<PAGE> 1
File Nos. 333-03963, 811-07627
As filed with the Securities and Exchange Commission on May 1, 1997
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
Registration Statement Under the Securities Act of 1933 [x]
Post-Effective Amendment No. 1 [x]
AND
Registration Statement Under the Investment Company Act of 1940 [x]
Amendment No. 1 [x]
(Check appropriate box or boxes.)
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:
Ann B. Furman, Esq.
Jorden Burt Berenson & Johnson, LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007
It is proposed that this filing will come effective:
[ ] immediately upon filing pursuant to paragraph (b)
[x] on May 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Registrant has heretofore registered an indefinite amount of flexible premium
deferred variable annuity policies under the Securities Act of 1993 pursuant to
Rule 24f-2 under the Investment Company Act of 1940, and on February 28, 1997,
filed its Rule 24f-2 Notice for its most recent fiscal year.
------------------------------------------------
<PAGE> 2
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
<TABLE>
<CAPTION>
CAPTION(S) IN THE STATEMENT
---------------------------
ITEM OF FORM N-4 CAPTION(S) IN THE PROSPECTUS OF ADDITIONAL INFORMATION
---------------- ---------------------------- -------------------------
PART A: INFORMATION REQUIRED IN A PROSPECTUS
<S> <C>
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 Surrender Charge Calculation
Deductions;
The Portfolios
7. General Description of Summary; The Policy; Annuity General Provisions; Fixed
Variable Annuity Contracts Payments; Voting Rights; Account
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
CAPTION(S) IN THE STATEMENT
---------------------------
ITEM OF FORM N-4 CAPTION(S) IN THE PROSPECTUS OF ADDITIONAL INFORMATION
---------------- ---------------------------- -------------------------
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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 Data Performance Data Performance Data Calculations;
Performance Figures
22. Annuity Payments Annuity Payments General Provisions
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
PROSPECTUS
THE DATE OF THIS PROSPECTUS IS: MAY 1, 1997
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
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 an 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 nineteen 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:
<TABLE>
<CAPTION>
PORTFOLIO NAME CATEGORY
<S> <C>
Alger American Growth Portfolio Large Cap Growth
Alger American MidCap Growth Portfolio MidCap Growth
Alger American Small Capitalization Portfolio Small Cap Growth
Acacia Capital Corporation Calvert Responsibly Invested Money Market Portfolio Cash-Money Market
Acacia Capital Corporation Calvert Responsibly Invested Strategic Growth Portfolio Strategic Growth
Acacia Capital Corporation Calvert Responsibly Invested Capital Accumulation Portfolio Managed Growth
Acacia Capital Corporation Calvert Responsibly Invested Global Equity Portfolio Global Equity
Acacia Capital Corporation Calvert Responsibly Invested Balanced Portfolio Balanced Growth
Dreyfus Stock Index Fund S & P 500 Index
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Portfolio Limited Bond
Neuberger & Berman Advisers Management Trust Growth Portfolio Long Term Value
Oppenheimer Capital Appreciation Fund Long Term Growth
Oppenheimer Growth Fund Strategic Growth
Oppenheimer Growth & Income Fund Established Growth &
Income
Oppenheimer High Income Fund High Income
Oppenheimer Strategic Bond Fund Strategic Bond
Strong International Stock Fund II International Growth
Strong Discovery Fund II Aggressive Growth
Van Eck Worldwide Hard Assets Fund Aggressive Global
</TABLE>
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
1
<PAGE> 4
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.
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.
2
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Free Look Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Charges Associated with the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Partial Withdrawals and Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Federal Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Summary of Fees and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ANLIC AND THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Acacia National Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Alger American Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Acacia Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Dreyfus Stock Index Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . . . . . . . . . . 10
Oppenheimer Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Strong Variable Insurance Funds, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Van Eck Worldwide Hard Assets Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Risks Attendant to Investments in Junk Bonds . . . . . . . . . . . . . . . . . . . . . . 13
Risks Attendant to Investments in Foreign Securities . . . . . . . . . . . . . . . . . . 13
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Resolving Material Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
THE POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Issuance of a Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Telephone Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Free Look Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Allocation of Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Surrender and Partial Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Automatic Rebalancing, Dollar Cost Averaging, and Interest Sweep Programs . . . . . . . 18
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Required Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Annual Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Administrative Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C>
Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Reduction In Charges For Certain Groups . . . . . . . . . . . . . . . . . . . . . . . . 22
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Election of an Annuity Payment Option . . . . . . . . . . . . . . . . . . . . . . . . . 22
Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Available Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Annuity Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Taxation of Annuities in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PUBLISHED RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
POLICY REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
4
<PAGE> 7
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.
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
PERIOD the General Account accumulate interest at a
Guaranteed Interest Rate. Interest rates will
be determined on no less than an annual basis.
5
<PAGE> 8
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.
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.
6
<PAGE> 9
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
WITHDRAWALS level 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.
7
<PAGE> 10
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 nonqualified 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 nineteen Sub-accounts
("Sub-accounts"), each of which invests solely in shares of a portfolio of one
of seven open-end, registered investment companies ("Funds"). Currently, the
following nineteen Portfolios are available under the Policy:
Acacia Capital Corporation Calvert Responsibly Invested Money Market Portfolio
Acacia Capital Corporation Calvert Responsibly Invested Strategic Growth
Portfolio
Acacia Capital Corporation Calvert Responsibly Invested Capital Accumulation
Portfolio
Acacia Capital Corporation Calvert Responsibly Invested Global Equity Portfolio
Acacia Capital Corporation Calvert Responsibly Invested Balanced Portfolio
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
Dreyfus Stock Index Fund
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Government
Portfolio
Neuberger & Berman Advisers Management Trust Growth Portfolio
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer High Income Fund
Oppenheimer Strategic Bond Fund
Strong International Stock Fund II
Strong Discovery Fund II
Van Eck Worldwide Hard Assets 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.")
8
<PAGE> 11
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 Subaccounts of the Variable Account on an
interest only basis according to your allocation election. (See "Interest Sweep
Program.")
9
<PAGE> 12
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.")
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.
10
<PAGE> 13
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.
(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:
<TABLE>
<S> <C>
Contract owner transaction expenses:
Maximum Surrender Charge 8.0%
Transfer fee $ -0-
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>
Maximum Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.10%
-----
Total Variable Account Annual Expenses: 1.35%
</TABLE>
11
<PAGE> 14
PORTFOLIO ANNUAL EXPENSES
(EXPRESSED AS A PERCENTAGE OF NET ASSETS OF EACH PORTFOLIO)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
ANNUAL
PORTFOLIO MANAGEMENT FEE OTHER EXPENSES EXPENSES
====================================================================================================================================
<S> <C> <C> <C>
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.03% 0.88%
Calvert Responsibly Invested Money Market Portfolio 0.50% 0.12% 0.62%(1)
Calvert Responsibly Invested Strategic Growth Portfolio 1.50% 0.31% 1.81%(1)
Calvert Responsibly Invested Capital Accumulation
Portfolio 0.80% 0.20% 1.00%(1)
Calvert Responsibly Invested Global Equity Portfolio 1.00% 0.18% 1.18%(1)
Calvert Responsibly Invested Balanced Portfolio 0.70% 0.08% 0.78%(1)
Dreyfus Stock Index Fund 0.245% 0.155% 0.40%(2)
Neuberger & Berman Advisers Management Trust Limited
Maturity Bond Portfolio(3) 0.65% 0.13% 0.78%
Neuberger & Berman Advisers Management Trust Growth 0.83% 0.09% 0.92%
Portfolio3
Oppenheimer Capital Appreciation Fund 0.72% 0.03% 0.75%
Oppenheimer Growth Fund 0.75% 0.04% 0.79%(4)
Oppenheimer Growth & Income Fund 0.75% 0.25% 1.00%
Oppenheimer High Income Fund 0.75% 0.06% 0.81%
Oppenheimer Strategic Bond Fund 0.75% 0.10% 0.85%
Strong International Stock Fund II 1.00% 0.90% 1.90%
Strong Discovery Fund II 1.00% 0.20% 1.20%
Van Eck Worldwide Hard Assets Fund 0.75% 0.33% 1.08%
</TABLE>
- -------------------------
(1) The expense figures shown are net of fees paid indirectly and
reimbursements. Without such reductions, the total fees and expenses would have
totaled: 0.75% for Money Market; 2.27% for Strategic Growth; 1.33% for Capital
Accumulation; 1.59% for Global Equity; and 0.81% for Balanced.
(2) Mellon Equity Associates, the index manager of the Dreyfus Stock
Index Fund, and the Dreyfus Corporation have voluntarily agreed to reimburse all
or a portion of its advisory fee to the extent that the total expenses of the
Fund are in excess of 0.40% of the average annual net assets. In the absence of
expense reimbursement, the total fees and expenses in 1996 would have totaled
.449%
(3) Neuberger&Berman Advisers Management Trust is divided into
portfolios (Portfolios), each of which invests all of its net investable assets
in a corresponding series ("Series") of Advisers Managers Trust. The figures
reported under "Investment Management and Administration Fees" include the
aggregate of the administration fees paid by the Portfolio and the management
fees paid by its corresponding Series. Similarly, Other Expenses includes all
other expenses of the Portfolio and its corresponding Series.
(4) Total operating expense would have been 0.81% in the absence of
a voluntary one-time fee reimbursement.
12
<PAGE> 15
The purpose of the following table is to assist you in understanding
the various costs and expenses that 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, 1996; 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 Portfolio 104 152
Alger American MidCap Growth Portfolio 104 154
Alger American Small Capitalization Portfolio 104 154
Acacia Capital Corporation Calvert Responsibly Invested Money Market Portfolio 102 147
Acacia Capital Corporation Calvert Responsibly Invested Strategic Growth Portfolio 115 186
Acacia Capital Corporation Calvert Responsibly Invested Capital Accumulation Portfolio 104 154
Acacia Capital Corporation Calvert Responsibly Invested Global Equity Portfolio 106 160
Acacia Capital Corporation Calvert Responsibly Invested Balanced Portfolio 103 152
Dreyfus Stock Index Fund 99 140
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Portfolio 103 149
Neuberger & Berman Advisers Management Trust Growth Portfolio 96 151
Oppenheimer Capital Appreciation Fund 103 149
Oppenheimer Growth Fund 103 151
Oppenheimer Growth & Income Fund 105 157
Oppenheimer High Income Fund 103 151
Oppenheimer Strategic Bond Fund 104 152
Strong International Stock Fund II 108 166
Strong Discovery Fund II 108 166
Van Eck Worldwide Hard Assets Fund 105 156
</TABLE>
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 Portfolio 24 72
Alger American MidCap Growth Portfolio 24 74
Alger American Small Capitalization Portfolio 24 74
Acacia Capital Corporation Calvert Responsibly Invested Money Market Portfolio 22 67
Acacia Capital Corporation Calvert Responsibly Invested Strategic Growth Portfolio 35 106
Acacia Capital Corporation Calvert Responsibly Invested Capital Accumulation Portfolio 24 74
Acacia Capital Corporation Calvert Responsibly Invested Global Equity Portfolio 26 80
Acacia Capital Corporation Calvert Responsibly Invested Balanced Portfolio 23 72
Dreyfus Stock Index Fund 19 60
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Portfolio 23 69
Neuberger & Berman Advisers Management Trust Growth Portfolio 25 81
Oppenheimer Capital Appreciation Fund 23 69
Oppenheimer Growth Fund 23 71
Oppenheimer Growth & Income Fund 25 77
Oppenheimer High Income Fund 23 71
Oppenheimer Strategic Bond Fund 24 72
Strong International Stock Fund II 28 86
Strong Discovery Fund II 28 86
Van Eck Worldwide Hard Assets Fund 25 76
</TABLE>
13
<PAGE> 16
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.
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 45 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.
Acacia Mutual is undergoing a restructuring into a mutual insurance
holding company pursuant to the laws of the District of Columbia. The purpose
of the restructuring is to provide Acacia Mutual with the optimal corporate
structure in which to conduct business. The "mutual holding company" structure
has only recently become available under the District of Columbia law. A
tentative effective date of July 1, 1997 is targeted. However, effectiveness
of the reorganization is subject to a number of conditions including
policyowner approval and approval by the Superintendent of Insurance for the
District of Columbia. Acacia Mutual will form a mutual insurance holding
company to be named Acacia Mutual Holding Company ("AMHC") and Acacia Mutual
will continue its corporate existence as a stock life insurance company under
the name Acacia Life Insurance Company ("Acacia Life"). In addition, AMHC will
transfer the shares of capital stock of Acacia Life to a holding company to be
named Acacia Financial Group, Ltd. ("Acacia Group"). Under this structure the
Acacia Group will be an intermediate holding company. The terms of the plan
provide that AMHC will at all times retain ownership and control of a majority
of the outstanding voting shares of the capital stock of the Acacia Group and
directly or indirectly retain ownership and control of a majority of the
outstanding voting shares of Acacia Life. Acacia Life Insurance Company will
continue to own all the outstanding voting stock of ANLIC.
The reorganization will not in any way change the benefits, guarantees
or other policy obligations of ANLIC to its policyowners.
A number of the directors and officers of ANLIC are also either
directors or officers or both of Acacia Mutual and will continue to be so after
the reorganization. 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, a series of 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.
14
<PAGE> 17
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 nineteen 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 is registered as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act"). 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.
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 MidCap 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 MidCap 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.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.
15
<PAGE> 18
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 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. 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 five Sub-accounts that invest exclusively in
shares of Acacia Capital Corporation. The Money Market, Strategic Growth,
Managed Growth,Global Equity and Balanced Growth Sub-accounts of the Variable
Account invest in shares of the Calvert Responsibly Invested Money Market
Portfolio, the Calvert Responsibly Invested Strategic Growth Portfolio, the
Calvert Responsibly Invested Capital Accumulation Portfolio, the Calvert
Responsibly Invested Global Equity Portfolio, and the Calvert Responsibly
Invested Balanced Portfolio, respectively, of Acacia Capital Corporation.
Acacia Capital Corporation is one of eight registered investment companies in
the Calvert Group, Ltd Funds ("Calvert"). Calvert is a second tier
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 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 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 Responsibly Invested Capital Accumulation ("CRI Capital
Accumulation") seeks to provide long-term capital appreciation by investing
primarily in a nondiversified portfolio of the equity securities of small- to
mid- sized companies that are undervalued but demonstrate a potential for
growth.
CRI Capital Accumulation may also invest in debt securities and may
invest up to 5% of its assets in non- investment grade securities (See "The
Portfolios - Risks Attendant to Investments in Junk Bonds.") and up to 25% of
its assets in foreign securities (See "The Portfolios - Risks Attendant to
Investments in Foreign Securities.") .
16
<PAGE> 19
Calvert Responsibly Invested Global Equity Portfolio ("CRI Global")
seeks to provide a high return consistent with reasonable risk by investing
primarily in a globally diversified portfolio of equity securities. The
Portfolio seeks total return through a globally diversified investment
portfolio.
Under normal circumstances, CRI Global will invest at least 65% of its
assets in the securities of issuers in no less than three countries, one of
which may be the USA (See "The Portfolios - Risks Attendant to Investments in
Foreign Securities.") . CRI Global may also purchase unrated debt securities
and may invest up to 5% of its assets in non-investment grade bonds (See "The
Portfolios - Risks Attendant to Investments in Junk Bonds.")
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 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 a second tier 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 Global, CAM has entered into a subadvisory agreement
with Murray Johnstone International, Ltd. ("Murray Johnstone") of Glascow,
Scotland, which has its principal U.S. office in Chicago, Illinois, and is a
wholly- owned subsidiary of United Asset Management Company. Murray Johnstone
manages the investment and reinvestment of assets of CRI Global, although the
Advisor may manage part of CRI Global's cash reserves required for liquidity
purposes.
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 Fund.
The S & P 500 Index Sub-account of the Variable Account invests in a
Portfolio of the Dreyfus Stock Index Fund.
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 investment manager 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.
17
<PAGE> 20
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 Limited Bond and Long Term 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 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.
18
<PAGE> 21
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.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Variable Account has five Sub-accounts that invest exclusively in
shares of Portfolios of the Oppenheimer Variable Account Funds ( the
"Oppenheimer Funds"). The Long Term Growth, Strategic Growth, Established
Growth & Income, the High Income, and the Strategic Bond Sub-accounts of the
Variable Account invest in shares of the Capital Appreciation Fund, Growth
Fund, Growth & Income Fund, High Income Fund and Strategic Bond Fund
respectively, of the Oppenheimer Funds. The Funds are managed by
Oppenheimer Funds, Inc. ("the Manager"), which is responsible for selecting the
Oppenheimer Funds' investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established by the
Board of Trustees, under Investment Advisory Agreements for each Oppenheimer
Fund which state the Manager's responsibilities.
Oppenheimer Capital Appreciation Fund ("Capital Appreciation Fund")
seeks to achieve capital appreciation by investing in "growth-type" companies.
Such companies are believed to have relatively favorable long-term prospects
for increasing demand for their goods or services, or to be developing new
products, services or markets, and normally retain a relatively larger portion
of their earnings for research, development and investment in capital assets.
Oppenheimer Growth Fund ("Growth Fund") seeks to achieve capital
appreciation by investing in "growth-type" companies. Growth Fund will
emphasize investments in securities of well-known and established companies.
Such securities generally have a history of earnings and dividends and are
issued by seasoned companies.
Oppenheimer Growth & Income Fund ("Growth & Income Fund") seeks a high
total return (which includes growth in the value of its shares as well as
current income) from equity and debt securities. Its equity investments will
include common stocks, preferred stocks, convertible securities and warrants.
Its debt securities will include bonds, participation interests, asset-backed
securities, private-label mortgage-backed securities and collateralized
mortgage obligations, zero coupon securities and U.S. obligations. From time
to time Growth & Income Fund may focus on small to medium capitalization
issuers, the securities of which may be subject to greater price volatility
than those of larger capitalized issuers.
The composition of Growth & Income Fund's Portfolio among equity and
fixed-income investments will vary from time to time based upon the Manager's
evaluation of economic and market trends and perceived relative total
anticipated return from such types of investments. Accordingly, there is
neither a minimum nor a maximum percentage of Growth & Income Fund's Assets
that may, at any given time, be invested in either type of investment.
Oppenheimer High Income Fund ("High Income Fund") seeks a high level
of current income from investment in high yield fixed-income securities
(including long-term debt and preferred stock issues, including convertible
securities) believed by the Manager not to involve undue risk. High Income
Fund's investment policy is to assume certain risks in seeking high yield
including securities in the lower rating categories, commonly known as "junk
bonds", which are subject
19
<PAGE> 22
to a greater risk of loss of principal and nonpayment of interest than higher
rated securities. These securities may be considered to be speculative. (See
"The Portfolios - Risks Attendant to Investments in Junk Bonds.")
Oppenheimer Strategic Bond Fund ("Strategic Bond Fund') seeks a high
level of current income by investing primarily in a diversified portfolio of
high yield fixed-income securities. Such income is principally derived from
interest on debt securities and the Fund seeks to enhance such income by
writing covered call options on debt securities. The Fund intends to invest
principally in (I) foreign government and corporate debt securities (ii) U.S.
Government securities, and (iii) lower-rated high yield domestic debt
securities, commonly known as "junk bonds", which are subject to a greater risk
of loss of principal and nonpayment of interest than higher-rated securities.
These securities may be considered to be speculative. (See "The Portfolios -
Risks Attendant to Investments in Junk Bonds.") Under normal circumstances, the
Fund's assets will be invested in each of these three sectors. However,
Strategic Bond Fund may from time to time invest up to 100% of its total assets
in any one sector if, in the judgment of the Manager, the Fund has the
opportunity of seeking a high level of current income without undue risk to
principal.
STRONG VARIABLE INSURANCE FUNDS, INC. AND STRONG DISCOVERY FUND II
The Variable Account has one Sub-account that invests exclusively in
shares of Portfolios of the Strong Variable Insurance Funds, Inc. and one
Sub-account that invests exclusively in shares of the Strong Discovery Fund II
(the "Strong Funds").
Strong International Stock Fund II seeks capital growth. The
Portfolio invests primarily in the equity securities of issuers located outside
the United States. (See "The Portfolios - Risks Attendant to Investments in
Foreign Securities.") 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. (See "The Portfolios - Risks Attendant to
Investments in Foreign Securities.") 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.
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
20
<PAGE> 23
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 HARD ASSETS FUND
The Variable Account has one Sub-account that invests exclusively in
shares of a Portfolio of the Van Eck Worldwide Hard Assets Fund. The
Aggressive Global Sub-account of the Variable Account invests in shares of the
Van Eck Worldwide Hard Assets Fund.
Van Eck Worldwide Hard Assets Fund. This Portfolio seeks long-term
capital appreciation by investing globally, primarily in "hard assets"
securities. Income is a secondary consideration. The fund must invest at
least 25% of its assets in companies that are directly or indirectly (whether
through supplier relationships, servicing agreements or otherwise) engaged to a
significant extent in the exploration, development, production or distribution
of one or more of the following sectors: (I) precious metals, (ii) ferrous and
non-ferrous metals, (iii) oil and gas, (iv) forest products, (v) real estate,
and (vi) other basic non-agricultural commodities (together referred to as
"Hard Assets"). This policy is a fundamental policy, which can not be changed
without the vote of shareholders. As an additional but non-fundamental policy,
the Fund would be able to invest up to 50% of its assets in any one of the
above sectors.
The production and marketing of Hard Assets may be affected by actions
and changes in government. In addition, Hard Assets and securities of Hard
Assets companies may be cyclical in nature. During periods of economic or
financial instability, the securities of some Hard Assets companies may be
subject to broad price fluctuations, reflecting volatility of energy and basic
materials prices and possible instability of supply of various Hard Assets. In
addition, some Hard Assets companies may also be subject to the risks generally
associated with extraction of natural resources, such as the risks of mining
and oil drilling, and the risks of hazards associated with natural resources,
such as fire, drought, increased regulatory and environmental costs, and
others. Securities of Hard Assets companies may also experience greater price
fluctuations than the relevant Hard Assets. In periods of rising Hard Assets
prices, such securities may rise at a faster rate, and conversely, in times of
falling Hard Assets prices, such securities may suffer a greater price decline.
(See "The Portfolios - Risks Attendant to Investments in Foreign Securities.")
The investment adviser for the Van Eck Worldwide Hard Assets Fund is
Van Eck Associates Corporation.
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, Oppenheimer High Income
Fund, Oppenheimer Strategic Bond Fund, 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.
RISKS ATTENDANT TO INVESTMENTS IN FOREIGN SECURITIES
Investments in foreign securities involve substantial and different
risks. You should consider these risks carefully. CRI Global, Oppenheimer
Strategic Bond Fund , Strong International Stock Fund II , and Van Eck
Worldwide Hard Assets Fund may each invest in foreign securities. For example
there is generally less publicly available information about foreign companies
than is available about companies in the U.S. Foreign Companies are generally
not subject to uniform audit and financial reporting standards, practices and
requirements comparable to those in the U.S. 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 foreign
securities before investing in Sub-accounts corresponding to these Portfolios.
21
<PAGE> 24
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 MidCap 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, .80% CRI Capital Accumulation, 1.00% the CRI Global
Equity .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 investment management
agreement, the Dreyfus Stock Index Fund pays Dreyfus a monthly fee at the
annual rate of .245 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>
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>
OPPENHEIMER. Oppenheimer Funds, Inc. serves as manager to the
Oppenheimer Funds. The management fees computed on an annualized basis as a
percentage of net assets as of the close of business each day are as follows:
(i) for Capital Appreciation Fund, Growth Fund, Growth & Income Fund:
0.75% of the first $200 million of net assets, 0.72% of the next
200 million, 0.69% of the next $200 million, 0.66% of the next
$200 million, and 0.60 of net assets over $800 million.
(ii) for High Income Fund and Strategic Bond Fund: 0.75% of the
first $200 million of net assets, 0.72% of the next $200 million,
0.69% of the next $200 million, 0.66% of the next $200 million,
0.60% of the next $200 million, and 0.50% of net assets over 1
billion.
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 International
Stock Fund II, it is entitled to receive an 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 Van Eck Worldwide Hard Assets
Fund 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
22
<PAGE> 25
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 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. Eastern time. 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 or otherwise vary where required by state law.
23
<PAGE> 26
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.
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
24
<PAGE> 27
(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.
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.
25
<PAGE> 28
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.
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.
26
<PAGE> 29
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 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.
27
<PAGE> 30
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 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.
28
<PAGE> 31
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.
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.
29
<PAGE> 32
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 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
30
<PAGE> 33
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 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.
31
<PAGE> 34
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 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 and , 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" generally 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 ,reduced by the amount of prior
distributions that were not included in 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.
32
<PAGE> 35
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 under a Nonqualified Policy, 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
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.
33
<PAGE> 36
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 until December 31, 1988, or such earlier date as may be
established by plan amendment. Amounts deferred under plans created on or
after August 20, 1996, however, must be held in trust, custodial account or
annuity contract for the exclusive benefit of plan participants and their
beneficiaries. 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 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
34
<PAGE> 37
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 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 Ratings Group, 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.
35
<PAGE> 38
FINANCIAL STATEMENTS
The financial statements for ANLIC and the Variable Account (as well
as the Auditors' Report thereon) are in the Statement of Additional
Information.
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 statements of financial condition - statutory basis of ANLIC as of
December 31, 1996 and 1995 and the related statutory-basis statements of
operations and changes in capital and surplus and cash flows for the years then
ended and the financial statements of the Variable Account as of December 31,
96 and for the period indicated therein 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
Jorden Burt Berenson & Johnson LLP of Washington, D.C. has provided
advice on legal matters relating to 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.
36
<PAGE> 39
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.
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 - 3
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 - 5
General Description . . . . . . . . . . . . . . . B - 6
Transfer Limitation . . . . . . . . . . . . . . . B - 6
Fixed Account Value . . . . . . . . . . . . . . . B - 6
SURRENDER CHARGE CALCULATION B - 7
PERFORMANCE DATA CALCULATIONS . . . . . . . . . . . . . B - 8
Money Market Sub-account's Yield Calculation B - 8
Other Sub-accounts' Yield Calculations . . . . . B - 9
Average Annual Total Return Calculations . . . . B - 9
Cumulative Total Return Calculations . . . . . . B - 10
PERFORMANCE FIGURES . . . . . . . . . . . . . . . . . . B - 10
Average Annual Return . . . . . . . . . . . . . . B - 10
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . B - 12
Taxation of ANLIC . . . . . . . . . . . . . . . . B - 12
Tax Status of the Policies . . . . . . . . . . . B - 12
Withholding . . . . . . . . . . . . . . . . . . . B - 12
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS B - 12
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . B - 13
STATE REGULATION . . . . . . . . . . . . . . . . . . . B - 13
RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . B - 13
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . B - 14
EXPERTS . . . . . . . . B - 14
OTHER INFORMATION B - 14
FINANCIAL STATEMENTS B - 14
</TABLE>
<PAGE> 40
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> 41
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 May 1, 1997, 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: May 1, 1997
B - 1
<PAGE> 42
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 - 3
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 - 5
General Description . . . . . . . . . . . . . B - 6
Transfer Limitation . . . . . . . . . . . . . B - 6
Fixed Account Value . . . . . . . . . . . . . B - 6
SURRENDER CHARGE CALCULATIONS. . . B - 7
PERFORMANCE DATA CALCULATIONS. . . B - 8
Money Market Sub-account's Yield Calculation B - 8
Other Sub-accounts' Yield Calculations . . . . B - 9
Average Annual Total Return Calculations . . . B - 9
Cumulative Total Return Calculations . . . . . B - 10
PERFORMANCE FIGURES . . . . . . . . . . . . . . . . . . B - 10
Average Annual Return . . . . . . . . . . . . B - 10
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . B - 12
Taxation of ANLIC . . . . . . . . . . . . . . B - 12
Tax Status of the Policies . . . . . . . . . . B - 12
Withholding . . . . . . . . . . . . . . . . . B - 12
ADDITION, DELETION OR SUBSTITUTION OF
INVESTMENTS . . . . . . . . . . . . . . . . . . . . B - 12
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . B - 17
STATE REGULATION . . . . . . . . . . . . . . . . . . . B - 13
RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . B - 13
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . B - 14
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . B - 14
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . B - 14
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . B - 14
</TABLE>
B - 2
<PAGE> 43
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
("Nonqualified 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> 44
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 Commission
("Commission");
b) the Commission by order permits postponement for the protection of
Owners; or
B - 4
<PAGE> 45
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 ten dollars $10 when the first investments were bought
except the Acacia Capital Corporation Calvert Responsibly Inested Money Market
Sub- account which was set at one dollor ($1). 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 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.
B - 5
<PAGE> 46
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:
(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.
B - 6
<PAGE> 47
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 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:
<TABLE>
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>
B-7
<PAGE> 48
WITHDRAWAL ONE - 05/12/92
<TABLE>
<S> <C> <C>
Requested Withdrawal Amount (not including the $3,000.00
Surrender Charge)
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
</TABLE>
<TABLE>
<CAPTION>
SURRENDER SURRENDER
PREMIUM PAYMENT CHARGE % CHARGE
--------------- -------- ------
<S> <C> <C> <C>
$4,000 x .08 = 320.
1,000 x .08 = 80.
1,500 x .08 = 120.
Total Surrender Charge 520.
Partial Surrender Charge (2,240.78/.92) x .08 = 194.85
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:
<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
.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
.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>
B - 8
<PAGE> 49
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 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:
Effective Yield = [(Base period return + 1)(365/7) ] - 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:
Yield = 2[(a-b/cd + 1)(6) - 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
B - 9
<PAGE> 50
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 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:
P(1 + T)(n) = 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.
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.
B - 10
<PAGE> 51
The yield for the Money Market Sub-account for the seven-day period
ending December 31, 1996, on an annualized basis, was 2.68%. The effective
yield for the Money Market Sub-account for the seven-day period ending December
31, 1996, on an annualized basis, was 2.71%.
AVERAGE ANNUAL TOTAL RETURN - STANDARD FORMAT
<TABLE>
<CAPTION>
Fund Name From the From the Date of For the 1-year For the 5- For the 10-
Date of Inception of the period ended year period year period
Inception of Portfolio* 12/31/96* ended ended
the 12/31/96* 12/31/96*
Portfolio
Sub-account
<S> <C> <C> <C> <C> <C>
Alger American Growth 4.75 17.22 4.72 15.2 N/A
Alger American MidCap Growth 0.28 17.2 3.27 N/A N/A
Alger American Small Cap Growth -14.37 18.78 -4.45 9.59 N/A
Acacia Capital Corporation CRI 2.82 8.98 3.99 9.02 9.68
Balanced
Acacia Capital Corporation CRI 2.48 19.19 25.83 N/A N/A
Strategic Growth
Acacia Capital Corporation CRI N/A 8.72 -2.04 6.7 N/A
Global Equity
Acacia Capital Corporation CRI N/A 9.67 -1.23 9.08 N/A
Capital Accumulation
Dreyfus Stock Index 15.72 12.26 13.91 13.21 N/A
Neuberger & Berman Ltd Mat Bond -14.05 6.85 -4.32 3.89 6.85
Neuberger & Berman Growth Portfolio 6.5 11.39 0.51 8.4 11.39
Oppenheimer Capital Appreciation N/A 14.23 11.59 15.26 15.07
Oppenheimer Growth N/A 13.09 16.57 14.81 12.89
Oppenheimer Growth and Income N/A 34.99 23.88 N/A N/A
Oppenheimer Strategic Bond N/A 4.68 3.44 N/A N/A
Oppenheimer High Income N/A 12.03 6.63 13.45 12.46
Strong International Fund II -15.1 2.33 1.75 N/A N/A
Strong Discovery Fund II 0.04 10.3 -7.82 N/A N/A
Van Eck Worldwide Hard Assets Fund -7.95 6.1 9.41 13.12 N/A
</TABLE>
* The inception date of the policies is September 10, 1996. Performance
data for earlier periods are hypothetical figures based on the performance of
the Fund in which the policy assets may be invested.
The annual policy charge is converted into a percentage of account
value charge by assuming an average policy account value of $50,000.
B - 11
<PAGE> 52
ANNUAL AVERAGE TOTAL RETURN - NON STANDARD FORMAT
THIS FORMAT ASSUMES NO SURRENDER CHARGE
<TABLE>
<CAPTION>
Fund Name From the From the Date of For the 1-year For the 5- For the 10-
Date of Inception of the period ended year period year period
Inception of Portfolio* 12/31/96* ended ended
the 12/31/96* 12/31/96*
Portfolio
Sub-account
<S> <C> <C> <C> <C> <C>
Alger American Growth 31.31 17.22 11.92 15.2 N/A
Alger American MidCap Growth 26.08 22.65 10.47 N/A N/A
Alger American Small Cap Growth 8.88 18.78 2.75 9.59 N/A
Acacia Capital Corporation CRI 29.05 8.98 11.19 9.02 9.68
Balanced
Acacia Capital Corporation CRI 28.65 22.61 33.03 N/A N/A
Strategic Growth
Acacia Capital Corporation CRI N/A 9.28 5.16 6.7 N/A
Global Equity
Acacia Capital Corporation CRI N/A 9.67 5.97 9.08 N/A
Capital Accumulation
Dreyfus Stock Index 44.08 12.26 21.11 13.21 N/A
Neuberger & Berman Ltd Mat Bond 9.26 6.85 2.88 3.89 6.85
Neuberger & Berman Growth Portfolio 33.34 11.39 7.71 8.4 11.39
Oppenheimer Capital Appreciation N/A 14.23 18.79 15.26 15.07
Oppenheimer Growth N/A 13.09 23.77 14.81 12.89
Oppenheimer Growth and Income N/A 39.11 31.08 N/A N/A
Oppenheimer Strategic Bond N/A 5.92 10.64 N/A N/A
Oppenheimer High Income N/A 12.03 13.83 13.45 12.46
Strong International Fund II 8.01 9.54 8.95 N/A N/A
Strong Discovery Fund II 25.8 10.86 -0.62 N/A N/A
Van Eck Worldwide Hard Assets Fund 16.43 6.81 16.61 13.12 N/A
</TABLE>
* The inception date of the policies is September 10, 1996. Performance
data for earlier periods are hypothetical figures based on the performance of
the Fund in which the policy assets may be invested.
The annual policy charge is converted into a percentage of account
value charge by assuming an average policy account value of $50,000.
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.
B - 12
<PAGE> 53
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 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.
B - 13
<PAGE> 54
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 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 Jorden Burt Berenson & Johnson LLP of Washington, D.C.
EXPERTS
The statements of financial condition - statutory basis of ANLIC as of
December 31, 1995 and 1996 and the related statutory basis statements of
operations and changes in capital and surplus and cash flows for the years then
ended 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.
B - 14
<PAGE> 55
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, 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 - 15
<PAGE> 56
FINANCIAL STATEMENTS
<PAGE> 57
AUDITED FINANCIAL STATEMENTS (STATUTORY BASIS)
ACACIA NATIONAL LIFE INSURANCE COMPANY
DECEMBER 31, 1996 AND 1995
Report of Independent Accountants....................................1-2
Statements of Financial Condition......................................3
Statements of Operations and Changes
in Capital and Surplus..............................................4
Statements of Cash Flows...............................................5
Notes to Financial Statements.......................................6-15
Supplemental Schedule of Assets and Liabilities....................16-18
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Acacia National Life Insurance Company
We have audited the accompanying statutory statements of financial condition of
Acacia National Life Insurance Company as of December 31, 1996 and 1995, and the
related statutory statements of operations and changes in capital and 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 audits 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 report dated February 14, 1996, we expressed our opinion that the 1995
financial statements, prepared using accounting practices prescribed or
permitted by the Bureau of Insurance, State Corporation Commission of the
Commonwealth of Virginia ("SAP") presented fairly, in all material respects, the
financial position of Acacia National Life Insurance Company as of December 31,
1995, and the results of its operations, and its cash flows for the year then
ended in conformity with generally accepted accounting principles ("GAAP"). As
described in Note 1 to the financial statements, financial statements of mutual
life insurance enterprises and their stock life insurance subsidiaries issued or
reissued after 1996, and prepared in accordance with SAP, are no longer
considered to be presentations in conformity with GAAP. Accordingly, our present
opinion on the 1995 financial statements as presented herein is different from
that expressed in our previous report.
As described more fully in Note 1 to the financial statements, these financial
statements were prepared in conformity with accounting practices prescribed or
permitted by the Bureau of Insurance, State Corporation of Commission,
Commonwealth of Virginia, which practices differ from generally accepted
accounting principles. The effects on the financial statements of the variances
between the statutory basis of accounting and generally accepted accounting
principles, although not reasonably determinable, are presumed to be material.
<PAGE> 59
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Acacia National Life Insurance Company as of December 31, 1996 and 1995 or
the results of its operations or its cash flows for the years then ended.
In our opinion, however, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities, and surplus
of Acacia National Life Insurance Company as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended, on
the basis of accounting described in Note 1.
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.
Washington, D.C.
February 18, 1997
2
<PAGE> 60
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL CONDITION (STATUTORY BASIS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Debt securities $ 596,394 $ 484,895
Equity securities 2,405 2,272
Policy loans 8,091 6,701
Cash and cash equivalents 16,246 19,987
Accrued investment income 10,520 8,558
Separate account assets 6,433 3
Other assets 2,718 1,146
------------------- ---------------------
TOTAL ASSETS $ 642,807 $ 523,562
=================== =====================
LIABILITIES
Insurance and annuity reserves $ 539,065 $ 447,081
Deposit administration contracts and other
deposit reserves 25,659 24,683
Other policyowner funds 19,633 14,405
Policy claims 2,821 880
Interest maintenance reserve 2,230 2,213
Asset valuation reserve 5,712 4,645
Separate account liabilities 6,433 3
Other liabilities 11,613 2,877
------------------- ---------------------
TOTAL LIABILITIES 613,166 496,787
STOCKHOLDER'S EQUITY
Preferred stock, 8% non-voting, non-cumulative, $1,000 par value,
10,000 shares authorized; 6,000 shares issued and outstanding 6,000 ---
Common stock, $170 par value; 15,000 shares authorized
issued and oustanding 2,550 2,550
Additional paid-in capital 13,450 7,450
Surplus 7,641 16,775
------------------- ---------------------
TOTAL STOCKHOLDER'S EQUITY 29,641 26,775
------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 642,807 $ 523,562
=================== =====================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 61
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN CAPITAL AND SURPLUS (STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1996 1995
------------------ -------------------
(IN THOUSANDS)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 42,444 $ 41,281
Net investment income 45,701 40,888
Supplementary contracts 12,589 9,388
Other fund deposits 3,845 4,172
------------------ ------------------
104,579 95,729
BENEFITS AND EXPENSES
Benefits for policyholders and beneficiaries:
Benefit payments, surrenders, and withdrawals 114,085 53,831
Increase (decrease) in insurance and annuity reserves (24,741) 31,851
Increase (decrease) in deposit administration funds 977 (2,977)
------------------ ------------------
90,321 82,705
Commissions to managing directors
and account managers 3,146 2,045
Operating expenses allocated
from Acacia Mutual 13,539 7,736
Other operating expenses and taxes 162 402
------------------ ------------------
107,168 92,888
------------------ ------------------
NET (LOSS) GAIN FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES AND REALIZED CAPITAL LOSSES (2,589) 2,841
Federal income tax (expense) benefit (642) 53
------------------ ------------------
NET (LOSS) GAIN FROM OPERATIONS BEFORE
REALIZED CAPITAL LOSSES (3,231) 2,894
REALIZED CAPITAL LOSSES
Net realized capital gains (losses) 339 (418)
Capital gains taxes (335) (228)
Transferred to interest maintenance reserve (224) (433)
------------------ ------------------
NET REALIZED CAPITAL LOSSES (220) (1,079)
------------------ ------------------
NET (LOSS) INCOME (3,451) 1,815
Capital and surplus, beginning of year 26,775 25,043
Contribution of additional paid-in capital 6,000 ---
Issuance of preferred stock 6,000 ---
Increase in asset valuation reserve (1,068) (647)
Increase in net unrealized capital gains 323 564
Increase in non-admitted assets (4,938) ---
------------------ ------------------
CAPITAL AND SURPLUS, END OF YEAR $ 29,641 $ 26,775
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 62
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1996 1995
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations $ 42,453 $ 41,430
Other premiums, considerations and deposits 12,589 9,388
Net investment income received 43,220 40,648
Cash and short-term investments received from
execution of assumption reinsurance agreement 52,671 ---
Annuity and other fund deposits 4,069 4,161
Benefits paid to policyholders (10,092) (50,714)
Commissions and other expenses paid (16,601) (10,953)
Surrender benefits and other fund withdrawals paid (103,994) (1,551)
Federal and state income tax paid (41) (361)
--------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,274 32,048
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 52,368 42,530
Equities 191 1,561
Mortgage loans --- 60
Cost of investments acquired:
Bonds (92,269) (71,544)
Equities --- (228)
Partnership and other interests (435) ---
Net change in policy loans and premium notes 210 ---
--------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (39,935) (27,621)
FINANCING ACTIVITIES
Cash provided:
Issuance of preferred stock 6,000 ---
Capital contribution 6,000 ---
Cash applied:
Other applications (80) (9,769)
--------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,920 (9,769)
DECREASE IN CASH AND CASH EQUIVALENTS (3,741) (5,342)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 19,987 25,329
--------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 16,246 $ 19,987
=============== ==============
NON-CASH TRANSACTIONS:
Non-cash items received from execution of assumption
reinsurance agreement:
Investment in bonds $68,429 ---
Policy loans $1,600 ---
Annuity reserve liabilities $127,851 ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 63
ACACIA NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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 and September 9, 1996, respectively, operations
began for the Acacia National Variable Life Insurance Separate Account I and
Acacia National Variable Annuity Separate Account II which are separate
investment accounts 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 Bureau of
Insurance, State Corporation Commission of the Commonwealth of Virginia.
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.
The preparation of the financial statements in conformity with statutory
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.
Financial statements prepared in accordance with SAP were also considered to be
in conformity with generally accepted accounting principles ("GAAP") prior to
the issuance of the pronouncements described below. In April 1993, the Financial
Accounting Standards Board (FASB) issued Interpretation 40, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises," indicating that the financial statements of mutual life insurance
companies and their stock life insurance company subsidiaries prepared on the
basis of statutory accounting principles will no longer be considered to be in
conformity with GAAP. In January 1995, the FASB issued Statement No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long - Duration Participating Contracts" which defers
the effective date of Interpretation No. 40 to fiscal years beginning after
December 15, 1995 and extends the requirements of Statements No. 60, 97 and 113
to mutual life enterprises. In addition, Statement No. 120 requires that the
accounting for certain participating life insurance contracts described in
Statement of Position 95-1, "Accounting for Certain Insurance
6
<PAGE> 64
Activities of Mutual Life Enterprises," be applied to contracts that meet the
conditions set forth in this Statement. As required by generally accepted
auditing standards, the opinion currently expressed by our independent
accountants on the 1995 financial statements is different from that expressed in
their previous report. The effects of the changes from existing statutory
practices required upon adoption of GAAP have not been determined at this time.
Management is in the process of preparing financial statements in conformity
with GAAP. In general, the SAP basis of accounting varies in certain respects
from GAAP in that:
- - Acquisition costs incurred at policy issuance, such as commissions and
other costs in connection with acquiring new business, are charged to
expense in the year in which they are incurred, rather than being
deferred and amortized over the periods benefited.
- - Certain assets designated as "non-admitted' are excluded from the
balance sheets by a direct charge to unassigned surplus.
- - The asset valuation reserve and interest maintenance reserve are not
recorded for GAAP purposes.
- - Federal income taxes are computed in accordance with those sections of
the Internal Revenue Code applicable to life insurance companies and
are based solely on currently taxable income. Under GAAP, the
recognition of deferred tax liabilities and assets is required for the
expected future tax consequences of temporary differences between the
carrying amounts for financial statements purposes and the tax basis of
other assets and liabilities.
- - The liability for policy reserves is based on statutory assumptions for
interest and mortality without considerations of withdrawals, rather
than assumptions for interest, mortality and withdrawals based on
actual experience.
- - Premiums for universal life, single premium non-life contingent
immediate annuity and single premium deferred annuity contracts are
reported as premium income or fund deposits rather than additions to
liabilities.
- - Reinsurance ceded to other companies is reported on a net basis for
premium revenue, benefits and underwriting, acquisition and insurance
expenses, and policy reserves and accruals. Under GAAP, claims are
reported separately in the balance sheet as a reinsurance recoverable
asset.
- - Debt securities are generally carried at amortized costs, whereas,
under GAAP, investments in debt securities are stated at amortized
cost or current market values depending on the classification pursuant
to FASB Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Any difference between cost and
7
<PAGE> 65
current market values of debt securities classified as
available-for-sale, net of deferred income taxes or benefit and related
deferred acquisition cost effects, is reported as a separate component
in GAAP policyowner surplus and does not affect net income.
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. The valuation rates for fixed immediate and deferred annuities range
between 6.0% and 11.5% as of December 31, 1996.
8
<PAGE> 66
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.
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.
The excess of the amount of liabilities assumed over the amount of assets
received upon execution of an assumption reinsurance agreement is recorded as
goodwill, a non-admitted asset, and charged directly to surplus. Goodwill is
being amortized over a period of ten years using the interest method.
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.
SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain life
insurance and annuity contracts, for which the investment risk lies solely with
the holder of the contract rather than the Company. Consequently, the insurer's
liability for these accounts equals the value of the account assets. Investment
income, realized gains (losses), and policyholder account deposits and
withdrawals related to Separate Accounts are excluded from the statements of
operations and cash flows. Assets held in Separate Accounts are primarily shares
in mutual funds, which are carried at fair value, based on the quoted net asset
value per share.
RECLASSIFICATIONS
Certain reclassifications of 1995 amounts were made to conform with the 1996
financial statement presentation.
9
<PAGE> 67
2. INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
($ IN THOUSANDS)
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Debt securities $596,394 $620,368 $484,895 $525,694
Equity securities 2,405 2,773 2,272 2,573
Mortgage loans 47 50 47 45
Cash and cash equivalents 16,246 16,246 19,987 19,987
FINANCIAL LIABILITIES:
Investment-type insurance
contracts $440,645 $512,452 $351,833 $408,583
</TABLE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks and mortgage backed securities) are based on quoted
market prices, where available. For fixed maturity securities not actively
traded and for private placements, fair values are estimated using values
obtained from independent pricing services. The fair values for equity
securities are based on quoted market prices.
CASH AND CASH EQUIVALENTS: The statement values reported in the Statements of
Financial Condition for these instruments approximate their fair values.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. The statement values for the deposit administration contact and
supplementary contracts without life contingencies approximate their fair
values.
10
<PAGE> 68
INVESTMENTS
The statement values and estimated fair values of the Company's investments in
debt securities are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
----- ----- ------ -----
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996
U.S. government and agencies $117,448 $ 7,161 $ (28) $124,581
Other government 3,300 23 --- 3,323
Mortgaged backed securities 153,001 2,641 (1,627) 154,015
Corporate 322,645 17,503 (1,699) 338,449
-------- ------- -------- --------
$596,394 $27,328 $(3,354) $620,368
======== ======= ========= ========
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) $525,694
======== ======= ========= ========
</TABLE>
The amortized cost and estimated fair value of debt securities, by contractual
maturity at December 31, 1996 are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
($ IN THOUSANDS)
STATEMENT FAIR
VALUE VALUE
-------- --------
<S> <C> <C>
Maturities in 1997 $ 14,248 $ 14,343
In 1998 to 2001 156,080 166,240
In 2002 to 2006 155,234 160,275
After 2006 117,831 125,495
Mortgaged-backed securities 153,001 154,015
-------- --------
$596,394 $620,368
======== ========
</TABLE>
Proceeds from dispositions of investments in debt securities during 1996 were
$52.4 million; gross gains of $355 thousand and gross losses of $16 thousand
were realized on those sales. Proceeds from dispositions of investments in debt
securities during 1995 were $44.2 million; gross gains
11
<PAGE> 69
of $770 thousand and gross losses of $1.2 million were realized on those sales.
Investment income is net of expenses of $1.4 million in 1996 and $969 thousand
in 1995.
INVESTMENT PORTFOLIO CREDIT RISK
The Company's bond investment portfolio is predominately comprised of investment
grade securities. At December 31, 1996 and 1995, approximately $2.7 million and
$5.7 million, respectively, in debt security investments (.5% and 1.2%,
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 $10
thousand per policy under yearly renewable term insurance agreements with Acacia
Mutual and several other non-affiliated companies. The Company remains obligated
for amounts ceded in the event that reinsurers do not meet their obligations.
Reinsurance premiums are recorded as a reduction of premium income. Commission
and expense allowances are recorded as an increase in income.
Benefits are reported net of amounts received from reinsurers.
Premiums and benefits have been reduced by amounts reinsured as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
1996 1995
------- ------
<S> <C> <C>
Premiums ceded:
Acacia Mutual $3,559 $3,488
Others 540 535
------ ------
Total premium ceded $4,099 $4,023
====== ======
Death benefits reimbursed:
Acacia Mutual $3,380 $2,018
Other 1,841 2,213
------ ------
Total benefits reimbursed $5,221 $4,231
====== ======
Amounts recoverable on paid and unpaid losses:
Acacia Mutual $424 $358
Other 24 377
----- ----
Total amounts recoverable on paid
and unpaid losses $448 $735
==== ====
Policy reserves $3,617 $3,486
====== ======
</TABLE>
12
<PAGE> 70
ASSUMPTION REINSURANCE AGREEMENT
Effective May 31, 1996 under an assumption reinsurance agreement, the Company
assumed certain assets and liabilities relating to annuities previously
underwritten by the National American Life Insurance Company (NALICO), which had
been in rehabilitation. Under the agreement, the Company assumed fixed annuity
policies with statutory liabilities of $127.9 million. The Company received from
NALICO assets with a fair value of approximately $122.7 in assets, consisting
principally of investment grade bonds and short-term investments. The difference
between assets acquired and liabilities assumed of $5.2 million was capitalized
as goodwill and treated as a non-admitted asset.
5. ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposit liabilities withdrawal characteristics as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
PERCENT
AMOUNT OF TOTAL
-------- --------
<S> <C> <C>
Subject to discretionary withdrawal with adjust-
ment, at book value less surrender charge $362,603 72%
Subject to discretionary withdrawal without adjust-
ment, at book value (minimal or no charge) 107,453 21
Not subject to discretionary withdrawal provision 32,205 7
-------- ---
Total annuity actuarial reserves and deposit
fund liabilities $502,261 100%
======== ===
</TABLE>
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.
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, 1996 and 1995. 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
13
<PAGE> 71
in effect.
The statute of limitations has closed with respect to all tax years prior to
1992. The Company is currently under examination by the Internal Revenue Service
for the tax years 1992 through 1994. In the opinion of management, adequate
provision has been made for any additional taxes which may become due with
respect to open years.
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, 1996 and 1995 are $5.5 million
and $647 thousand, respectively, and are included in other liabilities.
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 certain 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.
Assessments accrued, net of expected premium tax offsets, at December 31, 1996
and 1995 were $736 thousand and $805 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
commissione, which is currently the lesser of 10% of capital and surplus or
prior year net gain from operations.
14
<PAGE> 72
9. STOCKHOLDER'S EQUITY
The Board of Directors amended the Articles of Incorporation of the Company
during 1995 to increase the par value of each share of the Company's common
stock from $100 to $105 and then from $105 to $170. The impact of this change
increased total common stock $1.05 million with a corresponding decrease to
additional paid-in capital for 1995.
During 1996, the Company received a $6 million capital contribution from Mutual
and also issued to Mutual $6 million of 8% non-voting, non-cumulative preferred
stock at par.
15
<PAGE> 73
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTMENT INCOME EARNED
<S> <C>
Government bonds $7,163
Other bonds (unaffiliated) 37,769
Bonds of Affiliates ---
Preferred stocks (unaffiliated) 81
Preferred stocks of affiliates ---
Common stocks (unaffiliated) 54
Common stocks of affiliates ---
Mortgage loans 4
Real estate ---
Premium notes, policy loans and liens 436
Collateral loans ---
Cash on hand and on deposit ---
Short-term investments 1,431
Other invested assets ---
Derivative instruments ---
Aggregate write-ins for investment income 113
---------------
Gross investment income $47,051
===============
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 - STATEMENT VALUE $412
===============
COLLATERAL LOANS ---
===============
BONDS AND STOCKS OF PARENTS, SUBSIDIARIES AND AFFILIATES - BOOK VALUE:
Bonds ---
===============
Preferred stocks ---
===============
Common stocks ---
===============
</TABLE>
16
<PAGE> 74
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
BONDS AND SHORT-TERM INVESTMENTS BY CLASS AND MATURITY:
<S> <C>
BONDS AND SHORT-TERM INVESTMENTS BY MATURITY - STATEMENT VALUE
Due within one year $42,171
Over 1 year through 5 years 143,404
Over 5 years through 10 years 242,631
Over 10 years through 20 years 108,786
Over 20 years 74,521
---------------
Total by Maturity $611,513
===============
BONDS AND SHORT-TERM INVESTMENTS BY CLASS - STATEMENT VALUE
Class 1 $367,154
Class 2 226,294
Class 3 15,374
Class 4 2,691
Class 5 ---
Class 6 ---
---------------
Total by Class $611,513
===============
TOTAL BONDS AND SHORT-TERM INVESTMENTS PUBLICLY TRADED $586,504
===============
TOTAL BONDS AND SHORT-TERM INVESTMENTS PRIVATELY PLACED $25,009
===============
PREFERRED STOCKS - STATEMENT VALUE $805
===============
COMMON STOCKS - MARKET VALUE $1,600
===============
SHORT-TERM INVESTMENTS - BOOK VALUE $15,119
===============
FINANCIAL OPTIONS OWNED - STATEMENT VALUE ---
===============
FINANCIAL OPTIONS WRITTEN AND IN-FORCE - STATEMENT VALUE ---
===============
FINANCIAL FUTURES CONTRACTS OPEN - CURRENT PRICE ---
===============
CASH ON DEPOSIT $1,127
===============
LIFE INSURANCE IN FORCE:
Industrial ----
===============
Ordinary $1,174,417
===============
Credit Life ----
===============
Group Life ----
===============
AMOUNT OF ACCIDENTAL DEATH INSURANCE IN FORCE UNDER ORDINARY POLICIES $109,161
===============
LIFE INSURANCE POLICIES WITH DISABILITY PROVISIONS IN FORCE
Industrial ----
===============
Ordinary $637
===============
Credit Life ----
===============
Group Life ----
===============
</TABLE>
17
<PAGE> 75
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
SUPPLEMENTARY CONTRACTS IN FORCE:
Ordinary - Not Involving Life Contingencies
<S> <C>
Amount on Deposit $3,348
===============
Income Payable $16,284
===============
Ordinary - Involving Life Contingencies
Income Payable $9,893
===============
Group - Not Involving Life Contingencies
Amount on Deposit ----
Income Payable ----
===============
Group - Involving Life Contingencies
Income Payable ----
===============
ANNUITIES -- ORDINARY
Immediate - Amount of Income Payable $719
===============
Deferred - Fully Paid - Account Balance $404,117
===============
Deferred - Not Fully Paid - Account Balance $50,666
===============
ANNUITIES -- GROUP
Amount of Income Payable $21
===============
Fully Paid - Account Balance ----
===============
Not Fully Paid - Account Balance $311
===============
ACCIDENT AND HEALTH INSURANCE - PREMIUM IN FORCE:
Ordinary ----
===============
Group ----
===============
Credit ----
===============
DEPOSIT FUNDS AND DIVIDEND ACCUMULATIONS:
Deposits Funds - Account Balance $25,659
===============
Dividend Accumulations - Account Balance ----
===============
CLAIM PAYMENTS - YEAR ENDED DECEMBER 31, 1996:
Group Accident and Health
1996 ----
===============
1995 ----
===============
1994 ----
===============
Other Accident and Health
1996 ----
===============
1995 ----
===============
1994 ----
===============
Other Coverage that use developmental methods to calculate claims reserves
1996 ----
===============
1995 ----
===============
1994 ----
===============
</TABLE>
18
<PAGE> 76
AUDITED FINANCIAL STATEMENTS
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
DECEMBER 31, 1996
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . 1
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . 2
Statement of Operations and Changes in Net Assets. . . . . . . . . . . . . 3
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . 4-6
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
Contract Owners and Board of Directors
Acacia National Life Insurance Company
We have audited the accompanying statements of assets and liabilities of the
following subaccounts of the Acacia National Variable Annuity Separate Account
II: The Acacia Capital Corporation Calvert Responsibly Invested Money Market
Portfolio (Calvert Money Market Portfolio), Acacia Capital Corporation
Calvert Responsibly Invested Balanced Growth Portfolio (Calvert Balanced
Portfolio), Acacia Capital Corporation Calvert Responsibly Invested Strategic
Growth Portfolio (Calvert Strategic Growth Portfolio),The Alger American
Growth Portfolio, The Alger American Mid Cap Growth Portfolio, The Alger
American Small Capitalization Portfolio, Dreyfus Stock Index Fund, Neuberger &
Berman Advisors Management Trust Limited Maturity Bond Portfolio, Neuberger &
Berman Advisors Management Trust Growth Portfolio, Strong Advantage Fund II,
Strong Asset Allocation Fund II, Strong International Stock Fund II, Strong
Discovery Fund II, and Van Eck Worldwide Hard Assets Fund as of December 31,
1996, and the related statement of operations and changes in net assets for
the period September 9, 1996 (inception) to December 31, 1996. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996,
by correspondence with the custodians. 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 audit provides 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 the following subaccounts of
the Acacia National Variable Annuity: Calvert Money Market Portfolio, Calvert
Balanced Portfolio, Calvert Strategic Growth Portfolio, The Alger American
Growth Portfolio, The Alger American Mid Cap Growth Portfolio, The Alger
American Small Capitalization Portfolio, Dreyfus Stock Index Fund, Neuberger &
Bergman Advisors Management Trust Limited Maturity Bond Portfolio, Neuberger
& Bergman Advisors Management Trust Growth Portfolio, Strong Advantage Fund
II, Strong Asset Allocation Fund II, Strong International Stock Fund II,
Strong Discovery Fund II and Van Eck Worldwide Hard Assets Fund as of December
31, 1996, and results of their operations and changes in net assets for the
period September 9, 1996 (inception) to December 31, 1996, in conformity with
generally accepted accounting principles.
Washington, D.C.
March 14, 1997
<PAGE> 78
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------------------
CALVERT CALVERT CALVERT DREYFUS
MONEY BALANCED STRATEGIC ALGER ALGER ALGER STOCK
MARKET PORTFOLIO GROWTH GROWTH MID CAP SMALL CAP INDEX
----------- ----------- ---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, identified costs $139,591 $7,674 $54,384 $296,530 $140,791 $278,400 $1,552,172
=========== =========== ========== =========== =========== ============ =============
Investments, at market $139,591 $7,013 $55,892 $293,712 $139,486 $278,519 $1,521,869
=========== =========== ========== =========== =========== ============ =============
Number of shares 139,591 3,953 3,815 8,556 6,533 6,808 75,043
=========== =========== ========== =========== =========== ============ =============
Net Assets $139,591 $7,013 $55,892 $293,712 $139,486 $278,519 $1,521,869
=========== =========== ========== =========== =========== ============ =============
ACCUMULATION UNITS
NUMBER OF UNITS 137,527 646 5,157 26,933 12,949 27,028 135,684
=========== =========== ========== =========== =========== ============ =============
NET ASSET VALUE PER
ACCUMULATION UNIT
DECEMBER 31, 1996 $1.02 $10.85 $10.84 $10.91 $10.77 $10.30 $11.22
=========== =========== ========== =========== =========== ============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 79
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------------------------------------
NEUBERGER NEUBERGER STRONG STRONG STRONG VAN ECK
& BERMAN & BERMAN ADVANTAGE ASSET INT'L STRONG HARD
BOND GROWTH FUND ALLOCATION STOCK DISCOVERY ASSETS
------------ ------------ ------------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, identified costs $346,027 $265,563 $13,282 $86,309 $519,902 $8,536 $110,575
============ ============ ============ ============= ============ ========== ===========
Investments, at market $346,878 $268,888 $13,224 $81,705 $521,317 $8,458 $112,980
============ ============ ============ ============= ============ ========== ===========
Number of shares 24,689 10,430 1,318 7,925 46,422 793 6,751
============ ============ ============ ============= ============ ========== ===========
Net Assets $346,878 $268,888 $13,224 $81,705 $521,317 $8,458 $112,980
============ ============ ============ ============= ============ ========== ===========
ACCUMULATION UNITS
NUMBER OF UNITS 33,612 24,534 1,320 7,530 50,712 796 10,740
============ ============ ============ ============= ============ ========== ===========
NET ASSET VALUE PER
ACCUMULATION UNIT
DECEMBER 31, 1996 $10.32 $10.96 $10.02 $10.85 $10.28 $10.63 $10.52
============ ============ ============ ============= ============ ========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 80
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD SEPTEMBER 9, 1996 (INCEPTION) TO DECEMBER 31, 1996
----------------------------------------------------------------------------------
CALVERT CALVERT CALVERT DREYFUS
MONEY BALANCED STRATEGIC ALGER ALGER ALGER STOCK
MARKET PORTFOLIO GROWTH GROWTH MID CAP SMALL CAP INDEX
----------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Investment Income
Dividends $1,813 $526 $176 --- --- --- $20,596
Mortality and expense charge (599) (13) (132) ($750) ($340) ($660) (3,491)
----------- --------- -------- ----------- ----------- ---------- ------------
NET INVESTMENT INCOME (LOSS) 1,214 513 44 (750) (340) (660) 17,105
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares --- 155 (734) 3,994 1,789 (2,904) 13,609
Unrealized appreciation (depreciation)
of investments --- (661) 1,508 (2,818) (1,305) 119 (30,303)
----------- --------- -------- ----------- ----------- ---------- ------------
NET GAIN(LOSS) ON INVESTMENTS --- (506) 774 1,176 484 (2,785) (16,694)
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 1,214 7 818 426 144 (3,445) 411
CAPITAL TRANSACTIONS:
Transfer of premium 196,883 5,427 55,074 285,998 137,081 275,740 1,495,454
Sub-account transfers (58,506) 1,579 --- 7,288 2,261 6,224 26,004
----------- --------- -------- ----------- ----------- ---------- ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 138,377 7,006 55,074 293,286 139,342 281,964 1,521,458
----------- --------- -------- ----------- ----------- ---------- ------------
TOTAL INCREASE IN NET ASSETS 139,591 7,013 55,892 293,712 139,486 278,519 1,521,869
NET ASSETS, AT INCEPTION --- --- --- --- --- --- ---
----------- --------- -------- ----------- ----------- ---------- ------------
NET ASSETS, AT END OF THE YEAR $139,591 $7,013 $55,892 $293,712 $139,486 $278,519 $1,521,869
=========== ========= ======== =========== =========== ========== ============
UNITS PURCHASED AND REDEEMED
Beginning balance --- --- --- --- --- --- ---
Units purchased 317,908 2,096 7,446 33,793 17,969 35,703 151,870
Units redeemed 180,381 1,450 2,289 6,860 5,020 8,675 16,186
----------- --------- -------- ----------- ----------- ---------- ------------
ENDING BALANCE 137,527 646 5,157 26,933 12,949 27,028 135,684
=========== ========= ======== =========== =========== ========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 81
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD SEPTEMBER 9, 1996 (INCEPTION) TO DECEMBER 31, 1996
---------------------------------------------------------------------------------
NEUBERGER NEUBERGER STRONG STRONG STRONG VAN ECK
& BERMAN & BERMAN ADVANTAGE ASSET INT'L STRONG HARD
OPERATIONS: BOND GROWTH FUND ALLOCATION STOCK DISCOVERY ASSETS
------------- ---------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Dividends --- --- $99 $4,927 $91 --- ---
Mortality and expense charge ($779) ($646) (34) (187) (1,292) ($15) ($278)
------------ --------- ---------- --------- ---------- --------- ---------
NET INVESTMENT INCOME (LOSS) (779) (646) 65 4,740 (1,201) (15) (278)
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares 1,963 3,359 6 1,027 3,174 80 1,068
Unrealized appreciation (depreciation)
of investments 851 3,325 (58) (4,604) 1,415 (78) 2,405
------------ --------- ---------- ---------- ---------- --------- ---------
NET GAIN(LOSS) ON INVESTMENTS 2,814 6,684 (52) (3,577) 4,589 2 3,473
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 2,035 6,038 13 1,163 3,388 (13) 3,195
CAPITAL TRANSACTIONS:
Transfer of premium 343,641 257,825 13,211 80,542 515,225 2,236 109,785
Sub-account transfers 1,202 5,025 --- --- 2,704 6,235 ---
------------ --------- ---------- ---------- ---------- --------- ---------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 344,843 262,850 13,211 80,542 517,929 8,471 109,785
------------ --------- ---------- ---------- ---------- --------- ---------
TOTAL INCREASE IN NET ASSETS 346,878 268,888 13,224 81,705 521,317 8,458 112,980
NET ASSETS, AT INCEPTION --- --- --- --- --- --- ---
------------ --------- ---------- ---------- ---------- --------- ---------
NET ASSETS, AT END OF THE YEAR $346,878 $268,888 $13,224 $81,705 $521,317 $8,458 $112,980
============ ========= ========== ========== ========== ========= =========
UNITS PURCHASED AND REDEEMED
Beginning balance --- --- --- --- --- --- ---
Units purchased 44,214 31,468 2,137 11,847 65,607 1,379 12,631
Units redeemed 10,602 6,934 817 4,317 14,895 583 1,891
------------ --------- ---------- ---------- ---------- --------- ---------
ENDING BALANCE 33,612 24,534 1,320 7,530 50,712 796 10,740
============ ========= ========== ========== ========== ========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 82
ACACIA NATIONAL VARIABLE ANNUITY INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF OPERATIONS
The Acacia National Variable Annuity Separate Account II (the Account) began
operations on September 9, 1996 as a separate investment account within Acacia
National Life Insurance Company (the Company) to receive and invest net
premiums paid under a flexible premium deferred variable annuity policy (the
Policy). The purpose of the Policy is to provide long-term financial planning
and to provide for the accumulation of capital on a tax-deferred basis for
retirement or other long-term purposes. The Policy may be purchased with a
minimum premium payment of $300 the first year and a minimum of $30 for
premium payments thereafter. The Policy may be purchased on a non-qualified
tax basis or used in connection with plans qualifying for favorable Federal
income tax treatment.
The Company is a member of the Acacia Group which includes Acacia Mutual Life
Insurance Company and its other wholly-owned subsidiaries: Acacia Financial
Corporation and its subsidiaries: Acacia Federal Savings Bank F.S.B., Calvert
Group, Ltd. and The Advisors Group, Inc.
Assets of the Account are the property of the Company. However, those assets
attributable to the policies are not chargeable with liabilities arising out
of any other business which the Company may conduct. The Account operates and
is registered as a unit investment trust under the Investment Company Act of
1940. The net assets maintained in the Account attributable to the policies
provide the base for the periodic determination of the increased or decreased
benefits under the policies.
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.
2. SEPARATE ACCOUNT ASSETS
The Account has fourteen separate sub-accounts which are invested as directed
by the policy owner. The fourteen sub-accounts of the Account are: Calvert
Money Market Portfolio, Calvert Balanced Portfolio, Calvert Strategic Growth
Portfolio, The Alger American Growth Portfolio, The Alger American Mid Cap
Growth Portfolio, The Alger American Small Capitalization Portfolio, Dreyfus
Stock Index Fund, The Neuberger & Berman Advisors Management Trust Limited
Maturity Bond Portfolio, The Neuberger & Berman Advisors Management Trust
Growth Portfolio, Strong Advantage Fund II, Strong Asset Allocation Fund II,
Strong International Stock Fund II, Strong Discovery Fund II and Van Eck
Worldwide Hard Assets Fund (formerly Van Eck Gold and Natural Resources
Portfolio). The Account purchases shares of each of the sub-accounts subject
to the terms of the Participation Agreements between the Company and the
sub-accounts. Shares of each sub-account
4
<PAGE> 83
are offered at a price equal to their respective net asset values per share,
without sales charge, which represents their fair value. Calvert Asset
Management Company, Inc., an indirectly wholly-owned subsidiary of Acacia
Financial Corporation, serves as an investment advisor to The Calvert Money
Market Portfolio, Calvert Balanced Portfolio and Calvert Strategic Growth
Portfolio.
In addition to the fourteen separate sub-accounts, a contract owner may also
allocate net premiums to the General Account, which is part of the Company.
Because of exclusionary provisions, interests in the General Account have not
been registered as securities under the Securities Act of 1933 and the General
Account has not been registered as an investment company under the Investment
Company Act of 1940.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Account in the preparation of the financial statements in
conformity with generally accepted accounting principles.
INVESTMENTS VALUATION
Investments are stated at market value which is the net asset value of each of
the respective portfolios.
ACCOUNTING FOR INVESTMENTS
Investment transactions are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date. Average cost is the basis followed in
determining the cost of investments sold for financial statement purposes.
FEDERAL INCOME TAXES
The Company is taxed under federal law as a life insurance company under the
provisions of the 1986 Internal Revenue Code, as amended. The Account is a
part of the Company's total operations and is not taxed separately. Under
existing law, no taxes are payable on investment income or realized capital
gains of the Account credited to the policies. Accordingly, the Company does
not intend to make any charge to the Account for company income taxes. If
such taxes are incurred by the Company in the future, a charge to the Account
may be assessed.
4. POLICY CHARGES
The following charges are deducted by the Company from the Account's net
assets attributed to each policy:
Annual Policy Fee: An annual charge of $42 will be made on each
policy anniversay to compensate the Company for the cost of
administering the Policy for all policies with an account value less
than $50,000.
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 made to compensate
5
<PAGE> 84
the Company for the costs of administering the Policy. Net investment
income is reduced by charges for investment management fees and other
expenses incurred by the Portfolios.
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 made to compensate the Company for assuming
certain mortality and expense risks. The charge will decrease by
.05% on each Policy anniversary beginning in year 16 until it
reaches an effective 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 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.
Premium Taxes: Certain states impose premium taxes. The Company
will deduct amounts equal to these taxes as applicable. Premium tax
rates vary from 0 to 3.5%.
5. PURCHASES AND SALES
The following table shows the cost of purchases and proceeds from sales for
the period September 9, 1996 (inception) to December 31, 1996 for the
sub-accounts.
<TABLE>
<CAPTION>
PROCEEDS FROM
REINVESTMENT COST OF PROCEEDS
IN DIVIDENDS PURCHASES FROM SALES
------------- --------- ----------
<S> <C> <C> <C>
Calvert Money Market Portfolio $1,813 $319,877 $182,098
Calvert Balanced Portfolio 526 22,507 15,515
Calvert Strategic Growth Portfolio 176 79,457 23,713
Alger American Growth Portfolio --- 368,032 76,298
Alger American MidCap Growth Portfolio --- 194,085 54,616
Alger American Small Capitalization Portfolio --- 370,039 88,504
Dreyfus Stock Index 20,596 1,718,448 183,232
Neuberger & Berman Limited Maturity Bond Portfolio --- 453,444 109,143
Neuberger & Berman Growth Portfolio --- 337,515 75,726
Strong Advantage Fund II 99 21,403 8,206
Strong Asset Allocation Fund II 4,927 126,506 46,001
Strong International Stock Fund II 91 676,797 154,673
Strong Discovery Fund II --- 14,687 6,231
Van Eck Worldwide Hard Assets Fund --- 129,521 20,013
</TABLE>
6
<PAGE> 85
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. (1)
(2) N/A
(3) (A) Principal Underwriting Agreement.(1)
(B) Form of Broker-Dealer Sales Agreement. (1)
(C) Commission Schedule. (1)
(4) Form of Annuity Policy. (1)
(5) Form of Application. (1)
(6) (A) Restated Articles of Incorporation of ANLIC. (2)
(B) By-Laws of ANLIC. (2)
(7) N/A
(8) (A) Participation Agreements.
Oppenheimer (2)
(B) Form of Administration Agreement. (1)
Amendment dated May 30, 1996 (3)
(9) Opinion and Consent of Ellen Jane Abromson, Esq. (3)
(10) (A) Consent of Jorden Burt Berenson & Johnson LLP. (3)
(B) Consent of Coopers & Lybrand L.L.P. (3)
(11) N/A
(12) N/A
(13) N/A
(14) Financial Data Schedules (3)
(1) Incorporated by reference to the initial filing of the Registration
Statement on Form N-4 (File No. 333-03963) on May 16, 1996.
(2) Incorporated by reference to the Post-Effective No. 3 to the
Registration Statement on Form S-6 (File No. 33- 90208) filed on May
1, 1997.
(3) Filed herewith.
<PAGE> 86
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
Chairman of the Board, President, 1988 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 Counsel, Acacia Mutual Life Insurance Company.
and Director
ROBERT W. CLYDE (1) Executive Vice President, Marketing and Sales since
Executive Vice President, Marketing and Sales, September 1994 Acacia Mutual Life Insurance Company;
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
Senior Vice President, Chief Financial Officer, March 1989, Chief Investment Officer since April
Chief Investment Officer and Director 1997; Vice President, Financial Analysis April 1988
to March 1989 Acacia Mutual Life Insurance Company.
HALUK ARITURK (1) Senior Vice President, Operations and Chief Actuary
Senior Vice President, Operations, since June 1989 Acacia Mutual Life Insurance
Chief Actuary, and Director Company.
</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.
<PAGE> 87
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
ACACIA MUTUAL LIFE INSURANCE COMPANY
(A mutual life insurance company)
1869 D.C.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
100% 100%
Acacia Acacia
Financial National
Corporation Life Insurance Company
(Holding Company) (Life Insurance & Annuity Sales)
1991 MD 1974 VA
100% 100% 100% 100% 100% 100% 100%
Enterprise Calvert, Acacia Acacia Ins. Gardner Acacia The Advisors
Resources, Inc. Group, Ltd. Realty Management Montgomery Federal Group, Inc.
(Bus. Support (Holding Corporation Services Corp. Company Savings (Broker Dealer
Serv./Agent Company) (Joint Ventures (Management (Tax Return Bank & Inv. Advisor)
Broker) 1991 DE in Real Estate) Services) Prep. Srvs.) 1985 Fed. 1982 DE
1978 DC 1984 DC 1992 PA 1994 DE
100 % 100% 100% 100% 50% 100% 100% 100 Shares*** 100 Shares
Calvert Asset Calvert Calvert Calvert Calvert- Acacia The Acacia 90C1.A Non The Advisors
Management Shareholder Admin. Distributors Sloan Services Ins. Agency Voting TAG Group Ins.
Company Services Inc.Services Inc. Advisers, Corporation of Mass., Inc. 10 Cl.B Voting Agency of
(Inv. Advisor) (Transfer Company (Broker LLC** (Solicits (Agent, V. Frye Texas, Inc.
1981 DE Agnet) (Legal & Dealer) (Inv. Deposits) Broker) The Advisors (Agent,
1980 DE Acctg. Srvs.) 1994 DE Advisor) 1985 VA 1996 MA Group Broker)
1980 DE 1995 MD Ins. Agency 1996 TX
of Ohio, Inc.
1995 OH
</TABLE>
1) AIMCo, a subsidiary of AFC, merged into its affiliate CAMCo 2-29-88
2) AESCo, a subsidiary of AFC, merged into its affiliate CSC 12-29-89
3) AISCo, a subsidiary of AFC, merged into its parent AFC 8-1-91
4) AIMC, a subsidiary of AFSB, dissolved 9-4-91
5) AFC, a subsidiary of AMLIC, a 1994 DC Corporation merged into AFC, a MD
Corporation organized in 1991
6) CSC changed its name to the Advisors Group, Inc. 3-1-95
7) The Advisors Group, Inc. Reorganized under AFC 3-31-95
8) Griffin Realty Corporation changed its name to Acacia Realty Corporation
5-24-95
* Investment Advisor to the following funds:
1) First Variable Rate Fund for Governtment Income
2) Calvert Tax-Free Reserves
3) Calvert Social Investment Fund
4) Calvert Cash Reserves (d/b/a Money Management Plus)
5) The Calvert Fund
6) Calvert Municipal Fund, Inc.
7) Calvert World Values Fund, Inc.
8) Acacia Capital Corporation
** Investment Advisor to the following fund:
1) Calvert New World Fund
*** TAG controls the corporation through a Voting Trust Agreement with
shareholders
<PAGE> 88
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 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, and is 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 Individual Flexible Premium Variable Life
Company Insurance
</TABLE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
----------------- ----------------
<S> <C>
Charles T. Nason 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
Victor M. Frye Vice President, Counsel and Compliance Officer
Leona Glowicz 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
Richard L. Stein Assistant Vice President, Supervisor of Trading
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
<PAGE> 89
(c) Commissions Received by Each Principal Underwriter from the Registrant
during the Registrant's Last Fiscal Year
<TABLE>
<CAPTION>
NET UNDERWRITING COMPENSATION
NAME OF PRINCIPAL DISCOUNTS AND ON
UNDERWRITER COMMISSIONS REDEMPTION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
The Advisors Group, (N/A) (N/A) (N/A) (N/A)
Inc.
</TABLE>
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 Principal 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.
<PAGE> 90
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.
SECTION 26(e)(2)(a) REPRESENTATIONS
Pursuant to Section 26 (e)(2)(A) of the Investment Company Act of
1940, as amended, ANLIC represents that the fees and charges deducted under the
Policy, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred and the risks assumed by ANLIC.
<PAGE> 91
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 certifies that it meets the requirements of Securities Act Rule 485
(b) for effectiveness of this registration statement and has duly caused this
registration statement to be signed on its behalf in the City of Washington,
and the District of Columbia, on the 24th day of April, 1997.
ACACIA NATIONAL LIFE INSURANCE COMPANY SEPARATE
ACCOUNT II
By: /s/ Ellen Jane Abromson
--------------------------
Ellen Jane Abromson
Second Vice President and Associate Counsel
By: ACACIA NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ Ellen Jane Abromson
--------------------------
Ellen Jane Abromson
Second Vice President and Associate Counsel
Attest: /s/ W. Nicholas Goetz
------------------------
W. Nicholas Goetz
Assistant Secretary
<PAGE> 92
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in their capacities with the depositor
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles T. Nason Chairman of the Board, President, April 24, 1997
-------------------- Chief Executive Officer, and
Charles T. Nason Director
/s/ Robert W. Clyde Executive Vice President, Marketing April 24, 1997
------------------- and Sales, and Director
Robert W. Clyde
/s/ Paul L. Schneider Senior Vice President, Chief April 24, 1997
--------------------- Financial Officer, Chief Investment
Paul L. Schneider Officer, and Director
/s/ Robert-John H. Sands Senior Vice President, General April 24, 1997
------------------------ Counsel, and Director
Robert-John H. Sands
/s/ Haluk Ariturk Senior Vice President, Operations, April 24, 1997
----------------- Chief Actuary, and Director
Haluk Ariturk
</TABLE>
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
(8)(b) Amendment to Administration Agreement dated May 30, 1996
(9) Opinion and Consent of Ellen Jane Abromson
(10)(A) Consent of Jorden Burt Berenson & Johnson LLP
(B) Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE> 1
(8) (b) Amendment to Administrative Agreement dated May 30, 1996
<PAGE> 2
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.
ACACIA NATIONAL LIFE FINANCIAL ADMINISTRATIVE
INSURANCE COMPANY SERVICES, INC.
By: By:
----------------------------- ------------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date:
--------------------------- ----------------------------
<PAGE> 3
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
) 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>
<PAGE> 4
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.
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
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
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)
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.
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.
<PAGE> 6
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 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.
<PAGE> 7
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) 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.
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.
<PAGE> 8
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:
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.
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.
<PAGE> 9
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.
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)
<PAGE> 10
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.
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
<PAGE> 11
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.
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.
<PAGE> 1
OPINION AND CONSENT
April 24, 1997
Acacia National Life Insurance Company
51 Louisiana Avenue, N.W.
Washington, DC 20001
Gentlemen:
With reference to the Post-Effective Amendment No. 1 to the Registration
Statement on Form N-4 (#333-03963), filed by Acacia National Life Insurance
Company and Acacia National Variable Annuity 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 Annuity 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 constitue 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
Post-Effective Amendment No. 1 to the 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
Ellen Jane Abromson
2nd Vice President & Associate Counsel
Acacia National Life Insurance Company
<PAGE> 1
April 23, 1997
Acacia National Life Insurance Company
Acacia National Variable Annuity Separate Account II
51 Louisiana Avenue, N.W.
Washington, D.C. 20001
RE: ACACIA NATIONAL LIFE INSURANCE COMPANY
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON
FORM N-4 (FILE NOS. 811-07626 AND 333-03963)
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Prospectus and Statement of Additional Information of
Acacia National Variable Annuity Separate Account II, a separate account of
Acacia National Life Insurance Company, contained in Post-Effective Amendment
No. 1 to the Registration Statement on Form N-4 (File Nos. 811-07626 and
333-03963) filed by Acacia National Life Insurance Company and Acacia National
Variable Annuity Separate Account II with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940.
Very truly yours,
Jorden Burt Berenson & Johnson LLP
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 1 dated May 1, 1997
on Form N-4 (file Nos. 333-03963, 811- 07627) of our report dated February 18,
1997, on our audit of the financial statement of Acacia National Life Insurance
Company as of and for the years ended December 31, 1996 and 1995 and our report
dated March 14, 1997, on our audit of the financial statements of Acacia
National Variable Annuity Insurance Separate Account II as of December 31, 1996
and for the period September 9, 1996 to December 31, 1996. We also consent to
the reference to our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Washington, D.C.
April 28, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> CALVERT MONEY MARKET
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 139,591
<INVESTMENTS-AT-VALUE> 139,591
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,591
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 139,591
<DIVIDEND-INCOME> 1,813
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 599
<NET-INVESTMENT-INCOME> 1,214
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,214
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 304,814
<NUMBER-OF-SHARES-REDEEMED> 165,223
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 139,591
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> CALVERT BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 7,674
<INVESTMENTS-AT-VALUE> 7,013
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,013
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,013
<DIVIDEND-INCOME> 526
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 13
<NET-INVESTMENT-INCOME> 513
<REALIZED-GAINS-CURRENT> 155
<APPREC-INCREASE-CURRENT> (661)
<NET-CHANGE-FROM-OPS> 7
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,132
<NUMBER-OF-SHARES-REDEEMED> 8,179
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,013
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> CALVERT STRATEGIC GROWTH
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 54,384
<INVESTMENTS-AT-VALUE> 55,892
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 55,892
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 55,892
<DIVIDEND-INCOME> 176
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 132
<NET-INVESTMENT-INCOME> 44
<REALIZED-GAINS-CURRENT> (734)
<APPREC-INCREASE-CURRENT> 1,508
<NET-CHANGE-FROM-OPS> 818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,497
<NUMBER-OF-SHARES-REDEEMED> 1,682
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 55,892
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> ALGER AMERICAN SMALL CAP GROWTH
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 278,400
<INVESTMENTS-AT-VALUE> 278,519
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 278,519
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 278,519
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 660
<NET-INVESTMENT-INCOME> (660)
<REALIZED-GAINS-CURRENT> (2,904)
<APPREC-INCREASE-CURRENT> 119
<NET-CHANGE-FROM-OPS> (3,445)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,976
<NUMBER-OF-SHARES-REDEEMED> 2,168
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 278,519
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> ALGER AMERICAN MID CAP GROWTH
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 140,791
<INVESTMENTS-AT-VALUE> 139,486
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,486
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 139,486
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 340
<NET-INVESTMENT-INCOME> (340)
<REALIZED-GAINS-CURRENT> 1,789
<APPREC-INCREASE-CURRENT> (1,305)
<NET-CHANGE-FROM-OPS> 144
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,052
<NUMBER-OF-SHARES-REDEEMED> 2,519
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 139,486
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> ALGER AMERICAN GROWTH
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 296,530
<INVESTMENTS-AT-VALUE> 293,712
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 293,712
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 293,712
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 750
<NET-INVESTMENT-INCOME> (750)
<REALIZED-GAINS-CURRENT> 3,994
<APPREC-INCREASE-CURRENT> (2,818)
<NET-CHANGE-FROM-OPS> 426
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,693
<NUMBER-OF-SHARES-REDEEMED> 2,137
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 293,712
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> DREYFUS STOCK INDEX
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,552,172
<INVESTMENTS-AT-VALUE> 1,521,869
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,521,869
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,521,869
<DIVIDEND-INCOME> 20,596
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,491
<NET-INVESTMENT-INCOME> 17,105
<REALIZED-GAINS-CURRENT> 13,609
<APPREC-INCREASE-CURRENT> (30,303)
<NET-CHANGE-FROM-OPS> 411
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83,706
<NUMBER-OF-SHARES-REDEEMED> 8,663
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,521,869
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 346,027
<INVESTMENTS-AT-VALUE> 346,878
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 346,878
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 346,878
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 779
<NET-INVESTMENT-INCOME> (779)
<REALIZED-GAINS-CURRENT> 1,963
<APPREC-INCREASE-CURRENT> 851
<NET-CHANGE-FROM-OPS> 2,035
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,389
<NUMBER-OF-SHARES-REDEEMED> 7,700
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 346,878
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> NEUBERGER & BERMAN GROWTH
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 265,563
<INVESTMENTS-AT-VALUE> 268,888
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 268,888
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 268,888
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 646
<NET-INVESTMENT-INCOME> (646)
<REALIZED-GAINS-CURRENT> 3,359
<APPREC-INCREASE-CURRENT> 3,325
<NET-CHANGE-FROM-OPS> 6,038
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,346
<NUMBER-OF-SHARES-REDEEMED> 2,916
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 268,888
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> STRONG ADVANTAGE FUND II
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 13,282
<INVESTMENTS-AT-VALUE> 13,224
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,224
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 13,224
<DIVIDEND-INCOME> 99
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 34
<NET-INVESTMENT-INCOME> 65
<REALIZED-GAINS-CURRENT> 6
<APPREC-INCREASE-CURRENT> (58)
<NET-CHANGE-FROM-OPS> 13
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,127
<NUMBER-OF-SHARES-REDEEMED> 809
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13,224
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> STRONG ASSET ALLOCATION
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 86,309
<INVESTMENTS-AT-VALUE> 81,705
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81,705
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 81,705
<DIVIDEND-INCOME> 4,927
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 187
<NET-INVESTMENT-INCOME> 4,740
<REALIZED-GAINS-CURRENT> 1,027
<APPREC-INCREASE-CURRENT> (4,604)
<NET-CHANGE-FROM-OPS> 1,163
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,229
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 81,705
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> STRONG INTERNATIONAL STOCK
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 519,902
<INVESTMENTS-AT-VALUE> 521,317
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 521,317
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 00
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 521,317
<DIVIDEND-INCOME> 91
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,292
<NET-INVESTMENT-INCOME> (1,201)
<REALIZED-GAINS-CURRENT> 3,174
<APPREC-INCREASE-CURRENT> 1,415
<NET-CHANGE-FROM-OPS> 3,388
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 59,935
<NUMBER-OF-SHARES-REDEEMED> 13,513
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 521,317
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> STRONG DISCOVERY
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 8,536
<INVESTMENTS-AT-VALUE> 8,458
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,458
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,458
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 15
<NET-INVESTMENT-INCOME> (15)
<REALIZED-GAINS-CURRENT> 80
<APPREC-INCREASE-CURRENT> (78)
<NET-CHANGE-FROM-OPS> (13)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,371
<NUMBER-OF-SHARES-REDEEMED> 578
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8,458
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> VAN ECK WORLDWIDE HARD ASSETS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 110,575
<INVESTMENTS-AT-VALUE> 112,980
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112,980
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 112,980
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 278
<NET-INVESTMENT-INCOME> (278)
<REALIZED-GAINS-CURRENT> 1,068
<APPREC-INCREASE-CURRENT> 2,405
<NET-CHANGE-FROM-OPS> 3,195
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,925
<NUMBER-OF-SHARES-REDEEMED> 1,174
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 112,980
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
