for
investment of purchase payments of Variable Contracts allocated to the Acacia
National Separate Acount II.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the
selected Portfolios of TRUST which LIFE COMPANY orders, executing such orders
on a daily basis at the net asset value next computed after receipt by TRUST or
its designee of the order for the shares of TRUST. For purposes of this
Section 1.2, LIFE COMPANY(Life Company herein shall mean Life Company or its
designee) shall be the designee of TRUST for receipt of such orders from LIFE
COMPANY and receipt by such designee, shall constitute receipt by TRUST;
provided that TRUST receives notice of such order by 9:30 a.m. New York time on
the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which TRUST calculates
its net asset value pursuant to the rules of the SEC.
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1.3 TRUST agrees to redeem for cash, on LIFE COMPANY's request,
any full or fractional shares of TRUST held by LIFE COMPANY, executing such
requests on a daily basis at the net asset value next computed after receipt by
TRUST or its designee of the request for redemption. For purposes of this
Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of
requests for redemption from LIFE COMPANY and receipt by such designee shall
constitute receipt by TRUST; provided that TRUST receives notice of such
request for redemption by 9:30 a.m. New York time on the next following
Business Day.
1.4 TRUST shall furnish, on or before the ex-dividend date, notice
to LIFE COMPANY of any income dividends or capital gain distributions payable
on the shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. Trust shall notify
LIFE COMPANY of the number of shares so issued as payment of such dividends and
distributions.
1.5 TRUST shall make the net asset value per share for the
selected Portfolio(s) available to LIFE COMPANY on a daily basis as soon as
reasonably practicable after the net asset value per share is calculated but
shall use its best efforts to make such net asset value available by 6:30 p.m.
New York time. If TRUST provides LIFE COMPANY with materially incorrect share
net asset value information through no fault of LIFE COMPANY, LIFE COMPANY on
behalf of the Separate Accounts, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct share net asset
value. Any material error in the calculation of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of TRUST shares which shall be purchased or redeemed at the day's closing net
asset value per share. The net purchase or
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<PAGE> 64
redemption orders so determined shall be transmitted to TRUST by LIFE COMPANY
by 9:30 a.m. New York time on the Business Day next following LIFE COMPANY's
receipt of such requests and premiums in accordance with the terms of Sections
1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares,
LIFE COMPANY shall pay for such purchase by writing federal funds to TRUST or
its designated custodial account on the day the order is transmitted by LIFE
COMPANY, If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the redemption
proceeds to LIFE COMPANY by the next Business Day, unless doing so would
require TRUST to dispose of portfolio securities or otherwise incur additional
costs, but in such event, proceeds shall be wired to LIFE COMPANY within seven
days and TRUST shall notify the person designated in writing by LIFE COMPANY as
the recipient for such notice of such delay by 3:00 p.m. New York time the same
Business Day that LIFE COMPANY transmits the redemption order to TRUST. If
LIFE COMPANY's order requests the application of redemption proceeds from the
redemption of shares to the purchase of shares of another fund administered or
distributed by N&B MANAGEMENT, TRUST shall so apply such proceeds the same
Business Day that LIFE COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all shares of the Portfolios of TRUST will
be sold only to Participating Insurance Companies which have agreed to
participate in TRUST to fund their Separate Accounts and/or to certain
qualified pension and other retirement plans, all in accordance with the
requirements of Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code") and Treasury Regulation 1,817-5. Shares of the Portfolios of TRUST
will not be sold directly to the general public.
1.9 TRUST may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of the shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board of Trustees of TRUST, acting in good
faith and in light of its fiduciary duties under federal and any applicable
state laws, deemed necessary and in the best interests of the shareholders of
such Portfolios.
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Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance
company duly organized and in good standing under the laws of Virginia and
that it has legally and validly established each Separate Account as a
segregated asset account under such laws, and that The Advisors Group, Inc.,
the principal underwriter for the Contracts, is registered as a broker-dealer
under the Securities Exchange Act of 1934.
2.2 LIFE COMPANY represents and warrants that it has registered
or, prior to any issuance or sale of the Variable Contracts, will register each
Separate Account as a unit investment trust ("UIT") in accordance with the
provisions of the '40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable Contracts,
unless an exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable
Contracts will be registered under the Securities Act of 1933 (the "'33 Act")
unless an exemption from registration is available prior to any issuance or
sale of the Variable Contracts and that the Variable Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws and further that the sale of the Variable Contracts shall comply in
all material respects with state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable
Contracts are currently and at the time of issuance will be treated as life
insurance, endowment or annuity contracts under applicable provisions of the
Code, that it will maintain such treatment and that it will notify TRUST
immediately upon having a reasonable basis for believing that the Variable
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5 TRUST represents and warrants that the Portfolio shares
offered and sold pursuant to this Agreement will be registered under the '33
Act and sold in accordance with all applicable federal and state laws, and
TRUST shall be registered under the '40 Act prior to and at the time of any
issuance or sale of such shares. TRUST shall amend its registration statement
under the
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<PAGE> 66
'33 Act and the '40 Act from time to time as required in order to elect the
continuous offering of its shares.
2.6 TRUST represents and warrants that each Portfolio will comply
with the diversification requirements set forth in Section 817(h) of the Code,
and the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately
diversify the Portfolio to achieve compliance within the grace period afforded
by Regulation 1.817-5.
2.7 TRUST represents and warrants that each Portfolio invested in
by the Separate Account is currently qualified as a "regulated investment
company" under Subchapter M of the Code, that it will make every effort to
maintain such qualification and will notify LIFE COMPANY immediately upon
having a reasonable basis for believing it has ceased to so qualify or might
not so qualify in the future.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of TRUST. TRUST shall bear the costs of registration and qualification of
shares of the Portfolios, preparation and filing of the documents listed in
this Section 3.1 and all taxes to which an issuer is subject on the issuance
and transfer of its shares.
3.2 TRUST will bear the printing costs (or duplicating costs with
respect to the statement of additional information) and mailing costs
associated with the delivery of the following TRUST (or individual Portfolio)
documents, and any supplements thereto, to Variable Contract owners of LIFE
COMPANY:
(i) prospectuses and statements of additional
information;
(ii) annual and semi-annual reports; and
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(iii) proxy materials.
LIFE COMPANY will submit any bills for printing, duplicating and/or
mailing costs, relating to the TRUST documents described above, to TRUST for
reimbursement by TRUST. LIFE COMPANY shall monitor such costs and shall use
its best efforts to control these costs. LIFE COMPANY will provide TRUST on a
semi-annual basis, or more frequently as reasonably requested by TRUST, with a
current tabulation of the number of existing Variable Contract owners of LIFE
COMPANY whose Variable Contract values are invested in TRUST. This tabulation
will be sent to TRUST in the form of a letter signed by a duly authorized
officer of LIFE COMPANY attesting to the accuracy of the information contained
in the letter. If requested by LIFE COMPANY, the TRUST shall provide such
documentation (including a final copy of the TRUST's prospectus as set in type
or in camera-ready copy) and other assistance as is reasonably necessary in
order for LIFE COMPANY to print together in one document the current prospectus
for the Variable Contracts issued by LIFE COMPANY and the current prospectus
for the TRUST. Should LIFE COMPANY wish to print any of these documents in a
format different from that provided by TRUST, LIFE COMPANY shall provide Trust
with sixty (60) days' prior written notice and LIFE COMPANY shall bear the cost
associated with any format change.
3.3 TRUST will provide, at its expense, LIFE COMPANY with the
following TRUST (or individual Portfolio) documents, and any supplements
thereto, with respect to prospective Variable Contract owners of LIFE COMPANY:
(i) camera-ready copy of the current prospectus
for printing by the LIFE COMPANY;
(ii) a copy of the statement of additional
information suitable for duplication;
(iii) camera-ready copy of proxy material suitable
for printing; and
(iv) camera-ready copy of the annual and
semiannual reports for printing by the LIFE
COMPANY.
3.4 TRUST will provide LIFE COMPANY with at least one
7
<PAGE> 68
complete copy of all prospectuses, statements of additional information, annual
and semi-annual reports, proxy statements, exemptive applications and all
amendments or supplements to any of the above that relate to the Portfolios
promptly after the filing of each such document with the SEC or other
regulatory authority, LIFE COMPANY will provide TRUST with at least one
complete copy of all prospectuses, statements of additional information, annual
and semi-annual reports, proxy statements, exemptive applications and all
amendments or supplements to any of the above that relate to a Separate Account
promptly after the filing of each such document with the SEC or other
regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to
TRUST and N&B MANAGEMENT, each piece of sales literature or other promotional
material in which TRUST, MANAGERS TRUST or N&B MANAGEMENT is named, at least
fifteen (15) Business Days prior to its intended use. No such material will be
used if TRUST, MANAGERS TRUST or N&B MANAGEMENT objects to its use in writing
within ten (10) Business Days after receipt of such material.
4.2 TRUST and N&B MANAGEMENT will furnish, or will cause to be
furnished, to LIFE COMPANY, each piece of sales literature or other promotional
material in which LIFE COMPANY or its Separate Accounts are named, at least
fifteen (15) Business Days prior to its intended use. No such material will be
used if LIFE COMPANY objects to its use in writing within ten (10) Business
Days after receipt of such material.
4.3 TRUST and its affiliates and agents shall not give any
information or make any representations on behalf of LIFE COMPANY or concerning
LIFE COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE
COMPANY, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports of the Separate Accounts or reports prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by LIFE COMPANY or its designee, except
with the written permission of LIFE COMPANY.
8
<PAGE> 69
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for TRUST, as such registration statement and
prospectus may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by TRUST or its designee,
except with the written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature
or other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or published
article), statements of additional information, shareholder reports and proxy
materials, and any other material constituting sales literature or advertising
under National Association of Securities Dealers, Inc. rules, the '40 Act or
the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The Board of Trustees of TRUST and MANAGERS TRUST (the
"Boards") will monitor TRUST and MANAGERS TRUST, respectively, (collectively
the "Funds"), for the existence of any material irreconcilable conflict between
the interests of the Variable Contract owners of Participating Insurance
Company Separate Accounts investing in the Funds. A material irreconcilable
conflict may arise for a variety of reasons, including, (a) state insurance
regulatory authority action; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Funds are
being managed; (e) a difference in voting instructions given by variable
annuity and variable life insurance
9
<PAGE> 70
contract owners or by contract owners of different Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company to disregard
voting instructions of Variable Contract owners.
5.2 LIFE COMPANY will report any potential or existing conflicts
to the Boards. LIFE COMPANY will be responsible for assisting each appropriate
Board in carrying out its responsibilities under the Conditions set forth in
the notice issued by the SEC for the Funds on April 12, 1995 (the "Notice")
(Investment Company Act Release No. 21003), which LIFE COMPANY has reviewed, by
providing each appropriate Board with all information reasonably necessary for
it to consider any issues raised. This responsibility includes, but is not
limited to, an obligation by LIFE COMPANY to inform each appropriate Board
whenever Variable Contract owner voting instructions are disregarded by LIFE
COMPANY. These responsibilities will be carried out with a view only to the
interests of the Variable Contract owners.
5.3 If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material irreconcilable
conflict exists, affecting the LIFE COMPANY, LIFE COMPANY, at its expense and
to the extent reasonably practicable (as determined by a majority of
disinterested trustees or directors), will take any stops necessary to remedy
or eliminate the irreconcilable material conflict, including: (a) withdrawing
the assets allocable to some or all of the Separate Accounts from the Funds or
any series thereof and reinvesting those assets in a different investment
medium, which may include another series of TRUST or MANAGERS TRUST, or another
investment company or submitting the question as to whether such segregation
should be implemented to a vote of all affected Variable Contract owners and,
as appropriate, segregating the assets of any appropriate group (i.e., variable
Contract owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to affected Variable Contract owners the
option of making such a change; and (b) establishing a new registered
management investment company or managed separate account. If a material
irreconcilable conflict arises because of LIFE COMPANY's decision to disregard
Variable Contract owner voting instructions, and that decision represents a
minority position or would preclude a majority vote, LIFE COMPANY may be
required, at the election of the relevant Fund, to withdraw its
10
<PAGE> 71
Separate Account's investment in such Fund, and no charge or penalty will be
imposed as a result of such withdrawal. The responsibility to take such
remedial action shall be carried out with a view only to the interests of the
Variable Contract owners.
For the purposes of this Section 6.3, a majority of the disinterested
members of the applicable Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the relevant Fund or N&B MANAGEMENT (or any other investment adviser
of the Funds) be required to establish a new funding medium for any Variable
Contract. Further, LIFE COMPANY shall not be required by this Section 5.3 to
establish a new funding medium for any Variable Contract if any offer to do so
has been declined by a vote of a majority of variable Contract owners
materially affected by the irreconcilable material conflict.
5.4 Any Board's determination of the existence of an
irreconcilable material conflict and its implications shall be made known
promptly and in writing to LIFE COMPANY.
5.5 No less than annually, LIFE COMPANY shall submit to the Boards
such reports, materials or data as such Boards may reasonably request so that
the Boards may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data shall be submitted more
frequently if deemed appropriate by the applicable Boards.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to
all Variable Contract owners so long as the SEC continues to interpret the '40
Act as requiring pass-through voting privileges for Variable Contract owners.
This condition will apply to UIT Separate Accounts investing in TRUST and to
managed separate accounts investing in MANAGERS TRUST to the extent a vote is
required with respect to matters relating to MANAGERS TRUST. Accordingly, LIFE
COMPANY, where applicable, vii I vote shares of a Fund held in its Separate
Accounts in a manner consistent with voting instructions timely received from
its Variable Contract owners. LIFE COMPANY will be responsible for assuring
that each of its Separate Accounts that participates in any Fund calculates
11
<PAGE> 72
voting privileges in a manner consistent with other participants as defined in
the Conditions set forth in the Notice ("Participants"). The obligation to
calculate voting privileges in a manner consistent with all other Separate
Accounts investing in a Fund will be a contractual obligation of all
Participants under the agreements governing participation in the Funds. Each
Participant will vote shares for which it has not received timely voting
instructions, as well as shares it owns, in the same proportion as its votes
those shares for which it has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
'40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
Order, then TRUST, MANAGERS TRUST and/or the Participants, as appropriate,
shall take such stops as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to
indemnity and hold harmless TRUST, MANAGERS TRUST, N&B MANAGEMENT and each of
their Trustees, directors, officers, employees and agents and each person, if
any, who controls TRUST or MANAGERS TRUST or N&B MANAGEMENT within the meaning
of Section 15 of the '33 Act (collectively, the "Indemnified Parties" for
purposes of this Article VII) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
LIFE COMPANY, which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of
TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Variable
Contracts or contained in the Variable
12
<PAGE> 73
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to LIFE COMPANY by or on behalf of TRUST for use in
the registration statement or prospectus for the Variable
Contract or in the Variable Contracts or sales literature (or
any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or TRUST
shares; or
(b) arise out of or as a result of statements or representations
(other then statements or representations contained in the
registration statement, prospectus or sales literature of
TRUST not supplied by LIFE COMPANY, or persons under its
control) or wrongful conduct of LIFE COMPANY or persons under
its control, with respect to the sale or distribution of the
Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of TRUST or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to TRUST by or on behalf
of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to
substantially provide the services and furnish the
materials under the terms of this Agreement; or
(e) arise out of or result from any material breach of
any representation and/or warranty made by LIFE
COMPANY in this Agreement or arise out of or result
13
<PAGE> 74
from any other material breach of this Agreement by
LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to TRUST, whichever is applicable.
7.3 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such lndemnified Party shall have received notice
of such service on any designated agent), but failure to notify LIFE COMPANY of
any such claim, shall not relieve LIFE COMPANY from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
then on account of this indemnification provision, In case any such action is
brought against Indemnified Party, LIFE COMPANY shall be entitled to
participate at its own expense in the defense of such action. LIFE COMPANY also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from LIFE COMPANY to such party of
LIFE COMPANY's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
LIFE COMPANY will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.4 Indemnification by N&B MANAGEMENT. N&B MANAGEMENT agrees to
indemnity and hold harmless LIFE COMPANY and each of its directors, officers,
employees, and agents and each person, if any, who controls LIFE COMPANY within
the meaning of Section 15 of the '33 Act (collectively, the "Indemnified
Parties" for the purposes of this Article VII) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with
14
<PAGE> 75
the written consent of N&B MANAGEMENT which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or prospectus
or sales literature of TRUST (or any amendment or
supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading, provided that this agreement
to indemnity shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to N&B
MANAGEMENT or TRUST by or on behalf of LIFE COMPANY
for use in the registration statement or prospectus
for TRUST or in sales literature (or any amendment or
supplement) or otherwise for use in connection with
the sale of the Variable Contract or TRUST shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Variable Contracts not supplied by N&B MANAGEMENT or
persons under its control) or wrongful conduct of
TRUST or N&B MANAGEMENT or persons under their
control, with respect to the sale or distribution of
the Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales
literature covering the Variable Contracts, or any
amendment thereof or supplement thereto or the
omission or alleged omission to state therein a
material fact required to be stated
15
<PAGE> 76
therein or necessary to make the statements therein
not misleading, if such statement or omission or such
alleged statement or omission was made in reliance
upon and in conformity with information furnished to
LIFE COMPANY for inclusion therein by or on behalf of
TRUST; or
(d) arise as a result of (i) a failure by TRUST to
substantially provide the services and furnish the
materials under the terms of this Agreement; or (ii)
a failure by a Portfolio(s) invested in by the
Separate Account to comply with the diversification
requirements of Section 817(h) of the Code; or (iii)
a failure by a Portfolio(s) invested in by the
Separate Account to qualify as a regulated investment
company under Subchapter M of the Code; or
(e) arise out of or result from any material breach of
any representation and/or warranty made by N&B
MANAGEMENT in this Agreement or arise out of or
result from any other material breach of this
Agreement by N&B MANAGEMENT.
7.5 N&B MANAGEMENT shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross negligence
in the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to LIFE COMPANY.
7.6 N&B MANAGEMENT shall not be liable under this indemnification
provision with respect to any claim made against an lndemnified Party unless
such Indemnified Party shall have notified N&B MANAGEMENT in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify N&B MANAGEMENT
of any such claim shall not relieve N&B MANAGEMENT from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of
16
<PAGE> 77
this indemnification provision. In case any such action is brought against the
Indemnified Parties, N&B MANAGEMENT shall be entitled to participate at its own
expense in the defense thereof, N&B MANAGEMENT also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the
action. After notice from N&B MANAGEMENT to such party of N&B MANAGEMENT'S
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and N&B MANAGEMENT
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in a=accordance with the provisions
herein.
8.2 This Agreement shall terminate in accordance with the
following provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from date
hereof 120 days notice, unless a shorter time is agreed to by
the parties;
(b) At the option of LIFE COMPANY if TRUST shares are not
reasonably available to meet the requirements of the Variable
Contracts as determined by LIFE COMPANY. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY, said
termination to be effective ten days after receipt of notice
unless TRUST makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts
within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against TRUST by the SEC, or any other regulatory
body, the expected or anticipated ruling, judgment or outcome
of which would, in LIFE COMPANY's reasonable judgment,
materially impair TRUST's ability to meet and perform TRUST's
obligations and
17
<PAGE> 78
duties hereunder, Prompt notice of election to terminate shall
be furnished by LIFE COMPANY with said termination to be
effective upon receipt of notice;
(d) At the option of TRUST, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the National
Association of Securities Dealers, Inc., or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in TRUST's reasonable judgment,
materially impair LIFE COMPANY's ability to meet and perform
its obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by TRUST with said
termination to be effective upon receipt of notice;
(e) In the event TRUST's shares are not registered, issued or sold
in accordance with applicable state or federal law, or such
law precludes the use of such shares as the underlying
investment medium of Variable Contracts issued or to be issued
by LIFE COMPANY. Termination shall be effective upon such
occurrence without notice;
(f) At option of TRUST if the Variable Contracts cease to qualify
as annuity contracts or life insurance contracts, as
applicable, under the Code, or if TRUST reasonably believes
that the Variable Contracts may fail to so qualify.
Termination shall be effective upon receipt of notice by LIFE
COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's breach of any
material provision of this Agreement, which breach has not
been cured to the satisfaction of LIFE COMPANY within ten days
after written notice of such breach is delivered to TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not
been cured to the satisfaction of TRUST within ten days after
written notice of such breach is delivered to LIFE COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not
registered, issued or sold in accordance with
18
<PAGE> 79
applicable federal and/or state law. Termination shall be
effective immediately upon such occurrence without notice;
(j) In the event this Agreement is assigned without the prior
written consent of LIFE COMPANY, TRUST, MANAGERS TRUST and N&B
MANAGEMENT, termination shall be effective immediately upon
such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, TRUST at its option may elect to continue to make available
additional TRUST shares, as provided below, for so long as TRUST desires
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if TRUST so elects to make additional TRUST shares available, the
owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in TRUST,
redeem investments in TRUST and/or invest in TRUST upon the payment of
additional premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 8.2 hereof, TRUST and N&B
MANAGEMENT, as promptly as is practicable under the circumstances, shall notify
LIFE COMPANY whichever TRUST elects to continue to Make TRUST shares available
after such termination. If TRUST shares continue to be made available after
such termination, the provisions of this Agreement shall remain in effect and
thereafter either TRUST or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner
initiated transactions, or as required by state insurance laws or regulations,
LIFE COMPANY shall not redeem the shares attributable to the Variable Contracts
(as opposed to the shares attributable to LIFE COMPANY's assets held in the
Separate Accounts), and LIFE COMPANY shall not prevent Variable Contract owners
from allocating payments to a Portfolio that was otherwise available under the
Variable Contracts, until thirty (30) days after the LIFE COMPANY shall have
notified TRUST of its intention to do so.
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<PAGE> 80
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail
return receipt requested to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
If to TRUST, MANAGERS TRUST or N&B MANAGEMENT:
Neuberger & Berman Management Incorporated
605 Third Avenue
New York, NY 10158-0006
Attention: Ellen Metzger, General Counsel
If to LIFE COMPANY:
Legal Department
Acacia National Life Insurance Company
51 Louisiana Avenue, N.W.
Washington, DC 20001
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument,
10.3 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the
20
<PAGE> 81
State of Virginia. It shall also be subject to the provisions of the federal
securities laws and the rules and regulations thereunder and to any orders of
the SEC granting exemptive relief therefrom and the conditions of such orders.
10.5 The parties agree that the assets and liabilities of each
Series are separate and distinct from the assets and liabilities of each other
Series. No Series shall be liable or shall be charged for any debt, obligation
or liability of any other Series. No Trustee, officer or agent shall be
personally liable for such debt, obligation or liability of any Series or
Portfolio and no Portfolio or other investor, other than the Portfolio or other
investors investing in the Series which incurs a debt, obligation or liability,
shall be liable therefor.
10.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
National Association of Securities Dealers, Inc. and state insurance
regulators) and shall permit such authorities reasonable access to its books
and records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies
and obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
10.8 No provision of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
TRUST, MANAGERS TRUST, N&B MANAGEMENT and the LIFE COMPANY.
21
<PAGE> 82
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
NEUBERGER & BERMAN
ADVISERS MANAGEMENT TRUST
By:
---------------------------
Name:
Title:
ADVISERS MANAGERS TRUST
By:
---------------------------
Name:
Title:
NEUBERGER & BERMAN
MANAGEMENT INCORPORATED
By:
---------------------------
Name:
Title:
ACACIA NATIONAL LIFE INSURANCE
COMPANY
By:
---------------------------
Name: Robert W. Clyde
Title: Executive Vice President
Marketing and Sales
22
<PAGE> 83
APPENDIX A
<TABLE>
<S> <C>
Neuberger & Berman Advisers Management Corresponding Series of
Management Trust and its Series Advisers Managers Trust
- -------------------------------- -----------------------
(Portfolios) Series
- ----------- ------
Balanced Portfolio AMT Balanced Investments
Government Income Portfolio AMT Government Income
Investments
Growth Portfolio AMT Growth Investments
Limited Maturity Bond Portfolio AMT Limited Maturity Bond
Investments
Liquid Asset Portfolio AMT Liquid Asset Investments
Partners Portfolio AMT Partners Investments
</TABLE>
<PAGE> 84
APPENDIX B
Separate Accounts
Acacia National Variable Life Insurance Separate Account II
Selected Portfolios
Neuberger & Berman Advisers Management Trust Limited
Maturity Bond Portfolio
Neuberger & Berman Advisers Management Trust Growth
Portfolio
<PAGE> 85
PARTICIPATION AGREEMENT
This Agreement is made this ___________________ day of
________________________________ 1996, by and among the Strong Variable
Insurance Funds, Inc. (the "Corporation") an open-end management investment
company organized as a Wisconsin corporation, Acacia National Life Insurance
Company organized as a corporation under the laws of the State of Virginia
("Acacia National"), on its own behalf and on behalf of Acacia National
Separate Account II, a segregated asset account of Acacia National (the
"Account"), Strong Funds Distributors, Inc. ("Distributor"), and Strong Capital
Management, Inc. (the "Adviser"), the Corporation's investment adviser and
transfer agent (collectively "Parties").
WHEREAS, the Corporation is registered with the Securities and
Exchange Commission (the "Commission") as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has effective registration statements relating to the offer and sale of the
various series of its shares under the Securities Act of 1933, as amended (the
"1933 Act");
WHEREAS, the Corporation and the Distributor desire that Corporation
shares be used as investment vehicles for separate accounts established for
variable life insurance policies and variable annuity contracts to be offered
by life insurance companies which have entered into fund participation
agreements with the Corporation (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Corporation are divided
into the following series (the "Funds") which are available for purchase by the
Acacia National for the Accounts:
Strong Advantage Fund II
Strong Asset Allocation Fund II
Strong International Stock Fund II
Strong Discovery Fund II
WHEREAS, the Corporation has received orders from the commission dated
July 1, 1992, (File # 812-7863) granting participating insurance companies and
their separate accounts exemptions from the provisions of sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder to the extent necessary to permit shares of the Funds
<PAGE> 86
to be sold to and held by variable annuity and variable life insurance separate
accounts of life insurance companies;
WHEREAS, Acacia National has registered or will register under the
1933 Act certain variable life insurance policies and variable annuity
contracts to be issued by Acacia National under which the Funds are to be made
available as investment vehicles (the "Contracts");
WHEREAS, Acacia National has registered or will register the Account
as a unit investment trust under the 1940 Act unless an exemption from
registration under the 1940 Act is available and the Corporation has been so
advised;
WHEREAS, Acacia National desires to use shares of one or more Funds
as investment vehicles for the Account;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
1.1 Transactions in Fund Shares. Fund shares shall be sold on behalf
of a Fund by Distributor and purchased by Acacia National for the Account and,
indirectly for the appropriate subaccount thereof at the net asset value next
computed after receipt by Distributor of each order of the Account or its
designee, in accordance with the provisions of this Agreement, the then current
prospectuses of a Fund, and the variable annuity contract that uses the Fund as
an underlying investment medium. Acacia National may purchase a Fund's shares
for its own account subject to (a) receipt of prior written approval by
Distributor and (b) such purchases being in accordance with the then current
prospectuses of the Fund and the Contracts. The Boards of Directors of the
Corporations ("Directors") may refuse to sell shares of a Fund to any person, or
suspend or terminate the offering of shares of a Fund if such action is required
by law or by regulatory authorities having jurisdiction. Acacia National agrees
to purchase and redeem the shares of a Fund in accordance with the provisions of
this Agreement, of the Contracts and of the then current prospectuses for the
Contracts and a Fund. Except as necessary to implement transactions initiated by
purchasers of Contracts ("Owners"), or as otherwise permitted by state and/or
federal laws or regulations, Acacia National shall not redeem shares of a Fund
attributable to the Contracts.
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1.2 Purchase and Redemption Orders. On each day that a Fund is open
for business (a "Business Day"), Acacia National shall aggregate and calculate
the net purchase or redemption order it receives for the Account from the Owners
for shares of each Fund that it received prior to 3:00 p.m., Central time,
(i.e., the close of trading) and communicate to Distributor, by telephone or
facsimile (or by such other means as the parties hereto may agree to in
writing), the net aggregate purchase or redemption order (if any) for the
Account for such Business Day (such Business Day is sometimes referred to herein
as the "Trade Date")for each Fund. Acacia National will communicate such orders
to Distributor prior to 8:00 a.m., Central time, on the next Business Day
following the Trade Date. All trades communicated to Distributor by the
foregoing deadline shall be treated by Distributor as if they were received by
Distributor prior to 3:00 p.m., Central time, on the Trade Date.
1.3 Settlement of Transactions.
(a) Purchases. Acacia National will wire, or arrange for
the wire of, the purchase price of each purchase order to the custodian for the
applicable Fund in accordance with written instructions provided by Distributor
to Acacia National so that either (1) such funds are received by the custodian
for the applicable Fund prior to 10:30 a.m., Central time, on the next business
day following the Trade Date, or (2) Distributor is provided with a Federal
Funds wire system reference number prior to such 10:30 a.m. deadline evidencing
the entry of the wire transfer of the purchase price to the applicable
custodian into the Federal Funds wire system prior to such time. Acacia
National agrees that if (i) the wire for the payment of purchase price is not
received by the custodian for the applicable Fund before such 10:30 a.m.
deadline or (ii) Distributor fails to receive the Federal Funds wire system
reference number for such transfer prior to such 10:30 a.m. deadline, it will
indemnify and hold harmless Distributor, and/or the Fund for which such
purchase order was placed from any liabilities, costs and damages either may
suffer as a result of such failure.
(b) Redemptions. Adviser will use its best efforts to cause to be
transmitted to such custodial account as Acacia National shall direct in
writing, the proceeds of all redemption orders placed by Acacia National by
8:00 a.m., Central time, on
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the Business Day immediately following the Trade Date, by wire transfer on that
Business Day. Should the Adviser need to extend the settlement on a trade, it
will contact Acacia National to discuss the extension. For purposes of
determining the length of settlement, Adviser agrees to treat the Account no
less favorably than other shareholders of the Funds. Each wire transfer of
redemption proceeds shall indicate, on the Federal Funds wire system, the
amount thereof attributable to each Fund; provided, however, that if the number
of entries would be too great to be transmitted through the Federal Funds wire
system, the Adviser shall, on the day the wire is sent, fax such entries to
Acacia National or, if possible, send via direct or indirect systems access
until otherwise directed by Acacia National in writing.
1.4 Book Entry Only. Issuance and transfer of Fund shares will be by
book entry only. Stock certificates will not be issued to Acacia National or
the Account. Shares of the Fund ordered from Distributor will be recorded in
the appropriate book entry title for the Account.
1.5 Distribution Information. The Adviser or Distributor shall
provide Acacia National with all distribution announcement information as soon
as it is announced by the applicable Fund. The distribution information shall
set forth, as applicable, ex-dates, record date, payable date, distribution rate
per share, record date share balances, cash and reinvested payment amounts and
all other information reasonably requested by Acacia National. Where possible,
the Adviser or Distributor shall provide Acacia National with direct or indirect
systems access to the Adviser's systems for obtaining such distribution
information.
1.6 Reinvestment. All dividends and capital gains distributions will
be automatically reinvested on the payable date in additional shares of the
applicable Fund at net asset value in accordance with each Fund's then current
prospectus. Advisor shall notify Acacia National or its delegates of the number
of shares so issued as payment of such dividends and distributions.
1.7 Pricing Information. Distributor shall use its best efforts to
furnish to Acacia National prior to 6:00 p.m., Central time, on each Business
Day the Fund's closing net asset value for
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<PAGE> 89
that day. Such information shall be communicated via fax, or indirect or
direct systems access acceptable to Acacia National.
1.8 Price Errors.
(a) In the event adjustments are required to correct any error in
the computation of the net asset value of Fund shares, the Adviser or
Distributor shall promptly notify Acacia National after discovering the need
for any adjustments which result in a reimbursement of $150 or more to the
Account for a Fund. Notification may be made orally or via direct or indirect
systems access. The letter shall be written on Fund, the Adviser or
Distributor, letterhead and must state for each day for which an error occurred
the incorrect price, the correct price, and, to the extent communicated to the
Fund's shareholder, the reason for the price change. Fund, Adviser and
Distributor agree that Acacia National may send this writing, or derivation
thereof (so long as such derivation is approved in advance by Fund, the Adviser
or Distributor, which approval shall not be unreasonably withheld) to Owners
that are affected by the price change.
(b) If the Account received amounts in excess of the amounts to
which it otherwise would have been entitled prior to an adjustment for an
error, Acacia National, when requested by Fund or Adviser, will make a good
faith attempt to collect such excess amounts from the accounts of the Owners.
In no event, however, shall Acacia National be liable to Fund or Adviser for
any such amounts.
(c) If an adjustment is to be made in accordance with subsection
1.8(a) above to correct an error which has caused the Account to receive an
amount less than that to which it is entitled, Fund and/or Adviser shall make
all necessary adjustments (within the parameters specified in section 1.8(a))
to the number of shares owned in the Account and, to the extent of any
underpayment, distribute to Acacia National the amount of such underpayment for
credit to the accounts of the Owners.
1.9 Agency. Distributor hereby appoints Acacia National as its agent
for the limited purpose of accepting purchase and redemption instructions from
the Owners for the purchase and redemption of shares of the Funds by Acacia
National on behalf of Account.
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1.10 Quarterly Reports. Adviser agrees to provide Acacia National a
statement of Fund's assets as soon as practicable and in any event within 30
days after the end of each calendar quarter, and a statement certifying the
Fund's compliance during that fiscal quarter with the diversification
requirements of Section 3.4(a) and the corporation's continued qualification as
a regulated investment company. In the event of a breach of Section 3.4(a),
Adviser will take all reasonable steps (a) to notify Acacia National of such
breach and (b) to adequately diversify the Fund so as to achieve compliance with
the grace period afforded by Treasury Regulation 1.817-5.
2. Proxy Solicitations and Voting. Acacia National shall:
2.1 Solicit voting instructions from Owners;
2.2 Vote the Fund shares in accordance with instructions received from
Owners; and
2.3 Vote Fund shares for which no instructions have been received, as
well as shares attributable to it, in the same proportion as Fund shares for
which instructions have been received from Owners, so long as and to the extent
that the Securities and Exchange Commission (the "SEC") continues to interpret
the 1940 Act to require pass-through voting privileges for various contract
owners. Acacia National and its agents will not recommend action in connection
with, or oppose or interfere with, the solicitation of proxies for the Fund
shares held for Owners.
3.1 Representations and Warranties of Acacia National.
Acacia National represents and warrants that:
(a) It is an insurance company duly organized and in good
standing under the laws of the State of Virginia and that it has
legally and validly established the Account prior to any issuance or
sale thereof as a segregated asset account and that Acacia National has
and will maintain the capacity to issue all Contracts that may be sold;
and that it is and will remain duly registered, licensed, qualified and
in good standing to sell the Contracts in all the jurisdictions in
which such Contracts are to be offered or sold;
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<PAGE> 91
(b) It is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and
federal laws;
(c) The Contracts are and shall remain registered under the
1933 Act and registered and qualified for sale in the states where so
required, and the Account is and shall remain registered as a unit
investment trust in accordance with the 1940 Act;
(d) It has, or will have, prior to the offer or sale of any
Contracts, registered the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts;
(e) The Contracts are currently treated as annuity contracts,
under applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and it will maintain such treatment and that it
will notify Adviser, Distributor and Funds promptly upon having a
reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future; and
(f) Its directors, officers, employees, and investment
advisers, and other individuals/entities dealing with the money and/or
securities of the Funds are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit
of the Funds in an amount not less than the amount required by the
applicable rules of the NASD and the federal securities laws, which
bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
3.2 Representations and Warranties of the Funds.
(a) Each is lawfully established and validly existing under
the laws of the State of Wisconsin;
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<PAGE> 92
(b) The Corporation is currently qualified as a regulated
Investment Company under Subchapter M of the Code, and will maintain
such qualification (under Subchapter M or any successor or similar
provision) and promptly notify Acacia National upon having a reasonable
basis for believing that it has ceased to so qualify or that it might
not so qualify in the future;
(c) Fund shares sold pursuant to this Agreement are duly
authorized for issuance and comply and will comply in all material
respects with the 1940 Act;
(d) The Corporation is and shall at all times remain in
material compliance with the laws of the State of Wisconsin to the
extent required to perform this Agreement.
3.3 Representations and Warranties of Distributor.
(a) Fund shares sold pursuant to this Agreement are registered
under the 1933 Act, that it will sell Fund shares in compliance with
all applicable federal and state laws, and that the Corporation is and
will remain registered under the 1940 Act;
(b) It is and will be a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and is and
will be registered as a broker-dealer with the SEC;
(c) It will sell and distribute Fund shares in accordance with
all applicable state and federal laws and regulations, including
without limitation the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), and the 1940 Act; and
(d) It is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and
federal laws;
(e) Its directors, officers, employees, and investment
advisers, and other individuals/entities dealing with the
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<PAGE> 93
money and/or securities of the Funds are and shall continue to be at
all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Funds in an amount not less than the amount required
by the applicable rules of the NASD and the federal securities laws,
which bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
3.4 Representations and Warranties of the Advisor.
Adviser represents and warrants that:
(a) It will cause the Funds to invest money from the
Contracts in such a manner as to ensure that the Contracts will be
treated as variable annuity contracts under the Code and the
regulations issued thereunder, and that the Funds will comply with
Section 817(h) of the Code as amended from time to time and with all
applicable regulations promulgated thereunder;
(b) It is and will remain duly registered and licensed in
all material respects under all applicable federal and state
securities and insurance laws and shall perform its obligations
hereunder in compliance in all material respects with any applicable
state and federal laws; and
(c) Its directors, officers, employees, and investment
advisers, and other individuals/entities dealing with the money and/or
securities of the Funds are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit
of the Funds in an amount not less than the amount required by the
applicable rules of the NASD and the federal securities laws, which
bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
4. Sales Material and Information
4.1 NASD Filings. Acacia National shall promptly inform
Distributor as to the status of all sales literature filings and shall promptly
notify Distributor of all approvals or disapprovals of sales literature filings
with the NASD. For purposes of this Section 4, the phrase "sales literature or
other
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<PAGE> 94
promotional material," shall be construed in accordance with all applicable
securities laws and regulations.
4.2 Acacia National Representations. Acacia National shall not
make any material representations concerning the Adviser, Distributor or a Fund
other than the information or representations contained in: (a) a registration
statement or prospectus for the Fund, as amended or supplemented from time to
time, (b) published reports or statements of the Fund which are in the public
domain or are approved by Distributor and/or the Fund or (c) sales literature
or other promotional material of the Fund.
4.3 The Adviser, Distributor and Fund Representations. Neither
Adviser, Distributor nor the Fund shall make any material representations
concerning Acacia National other than the information or representations
contained in: (a) a registration statement or prospectus for the Contracts, as
amended or supplemented from time to time; (b) published reports or statements
of the Contracts or the Account which are in the public domain or are approved
by Acacia National; or (c) sales literature or other promotional material of
Acacia National.
4.4 Trademarks, etc. Except to the extent required by applicable
law, no Party shall use any other Party's names, logos, trademarks or service
marks, whether registered or unregistered, without the prior consent of such
Party.
4.5 Information From Distributor and Adviser. Distributor and/or
Adviser will provide to Acacia National at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials involving the Funds or the
Contracts, applications for exemptions, requests for no action letters, and all
amendments to any of the above, that relate to a Fund or its shares, in final
form as filed with the SEC, NASD and other regulatory authorities.
4.6 Information From Acacia National. Acacia National will
provide to Distributor at least one complete copy of all registration
statements, prospectuses, Statements of Additional Information, reports,
solicitations for voting instructions,
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<PAGE> 95
sales literature and other promotional materials, applications for exemptions,
requests for no action letters and all amendments to any of the above, that
relate to the Funds and the Contracts, in final form as filed with the SEC,
NASD and other regulatory authorities.
5. Fees and Expenses.
5.1 Fund Registration Expenses. Fund or Distributor shall bear
the cost of registration and qualification of a Fund's shares; preparation and
filing of a Fund's prospectus and registration statement, proxy materials and
reports; preparation of all other statements and notices relating to a Fund or
Distributor required by any federal or state law; payment of all applicable
fees, including, without limitation, all fees due under Rule 24f-2 relating to
a Fund; and all taxes on the issuance or transfer of a Fund's shares on the
Fund's records.
5.2 Contract Registration Expenses. Acacia National shall bear
the expenses for the costs of preparation and filing of Acacia National's
prospectus and registration statement with respect to the Contracts,
preparation of all other statements and notices relating to the Account or the
Contracts required by any federal or state law, expenses for the solicitation
and sale of the Contracts, including all costs of printing and distributing all
copies of advertisements, prospectuses, Statements of Additional Information,
proxy materials, and reports to Owners or potential purchasers of the Contracts
as required by applicable state and federal law; payment of all applicable
fees, including, without limitation, all fees due under Rule 24f-2 relating to
the Contracts; all costs of drafting, filing and obtaining approvals of the
Contracts in the various states under applicable insurance laws, filing of
annual reports on form N-SAR, and all other costs associated with ongoing
compliance with all such laws and its obligations hereunder.
6. Indemnification.
6.1 Indemnification By Acacia National.
(a) Acacia National agrees to indemnify and hold harmless
each Fund, Adviser and Distributor and each of their directors,
officers, employees and agents, and each
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<PAGE> 96
person, if any, who controls any of them within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 6.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the
written consent of Acacia National), and expenses (including
reasonable legal fees and expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities and
expenses:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or sales literature for
the Contracts or contained in the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this paragraph 6.1(a) shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with written information furnished to Acacia
National by or on behalf of a Fund, Distributor, or Adviser
for use in the registration statement or prospectus for the
Contracts or in the Contracts (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Acacia National or its
agents, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Fund
or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to
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<PAGE> 97
be stated therein, or necessary to make the statements therein
not misleading, if such a statement or omission was made in
reliance upon written information furnished to a Fund or
Distributor by or on behalf of Acacia National, or
(iv) arise out of, or as a result of, any failure by Acacia
National or persons under its control to provide the services
and furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach of any
representation and/or warranty made by Acacia National or
persons under its control in this Agreement or arise out of or
result from any other material breach of this Agreement by
Acacia National or persons under its control as limited by and
in accordance with the provisions of sections 6.1(b) and
6.1(c) hereof. This indemnification provision is in addition
to any liability which Acacia National may otherwise have.
(b) Acacia National shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
(c) Acacia National shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
Acacia National in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify Acacia National of any
such claim shall not relieve Acacia National
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<PAGE> 98
from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, Acacia
National shall be entitled to participate, at its own expense, in the
defense of such action. Acacia National also shall be entitled to
assume and to control the defense thereof. After notice from Acacia
National to such Party of Acacia National's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and Acacia National
will not be liable to such Party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(d) The Indemnified Parties will promptly notify Acacia
National of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of Fund shares or the
Contracts or the operation of the Funds.
6.2 Indemnification by Distributor.
(a) Distributor agrees to indemnify and hold harmless Acacia
National and each of its directors, officers, employees and agents and
each person, if any, who controls Acacia National within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 6.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the
written consent of Distributor, and expenses (including reasonable
legal fees and expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities and expenses:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of a
Fund (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the
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alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading, provided that this section 6.2(a) shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with written information
furnished to a Fund or Distributor by or on behalf of Acacia
National for use in the registration statement or prospectus
for a Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or arise out of, or as a
result of, statements or representations or wrongful conduct
of Distributor or a Fund or persons under their control, with
respect to the sale or distribution of the Contracts or Fund
shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Distributor or persons
under its control, with respect to the sale or distribution of
Fund shares;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the
statements therein not misleading, if such statement or
omission was made in reliance upon written information
furnished to Acacia National by or on behalf of Distributor;
(iv) arise out of, or as a result of, any failure by
Distributor or persons under its control to provide the
services and furnish the materials contemplated under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Distributor or persons
under its control in this Agreement or arise out of or result
from any other
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material breach of this Agreement by Distributor or persons
under its control, as limited by and in accordance with the
provisions of Sections 6.2(b) and 6.2(c) hereof. This
indemnification provision is in addition to any liability
which Distributor may otherwise have.
(b) Distributor shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to Acacia
National.
(c) Distributor shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
Distributor in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify Distributor of any such
claim shall not relieve Distributor from any liability which it may
have to the Indemnified Party otherwise than on account of this
indemnification provision. In case any such action is brought against
the Indemnified Parties, Distributor will be entitled to participate,
at its own expense, in the defense thereof Distributor also shall be
entitled to assume and to control the defense thereof after notice
from Distributor to such Party of Distributor's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and Distributor
will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(d) The Indemnified Parties will promptly notify
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Distributor of the commencement of any litigation or proceedings
against them in connection with the issuance or sale of the Contracts
or the operation of the Account.
6.3 Indemnification by Adviser.
(a) Adviser agrees to indemnify and hold harmless Acacia
National and each of its directors, officers, employees and agents and
each person, if any, who controls Acacia National within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 6.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the
written consent of Adviser) and expenses (including reasonable legal
fees and expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities and expenses:
(i) arise out of, or as a result of, any failure by Adviser
or persons under its control to provide the services and
furnish the materials contemplated under the terms of this
Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by Adviser or persons
under its control in this Agreement or arise out of a or
result from any other material breach of this Agreement by
Adviser or persons under its control; as limited by and in
accordance with the provisions of Sections 6.3(b) and 6.3(c)
hereof. This indemnification provision is in addition to any
liability which Adviser may otherwise have.
(b) Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement.
17
<PAGE> 102
(c) Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified Adviser in writing
within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent),
but failure to notify Adviser of any such claim shall not relieve
Adviser from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, Adviser
will be entitled to participate, at its own expense, in the defense
thereof. Adviser also shall be entitled to assume and to control the
defense thereof. After notice from Adviser to such Party of Adviser's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and Adviser will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify Adviser of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Contracts or the operation
of the Account.
7. Potential Conflicts.
7.1 Monitoring by Directors for Conflicts of Interest. The Directors
will monitor the Funds for any potential or existing material irreconcilable
conflict of interest between the interests of the contract owners of all
separate accounts investing in a Fund, including such conflict of interest with
any other separate account of any other insurance company investing in a Fund.
An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state
18
<PAGE> 103
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretive letter, or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of a Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners or by contract owners of different life insurance
companies utilizing a Fund; or (f) a decision by Acacia National to disregard
the voting instructions of owners. The Directors shall promptly inform Acacia
National, in writing, if they determine that an irreconcilable material
conflict exists and the implications thereof.
7.2 Monitoring by Acacia National for Conflicts of Interest.
Acacia National will promptly notify the Directors, in writing, of any
potential or existing material irreconcilable conflicts of interest, as
described in Section 7.1 above, of which it is aware. Acacia National will
assist the Directors in carrying out their responsibilities under any
applicable provisions of the federal securities laws and/or any exemptive
orders granted by the SEC ("Exemptive Order"), by providing the Directors, in a
timely manner, with all information reasonably necessary for the Directors to
consider any issues raised. This includes, but is not limited to, an
obligation by Acacia National to inform the Directors whenever Owner voting
instructions are disregarded.
7.3 Remedies. If it is determined by a majority of the Directors,
or a majority of disinterested Directors, that a material irreconcilable
conflict exists, as described in Section 7.1 above, Acacia National shall, at
its own expense take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including, but not limited to: (a)
withdrawing the assets allocable to some or all of the separate accounts from a
Fund and reinvesting such assets in a different investment medium, including
(but not limited to) another fund managed by the Adviser, or submitting the
question whether such segregation should be implemented to a vote of all
affected Owners and, as appropriate, segregating the assets of any particular
group that votes in favor of such segregation, or offering to the affected
owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
19
<PAGE> 104
7.4 Causes of Conflicts of Interest.
(a) State Insurance Regulators. If a material
irreconcilable conflict arises because a particular state insurance
regulator's decision applicable to Acacia National conflicts with the
majority of other state regulators, then Acacia National will withdraw
the affected Account's investment in the Funds and terminate this
Agreement with respect to such Account within the period of time
permitted by such decision, but in no event later than six months
after the Directors inform Acacia National in writing that it has
determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the
disinterested Directors. Until the end of the foregoing period,
Distributor and Funds shall continue to accept and implement orders by
Acacia National for the purchase (and redemption) of shares of the
Funds to the extent such actions do not violate applicable law.
(b) Disregard of Owner Voting. If a material
irreconcilable conflict arises because of Acacia National's decision
to disregard owner voting instructions and that decision represents a
minority position or would preclude a majority vote, Acacia National
may be required, at the Corporation's election, to withdraw the
Account's investment in the Funds. No charge or penalty will be
imposed against the Account as a result of such withdrawal.
7.5 Limitations on Consequences. For purposes of Sections 7.3
through 7.5 of this Agreement, a majority of the disinterested Directors shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict. In no event will the Fund, the Adviser or Distributor be
required to establish a new funding medium for any of the Contracts. The
Corporation shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of owners affected by the irreconcilable material conflict. In the
event that the
20
<PAGE> 105
Directors determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then Acacia National will withdraw the
Account's investment in the Funds and terminate this Agreement as quickly as
may be required to comply with applicable law, but in no event later than six
(6) months after the Directors inform Acacia National in writing of the
foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict.
7.6. Changes in Laws. If and to the extent that Rule 6e-2 and Rule
6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from
any provision of the 1940 Act or the rules promulgated thereunder with respect
to mixed or shared funding (as defined in the Corporation's Exemptive Order) on
terms and conditions materially different from those contained in the
Corporation's Exemptive Order, then (a) the Funds and/or Acacia National, as
appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 7.1, 7.2, 7.3 and 7.4 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
8. Termination
8.1 This Agreement shall have an initial term of one year and shall
continue each year thereafter. This Agreement shall terminate:
(a) at the option of any party upon 120 days advance
written notice to the other parties, unless a shorter time is agreed
to by the parties; or
(b) at the option of either Corporation, the Adviser or the
Distributor if the Contracts issued by Acacia National cease to
qualify as annuity contracts or life insurance contracts, as
applicable, under the Code or if the Contracts are not registered,
issued or sold in accordance with applicable state and/or federal law;
or
(c) at the option of any party upon a determination by
21
<PAGE> 106
a majority of the Directors of the Corporations or a majority of its
disinterested Directors, that a material irreconcilable conflict
exists; or
(d) at the option of Acacia National, the Corporation, the
Distributor or the Adviser upon institution of formal proceedings
against any Party by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body regarding any
Party's duties under this Agreement or related to the sale of Fund
shares or the operation of the Funds; or
(e) at the option of Acacia National if the Corporations or
a Fund fails to meet the diversification requirements specified in
Section 3.4(a) hereof; or
(f) at the option of Acacia National if shares of the Funds
are not reasonably available to meet the requirements of the Variable
Contracts issued by Acacia National, as determined by Acacia National,
and upon prompt notice by Acacia National to the other parties; or
(g) at the option of Acacia National or Distributor in the
event any of the shares of the Funds are not registered, issued or
sold in accordance with applicable state and/or federal law, or such
law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by Acacia
National; or
(h) at the option of Acacia National, if the Corporation
fails to qualify as a regulated investment company under Subchapter M
of the Code; or
(i) at the option of the Corporation, Distributor, or
Adviser if it is determined in good faith, that Acacia National and/or
its affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse publicity or
in the event that Acacia National has breached any material
representation, warranty, covenant or obligation in this Agreement.
22
<PAGE> 107
8.2 Sales/Redemptions Following Termination. Notwithstanding any
termination of this Agreement, the Corporation and Distributor shall, at the
option of Acacia National and for a period of one year from the termination
date, continue to make available additional shares of any Fund and redeem
shares of any Fund pursuant to the terms and conditions of this Agreement for
all Contracts in effect on the effective date of termination of this Agreement
to the extent permissable under applicable laws and regulations.
8.3 Limit on Termination. Notwithstanding the termination of this
Agreement, each Party shall continue, for so long as any Contracts remain
outstanding, to perform such of its duties hereunder as are necessary to ensure
the continued tax deferred status thereof and the payment of benefits
thereunder, except to the extent proscribed by law, the SEC or other regulatory
body.
9. Notices. Any notice shall be deemed sufficiently given when
sent by registered or certified mail to the other Party at the address of such
Party set forth below or at such other address as such Party may from time to
time specify in writing to the other Party.
If to Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
If to Strong Variable Insurance Fund:
General Counsel
Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
If to Distributor:
General Counsel
Strong Funds Distributors, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
If to Acacia National:
General Counsel
Acacia National Life Insurance
23
<PAGE> 108
51 Louisiana Avenue, N.W.
Washington, DC 20001
With a copy to:
Fred Bellamy
Sutherland, Asbill and Brennan
1275 Pennsylvania Avenue NW
Washington, DC 20004-2404
10. Miscellaneous.
10.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no way affect the construction or effect
of any provisions hereof.
10.2 Enforceability. If any portion of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
10.3 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which taken together shall constitute one
and the same instrument.
10.4 Cooperation. Each Party shall cooperate with each other Party
and all appropriate governmental authorities (including, without limitation,
the SEC, the NASD and state insurance and securities regulators) and shall
permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement.
10.5 Audit. Each Party hereto grants to the other the right to
audit, at the expense of the party requesting the audit, its records relating
to the terms and conditions of this Agreement upon reasonable notice during
reasonable business hours in order to confirm compliance with this Agreement.
10.6 Remedies not Exclusive. The rights, remedies and obligations
contained in this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
24
<PAGE> 109
10.7 Confidentiality. Subject to the requirements of legal process
and regulatory authority, the Fund and Distributor shall treat as confidential
the names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by Acacia National hereto and,
except as permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential information without the
express written until consent of Acacia National until such time as it may come
into the public domain.
10.8 Assignability. This Agreement or any of the rights and
obligations hereunder may not be assigned by any party without the prior
written consent of all parties hereto.
10.9 Trial. In any dispute arising hereunder, each party waives
its right to demand a trial by jury and hereby consents to a bench trial of all
such disputes.
10.10 Governing Law. The terms of this Agreement shall be construed
and the provisions hereof interpreted under and in accordance with the laws of
Wisconsin, provided, however, that all performances rendered hereunder shall be
subject to compliance with all applicable state and federal laws and
regulations.
10.11 Survivability. Sections 4, 6, 7, 8.2, 8.3 and 9 hereof shall
survive termination of this Agreement.
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<PAGE> 110
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed as of the date first set forth above.
ACACIA NATIONAL LIFE INSURANCE COMPANY
By:
------------------------
Name: Robert W. Clyde
Title: Executive Vice President
Marketing and Sales
Funds:
STRONG VARIABLE INSURANCE FUNDS, INC.
By:
-------------------------
Name:
Title:
Distributor:
STRONG FUNDS DISTRIBUTORS,INC.
By:
--------------------------
Name:
Title:
Adviser:
STRONG CAPITAL MANAGEMENT, INC.
By:
---------------------------
Name:
Title:
26
<PAGE> 111
FUND PARTICIPATION AGREEMENT
Acacia National Life Insurance Company ("Insurance Company")and Van Eck
Worldwide Insurance Trust ("Trust) shares of the series of the Trust as listed
on Exhibit A, as it may, from time to time, be amended ("Portfolios"), hereby
agree this ______day of _____________, 1996 that Van Eck Gold and Natural
Resources Portfolio, shall be made available to serve as an underlying
investment medium for individual Deferred Variable Annuity Contracts
("Contracts") to be offered by Insurance Company subject to the following
provisions:
1. Insurance Company represents that it has established the Acacia
National Variable Life Insurance Separate Account II (the "Variable
Account"), a separate account under Virginia law, and has registered
it as a unit investment trust under the Investment Company Act of 1940
("1940 Act") to serve as an investment vehicle for the Contracts. The
contracts provide for the allocation of net amounts received by
Insurance Company to separate series of the Variable Account for
investment in the shares of specified investment companies selected
among those companies available through the Variable Account to act as
underlying investment media. Selection of particular investment
company is made by the Contract owner who may change such selection
from time to time in accordance with the terms of the applicable
Contract.
2. The Trust has received an order from the Commission dated September
19, 1990, (File No. 812-7451) granting participating insurance
companies and their separate accounts exemptions from the provisions
of sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules
6e- 2(b)(15) and 6e-3(T)(b)(15) thereunder to the extent necessary to
permit shares of the Portfolios of the Trust to be sold to and held by
variable annuity and variable life insurance, separate accounts of
life insurance companies.
3. The Trust or the Adviser will provide closing net asset value,
dividend and capital gain information at the close of trading each
business day to Insurance Company or its designated Agent. Insurance
Company will use this data to calculate unit values, which will in
turn be used to process that same business day's Variable Account unit
value. The Variable Account processing will be done the same evening,
and orders will be placed the morning of the following
<PAGE> 112
business day. Orders will be sent directly to the Trust or its
specified agent, and payment for purchases will be wired to a
custodial account designated by the Trust or the Adviser, so as to
coincide with the order for Trust shares. The Trust will execute the
orders at the net asset value as determined as of the close of trading
on the prior day. Dividends and capital gains distributions shall be
reinvested in additional shares at the ex-date net asset value.
4. All expenses incident to the performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall pay the cost of
registration of Trust shares with the Securities and Exchange
Commission ("SEC"). The Trust shall distribute, to the Variable
Account, proxy material, periodic Trust reports to shareholders and
other material the Trust may require to be sent to Contract owners.
The Trust shall pay the cost of qualifying Trust shares in states
where required. The Trust will provide Insurance company with a
reasonable quantity of the Trust's Prospectus and the reports to be
used in contemplation of this Agreement. The Trust will provide
Insurance Company with a copy of the Statement of Additional
Information suitable for duplication.
5. Insurance Company and its agents shall make no representation
concerning the Trust or Trust shares except those contained in the
then current prospectuses of the Trust and in current printed sales
literature of the Trust.
6. Administrative services to Contract owners shall be the responsibility
of Insurance Company, and shall not be the responsibility of the Trust
or the Adviser.
7. The Trust shall comply with Sections 817(h) and 851 of the Internal
Revenue Code of 1986, if applicable, and the regulations thereunder,
and the applicable provisions of the 1940 Act relating to the
diversification requirements for variable annuity, endowment, and life
insurance contracts. Upon request, the Trust shall provide Insurance
Company with a letter from the appropriate Trust officer certifying
the Trust's compliance with the diversification requirements and
qualification as a regulated investment company.
8. Insurance Company agrees to inform the Board of Trustees of
2
<PAGE> 113
the Trust of the existence of, or any potential for, any material
irreconcilable conflict of interest between the interests of the
Contract owners of the Variable Account investing in the Trust and/or
any other separate account or any other insurance company investing in
the Trust.
A material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private
letter ruling, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract owners or by
variable annuity or life insurance contract owners of
different life insurance companies utilizing the Trust.
(f) a decision by Insurance Company to disregard the voting
instructions of contract owners.
Insurance Company will be responsible for assisting the Board of
Trustees of the Trust in carrying out its responsibilities by
providing the Board with all information reasonably necessary for the
Board to consider any issue raised, including information as to a
decision by Insurance company to disregard voting instructions of
Contract owners.
It is agreed that if it is determined by a majority of the members of the Board
of Trustees of the Trust or a majority of its disinterested Trustees that a
material irreconcilable conflict exists affecting Insurance Company, Insurance
Company shall, at its own expense, take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, which
3
<PAGE> 114
steps may include, but are not limited to,
(a) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such assets in
a different investment medium, including another Portfolio of the Trust
or submitting the questions of whether such segregation should be
implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any particular group (i.e.,
annuity Contract owners, life insurance Contract owners or qualified
Contract owners) that votes in favor of such segregation, or offering
to the affected Contract owners the option of making such a change;
(b) establishing a new registered management investment company or managed
separate account.
If a material irreconcilable conflict arises because of Insurance Company's
decision to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurance
Company may be required, at the Trust's election, to withdraw the Variable
Account's investment in the Trust. No charge or penalty will be imposed against
the Variable Account as a result of such withdrawal. Insurance Company agrees
that any remedial action taken by it in resolving any material conflicts of
interest will be carried out with a view only to the interests of Contract
owners.
For purposes hereof, a majority of the disinterested members of the Board of
Trustees of the Trust shall determine whether any proposed action adequately
remedies any material irreconcilable conflict. In no event will the Trust be
required to establish a new funding medium for any Contracts. Insurance company
shall not be required by the terms hereof to establish a new funding medium for
any Contracts if an offer to do so has been declined by vote of a majority of
affected Contract owners.
The Trust will undertake to promptly make known to Insurance Company the Board
of Trustees' determination of the existence of a material irreconcilable
conflict and its implications.
9. This Agreement shall terminate as to the sale and issuance of new
contracts:
4
<PAGE> 115
(a) at the option of any party upon 60 days advance written
notice to the other parties, unless a shorter time is agreed to by the
parties;
(b) at the option of the Trust or the Trust Distributor
("Distributor") if the Contracts issued by Insurance Company cease to
qualify as annuity contracts or life insurance contracts, as applicable,
under the Code or if the Contracts is not registered, issued or sold in
accordance with applicable state and/or federal law; or
(c) at the option of any party upon a determination by a
majority of the Trustees of the Trust or a majority of its disinterested
Trustees, that a material irreconcilable conflict exists; or
(d) at the option of Insurance Company upon institution of
formal proceedings against the Trust or the Distributor by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body regarding the Trust's or the Distributor's duties under
this Agreement or related to the sale of Portfolio shares or the
operation of the Portfolio; or
(e) at the option of Insurance Company if the Trust or a
Portfolio fails to meet the diversification requirements specified in
Section 3.2(e) hereof; or
(f) at the option of Insurance Company if shares of the Series
are not reasonably available to meet the requirements of the Variable
Contracts issued by Insurance Company, as determined by Insurance
Company, and upon prompt notice by Insurance Company to the other
parties; or
(g) at the option of Insurance Company in the event any of the
shares of the Portfolio are not registered, issued or sold in accordance
with applicable state and/or federal law, or such law precludes the use
of such shares as the underlying investment media of the Variable
Contracts issued or to be issued by Insurance Company; or
(h) at the option of Insurance Company, if the Portfolio fails
to qualify as a Regulated Investment Company under Subchapter M of the
Code; or
5
<PAGE> 116
(i) at the option of the Distributor if it shall determine in
its sole judgment exercised in good faith, that Insurance Company
and/or its affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity.
10. Termination as the result of any cause listed in the preceding
paragraph shall not affect the Trust's obligation to furnish
Trust shares in respect of dividends and capital gain
distributions on existing shares for Contracts then force for
which the shares of the Trust serve or may serve as an
underlying medium, unless such further sale of Trust shares is
proscribed by law or the SEC or other regulatory body. The
Trust shall not be obligated to furnish Trust shares for
purchases after termination. The Trust reserves the right to
reject any purchase order.
11. Each notice required by this Agreement shall be given by wire
and confirmed in writing to:
Van Eck Worldwide Insurance General Counsel
Insurance Trust Acacia National Life Ins. Co.
99 Park Avenue 51 Louisiana Avenue, N.W.
New York, New York 10016 Washington, DC 20001
Attention: President
Van Eck Associates Corp. Fred Bellamy
99 Park Avenue Sutherland, Asbill and Brennan
New York, New York 10016 1275 Pennsylvania Avenue, N.W.
Attn: President Washington, DC 20004-2404
12. Advertising and sales literature with respect to the Trust
prepared by Insurance Company or its agents for use in
marketing its contracts will be submitted to the Trust for
review before such material is submitted to the SEC or NASD
for review.
13. Insurance Company will distribute all proxy material furnished
by the Trust and will vote Trust shares in accordance with
instructions received from the Contract owners of such Trust
shares. Insurance Company shall vote the Trust shares for
which no instructions have been received in the same
proportion as Trust shares for which
6
<PAGE> 117
said instructions have been received from Contract owners.
Insurance Company and its agents will in no way recommend
action in connection with or oppose or interfere with the
solicitation of proxies for the Trust shares held for such
Contract owners.
14. Insurance Company shall designate certain persons and entities
which shall have the requisite licenses to solicit
applications for the sale of Contracts. No representation is
made as to the number of amount of contracts that are to be
sold by Insurance Company. Insurance Company shall make
reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection
therewith.
15. Issuance and transfer of the Trust's Portfolios shares will be
by book entry only. Stock certificates will not be issued to
the Insurance Company or the Accounts. Portfolio shares
purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each
account.
The Trust shall furnish, on or before the ex-dividend date
notice to the Insurance Company of any income dividends or
capital gain distributions payable on the shares of any
Portfolio of the Trust. The Company hereby elects to receive
all such income dividends and capital gain distributions as
are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Insurance Company
of the number of shares so issued as payment of such dividends
and distributions.
16. Indemnification by the Insurance Company. The Company agrees
to indemnify and hold harmless the Advisor, the Trust and each
of its Trustees, officers, employees and agents and each
person, if any, who controls the Trust within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section) against any and all
losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurance
Company, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"),
7
<PAGE> 118
to which the Indemnified Parties may become subject under any
statute or regulation, or at common law or otherwise, insofar
as such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in
the Contracts themselves or in sales literature generated or
approved by the Insurance Company on behalf of the Contracts
or Accounts (or any amendment or supplement to any of the
foregoing) or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written
information furnished to the Insurance Company by or on behalf
of the trust for use in Insurance Company Documents or
otherwise for use in connection with the sale of the Contracts
of Trust shares; or
(ii) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents) or wrongful conduct
of the Insurance Company or persons under its control, with
respect to the sale or acquisition of the Contracts or Trust
shares; or
(iii) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust
Documents or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein notmisleading if such statement or
omission was made in reliance upon and accurately derived from
written information furnished to the Trust by or on behalf of
the Insurance Company; or
(iv) arise out of or result from any failure by the Insurance
Company to provide the services or furnish
8
<PAGE> 119
the materials required under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Insurance Company; or
(vi) arise out or result from the provision by the Insurance
Company to the Trust of insufficient or incorrect information
regarding the purchasing or sale of shares of any Portfolio,
or the failure of the Company to provide such information on a
timely basis.
17. Indemnification by the Trust The Trust agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees, and
agents and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act against Losses, to which the
Indemnified Parties may become subject under any statute or regulation,
or at common law or otherwise, insofar as such Losses are related to the
sale or acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Trust (or any
amendment or supplement thereto), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written
information furnished to the Advisor or the Trust by or on
behalf of the Insurance Company for use in Trust Documents or
otherwise for use in connection with the sale of the Contracts
or Trust shares and; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived
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from Insurance Company Documents) or wrongful conduct of the
Trust or persons under its control, with respect to the sale or
acquisition of the Contracts or Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Insurance
Company Documents or the omission or alleged omission to state
therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance
upon and accurately derived from written information furnished
to the Insurance Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Advisor or the
Trust to provide the services or furnish the materials required
under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Advisor or the Trust
in this Agreement or arise out of a result from any other
material breach of this Agreement by the Advisor or the Trust.
18. None of the Insurance Company, the Trust or the Advisor shall be liable
under the indemnification provisions of Sections 16 and 17 with respect
to any Losses incurred or assessed against an Indemnified Party that
arise from such Indemnified Party's willful misfeasance, bad faith or
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement. Nothing herein shall entitle an indemnified
party to punitive or special, (excluding attorney fees and court costs
as provided in Sections 16 and 17) consequential or exemplary damages or
damages of like kind or nature and with respect to an incorrect
calculation on reporting or untimely reporting of net asset value,
dividend or capital gain distribution rate, all liability, loss and
damages shall be limited to the amount required to correct the value of
the Account as if there had been no incorrect calculation or reporting
or untimely reporting of net asset value, dividend or capital gain rate.
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19. None of the Insurance Company, the Trust or the Advisor shall be liable
under the indemnification provisions with respect to any claim made
against an Indemnified Party unless such Indemnified Party shall have
notified the other party in writing within a reasonable time after the
summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have
received notice of service upon or other notification to any designated
agent), but failure to notify the party against whom indemnification is
sought of any such claim shall not relieve that party from any liability
which it may have to the Indemnified Party in the absence of Sections 16
and 17.
20. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own expense,
in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the
indemnifying party to the Indemnified Party of an election to assume
such defense, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the indemnifying party will
not be liable to the Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
21. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
22. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
23. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Virginia. It
shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder and to any orders of the
Commission granting exemptive relief therefrom and the conditions of
such orders. Copies of any such orders shall be promptly
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forwarded by the Trust to the Company.
24. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without
limitation the Commission, the National Association of
Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books
and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplataed
hereby.
25. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which
the parties hereto are entitled to under state and federal
laws.
26. This Agreement shall not be exclusive in any respect.
27. Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the prior written
approval of the other party.
28. No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized
and executed by both parties.
29. Each party hereto shall, except as required by law or
otherwise permitted by this Agreement, treat as confidential
the names and addresses of the owners of the Contracts and all
information reasonably identified as confidential in writing
by any other party hereto, and shall not disclose such
confidential information without the written consent of the
affected party unless such information has become publicly
available or is required to be disclosed by, law, rule,
regulation or court order.
30. The Term "Van Eck Worldwide Insurance Trust" means and refers
to the Trustees from time to time serving under the Master
Trust Agreement of the Trust dated January 7, 1986 as the same
may subsequently thereto have been, or subsequently hereto be
amended. It is expressly agreed that the obligations of the
Trust hereunder shall not be binding upon any Trustees,
shareholders, nominees, officers, agents or employees or the
Trust, personally, but bind only the assets
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and property of the Trust, as provided in the Master Trust
Agreement of the Trust. The execution and delivery of this
Agreement have been authorized by the Trustees and the Trust,
acting as such, and neither such authorization by such officer
shall be deemed to have been made by any of them personally,
but shall bind only the assets and property of the Trust as
provided in its Master Trust Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date first set forth above.
ACACIA NATIONAL LIFE INSURANCE CO.
By:
-----------------------------
Name:
Title:
VAN ECK WORLDWIDE INSURANCE TRUST
By:
-----------------------------
Name:
Title:
VAN ECK ASSOCIATES CORPORATION
By:
-----------------------------
Name:
Title:
13
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14
<PAGE> 1
EXHIBIT 8(B)
SERVICE AGREEMENT
THIS AGREEMENT, made as of the 1st day of September , 1995
(the "Effective Date") by and between Acacia National Life Insurance Company
(the "Customer"), having its principal office and place of business at 51
Louisiana Avenue, N.W., Washington, DC 20001, and Financial Administrative
Services, Inc. ("FAS"), having its principal office and place of business at 95
Bridge Street, Haddam, Connecticut 06438.
WHEREAS, Customer desires to appoint FAS as Recordkeeping Service
Agent for certain of Customer's insurance policies/certificates described
hereinafter ("the Policies"); and
WHEREAS, FAS desires to accept such appointment;
NOW, THEREFQRE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows;
SECTION 1
TERMS OF APPOINTMENT
1.01 Subject to the provisions set forth in this Agreement, customer
hereby appoints FAS as Recordkeeping Service Agent for the Policies
and Riders. The Policies and Riders are described in Exhibit A and
encompass the sample Policies and Riders attached to Exhibit A.
1.02 FAS hereby accepts such appointment and agrees that on and after the
Effective Date, it will act as Customer's Recordkeeping Service Agent
for the Policies.
1.03 FAS agrees to provide the necessary facilities, equipment systems,
and personnel to perform its duties and obligations hereunder in
accordance with industry practice, such facilities being referred to
hereinafter as the "FAS Facilities" and such systems being referred
to hereinafter as the "FAS System".
1.04 FAS agrees that it will perform, at the direction of Customer, those
Recordkeeping Service Agent Functions set forth in Exhibit B
attached.
1.05 FAS agrees to use its best efforts to modify its systems and
procedures at its own expense to comply with any applicable federal
or state statute, law or regulation pertaining to the administration
and servicing of the Policies under this Agreement, within a
reasonable time of receiving notice of enactment of such a statute,
law or regulation.
SECTION 2
TERM
2.01 Subject to earlier termination as hereinafter provided, this
Agreement shall remain in full force and effect for a period of three
(3) years from the Effective Date (the initial term of
<PAGE> 2
the Agreement) and shall continue in full force and effect from year
to year thereafter until terminated as herein provided, each such
additional year being an additional term of this Agreement.
2.02 In the event that this Agreement is terminated, FAS agrees that, in
order to assist in providing uninterrupted service to Customer, FAS
shall offer reasonable assistance to Customer in converting the
records of Customer from the FAS System to whatever service or system
is selected by Customer (subject to reimbursement of FAS for such
assistance at its standard rates and fees in effect at that time).
SECTION 3
FEES AND EXPENSES
3.01 During the initial term of this Agreement, Customer shall pay to FAS,
within thirty (30) days after receipt of an FAS statement, the fees
and charges in the amounts as set out in Exhibit C annexed hereto and
made a part hereof.
3.02 Customer shall also reimburse FAS for all out-of-pocket expenses
reasonably incurred by FAS in the performance of this Agreement. FAS
hereby agrees that the expenses referred to in this Section shall be
only those charges directly incurred by FAS as set forth in Exhibit C
and such other expenses as may be authorized in writing by Customer.
3.03 For each additional term of this Agreement, FAS shall be entitled to
receive such fees and charges as shall be agreed upon in writing by
the parties prior to commencement of each term, pursuant to Section
9.02. hereof.
3.04 In no event will any fee under Section 3.03 above exceed the like fee
charged during the previous term by more than fifteen percent (15%),
unless the quantity or nature of the related service changes.
3.05 Payment terms hereunder are net thirty (30) days with interest at one
and one half (1%) percent per month (but in no event more than the
highest interest rate allowable by law) assessed on all amounts owing
more than thirty (30) days.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF FAS
FAS represents and warrants to Customer as follows:
4.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Connecticut.
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<PAGE> 3
4.02 It is empowered under applicable laws and by its charter and bylaws
to enter into and perform the services contemplated in this
Agreement.
4.03 All requisite corporate proceedings have been taken to authorize it
to enter into and perform the services contemplated in this
Agreement.
4.04 It has, and will continue to have and maintain, the necessary
facilities, equipment, and personnel to perform its duties and
obligations under this Agreement.
4.05 FAS warrants that during the terms of this Agreement, the
administrative services provided under this Agreement will conform to
the Product Specifications as set forth in Exhibit H without errors
which would significantly affect the product performance in
accordance with Customer's written product specifications. This
warranty is contingent upon Customer advising FAS in writing of any
failure to conform to the terms of this Agreement with respect to the
product specifications. Upon such written notice, FAS shall within
90 days, make necessary modifications without charge to Customer or
provide in writing good cause why such modifications may not be made
within 90 days or without charge.
4.06 FAS warrants that it has full rights and license to any software
required to provide services under this agreement and that it has
obtained or is in the process of obtaining any other license
necessary under applicable law to perform TPA services.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF CUSTOMER
Customer represents and warrants to FAS as follows:
5.01 It is a corporation duly organized and existing and in good standing
under the laws of the Commonwealth of Virginia.
5.02 It is empowered under the applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.
5.03 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
5.04 All of the Prospectuses, Policies and other forms provided to FAS by
Customer have been approved by all regulatory authorities whose
approval is needed and are and shall remain in compliance with all
applicable federal, state and local laws and regulations.
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<PAGE> 4
5.05 Customer has complied and will continue to comply in all material
respects with all applicable laws and it has and will continue to
make all required filings with regulatory authorities in connection
with the offer, sale or administration of the Policies.
5.06 Those persons identified on Exhibit D, as amended from time to time,
are authorized to act for Customer with respect to matters involving
this Agreement and FAS shall be entitled to rely on their
instructions.
SECTION 6
LIABILITY
6.01 Except as provided in Section 9.04, Customer shall indemnify and hold
FAS harmless from and against, any and all actual liabilities, losses
and damages incurred, expenses reasonably incurred (including fees of
expert witnesses and advisors) and judgments, settlements and court
costs (all of the foregoing being referred to collectively as
"Damages and Claims") arising out of or attributable to:
(a) Any actions taken by FAS in good faith pursuant to this
Agreement;
(b) The refusal or failure of Customer to comply with the terms of
this Agreement, or any situations which arise out of the
negligence or misconduct of Customer or the breach of any
representation or warranty of Customer hereunder;
(c) FAS, reliance on, or use of information, rate books, cash
value and reserve factors, data records and/or documents
received by FAS from Customer; and
(d) FAS, reliance on, or FAS' implementation of, any instructions
or requests made by any persons listed on Exhibit D, such as
is amended from time to time in writing by Customer.
6.02 Except as provided in Section 9.04, FAS shall indemnify and hold
Customer harmless from and against any and all Damages and Claims
which arise out of or are attributable to FAS' willful refusal or
failure to comply with the terms of this Agreement, FAS' gross
negligence or wilful misconduct or FAS' breach of any representation
or warranty hereunder.
6.03 In the event FAS is unable to perform its obligations under this
Agreement because of strikes, equipment or transmission failure or
damage, or other causes beyond its control, FAS will not be liable
for any resulting Damages and Claims.
6.04 At any time FAS may apply for instructions from a person identified
in Exhibit D with respect to any matter arising in connection with
this Agreement. FAS shall not be liable
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<PAGE> 5
for, and shall be indemnified by Customer against, any action taken
or omitted by FAS in good faith in reliance upon such instructions.
6.05 Customer shall immediately provide FAS with written notice of any
change of authority of persons identified in Exhibit D and of any
additions or deletions to such list of authorized persons.
6.06 In the event malfunction of the FAS System causes an error or mistake
in any record, report, data, information or output under the terms of
this Agreement, FAS shall at its expense correct and reprocess such
records; provided, Customer promptly notifies FAS in writing of each
error or mistake.
6.07 FAS agrees to provide proof of liability coverage to Customer and
agrees to purchase at its own cost any fidelity bond coverage
required under applicable state and federal laws.
SECTION 7
COVENANTS
7.01 FAS shall establish and maintain facilities and procedures for the
safekeeping of policy forms, check forms and facsimile signature
imprinting devices, if any, and all other documents, reports,
records, books, files, and other materials relative to this
Agreement. But FAS agrees to provide immediate access to customer
records during normal business hours when requested by any state or
federal regulators.
7.02 Upon reasonable notice to FAS, Customer shall have access, during
ordinary business hours, to all documents, records, reports, books,
files and other materials relative to this Agreement and maintained
by FAS, subject to the reasonable security concerns of FAS.
7.03 It is expressly understood and agreed that all documents, reports,
records, books, files and other material relative to this Agreement
shall be the sole property of Customer and that such property shall
be held by FAS as agent, during the effective terms of the Agreement.
7.04 FAS shall maintain appropriate back-up computer files to permit file
recovery in the event of destruction of normal processing files.
Customer may review the procedures in effect upon demand.
7.05 Customer shall, in a timely fashion, provide FAS with all information
necessary for the timely and proper administration of the Policies,
including but not limited to: policy forms; lists of all states of
license, agents and representatives authorized to sell Customer's
policies; rate books; cash value and reserve factors; data records;
actuarial support; mortality rates and verified client files or
facsimile, such as microfilm or microfiche.
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<PAGE> 6
7.06 All information furnished by Customer to FAS hereunder is
confidential and FAS shall not disclose any such information,
directly or indirectly, to any third party except: (a) to the extent
that FAS is required by law to make such disclosure; or (b) to the
extent necessarily resulting from provision by any of its affiliates
of services required by FAS in order to perform its obligations under
this Agreement.
7.07 Customer acknowledges that FAS and certain other persons have
proprietary rights in and to the FAS System and that the FAS System
constitutes confidential material and trade secrets of FAS, its
affiliates or unrelated persons; and Customer agrees to maintain the
confidentiality of the FAS System. THIS AGREEMENT AND THE ATTACHED
EXHIBITS ARE CONSIDERED CONFIDENTIAL AND PROPRIETARY AND SHALL BE
SHARED ONLY WITH THOSE PERSONS WHO HAVE A NEED TO KNOW AND WHO ARE
EMPLOYEES OF CUSTOMER OR OF FAS OR ITS AFFILIATES.
7.08 Customer acknowledges that this Agreement in no way gives Customer
any rights in or to the FAS System or FAS Facilities.
7.09 All premiums, loan repayments and other receipts with respect to the
Policies shall be directed to a Customer owned lock box for deposit
in a Customer-owned account. In
7.10 Customer acknowledges its responsibility to provide actuarial and
legal support for policy and agent administration and financial
reporting.
7.11 Any policies, certificate, booklets, termination notices, or other
written communications delivered by the Customer to FAS for delivery
to its policyholders shall be delivered by FAS promptly after receipt
of instructions from the Customer to do so.
7.12 The payment to FAS of any premiums or charges for insurance by or on
behalf of the Customer is considered to be received by the Customer
and the payment of return premiums or claims by the Customer to FAS
is not considered payment to the Customer until the payments are
received by the Customer.
7.13 To the extent that FAS collects premiums, all insurance charges or
premiums collected by FAS on behalf of the Customer and return
premiums received from the Customer are held by FAS in a fiduciary
capacity. These funds must be immediately remitted to the person
entitled to them or must be deposited promptly in a fiduciary bank
account established and maintained by FAS. Of deposited charges or
premiums are collected on behalf of or for more than one (1) insurer,
FAS shall require the bank in which the fiduciary account is
maintained to keep records clearly recording the deposits in and
withdrawals on behalf of or for the insurer. FAS may not pay a claim
by the fiduciary account shall be made for the following: (1)
remittance to the Customer; (2) deposit in account for the Customer;
(3) transfer to or deposit in a claims paying account; (4) payment to
a group policy; (5)
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<PAGE> 7
payment to FAS for its commission, fees, or charges; or (6)
remittance of returned premiums to the person entitled to the
premium.
7.14 To the extent that FAS adjusts and settles claims, the compensation
to FAS with regard to the policies shall in no way be contingent on
claim experience.
7.15 APPLICABLE TO CUSTOMERS DOING BUSINESS IN WYOMING, Customer
acknowledges its responsibility to provide cooperation in registering
FAS as an administrator in Wyoming. This entails completing and
authorizing a certificate of registration and a surety bond (Exhibit
F). In turn, FAS will provide a written notice, approved by the
Customer, to insured individuals, advising them of the identity of
and relationship among FAS, the policyholder, and the Customer.
SECTION 8
COMPUTER ACCESS
8.01 Provided both parties hereto have authorized such access by signing
in the space therefore on the signature page hereof, and subject to
the terms and conditions set forth below, Customer shall be entitled
to obtain access on a "view only" basis to all data relating to the
Policies (the "Information") which is maintained on the computer(s)
utilized by or on behalf of FAS in providing the services it provides
to Customer pursuant to this Agreement ("System Access").
8.02 Customer's access to such data shall be on Mondays through Fridays,
exclusive of holidays, between the hours of 8 a.m. and 5 p.m.,
Hartford, Connecticut time. FAS retains the right, however, to limit
or otherwise change those hours at any time and for any reason
without prior notice to client. Furthermore, FAS makes no
representations or warranties as to the ability of Customer to
successfully utilize System Access at any given time, in light of the
fact that computer facilities suffer occasional "down-time". FAS
also agrees to provide service on any valuation date as described in
the Policies' prospectus.
8.03 Customer shall take no actions to affect or modify System Access, the
Information, or any of the hardware or software utilized by or on
behalf of FAS in conjunction with System Access. Use of System
Access to view data shall be made only through means and codes
authorized by FAS hereunder or pursuant hereto, which means and codes
Customer agrees not to divulge to any person other than those of its
employees it wishes to have use System Access. Neither FAS nor any
of its affiliates shall have responsibility for determining whether a
person with the proper procedures and codes to utilize System Access
was properly authorized to do so by Customer.
8.04 FAS shall have the right to modify or cause the modification of the
System Access program from time to time at its sole discretion
without prior notice to Customer.
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<PAGE> 8
8.05 In the event that Customer suspects a possible breach of security
with respect to System Access, including any unintended disclosure of
codes, or Customer obtains Information, through System Access, on any
person other than its own policyholders, then Customer shall
immediately notify FAS of such circumstances by telephone, followed
by a confirmation in writing, specifying the nature of the problem.
8.06 Neither FAS nor any of its affiliates shall be liable to Customer for
any loss, cost or liability arising out of or in conjunction with
Customer's participation in System Access. Under no circumstances
shall FAS or any of its affiliates be liable to Customer for any
indirect, incidental or consequential damages arising out of or in
conjunction with Customer's participation in such system, even if
advised of the possibility thereof.
8.07 Customer shall indemnify FAS and its affiliates and hold them
harmless from all direct losses and all liabilities resulting to
them, as well as all costs and expenses (including court costs and
attorneys fees) reasonably incurred by them, due to Customer's
failure to properly safeguard the codes and/or passwords provided
pursuant hereto for its use. Customer shall also indemnify FAS and
its affiliates and hold them harmless from all liabilities, costs and
expenses (including court costs and attorneys fees) reasonably
incurred as a result of Customer's breach of its obligations of
confidentiality with respect to the Information. Customer shall
further indemnify and hold FAS and its affiliates harmless from all
liabilities, costs and expenses (including court costs and attorneys
fees) reasonably incurred by them due to any acts or omissions of
Customer in its use of Information, including but not limited to
erroneous eligibility or claim coverage determinations.
8.08 Software and Production Data Escrow
a. Customer has established, at its own expense, a Trust
Account for the safekeeping of the Acacia project complete system
software, developed by the Leverage Group and modified by FAS, and
Acacia production files, updated by FAS with Data Securities
International, Inc., DSI, (the "Escrow Agent"), with monthly
up-dates. Data files will be provided to Customer weekly. Promptly
upon execution of this Agreement, Customer and FAS will take steps as
necessary with the Escrow Agent and the Leverage Group to include FAS
in the escrow arrangement, and the appropriate contract will promptly
be furnished to FAS as soon as practicable so that it can become a
party to the escrow agreement between Customer and the Escrow Agent.
Under the Escrow Agreement, Acacia shall be entitled to have access
to all software and production data files after Acacia has received a
license to do so from the Leverage Group, upon a showing by Acacia to
the Escrow Agent of any of the following:
1. The presentation to the Escrow Agent of evidence of the filing
of a petition in bankruptcy (excluding a filing under federal
bankruptcy law), or for the insolvency, receivership or similar
action under state law involving FAS as debtor or insolvent;
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<PAGE> 9
2. Notification to Acacia of FAS's decision not to generally
support the FAS Software or any future modifications of the FAS
Software;
3. Following an uncured material breach by FAS, the presentation
to the Escrow Agent of a filed copy of an order of a court allowing
Acacia access to the Acacia Software and Production Data Files;
b. If Acacia gains access to the Acacia Software and Production
Data Files, Acacia agrees that, prior to release of the Acacia
Software and Production Data Files, Acacia shall adhere to the
following restrictions: all source material delivered to Acacia will
be kept in a secure location accessible only to Acacia's personnel
directly involved with the operation of the Acacia project who have
need to work with the Acacia Software and Production Data Files.
SECTION 9
TERMINATION OF AGREEMENT
9.01 Subsequent to the initial term as defined in Section 2.01, this
Agreement may be terminated by either party by written notice to the
other, one hundred eighty (180) days following delivery by registered
mail of such notice to the other party.
9.02 Not fewer than one-hundred eighty (180) days prior to the end of any
term hereof, FAS shall give Customer written notice if FAS desires to
increase its fees or charges to Customer or to change the manner of
payment. If FAS and Customer do not agree in writing upon fees and
changes before the end of the term during which such notice is given
by FAS, this Agreement shall terminate immediately and automatically
at the end of such term.
9.03 Customer is more than sixty (60) days late in fulfilling its
obligation under Section 3 for items not in dispute, FAS may
terminate its services upon thirty (30) days notice to Customer.
9.04 If either of the parties hereto shall materially breach this
Agreement or be materially in default in the performance of any of
its duties and obligations hereunder (the "Defaulting Party"), other
than Customer's obligation of payment, the other party hereto may
give written notice thereof to the Defaulting Party and if such
default or breach shall not have been remedied within ninety (90)
days after such written notice is given, then the party giving such
written notice may terminate this Agreement by giving ninety (90)
days' written notice of such termination to the Defaulting Party,
provided, however, that if FAS elects to terminate this Agreement for
other than non-payment of fees and charges and if Customer shall so
request in writing, FAS shall continue to provide the services
described herein to Customer for such period of time as Customer may
request, not to exceed three
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<PAGE> 10
(3) months following the date on which this Agreement would otherwise
have terminated, such service to be provided in accordance with the
terms of this Agreement and at one hundred twenty-five (125%) percent
of the fees in effect for the term immediately preceding such period.
Termination of this Agreement by default or breach by Customer shall
not constitute a waiver of any rights of FAS in reference to services
performed prior to such termination or rights of FAS to be reimbursed
for out-of pocket expenditures; termination of this Agreement by
default or breach by FAS shall not constitute a waiver by Customer of
any other rights it might have under this Agreement.
9.05 Neither party shall be liable to the other under this Agreement for
consequential, exemplary or punitive damages.
9.06 Notwithstanding anything to the contrary, if (d) FAS becomes bankrupt
or (b) a receiver is appointed for substantially all of the assets of
FAS or (c) FAS is merged or experiences any change of management
control, this agreement upon Customer's election shall terminate upon
90 days written notice to FAS. Items (a) and (b) shall be included
as matters which constitute a material breach by FAS of this
Agreement.
SECTION 10
CHANGES AND MODIFICATIONS
10.01 FAS shall have the right at any time, and from time to time, to alter
and modify any system, programs, procedures or facilities used or
employed in performing its duties and obligations hereunder, provided
that no such alterations or modifications shall, without the consent
of Customer, materially change or affect the operations and
procedures of Customer in using or employing the FAS System or FAS
Facilities hereunder.
SECTION 11
ASSIGNMENT
11.01 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party hereto without the prior written consent of
the other, which consent shall not be unreasonably withheld. The
foregoing notwithstanding, FAS may assigned its rights and
obligations hereunder without Customer's prior written approval: (a)
to affiliated Companies; or (b) by operation of law in the event of a
merger.
11.02 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
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SECTION 12
DISPUTE RESOLUTION
12.01 The parties to this Agreement understand and agree that the
implementation of this Agreement will be enhanced by the timely and
open resolution of any disputes or disagreements between such
parties. Each party hereto agrees to use its best efforts to cause
any disputes or disagreements between such parties to be considered,
negotiated in good faith and resolved as soon as possible.
12.02 Any and all disputes, controversies or claims arising out of or
relating to this Agreement not resolved under Section 12.01, or to
its breach, termination or invalidity, shall be exclusively and
finally settled by arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA")
then in force.
1. The appointing authority for the arbitration shall be the AAA.
The arbitrator shall be one (1) experienced in computer software and
related legal issues, to be nominated by the Parties in accordance
with the rules of the AAA. The arbitration proceedings, including
the making of the award, shall take place in the District of
Columbia. The arbitrator shall take evidence directly from witnesses
and documents presented by the Parties, and all witnesses shall be
available for cross-examination.
2. The arbitrator shall determine the matter in dispute and shall
solely apply, and be governed by, the law of Connecticut. However,
Connecticut conflict of laws provisions shall not be applicable so as
to require the application of the law of any other jurisdiction. The
arbitrator shall take into account every dispute or difference
arising between the Parties and shall provide the Parties with
written reasons for the arbitration award. The arbitrator shall
endeavor to issue his/her award within two (2) months after his/her
appointment.
3. The arbitration award shall be final and binding upon the
Parties and shall not be subject to judicial review. Any cash
component of the award shall be made payable in U.S. currency,
through a bank in the United States, free of any tax or other
deduction. The award shall include interest from the date of any
breach or other violation of this Agreement. The arbitrator shall
also fix an appropriate rate of interest from the date of breach or
other violation to the date when the award is paid in full. The
arbitration costs shall be shared equally by each Party. However,
each Party shall pay for and bear the cost of its own experts,
evidence and legal counsel.
4. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction, or application may be made
to a court for judicial recognition of the award or an order of
enforcement, as the case may be.
11
<PAGE> 12
12.03 No resolution or attempted resolution of any dispute or disagreement
pursuant to this section shall be deemed to be a waiver of any term
or provision of this Agreement or consent to any breach or default
unless such waiver or consent shall be in writing and signed by the
party claimed to have waived or consented.
SECTION 13
REMEDIES
13.01 Dedication of Equipment , Funds, Personnel and Resources In the event
FAS fails to perform the Administrative Standards described in
Exhibit G, Customer shall provide written notice to FAS and FAS
agrees to show within 90 days that it has substantially cured such
failure of performance or has dedicated additional equipment, funds,
personnel or resources to cure such defect.
Election of this remedy by Customer does not waive, alter or exclude
any other Customer rights as described in this Agreement
13.02 Material Breach by FAS License to Acacia Software and Production Data
Files - Upon a material breach of this Agreement by FAS and having
received a license from the Leverage Group to do so, Acacia shall
have at no additional cost a license to the source code for the
Acacia Project including, but not limited to, all modifications FAS
has made to the software (the "FAS Software") and the related
documentation for those modifications (together, the "Acacia Software
and Production Data Files") for the version of the FAS Software
proprietary to FAS then installed on the Acacia Project (the "Acacia
Software and Production Data Files Remedy"). If Acacia exercises the
Acacia Software and Production Data Files Remedy and to the extent
allowable by the Leverage Group:
1. FAS will deliver the Acacia Software to the Leverage Group for
subsequent distribution to Customer. Customer acknowledges that FAS
is not authorized to distribute its vendor software to anyone other
than to the vendor itself.
2. Acacia is licensed on a non-exclusive basis to create
derivative works of the Acacia Software and Production Data Files and
is licensed on an exclusive basis to use those derivative works. All
copy right and other proprietary rights of whatever kind in all
derivative works of the Acacia Software and Production Data Files
created by Acacia are the property of Acacia. Acacia shall not be
required to provide a copy of any such derivative work to FAS.
Nothing in this Agreement shall preclude FAS from creating any
derivative works of the FAS Software proprietary to FAS that
accomplish the same or similar functions as the derivative works
created by Acacia, so long as FAS does not derive any enhancement,
modification, new version or new release of the FAS Software
proprietary to FAS from any derivative work created by Acacia unless
so requested by Acacia.
12
<PAGE> 13
3. If Acacia exercises the Acacia Software and Production Data
Files Remedy, or if Acacia obtains the Acacia Software and Production
Data Files from escrow under Section 8.08, and if Acacia modifies the
Acacia Software and Production Data Files (other than through FAS),
FAS shall have no further obligations under this Agreement to
maintain the Acacia Software and Production Data Files unless these
modifications have been reviewed and approved by FAS in writing. FAS
will charge Acacia the prevailing engineering consulting rates for
the review and approval effort. This approval shall not be
unreasonably withheld. However, FAS shall promptly, in complete
versions of the Acacia Software and Production Data Files, deliver to
Acacia all subsequent modifications FAS shall make to the Acacia
Software and Production Data Files. These subsequent modifications
shall be within the scope of the license granted to Acacia under this
paragraph and the terms and conditions of this Agreement will apply
to them.
SECTION 14
MISCELLANEOUS
14.01 Access - Customer and its duly authorized independent auditors shall
have the right upon reasonable notice to FAS and at reasonable
frequencies under this Agreement during FAS' normal business hours to
perform on-site audits of records and accounts directly pertaining to
the Policies. At the request of Customer, FAS will make available to
Customer's auditors and representatives of regulatory agencies all
reasonably requested records, data, and access to operating
procedures.
14.02 Confidentiality - The parties hereto agree that all tapes, books,
reference manuals, instructions, records, information and data
pertaining to the business of the other party, the FAS System and the
identity of the policy owners served by FAS hereunder which are
exchanged or received pursuant to the negotiation of and/or the
implementation of this Agreement shall remain confidential and shall
not be voluntarily disclosed to any other person and that all such
tapes, books, reference manuals, instructions, records, information
and data in the possession of each of the parties hereto shall be
returned to the party from whom it was obtained upon the termination
or expiration of this Agreement.
14.03 Independent Contractor - It is understood and agreed that all
services performed hereunder by FAS shall be s an independent
contractor and not as an employee of Customer.
14.04 Definitions - For the purposes of this Agreement the terms
"policies", "certificate", "certificates contract" and "contracts"
are interchangeable where appropriate and refer to the primary
coverage documents for each insured and not to Master Policy(s) or
other agreements that govern the insurance coverage of each group.
14.05 Entire Agreement, Amendment - This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior
agreements with respect to the subject matter hereof, whether oral or
written. This Agreement may not modified and no provision hereof
13
<PAGE> 14
may be waived except in a written instrument executed by both of the
parties hereto. The waiver by either party hereto of any provision
of this Agreement on any one or more occasions shall be construed to
constitute a waiver of that or any other provision on any other
occasion.
14.06 Survival - The representations, warranties and covenants contained
herein shall survive the execution of the Agreement and the
performance of services hereunder.
14.07 Governing Law - This Agreement shall be governed by the laws of the
State of Connecticut
14.08 Exhibits - The Exhibits and Schedules referred to herein and
delivered pursuant hereto, including any agreed upon amendments
thereto, shall be deemed a part of this Agreement as fully and
effectively as set forth in full in the body of this Agreement. The
terms used in such Exhibits and Schedules shall have the same meaning
as the terms have in this Agreement, unless the contrary intention is
clearly manifested therein.
14.09 Severability - Any provisions of this Agreement which is invalid or
enforceable in any jurisdiction shall be in effective to the extent
of such invalidity or unenforceability without invalidating or
rendering unenforceable the remaining provisions hereof, and any such
invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
14.10 Records Retention - FAS agrees to maintain and make available to
Customer complete books and records of all transactions performed on
behalf of Customer. The books and records of all transactions
between FAS and the Customer shall be maintained in accordance with
prudent standards of insurance record keeping and must be maintained
for a period of not less than seven (7) years from the date of their
creation. Any trade secrets contained in the books and records,
including but not limited to the identity and addresses of
policyholders and certificate holders, are confidential, except the
Commissioner of Insurance may have access to such books and records
for the purpose of examination, audit, inspection, and use in any
proceedings instituted against FAS.
14.11 Approval of Advertising - FAS may use only such advertising
pertaining to the business underwritten by the Customer as is
approved by the Customer in advance of its use.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers as of the day and year first above written.
ACACIA NATIONAL LIFE
INSURANCE COMPANY
Attest By:
-------------------------------------
Title:
-------------------------------------
FINANCIAL ADMINISTRATIVE
SERVICES, INC.
Attest: By:
-------------------------------------
Title:
-------------------------------------
System Access Authorized
FAS: By
----------------------------------------
CUSTOMER: By:
----------------------------------
Date:
-----------------------------------------
<PAGE> 16
EXHIBIT A
POLICIES
All policies described in Exhibit H.
<PAGE> 17
EXHIBIT B
RECORDKEEPING SERVICE AGENT FUNCTIONS PERFORMED BY FAS
A. The issuance of a policy to the insured in cases of reinstatement,
term conversions, plan changes and guaranteed insurability options.
B. Generation of billing for, and the posting of, premium received.
C. Answering of any inquiries from clients or approved agents via
telephone or correspondence.
D. Computation of the correct valuation of all policies.
E. Calculation of death benefits payable to beneficiaries. The
disbursement of such payments by FAS shall be made promptly pursuant
to approval of same by Customer.
F. Handling and distribution of general information to insureds, agents
or financial institutions, as is reasonable and appropriate.
G. Providing Customer, in accordance with Exhibit E, mutually agreed
upon information required to fulfill its actuarial, financial, and
regulatory obligations and the records to support all of the
transactions.
H. Maintenance of appropriate administrative controls over all
activities, correspondence and data.
I. Advising Customer of regulatory inquiries, complaints, claims and all
threatened or filed lawsuits.
J. Providing all standard forms necessary for proper administration
under this Agreement.
K. Providing FAS' standard reinsurance extract for use in formatting
reports for reinsurance activities.
L. Providing Customer with the data necessary for Customer preparation
of Company Annual Statement Exhibits and Schedules, Federal and State
Premium Tax and Income Tax Reports.
M. Providing the management reports listed below pursuant to agreed upon
times and procedures.
<PAGE> 18
EXHIBIT B (CONTINUED)
<TABLE>
<CAPTION>
=================================================================================================================================
Daily Reports Notices On-Request Reports Mngmt Reports
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Error Listing Confirmations Reinsurance Extract New Business
- ---------------------------------------------------------------------------------------------------------------------------------
Financial Activity Billing Notices Schedule Reports Agent New Business
- ---------------------------------------------------------------------------------------------------------------------------------
Withdrawals Credit Card Recap Policy Statements Activity by Product
- ---------------------------------------------------------------------------------------------------------------------------------
Adjustments Overdue Notices Policy Count Activity by State
- ---------------------------------------------------------------------------------------------------------------------------------
Suspense Report Lapse Pending Notices Client Role File Activity by Plan
- ---------------------------------------------------------------------------------------------------------------------------------
Issue Status Billing Reminders Quarterly Statements Pending Claims Report
- ---------------------------------------------------------------------------------------------------------------------------------
Disbursement Suspense Pre-Authorized Check (PAC) Reinsurance Report Policy Exhibit
Recap
- ---------------------------------------------------------------------------------------------------------------------------------
Loans List Bills Financial History 1099R Report
- ---------------------------------------------------------------------------------------------------------------------------------
Death Notification Window Notices Policy Status Report 5498 Report
- ---------------------------------------------------------------------------------------------------------------------------------
Monthly Deduction Report Lapse Processing Notice Face Page/Delivery Notice FASB 97 Reporting
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Forfeiture Processing Client Information Summary Due & Deferred Premiums
- ---------------------------------------------------------------------------------------------------------------------------------
Expired Policies Agent 3x5 Cards Paid New Business
- ---------------------------------------------------------------------------------------------------------------------------------
Controls Mini Policy Print
- ---------------------------------------------------------------------------------------------------------------------------------
Remittances Premium vs Accumulated Value
- ---------------------------------------------------------------------------------------------------------------------------------
Canceled Policies Activity by Line of Business
- ---------------------------------------------------------------------------------------------------------------------------------
Transaction List Accumulated Value by Agent
- ---------------------------------------------------------------------------------------------------------------------------------
Issue Report Accumulated Value by Agent
- ---------------------------------------------------------------------------------------------------------------------------------
Issue Cancels Tax Reporting
- ---------------------------------------------------------------------------------------------------------------------------------
Maintenance Activity 5500 Schedule A
- ---------------------------------------------------------------------------------------------------------------------------------
Surrenders New York State Reporting
- ---------------------------------------------------------------------------------------------------------------------------------
Fund Transfers Full Policy Status
=================================================================================================================================
</TABLE>
<PAGE> 19
EXHIBIT C
PRICING SCHEDULE
SYSTEM IMPLEMENTATION FEE $125,000
Initial Set Up:
- Loading all appropriate plan parameters to establish the
customers' products in the FAS data processing environment.
- Implementing the billing, premium collection and commission
payment process.
- Formatting and implementing the Policyholder Annual Statement and
other client specific forms.
- Implementing the accounting subsystem, procedures and chart of
accounts.
- Workflow.
- Administrative procedures.
- Archiving.
- System testing with appropriate user sign-off.
- Implementing appropriate management reporting.
- Implementing Voice Response Unit standard script.
- Business specs.
- Trade System.
- Work in progress.
SYSTEMS MODIFICATIONS
<TABLE>
<S> <C>
- Zero Cost Loans plus Testing and Tracking $9,000
- Disability Rider $4,800
- Account Balance/Asset Allocation $3,600
- M&E Charges $6,000
- Guaranteed Death Benefit Testing $3,000
- Interfaces - Field Comp, G/L, Valuation,
LifeGuide, Reinsurance $25,200
-------
Total $176,600
</TABLE>
<PAGE> 20
EXHIBIT C (CONT.)
ADMINISTRATIVE SERVICES - MONTHLY BILLING
Policy Issue
Full Policy Issue Service
<TABLE>
<CAPTION>
Per Policy Fee In-Force Policy Count
-------------- ---------------------
<S> <C>
$15.00 1 - 5,000
14.50 5,001 - 10,000
14.00 10,001 - 15,000
13.50 15,001 - 20,000
13.00 20,001 +
</TABLE>
Administration Fees
Active Policies - Premiums
<TABLE>
<CAPTION>
Monthly Fee Annualized In-Force Policy Count*
----------- ---------- ----------------------
<S> <C> <C>
$3.50 $42.00 1 - 5,000
3.45 41.40 5,001 - 10,000
3.40 40.80 10,001 - 15,000
3.35 40.20 15,001 - 20,000
3.30 39.60 20,001 +
</TABLE>
* Rates apply on a banded basis. 15,000 in-force, premium paying
policies would be billed $3.50 for the first 5,000 policies, $3.45 for
the next 5,000 policies and $3.40 for the remaining 5,000.
Inactive Polcies
$.50 per month per policy
Minimum Monthly Administration Fees = $7,000
Policy issue fees are not subject to the minimum monthly administration fee.
ADDITIONAL COSTS TO CUSTOMER
Telephones
- Basic phone line with touch tone is approximately $45 per month,
installed in our building.
- A long distance 800 number to dial in or to dial out is an additional
charge, depending on the service and the long distance carrier.
Sprint and MCI charges are billed directly to the client customer.
AT&T and SNET are billed to FAS and then billed to the client customer
by FAS.
- Optional Dial-In Service to NAS (Netware Access Server) which will
allow client customer to inquire against policy, insured and agent
information is available from FAS at $500 per month. The installation
and monthly phone line maintenance charges are the customer's
responsibility. FAS will maintain the software, hardware components,
file maintenance and file updates. A PC with a modem is required on
customer's site.
<PAGE> 21
EXHIBIT C (CONT.)
DELIVERY AND PAYMENT SCHEDULE*
Target Date will be the date the work is completed.
<TABLE>
<CAPTION>
Cycle: Fee**
- ------ -----
<S> <C>
Contract signed 20%
Cycle 1 20%
New Issues
Delivery Package
Issue Calcs
- Guidelines
- Commission Targets
- Surrender Targets
- MIP Targets
- TAMRA
Payment Processing
- Initial Payment
- Over/Under Target
- 1035 Exchange
Overdue COI Processing
Bills
Confirmations
Fund Transfers
Fund Level M&E (MOD)
ALS Accounting
Cycle 2 20%
Policy Changes
- Rider/Benefit Adds
- Option Changes
- Face Increases
- Face Decreases
Lapse Processing
Loan Processing
Partial Withdrawals
Account Rebalancing (MOD)
Dollar Cost Averaging
Disability Rider (MOD)
Guaranteed Death Benefit (MOD)
Quarterly Statements
Macola/General Ledger Interface
Valuation Interface
Field Compensation Interface
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
Cycle 3 20%
Free Look Processing
Death Processing
Full Surrender Processing
Reversals
Undo/Redo
Reinstatements
LifeGuide Interface
Reinsurance Interface
Trade System
VRU Interface
Cycle 4 20%
Outstanding System Problem Report Clean-up
</TABLE>
* Payment to be provided within 30 days of delivery, except as stated below:
The production date is scheduled for November 30, 1995. Customer and
FAS acknowledge that the implementation and modification fees are
fixed, and are based upon the work as described herein to be completed
on or before the production date. Once Customer has accepted and
approved Cycle 4, Customer agrees to the commencement of services and
associated administrative fees on the above production date.
** % of System Implementation plus cost for Modifications and Interfaces.
<PAGE> 23
EXHIBIT D
AUTHORIZED PERSONNEL
Philip Barlow
Victor Frye
Larry Mauzy
Wayne Monroe
Wendy Young
<PAGE> 24
EXHIBIT E
ACACIA VALUATION INTERFACE
SPECIFICATIONS:
A. All non-constant date is taken from the following files unless
otherwise specified:
POLICY MASTER - PM
RIDER - RI
B. Create three interface records:
1. Header - one per file
2. Detail - one record per policy
3. Trailer - one per file
C. Include only active policies.
D. The interface will be run quarterly.
RECORD DESCRIPTIONS:
DETAIL
<TABLE>
<CAPTION>
FIELD DESCRIPTION ATTRIBUTES SOURCE
<S> <C> <C>
POLICY NO X (10) PM POLICY NUMBER
SEX X (1) PM SEX
SMOKER STATUS X (1) RI CLASS
DEATH BENEFIT OPTION X (1) RI DB TYPE
UNDERWRITING RATING X (1) RI CLASS
FACE AMOUNT 9 (9) RI TYPE = B AND I
Accum RI FACE AMOUNT
ISSUE DATE 9 (8) PM ISSUE DATE
MMDDYYYY
ISSUE AGE 9 (2) PM ISSUE AGE
ISSUE INT RATE 9V9 (6) ORATE RATE as of policy
issue date
CURRENT INT RATE 9V9 (6) ORATE RATE as of last
cycle date
ACCOUNT VALUE 9 (9) V99 valuation policy value
CASH SURR VALUE 9 (9) V99 valuation csv value
ADB FACE AMOUNT 9 (9) RI TYPE = A,
FACE AMOUNT
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
FIELD DESCRIPTION ATTRIBUTES SOURCE
<S> <C> <C>
FIXED ACCT INTEREST 9 (9) V99 Valuation interest
From 1-1 to current quarter
GDB INDICATOR X (1) -if eligible for GDB ben,
ind = E (expected x mode
= (greater than) sum of rider target
- if under GDB benefit, ind = G
ANNUAL TARGET PREM 9 (9) V99 RI TARGET PREMIUM
</TABLE>
RIDER INFORMATION OCCURS 20 TIMES
<TABLE>
<S> <C> <C>
RIDER NO 9 (3) RI RIDER NO
PLAN CODE X (5) RI PLAN CODE
COI CHARGES 9 (9) V99 RI TRADITIONAL PREMIUM
</TABLE>
<PAGE> 26
EXHIBIT F
WYOMING ADMINISTRATORS
A. Application for certificate of registration
B. Bond - The Amount of the bond shall be not less than 10% of the amount
of total funds handled. No bond may be for less than one thousand
dollars ($1,000) nor more than five hundred thousand dollars
($500,000). (Chapter 4 of Wyoming Insurance Department regulations)
C. Copy of administrative agreement between the Customer and FAS.
<PAGE> 27
EXHIBIT F (CONT.)
WYOMING INSURANCE DEPARTMENT
THIRD PARTY ADMINISTRATOR
APPROVAL CHECKLIST
INSURER'S NAME_________________________________________________
ADMINISTRATOR'S NAME___________________________________________
The following is a list of items that must be stated in the contract between
Administrator and Insurer. Even though each item may be addressed in the
contract, the request may be denied for other reasons.
__________ A. Payments received by the administrator for insurance on behalf
of the insured shall be deemed received by the Insurer.
__________ B. The insurer shall require the administrator to maintain
adequate books and records of transactions between administrator,
insurer and insured for the duration of the contract and three
years thereafter.
__________ C. Administrators may only use advertising which has been
approved in writing by the insurer.
__________ D. The agreement shall specify underwriting standards of the
insurer.
__________ E. All charges or premiums received by the administrator shall be
held by the administrator in a fiduciary capacity and shall be
promptly remitted to the person entitled to it or deposited in a
fiduciary account.
__________ F. Bank account records must be furnished to the insurer when
requested. The administrator is not authorized to pay any claims
from such an account.
__________ G. Withdrawals from the account shall be made for the following
items and shall be set forth in the agreement.
a. remittance to insurer.
b. deposit into account for insurer.
c. transfer to or deposit in claims paying account.
d. payment to group policy.
e. payment to administrator for its commission.
f. Remittance of returned premiums to persons.
___________ H. Claims shall be paid on drafts on insurer or as authorized.
__________ I. Compensation to administrators shall not be contingent on
claims experience. Must be based on premiums.
_________ J. Administrator may only act in the capacity in which licensed.
_________ K. When an administrator is utilized, the insurer shall require
the administrator to provide notice to insured.
Please indicate the location of each item in the space provided by each
requirement. All of these requirements can be found in Chapter IV of the
Wyoming Insurance Regulations.
<TABLE>
<S> <C> <C>
DATE APPROVED REJECTED
------------------------- ------------------- ---------------
</TABLE>
Comments
--------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE> 28
EXHIBIT G
FAS ADMINISTRATIVE STANDARDS
The FAS Administrative Standards follow this page.
<PAGE> 29
FINANCIAL ADMINISTRATIVE SERVICES
ADMINISTRATIVE STANDARDS
<PAGE> 30
CUSTOMER SERVICE STANDARDS
TELEPHONES:
A. Hold Time* Caller holds no longer than 75% within 30
seconds 100% within 1 minute
*Longer time acceptable if caller agrees or
requests to be put on hold
<TABLE>
<S> <C> <C>
B. Greeting "Hello, this is You are speaking on
a recorded line. How may I help you?'-
C. Professionalism Caller greeted with courtesy, patience, clarity,
moderate volume, proper speed.
D. Style Use callers name, sound alert/interested.
E. Logging Telephone Call Call is clearly recorded on "Phone Sheet,"
providing contract number, contract owner,
callers name and telephone number, reason
for call, and final outcome of call.
F. Ownership/Accountability Inquiry resolved, resolution provided
</TABLE>
* Call back required within time frames promised or within five (5) workdays.
At minimum caller should receive call back confirming the inquiry is still
being worked on.
CORRESPONDENCE
<TABLE>
<S> <C> <C>
A. Response Time 100% form letters within 5 days. 85%
requiring research within 10 days. Follow up
on outstanding client items to be followed up
within 15 work days.
B. Response Fully and clearly responses to inquiry(ies)
without adding new topics. Proper carbon
copies and supporting documentation
provided.
C. Content Identifies contract/policy, proper greeting,
correct spelling, correct grammar, avoids
"I" or"We" attitude avoids negativism.
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
NEW BUSINESS STANDARDS
Timeliness 95% of all issues will be mailed within two (2) days of receipt of complete requirements. 100% of all issues
mailed within five (5) days of receipt of completed requirements.
Quality 99% of all issues are processed error Free.
COMPLAINT STANDARDS
Timeliness 100% of all complaints (as described in the complaint procedures) will be sent to Client within one workday.
Such complaints will be forwarded directly to Customer's Legal Department.
Quality 100% of documentation forwarded to Client on all complaints.
</TABLE>
TITLE CHANGE STANDARDS
*INCLUDES CHANGE OF OWNER, BENEFICIARY, NAME, ASSIGNMENT, PLAN, AND LEGAL
ASSIGNMENT.
TITLE CHANGES
<TABLE>
<S> <C> <C>
A. Timeliness 90% of all title changes will be processed and
confirmed within three (3) workdays of receipt.
100% within five (5) workdays.
B. Correspondence 100% of all changes will have approved form
letter or ADHOC form letter with
accompanying documentation returned to
contract owner.
C. Quality 99% to 100% of all changes are processed,
error free.
</TABLE>
<PAGE> 32
ADDRESS CHANGE STANDARDS
TIMELINESS 95% of all changes will be
processed within three (3) workdays
of receipt. 100% within five (5)
workdays.
CORRESPONDENCE 100% of all changes will have
approved form letter or ADHOC form
letter with accompanying
documentation returned to contract
owner.
QUALITY 99% to 100% of all changes are
processed error free.
<PAGE> 33
BILLING AND COLLECTION STANDARDS
GENERAL
<TABLE>
<S> <C>
A. Unallocated 98% of all collections will be reconciled and applied to the
contract on the day of receipt of the money. 100% will be
applied within two (2) workdays.
B. Quality 99% to 100% of the transactions are processed error free.
C. PAC/EFT Processing Returned PAC/EFT processing completed within three (3) workdays
following receipt.
D. Bad Checks Processing completed with three (3) workdays following
notification of bad check.
E. Cash Deposit The days deposit will be verified and reconciled daily, prior to
the cycle.
F. Fund Transfers 99% of all fund transfers (both written and telephone) received
prior to 4 P.M. eastern time will be processed that day.
G. Group Bills Group bills will be processed and mailed within two (2) work
days of system generation.
H. Direct Bills Direct bills will be processed and mailed within two (2) work
days of system generation.
I. Non Financial Changes*
*Mode changes, bank changes, add or
deletion from group 80% completed
within three (3) work days following
receipt. 100% completed within five (5)
workdays.
J. Correspondence Letter to inquires within ten (10) work days, or promised number
of days. 100% form letters in 5 days 85% requiring research in
five (5) days.
</TABLE>
<PAGE> 34
EXHIBIT H
PRODUCT SPECIFICATIONS
The Product Specifications follow this page.
<PAGE> 35
VARIABLE UNIVERSAL LIFE PRODUCT DESIGN
July 10, 1995
I. DEATH BENEFIT OPTIONS
A. General
Option 1: Level death benefit; equal to a specified amount.
Option 2: Increasing death benefit; equal to a specified amount plus
the account value.
Corridor: Under either option the death benefit will be increased by
the IRC percentages.
B. Increases/Decreases
Allowed on or after the first policy anniversary. Minimum increase amount
is $25,000. A minimum amount of $25,000 must be maintained after a
decrease.
C. Death Benefit Option Changes
Allowed on or after the first policy anniversary. The specified amount is
changed to maintain a level net amount of risk. Changes which reduce the
specified amount below the minimum allowable will not be permitted.
II. INVESTMENT OPTIONS
A. Separate Account
Only 10 sub-accounts can be utilized at one time for each policy.
There are basically no limits on the number of subaccounts
available.
B. Fixed Account
This investment option will provide a guaranteed return and will
be secured by assets in the Acacia general account. Current rates
are determined on a portfolio basis with the interest rate
guaranteed for one year based on the issue date. The guarantee in
the first year is determined by the date the premium is received.
The minimum guaranteed interest rate is 4.5%.
C. Basic Transfer Rights
Unlimited transfers are allowed between the sub-accounts and from
the separate accounts to the fixed account.
<PAGE> 36
The maximum amount which can be transferred from the fixed account
will be 25% of the fixed account value at the last anniversary or
the transfer date in the first year. To avoid the situation where
the policyowner's maximum is a very small amount, the minimum
amount that can be transferred is $100.
There are no limits as to the number of transfers during the policy
year. However, the 25% maximum is applied as a cumulative limit
during the year.
D. Fund Allocation
Maximum number of active accounts is 10. Premium allocations must
be a minimum of 5% to any one fund.
E. Telephone Transfers
This option allows the account value to be transferred between
separate accounts with telephone authorization.
F. Automatic Rebalancing
The policy provides for the automatic rebalancing of the funds at
the end of the policy quarter to the specified allocation
percentages as indicated in the addendum to the application. In
addition, the policyowner may elect to participate in a formal
asset allocation program. As part of this program, the policyowner
will complete a risk tolerance questionnaire. A score will be
tabulated and a model portfolio allocation chosen based on this
score. Th . is model will then be identified on the policyowner's
master record. As with the specified allocation percentages, the
policyowner's funds will be rebalanced on a policy quarter to the
model portfolio percentages. In addition, the model portfolio
percentages may be changed by Acacia as is deemed necessary due to
fund manager changes or changes in the economic environment. It is
anticipated that these "macro" changes will not occur frequently.
Automatic rebalancing will take place each quarter based on the
election date.
G. Dollar Cost Averaging
A policyowner may deposit a lump sum into the money market fund
that subsequently gets distributed to other funds during the course
of the year.
III. PRODUCT CHARGES AND LOADINGS
A. Front-end Premium Loads
Premium Tax Load: 2.25% of premiums in all years
<PAGE> 37
B. Monthly Charges
First Year: $27 per month
Maintenance: $ 8 per month
The first year charge does not apply in the first year of an
increase in coverage.
Cost of Insurance: Guaranteed: 1980 CSO ALB NS/SM
Current: Select and Ultimate rates
that vary by policy face amount.
To determine the cost of insurance
rate for an increase, the face
amount for the base policy and all
increases including the new
increase are totaled. This amount
determines the face amount band for
the new increase. The cost of
insurance rate then is based on
this band and the attained age of
the insured. This results in the
base policy and increases having
cost of insurance rates at
different durations.
C. Asset Based Charges
Mortality & Expense: 0.90% of separate account
decreasing 0.05% per year from
years 16 - 24 to 0.45% thereafter.
D. Surrender Charge
30% of premiums received up to target subject to the SEC maximums
in year 1 to 7. Then grading down 10% per year until reaching 0 in
year 10.
The target premium varies by issue age, gender, under-writing
classification and face amount banding
The surrender charge percentages above will apply to each increase
in coverage individually. Surrender charges for an increase will
be based solely on the attained age target premium associated with
the increase. Any change in banding due to an increase in face
amount will not impact the target premium at issue and therefore
the surrender charge at issue, it remains unchanged. To determine
the appropriate banding of the target premium for the increase,
combine the face amount at issue and all subsequent increases.
Surrender charges will not decrease with a decrease in coverage.
IV. INVESTMENT MANAGEMENT EXPENSES
See individual prospectus for each sub account.
<PAGE> 38
V. COMPENSATION
A. Premium Based
<TABLE>
<CAPTION>
Sales Service
<S> <C>
Year 1: 16% 4%
Year 2: 16% 4%
Year 3: 16% 4%
Year 4: 16% 4%
Year 5+: 2%.
</TABLE>
B. Asset Based
Year 5+: 0.25%
VI. LIQUIDITY FEATURES
A. Loans
Loans are available after the first policy year. Loan interest is
payable in arrears at 6.45%. Minimum guaranteed interest will be
credited for loaned amounts. The minimum loan amount is $1000.
Zero Cost Net Loans are available at the end of 5 years if the
assets are greater than the cumulative premiums paid.
The maximum loan value is equal to 90% of the cash surrender value
(net of current indebtedness) . The loan will be processed in the
general account. If there are insufficient funds in this account,
the shortfall will be transferred from the sub-accounts
proportionately.
Thirty days prior to the anniversary, any loan interest that has
accrued over the policy year will be billed.
Any loan repayments will be allocated based on the allocation
percentages. Loan repayments must be designated as such. Premiums
will not automatically be applied as loan repayments. This process
allows automatic rebalancing and dollar cost averaging to continue
as if no loan existed.
B. Partial Withdrawals
Partial withdrawals are available after the first year.-&The policy
face amount will be reduced on a LIFO basis by the amount of the
partial withdrawal.
There is a partial surrender charge of 8% of the amount withdrawn
or $25 whichever is greater. Partial surrender charges apply
during the surrender charge period and are capped at the full
surrender charge that would be applied if a full surrender occurred
at the time of the partial surrender.
<PAGE> 39
Partial withdrawals are allocated proportionately across the
allocations. If a policyowner chooses to do otherwise then any
elections for asset allocation are void.
The default setting will be to process a partial withdrawal a net
basis. As a result the client will receive a check for less than
the requested amount.
C. Systematic Partial Withdrawals
A systematic withdrawal that allows you to preauthorize periodic
withdrawals prior to retirement. The withdrawal may be monthly,
quarterly, or annually. The minimum withdrawal amount is $100.
Partial surrender charges would be assessed if applicable.
VII. RIDERS
Other Insured Rider, Children Insurability Rider, Guaranteed
Insurability Rider, Accidental Death Benefit Rider, Base Insured
Term Rider to age 70, Accelerated Death Benefit Rider, and Total
Disability Rider.
Total disability rider provides a monthly benefit upon disability
that is applied automatically as premium to the policy owner's
account retroactively to the date of disability. The maximum
monthly benefit that a policyowner may choose is the greater of the
planned periodic premium or the guideline annual premium.
VIII. NO LAPSE GUARANTEE PREMIUM
The policy is guaranteed not to lapse during the first 5 years if
the cumulative premiums paid equal or exceed the cumulative
Benchmark Premium for the number of months the policy is inforce.
The benchmark premium varies by issue age, gender, underwriting
classification, and face amount banding. Increases during the no
lapse guarantee will cause an adjustment to the benchmark premium
but will not extend the no lapse guarantee beyond the original five
years. The benchmark premium for the original face amount will not
change. A benchmark premium for the increase amount will be
calculated and added to the original benchmark premium. The face
amount banding for the benchmark premium on the increase will be
based on the new face amount.' ,
Like surrender charges, the benchmark premium does not decrease
when a decrease in face amount occurs.
A policy will be given pending lapse status during the first five
years if the sum of the premiums paid do not equal or exceed the
sum of the required benchmark premium. Otherwise, a policy will be
given pending lapse status when the cash surrender value is not
sufficient to cover the monthly deductions.
IX. GUARANTEED DEATH BENEFIT
If the Guaranteed Death Benefit Premium (GDB premium)is paid in
each year, the policy will guarantee the benefit to age 65 or 10
years whichever is longer. As long as this premium is paid the
policy will stay inforce no matter what the values are in the
various accounts.
<PAGE> 40
X. BANDING
Band I $ 25,000 - $99,999
Band II $100,000 - $499,999
Band III $500,000 +
These banding limits are used in the determination of target premiums,
benchmark premiums and cost of insurance rates.
Minimum Face Amount at Issue - $100,000
Minimum Face Amount for an OIR - $25,000
Note: There will be no interest rate banding.
XI. ISSUE AGES
0-80
XII. RISK CLASSIFICATION
Preferred non-smoker - ages 21-55 inclusive
Non smoker ages 21-80
Standard ages 0-80
Unisex basis
XIII. LAPSE AND REINSTATEMENT
A policy will lapse after a 62 grace period without value. Any
indebtedness on the date of lapse must be repaid at the time of
reinstatement. Any unpaid surrender charges will be reinstated.
A lapsed policy may be reinstated anytime within 5 years after the
date of lapse and before maturity by submitting:
1. A written application for reinstatement.
2. Evidence of insurability.
3. A premium that is large enough to cover the monthly deductions
for at least three policy months. If a premium is received
that is not large enough, it will be refunded.
XIV. FREE LOOK
The policyowner may cancel the policy within 20 days from the mail
date. Acacia will refund the total of all premiums paid.
Transfers from the Money Market fund will occur 15 days from the mail
date.
XV. TAX/REGULATORY
A policyowner may deposit up to the stated Guideline Premium in order
to meet the definition of life insurance prescribed by the
regulations. If a deposit is made that causes the guideline to be
exceeded, the payment should be rejected. The regulations stipulate
that both a single premium and level premium be calculated for each
policy. The single premium is regarded as the limitation until the
time that the level
<PAGE> 41
premium multiplied by the number of years since inception of the
policy exceeds the single premium. At this point in time, the level
premium is added to the prior year's limitation to obtain the current
year's limitation.
Both the single premium and level premiums are calculated based on the
insured's age, gender, death benefit option, smoker classification,
and underwriting classification. Each rider attached to the policy
will increase the base policy's Guideline Premiums.
When increases or decreases are processed, new Guideline Premiums are
calculated. The approach is to adjust the original Guideline Premium
for the Guideline Premium associated with the increase or decrease.
Any transaction that causes a change in the policy face amount will be
classified as an increase or decrease. The adjustment to the original
Guideline Premium will be calculated using the attained age and
underwriting classification of the insured at the time of the change.
Several issues become apparent if a decrease in the face amount is
significantly large. one, the adjusted Guideline Premium could be
negative resulting in decreasing .0 limitations instead of the normal
increasing pattern. A second issue arises when the policy becomes
excessively funded under the regulations after a decrease.' In order
to continue to qualify as life insurance under the regulations, a
withdrawal is processed called a forced withdrawal. The forced
withdrawal is equal to the excess of premiums paid over the adjusted
Guideline Premium at the time of the change. A partial surrender
could also result in a forced withdrawal. Surrender charges will be
processed for the withdrawal if applicable. The withdrawal could be
classified as taxable income if the decrease causing the withdrawal
occurs within 15 years of original issue date, the recapture ceiling
is exceeded and there is a gain in the contract. The recapture
ceiling is as follows:
Years I - 5
The greater of:
1. Premiums paid less the Guideline
Premium limitation after the forced
withdrawal.
2. Cash Surrender Value prior to the
forced withdrawal less face amount
after the change divided by the
corridor percentage.
Years 6 +
Cash Surrender Value prior to the forced
withdrawal less face amount after the change
divided by the corridor percentage.
TAMRA testing, also known as the 7-Pay Test, is an additional, not an
alternative, test to the Guideline Premium rules. Failing the 7-Pay
Test results in the contract being classified as a modified endowment.
Modified Endowments are still considered life insurance. The test is
performed during the first seven years that a policy is in force and
for seven years after a material change occurs on the policy. It is
possible to reclassify a policy that has failed the seven pay test.
If the policyowner receives a refund for the premiums in excess of the
cumulative seven pay premium plus interest within 60 days after the
end of the contract year in which the policy failed the seven pay
test, the policy will not be classified as a modified endowment.
<PAGE> 42
The test utilizes seven pay premiums which are based on the insured's
age, gender, smoking status and underwriting classification. Seven
pay premiums are also calculated for each rider attached to the
policy.
If a reduction in base policy face amount is processed within seven
years of issue or seven years after a material change, the seven pay
premium is recalculated as if the reduced amount was in effect at the
time of issue or time of material change. Distributions made within
two years of the failure of the 7-Pay Test are thought to have been
made in anticipation that the contract would be classified as a
modified endowment.
A material change includes any change that results in a death benefit
change, not a face amount change. Therefore a death benefit option
change from B to A where there is an increase in face amount, not
death benefit, does not result in material change calculations.
Any premium received at issue that is classified as 1035 exchange
money should be included in the calculation of the actual seven pay
premium. However, the 1035 money should not be counted as premium for
the modified endowment test. In other words, 1035 money can not cause
a contract to be classified as a modified endowment at issue but it
lowers the seven pay premium.
XVI. NET AMOUNT AT RISK CALCULATIONS
In order to calculate the cost of insurance deduction, net amount at
risk must be determined for the base policy and all increases.
Acacia currently, for Type A policies, makes an allocation of the
account value to the oldest coverage. Once the account value exceeds
the discounted face amount of this coverage, the excess is allocated
to the next oldest coverage. For Type B policies, the net amount at
risk is equal to the discounted face amount, not death benefit, with
no allocation of account value. For all riders except T-70 and the
OIRS, the net amount at risk equals the face amount of the policy.
For the T-70 and OIRS, the net amount at risk is the discounted face
amount.
Example:
<TABLE>
<S> <C>
Base: $ 101,500
Increase: $ 50,000
Account Value: $ 1,296
Base: $101.500 - $1,269 = $99,792
--------
1.00407
Increase: $50,000 = $49,797
--------
1.00407
Total Net Amount at Risk $149,589
</TABLE>
<PAGE> 43
ADDENDUM TO SERVICE AGREEMENT
BY AND BETWEEN
ACACIA NATIONAL LIFE INSURANCE COMPANY
AND
FINANCIAL ADMINISTRATIVE SERVICES, INC.
Effective May 30, 1996, the Service Agreement dated September 1, 1995 by and
between ACACIA National Life Insurance Company and Financial Administrative
Services, Inc., is hereby amended as follows:
1. Replace all references to ACACIA Mutual Life Insurance Company by
ACACIA National Life Insurance Company.
2. Add to Exhibit H the following product description labeled "Variable
Annuity," dated 02/28/96 which is attached hereto and made a part of
the Addendum.
3. Add to Exhibit C the schedule labeled "Pricing Schedule for VA" which
is attached hereto.
In Witness Whereof, the parties hereto executed this Addendum as of the date of
this Agreement.
<TABLE>
<CAPTION>
ACACIA NATIONAL LIFE FINANCIAL ADMINISTRATIVE
INSURANCE COMPANY SERVICES, INC.
<S> <C>
By: By:
------------------------------- --------------------------------
Title: Title:
----------------------------- -----------------------------
Date: Date:
------------------------------ -------------------------------
</TABLE>
<PAGE> 44
EXHIBIT C
PRICING SCHEDULE FOR VARIABLE ANNUITY
SYSTEM IMPLEMENTATION FEE
INITIAL SET UP: $75,000
- Loading all appropriate plan parameters to establish the
customers' product(s) in the FAS Data Processing environment.
- Implementing the billing, premium collection and commission
payment process.
- Formatting and implementing of the Policyholders' Annual
Statement and other client-specific forms.
- Implementing of accounting subsystem procedures and chart of
accounts.
- Workflow.
- Administrative procedures.
- System testing with appropriate user sign-off.
- Implementation of appropriate management reporting.
- Implementing Voice Response Unit standard script.
- Business specs.
- Trade System.
- Work in progress.
SYSTEM MODIFICATIONS
The following are modifications that have been identified as of the date this
Addendum. All subsequent modifications will be approved as separate service
requests outside of this Agreement.
<TABLE>
<S> <C> <C>
- Marketer Interfaces. $ 2,400
- Age of Premium Surrender Charge. $ 4,200
</TABLE>
<PAGE> 45
EXHIBIT C (CONTINUED)
<TABLE>
<S> <C> <C>
- Guaranteed Death Benefit. $ 3,600
- Nursing Home Rider. $ 2,400
- Scheduled Reallocation of Fixed Fund Interest. $ 7,200
- Free Withdrawal. $12,000
-------
- Total Modification. $31,800
=======
</TABLE>
ADMINISTRATIVE SERVICES - MONTHLY BILLING
Policy Issue
FULL POLICY ASSEMBLY SERVICE
<TABLE>
<CAPTION>
Per Policy Fee In-Force Policy Count
<S> <C>
$15.00 1 - 5,000
14.50 5,001 - 10,000
14.00 10,001 - 15,000
13.50 15,001 - 20,000
13.00 20,000 +
</TABLE>
Administration Fees
ACTIVE POLICIES - PREMIUM PAYING
<TABLE>
<CAPTION>
MONTHLY FEE ANNUALIZED
<S> <C>
3.40 40.80
</TABLE>
Inactive Policies
$ .50 per month per policy.
Minimum Monthly Administration Fees = $ 7,000 and applies to all products in
total that are included in this Agreement. Policy issue fees are not subject
to the minimum monthly administration fee.
<PAGE> 46
EXHIBIT C (CONTINUED)
VARIABLE ANNUITY
DELIVERY AND PAYMENT SCHEDULE*
Target Date will be the date the work is completed.
<TABLE>
<CAPTION>
CYCLE: FEE**
- ------ -----
<S> <C>
Contract signed 20%
Cycle 1: 20%
- --------
New Issues
Delivery Package
Issue Calcs
- Surrender Charges
- Fund Allocations
- Premium Limitations
- Policy Fees
- Gain/Loss
Payment Process-mg
- Initial Payment
- Subsequent Premium
- 1035 Exchange
Bills
Confirmations
Fund Transfers
Fund Level M&E
ALS Accounting
Cycle 2: 20%
- --------
Policy Changes
- Billing Changes
- Address Changes
- Allocation Changes
Partial Withdrawals
Fixed Fund Interest Reallocation
Account Rebalancing
Dollar Cost Averaging
Guaranteed Death Benefit
Quarterly Statements
MACOLA/General Ledger Interface
Valuation Interface
Field Compensation Interface (FCS)
</TABLE>
<PAGE> 47
EXHIBIT C (CONTINUED)
<TABLE>
<S> <C>
Cycle 3: 20%
- --------
Free Look Processing
Death Processing
Full Surrender Processing
Reversals
Undo/Redo
Life Guide Interface
Reinsurance Interface
Trade System
VRU Interface
TSA Loan Processing
Cycle 4: 20%
- --------
Outstanding System Problem Report Clean-up
</TABLE>
* Payment to be provided within 30 days of delivery, except as stated
below.
The production date is scheduled for July 1, 1996. Customer and FAS
acknowledge that the implementation and modification fees are fixed,
and are based upon the work as described herein to be completed on or
before the production date. Once Customer has accepted and approved
Cycle 4, Customer agrees to pay the outstanding balance of the above
fees and to the commencement of services and associated administrative
fees on the above production date.
** % of System Implementation plus cost for Modifications and Interfaces.
<PAGE> 48
VARIABLE ANNUITY - 2/28/96
SECTION I - PRODUCTS NEEDS ANALYSIS:
We believe the majority of initial sales will be done by the Acacia career
field force. We must also be cognizant of the fact that many sales in the next
24 months will come from people "we've not yet met." By this, we're referring
to people who will come to a center by:
(a) individual recruiting by MD's
(b) acquisition (example: Orange County Financial Center)
(c) T.A.G. "1099" brokers.
The reason this is mentioned is that the design of this product must maintain a
delicate balance. On one hand, the product must be profitable for The Acacia
Group and we believe we can accomplish this since our career field force does
not require the most competitive product "on the street." On the other hand,
the product cannot be "2nd class" because as we seek to attract new people to
the organization their first questions revolve around our product portfolio.
We believe the best way to maintain this delicate balance is to set a target
for total Basis Points (B.P.'s) that will come out of the product for all
expenses. These expenses include:
(a) mortality and expense charges
(b) fund management fees
(c) ongoing fund value based policy fee (if any).
The target does not take into account any flat policy fee. We believe our
total target for these expenses should be between 210 and 220 B.P.'s. If we
could have a profitable product and "take less out" and maintain competitive
features, a lower B.P. target would be even better and could create additional
sales.
Both Acacia career account managers and independent brokers should be
comfortable recommending this product. The contract is designed to aid
individuals in long-term accumulation planning for retirement and will offer a
fixed account option in addition to the variable options.
One target market for the product includes clients approximately age 50 who are
10 to 15 years from retirement. Additionally, there is a mature market where
the tax deferral aspect of annuities has great appeal. These clients have
accumulated a nest egg, but are not drawing income from it at present. These
prospective clients range in age from 55 to 95. The competitive target will be
the cash surrender value at the end of the surrender charge period.
Projected Sales:
We are projecting sales of 30,000,000 in our first 12 months of full
production. Average case size is projected to be $12,000. This would result
in 2,500 policies. 20% or 500 of those are expected to
1
<PAGE> 49
have ongoing premiums. The other 2,000 policies would be one time payments.
It is projected that the 500 policies receiving ongoing premium would average
$3,000 in first year deposits. Average first year premium for one time payment
policies would be $14,250.
We project that sales would fall in these age ranges:
<TABLE>
<CAPTION>
% of Sales
Age Range (by premium amount)
--------- -------------------
<S> <C>
20 - 30 5
30 - 40 12
40 - 50 20
50 - 60 25
60 - 70 21
70 - 80 12
(greater than) 80 5
</TABLE>
Preferred Compensation Design:
(1) It is preferred that Acacia account managers receive the same compensation
(including % commission and ECD factor) as the fixed annuity portfolio. If it
turns out there is not as much "juice" in the product our fall back (although
not the preferred ) is a reduced ECD factor. We believe this compensation
schedule will have 2 major impacts:
(a) It will be compelling for any Acacia account manager to place
Variable Annuity business with us once these commissions will
not be subject to Broker/Dealer pass through.
(b) New account managers in particular will be drawn to the Acacia
product. If we're competitive and pay fairly, why would they
look elsewhere? Even if they were to look outside (Marketing
will need to develop rules with regard to whether Class II
will still be allowed, a new account manager's broker/dealer
pass through is generally very low.
We are hoping for a dual commission; dual back end product. Specifications
would be similar to the North American Security Life Products Venture (a
traditional fully loaded product) and Vision. The Vision product has a 3 year,
3% back end. Commissions are total Gross Dealer Reallowance divided by 5, then
paid over 5 years (example: G.D.R. is 6%, Vision pays 1.25% per year for 5
years then the traditional .25 B.P.'s trailer). This compensation schedule has
an appeal to the fee based planning Community. We can probably gather some
intelligence through Doug Wood of Wood Logan (N.A.S.L.'s Marketing arm) about
their experience with this pricing. Our prediction is that initial sales will
be heavily tilted toward the traditional fully loaded product, but that 24
months from now, we would be glad to have the "Levelized" commission, too.
2
<PAGE> 50
(2) Our product must have trailer commissions. This will be challenging
because the norm for trailer commissions is becoming 25 B.P.'s starting in
month 13. Since we are concerned with our 210-220 B.P. target, it is
interesting to note that our career account managers don't need a full 25 B.P.
trailer if there is no Broker-Dealer pass through, the brokerage community
continues to need a full 25 B.P. trailers.
(3) (a) It is preferred that National Associates be paid in same amounts
as currently (3 1/2% commission plus 50% E.R.A.).
(b) We recommend that we look forward to how T.A.G. "1099's" will be
paid. This distribution system will require a 6% G.D.R.
(4) Per previous discussions, it is important that we put trailing
commissions on the fixed annuity portfolio. This could have 2 desired
effects.
(a) improved persistency on that block of business.
(b) ongoing compensation similar to the variable so a minimum
disparity between the two exists.
SECTION II - PRODUCT SPECIFICATION
The product will be developed with one contract covering two objectives:
(a) accepting flexible premiums
(b) accepting single premiums
THE CONTRACT WILL BE OFFERED ON BOTH A QUALIFIED AND NON-QUALIFIED BASIS.
Minimum Premium Deposit:
The total premium paid during the first year must be at least $300. No
additional premium payments are required. If the policyowner chooses,
additional premium payments will be accepted. Each premium must be at least
$30. However, if after five years, the total account value is less than $2000
for twelve consecutive months we may exercise our right to terminate the
contract.
Maximum Annual Premium Deposit:
$500,000 limit into the general account without prior approval by the Exception
Committee. There is no limit on the amount of deposits into the variable
accounts.
3
<PAGE> 51
Issue Ages:
0 - 85
The contract can be issued from ages 0 - 85. However, no subsequent deposits
will be accepted after age 75.
Maturity Age: 90
At maturity, the policyowner will select from among Acacia's settlement
options. There will be no variable payout available.
Death Benefits:
The contract will guarantee a death benefit for issue ages up to age 75. This
death benefit will be redetermined every five years. The last adjustment will
be at age 80. In the first five year period, the guaranteed death benefit is
equal to the sum of' the premiums paid less any partial withdrawals. Every
five years thereafter the guaranteed death benefit is the greater of the
current guaranteed death benefit or the current account value. In all years
the guaranteed death benefit will never be lss than premiums paid less any
withdrawals.
For those over issue age 75, the death benefit will always be at least equal to
the total premiums paid less any withdrawals. Surrender charges will not be
deducted at the time of death.
Contract Charges:
<TABLE>
<S> <C>
Policy Fee: $3.50 will be deducted monthly beginning with beginning with the first premium
deposit. The policy fee will be waived anytime the account value exceeds
$50,000.
Asset Based Administrative Charge: 10 basis points applied annually to the account value in the variable accounts on
the anniversary.
Mortality and Expense Risk Fee (M&E): 125 basis points applied annually to the account value in the variable accounts
on the anniversary. The M&E is guaranteed to decrease by five basis points
beginning in year 16 until it reaches 50 basis points at the end of year 30.
</TABLE>
4
<PAGE> 52
Each fund manager charges an asset based charge to reimburse themselves for
managing the fund. The fees vary by fund and are deducted on a daily basis
from the amounts in each of the allocated funds.
Premium taxes are deducted from the premium if the policy is issued in a state
with premium taxes.
<TABLE>
<CAPTION>
Surrender Charges:
- ------------------
<S> <C>
Years 1 - 3 8%
Year 4 6%
Year 5 4%
Years 6+ 0%
</TABLE>
The surrender charge is a percentage of premium and applies only to those
payments received within five years of the date of the surrender. The
calculation will be on a first in first out basis. Partial surrenders will be
charged based on the above schedule.
Surrender charges will be waived if the policyowner wishes to make withdrawals
as part admittance to a nursing home. Acacia will be responsible for
determining whether or not the charges are waived.
Liquidity Features:
10% Non Cumulative Free Withdrawals:
The percentage is applied on an annual basis to the total
premiums paid less any previous withdrawals as of the last
anniversary. The withdrawal will be processed pro rata across
all fund allocations. Less than 10% can be taken at a time
and more than one withdrawal can be made in a year as long as
the total in a year does not exceed 10%. If the policyowner
takes less than 10% in a year, the remaining amounts can not
be carried over to the next year. This feature is not
cumulative.
Withdrawal of any earnings arising from the policy year across all
funds including the general account free of surrender charges. Any
remaining earnings amounts, in the fixed account may be transferred as
part of the transfer provisions.
5
<PAGE> 53
Systematic Partial Withdrawals:
Policyowners choosing this option will withdraw a level dollar
amount of their account value on a periodic basis. Any
withdrawals in excess of the 10% free will be charged a
partial surrender charge. Included with this feature is
complete tax reporting capabilities.
Transfers:
We will allow unlimited transfers among the variable accounts
if the policyowner has made deposits into the general account,
we will allow a maximum transfer from this account of 10% of
premiums paid less withdrawals and 100% of the interest
earnings in this account into the variable accounts per year.
In addition, these transfers may occur on a systematic basis
if the policyowner so chooses. In this case the client will
be asked to indicate which variable accounts the transferred
funds will be placed. These provisions are in addition to the
10% free withdrawal right. If a client is utilizing both the
free withdrawal and transfer rights then any free withdrawals
should be processed first. The combination of the free
withdrawal and transfers will require us to consider funds
interest first, free withdrawals second, then premium.
Loans:
Loans will be available for only the qualified market. Loans
are subject to provisions of the Internal Revenue Service Code
and to applicable retirement program rules. We will use FAS
base system loan functionality without modification to process
loans. No loan requests will be accepted directly from the
policyowner for other than a 403(b) (TSA) plans. Retirement
plan fiduciaries for all other qualified plans will be
responsible for calculating the proper loan amounts,
communicating the proper loan amounts to FAS, and preparing
the proper tax reports.
Loan interest rate: 6% payable in arrears
Impaired interest rate: 4%
This is the interest rate credited to the collateral
fund while the loan is outstanding.
Maximum loan value: Maximum allowed by the plan and the tax
law.
The loan amount will be transferred on a pro rata basis across
all fund allocations, to the general account.
Allocation Options:
The policyowner may choose to use automatic rebalancing. At the end of the
quarter (or another time period as specified by the policyowner), the funds
will be redistributed to the allocation percentages chosen by the policyowner.
6
<PAGE> 54
Instead of developing their own allocation percentages, the policyowner may use
one of the 10 predefined Ibottson models. The policyowner uses a risk profile
questionnaire to determine which allocation model to choose. This program
includes automatic rebalancing to the chosen model.
Dollar Cost Averaging is a third allocation option. The policyowner will
specify an amount and the frequency to be transferred from the money market
account into the chosen funds.
Investment Options: (Management fees in parentheses)
Alger American Growth Portfolio (.86)
Alger American Mid Cap Growth Portfolio (.97)
Alger American Small Capitalization Portfolio (.96)
Acacia Capital Corporation CRI Money Market Portfolio (.57)
Acacia Capital Corporation CRI Balanced Portfolio (.93)
Acacia Capital Corporation CRI Strategic Growth Portfolio (1.56)
Dreyfus Stock Index Fund (.41)
Neuberger & Berman Limited Maturity Bond Portfolio (.66)
Neuberger & Berman Growth Portfolio (.97)
Strong Advantage Fund II (.60)
Strong Asset Allocation Fund II (.80)
Strong International Stock Fund II (1.00)
Strong Discovery Fund II (1.00)
Van Eck Gold and Natural Resources Fund (1.00)
Acacia National Life Insurance Company Fixed Account (N/A)
Fixed Account Options:
Initial Investment Guarantee Periods:
Acacia will offer the policyowner recurring one year
guarantees.
No market value adjustment will be made on any fixed account
transactions.
The minimum guarantee interest rate is 4%.
Compensation:
The Account Manager and Brokers will be able to select between two compensation
schedules. The main difference between the two schedules is the percentage of
premium. One schedule has a higher percentage of premium with a lower trailer
that begins in a later year. This is referred to as the Heaped Schedule. The
second schedule is referred to as Levelized because the compensation is lower
on each deposit but the trailer begins at the end of the first year at a higher
rate resulting in a compensation package that is more level from year to year.
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<PAGE> 55
The commissions will be paid on an attained age basis. If the policy was
issued to a 65 year old and no further premiums were receive until age 70, the
commission on the new premium will be based on the age 70 and over rates.
Heaped Schedule:
Ages up to 70
3.00% of Premium paid at the time the premium is received. 10
Basis Points applied to the Account Value effective on the
5th policy anniversary. This will continue to be paid for
the life of the contract
Ages 70 and over
2.25% of Premium paid at the time the premium is received.
10 Basis Points applied to the Account Value effective on the
5th policy anniversary. This will continue to be paid for
the life of the contract.
ECD Conversion Factor 165 - this factor is used to determine the
bonus and benefits to be paid to the Account Manager and the
compensation for the MD.
Levelized Schedule:
Ages up to 70
1.50% of Premium paid at the time the premium is received. 25
Basis Points applied to the Account Value effective on the
lst policy anniversary. This will continue to be paid for
the life of the contract.
Ages 70 and over
1.125% of Premium paid at the time the premium is received.
25 Basis Points applied to the Account Value effective on the
1st policy anniversary. This will continue to be paid for
the life of the contract.
ECD Conversion Factor 165
There will be no difference in the interest rate or commission paid based on
the size of the deposits. This is otherwise known as banding.
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<PAGE> 56
For the brokers and PPGAs the following percentages will apply:
Heaped Schedule:
Ages up to 70
5.00% of Premium paid at the time the premium is received. 10
Basis Points applied to the Account Value effective on the
5th policy anniversary. This will continue to be paid for
the life of the contract.
Ages 70 and over
3.75% of Premium paid at the time the premium is received. 10
Basis Points applied to the Account Value effective on the
5th policy anniversary. This will continue to be paid for
the life of the contract.
Levelized Schedule:
Ages up to 70
3.00% of Premium paid at the time the premium is received. 32
Basis Points applied to the Account Value effective on the
1st policy anniversary. This will continue to be paid for
the life of the contract.
Ages 70 and over
2.25% of Premium paid at the time the premium is received. 32
Basis Points applied to the Account Value effective on the
1st policy anniversary. This will continue to be paid for
the life of the contract.
9
<PAGE> 1
EXHIBIT 9
July 17, 1996
Acacia National Life Insurance Company
51 Louisiana Avenue, N.W.
Washington, DC 20001
Gentlemen:
With reference to the Registration Statement on Form N-4, filed by Acacia
National Life Insurance Company and Acacia National Variable Life Insurance
Separate Account II with the Securities and Exchange Commission covering its
flexible premium deferred variable annuity policy, "Allocator 2000", I have
examined such documents and such law as I considered necessary and appropriate,
and on the basis of such examination, it is my opinion that:
1. Acacia National Life Insurance Company is duly
organized and validly existing under the laws of the
Commonwealth of Virginia and has been duly authorized
to issue variable annuity policies by the Corporation
Insurance Commission of the Commonwealth of Virginia.
2. Acacia National Variable Life Insurance Separate
Account II is duly authorized and existing separate
account established pursuant to the provisions of
Section 38.2.3113 of the Code of Virginia.
3. The flexible premium deferred variable annuity
policy, when issued as contemplated by said Form N-4
Registration Statement, will constitute legal,
validly issued and binding obligations of Acacia
National Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to said
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/
Ellen Jane Abromson
2nd Vice President & Associate Counsel
Acacia National Life Insurance Company
<PAGE> 1
EXHIBIT 10(A)
[SUTHERLAND, ASBILL & BRENNEN LETTERHEAD]
July 22, 1996
The Acacia Group
51 Louisiana Avenue, N.W.
Washington, DC 20001
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Prospectus filed as part of the registration statement
on Form N-4 for Acacia National Variable Annuity Separate Account II (file no.
333-03963). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNEN
By: /s/ FREDERICK R. BELLAMY
--------------------------
Frederick R. Bellamy
<PAGE> 1
EXHIBIT 10(B)
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Pre-Effective Amendment No. 2 dated July 22,
1996 on Form N-4 (File No. 333-03963) of our report dated February 14, 1996, on
our audit of the financial statements of Acacia National Life Insurance Company
as of and for the years ended December 31, 1995 and December 31, 1994. We also
consent to the reference to our Firm under the caption "Experts."
/s/ COOPERS & LYBRAND LLP
Washington, D.C.
July 22, 1996
