<PAGE> 1
Rule 497(e)
File Nos.
333-03963
811-07627
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> 2
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> 3
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> 4
<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> 5
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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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 1.00% 0.23% 1.23%
</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> 13
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 107 164
</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 27 84
</TABLE>
13
<PAGE> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
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 1.00% of the first $500 million of the average daily net assets of the
Portfolio, .90% of the next $250 million of the daily net assets of the
Portfolio, and .70% 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> 23
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> 24
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> 25
(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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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> 37
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>
