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File Nos. 333-03963, 811-07627
As filed with the Securities and Exchange Commission on May 1, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
Registration Statement Under the Securities Act of 1933 [X]
Post-Effective Amendment No. 2 [X]
AND
Registration Statement Under the Investment Company Act of 1940 [X]
Amendment No. 2 [X]
(Check appropriate box or boxes.)
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
(EXACT NAME OF REGISTRANT)
ACACIA NATIONAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
7315 Wisconsin Avenue
Bethesda, Maryland 20814
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICE)
DEPOSITOR'S TELEPHONE NUMBER: (301) 280-1000
Ellen Jane Abromson, Esquire
Acacia National Life Insurance Company
7315 Wisconsin Avenue
Bethesda, Maryland 20814
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
Ann B. Furman, Esq.
Jorden Burt Boros Cicchetti Berenson & Johnson, LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007
It is proposed that this filing will come effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
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CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
SHOWING LOCATION OF INFORMATION REQUIRED BY FORM N-4
IN PART A (PROSPECTUS) AND PART B (STATEMENT OF
ADDITIONAL INFORMATION) OF THE REGISTRATION STATEMENT
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CAPTION(S) IN THE STATEMENT
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ITEM OF FORM N-4 CAPTION(S) IN THE PROSPECTUS OF ADDITIONAL INFORMATION
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PART A: INFORMATION REQUIRED IN A PROSPECTUS
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1. Cover Page Cover page
2. Definitions Glossary of Defined Terms
3. Synopsis Summary
4. Financial Condensed Financial Information
Information
5. General Description of ANLIC and the Variable Account;
Registrant, Depositor and
Portfolio Companies The Portfolios; Voting Rights;
Administration
6. Deductions Summary; Charges and Surrender Charge Calculation
Deductions;
The Portfolios
7. General Description of Summary; The Policy; Annuity General Provisions; Fixed
Variable Annuity Contracts Payments; Voting Rights; Account
Additional Information
8. Annuity Period Annuity Payments
9. Death Benefit The Policy -- Death Benefit
10. Purchases and Contract Value ANLIC and the Variable Account;
The Policy
11. Redemptions The Policy -- Surrender and
Partial Withdrawals; The Policy
-- Free Look Period
12. Taxes Federal Tax Matters Federal Tax Matters
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement of Additional Table of Contents
Statement of Additional Information
Information
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CAPTION(S) IN THE STATEMENT
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ITEM OF FORM N-4 CAPTION(S) IN THE PROSPECTUS OF ADDITIONAL INFORMATION
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PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and N/A
History
18. Services Administration Experts; Distribution of the
Policies; Records and Reports
19. Purchase of Securities Being Summary; The Policy General Provisions; Distribution
Offered of the Policies
20. Underwriters ANLIC and the Variable Account Distribution of the Policies
21. Calculation of Performance Data Performance Data Performance Data Calculations;
Performance Figures
22. Annuity Payments Annuity Payments General Provisions
23. Financial Statements Financial Statements
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PROSPECTUS
THE DATE OF THIS PROSPECTUS IS: MAY 1, 1998
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
ISSUED BY
ACACIA NATIONAL LIFE INSURANCE COMPANY
7315 WISCONSIN AVENUE, BETHESDA, MARYLAND 20814
TELEPHONE: (301) 280-1000
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 and their corresponding Sub-accounts currently available under
the Policy are:
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PORTFOLIO NAME CATEGORY/SUB-ACCOUNT NAME
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Alger American Growth Portfolio Large Cap Sub-account
Alger American MidCap Growth Portfolio Mid Cap Sub-account
Alger American Small Capitalization Portfolio Small Cap Sub-account
Calvert Variable Series, Inc. Calvert Social Money Market Portfolio Social Money Market Sub-account
Calvert Variable Series, Inc. Calvert Social Small Cap Growth Portfolio Social Strategic Growth Sub-account
Calvert Variable Series, Inc. Calvert Social Mid Cap Growth Portfolio Social Managed Growth Sub-account
Calvert Variable Series, Inc. Calvert Social International Equity Portfolio Social Global Sub-account
Calvert Variable Series, Inc. Calvert Social Balanced Portfolio Social Balanced Sub-account
Dreyfus Stock Index Fund S & P 500 Index Sub-account
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Portfolio Income Sub-account
Neuberger & Berman Advisers Management Trust Growth Portfolio Growth Sub-account
Oppenheimer Aggressive Growth Fund Aggressive Growth Sub-account
Oppenheimer Growth Fund Large Cap Growth Sub-account
Oppenheimer Growth & Income Fund Balanced Sub-account
Oppenheimer High Income Fund High Income Sub-account
Oppenheimer Strategic Bond Fund Managed Income Sub-account
Strong International Stock Fund II International Growth Sub-account
Strong Discovery Fund II Aggressive Growth Sub-account
Van Eck Worldwide Hard Assets Fund Hard Assets/Metals Sub-account
</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 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
("SEC") 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. The SEC maintains a Web
site
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(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding registrants
that file electronically with the SEC.
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.
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TABLE OF CONTENTS
PAGE
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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
Portfolio Annual Expenses...................................... 5
Condensed Financial Information................................ 7
ANLIC AND THE VARIABLE ACCOUNT...................................... 8
Acacia National Life Insurance Company......................... 8
The Variable Account........................................... 8
THE PORTFOLIOS...................................................... 8
The Alger American Fund........................................ 9
Calvert Variable Series, Inc................................... 9
Dreyfus Stock Index Fund....................................... 11
Neuberger & Berman Advisers Management Trust................... 11
Oppenheimer Varible Account Funds.............................. 12
Strong Variable Insurance Funds, Inc. and Strong
Discovery Fund II........................................... 12
Van Eck Worldwide Hard Assets Fund............................. 13
Risks Attendant to Investments in Junk Bonds................... 14
Risks Attendant to Investments in Foreign Securities........... 14
Investment Advisory Fees....................................... 14
Resolving Material Conflicts................................... 15
THE POLICY ......................................................... 15
Issuance of a Policy........................................... 16
Telephone Requests............................................. 16
Free Look Period............................................... 16
Premium Payments............................................... 16
Allocation of Premium Payments................................. 16
Policy Account Value........................................... 16
Surrender and Partial Withdrawals.............................. 17
Transfers...................................................... 18
Automatic Rebalancing, Dollar Cost Averaging, and
Interest Sweep Programs..................................... 18
Death Benefit.................................................. 19
Required Distributions......................................... 20
CHARGES AND DEDUCTIONS.............................................. 20
Annual Policy Fee.............................................. 20
Administrative Expense Charge.................................. 20
Mortality and Expense Risk Charge.............................. 21
Surrender Charge............................................... 21
Premium Taxes.................................................. 22
Federal Taxes.................................................. 22
Fund Expenses.................................................. 22
Reduction In Charges For Certain Groups........................ 22
ANNUITY PAYMENTS.................................................... 23
Election of an Annuity Payment Option.......................... 23
Maturity Date.................................................. 23
Available Options.............................................. 23
Annuity Payment Options........................................ 23
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FEDERAL TAX MATTERS................................................. 24
Introduction................................................... 24
Taxation of Annuities in General............................... 24
ANNUITY OWNERS THAT ARE NONRESIDENT ALIENS OR
FOREIGN CORPORATIONS............................................... 26
VOTING RIGHTS....................................................... 26
PERFORMANCE DATA.................................................... 27
PUBLISHED RATINGS................................................... 27
LEGAL PROCEEDINGS................................................... 28
FINANCIAL STATEMENTS................................................ 28
ADMINISTRATION...................................................... 28
PREPARATIONS FOR THE YEAR 2000...................................... 28
POLICY REPORTS...................................................... 28
STATE REGULATION.................................................... 28
EXPERTS............................................................. 29
LEGAL MATTERS....................................................... 29
ADDITIONAL INFORMATION.............................................. 29
STATEMENT OF ADDITIONAL INFORMATION................................. 30
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Throughout this Prospectus, the words "us", "we", "our", and "ANLIC" refer to
Acacia National Life Insurance Company, and the words "you", "your", and "Owner"
refer to the policy owner.
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GLOSSARY OF DEFINED TERMS
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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. The Fixed Account is not
available as an investment option for policies sold in the States of Oregon and
Washington.
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 the General Account accumulate
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PERIOD interest at a Guaranteed Interest Rate. Interest rates will be determined on no
less than an annual basis.
INVESTMENT ALLOCATION The percent of each Premium Payment you choose to allocate to the Sub-Accounts or
the Fixed Account.
IRREVOCABLE BENEFICIARY A Beneficiary or Beneficiaries whose interest cannot be changed without their, his
or her consent or as required by law.
JOINT ANNUITANT A person other than the Annuitant who may be designated by the Owner and whose life
is also used to determine the duration of Annuity Payments involving life
contingencies. If one of the joint Annuitants dies prior to the Maturity Date, the
survivor shall become the sole Annuitant.
MATURITY DATE The date upon which Annuity Payments begin. You may choose a Maturity Date
commencing no later than the first day of the calendar month after the Annuitant's
90th birthday.
NET ASSET VALUE For each Portfolio, the current price of one share of that Portfolio. The Net Asset
Value is computed by adding the value of the Portfolio's investments plus cash and
other assets, deducting liabilities and then dividing the result by the number of
its shares outstanding. The Net Asset Value of each portfolio is generally
calculated as of the close of business on each day the New York Stock Exchange is
open.
NET PREMIUM PAYMENT The Premium Payment less any applicable tax charges.
OWNER The person named on the Application as Owner or the persons named on the Application
as Joint Owners. Any reference to Owner in this Prospectus or in the Policy will
include both Owners, if there are Joint Owners. The Owner is entitled to all of the
ownership rights under the Policy. The Owner has the legal right to make all
changes in the policy designations where permitted specifically by the terms of the
Policy. The Owner is as specified in the Application, unless changed. "You" and
"your" are also used throughout this Prospectus and the Policy to refer to the
Owner.
POLICY ACCOUNT VALUE The sum of the Variable Account Value and the Fixed Account Value.
POLICY ANNIVERSARY Each anniversary of the Policy Date.
POLICY DATE The date set forth in the Policy that is used to determine Policy years and months.
Policy Anniversaries are measured from the Policy Date.
PORTFOLIO A separate investment portfolio of a Fund in which the Variable Account assets may
be invested.
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.
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SURRENDER VALUE The Policy Account Value as of any Valuation Date, reduced by applicable Surrender
Charges, the Annual Policy Fee, and any premium or other taxes.
SYSTEMATIC PARTIAL Owners choosing this option will withdraw a level dollar amount of Policy Account
WITHDRAWALS Value on a periodic basis. Systematic Partial Withdrawals are subject to the same
Surrender Charges as partial withdrawals, as set forth on the Specifications Page of
the Policy.
VALUATION DATE Each regular business day that ANLIC and the New York Stock Exchange is open for
business, excluding holidays and any other day in which there is insufficient
trading in the Portfolio securities to materially affect the value of the assets in
the Variable Account.
VALUATION PERIOD The period between two successive Valuation Dates, commencing at the close of
business of a Valuation Date and ending at the close of business for the next
succeeding Valuation Date.
VARIABLE ACCOUNT Acacia National Variable Annuity Separate Account II, a separate investment account
that has been was established by ANLIC to receive and invest the net Premium
Payments paid under the Policy.
VARIABLE ACCOUNT VALUE The sum of the values held in all the Sub-accounts of the Variable Account.
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SUMMARY
This is a brief summary of the Policy provisions and how they relate
to your rights and benefits. Complete details are contained elsewhere in the
Prospectus and should be read carefully in conjunction with this summary
information.
THE POLICY
The Policy is designed to aid individuals in long-term financial
planning and provides for the accumulation of capital on a tax-deferred basis
for retirement or other long-term purposes. The Policy also provides for annuity
payments ("Annuity Payments") to begin at maturity. You may select from a number
of Annuity Payment Options, including a life annuity, joint life annuity, and
life annuity for a guaranteed period. All Annuity Payment Options are on a fixed
basis. (See "Annuity Payments.")
The Policy is issued in consideration of the application and payment
of the initial Premium Payment. Premium Payments of at least $300 must be paid
during the first Policy year. (See "The Policy - Premium Payments.") The Policy
can be purchased for a single Premium Payment. However, additional Premium
Payments of at least $30 may be paid at your option. (See "The Policy - Premium
Payments.") The Policy can be purchased on a 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:
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Calvert Variable Series, Inc. Calvert Social Money Market Portfolio
Calvert Variable Series, Inc. Calvert Social Small Cap Growth Portfolio
Calvert Variable Series, Inc. Calvert Social Mid Cap Growth Portfolio
Calvert Variable Series, Inc. Calvert Social International Equity Portfolio
Calvert Variable Series, Inc. Calvert Social 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 Aggressive Growth 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
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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.")
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
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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.")
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.")
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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.
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. (No free withdrawals
are permitted during the first six months. There is a $100 minimum on all
withdrawals.) 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.")
3
<PAGE> 13
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
Variable account annual expenses
(expressed as a percent of the average daily net assets of each
Sub-account of the Variable Account):
Maximum Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.10%
-----
Total Variable Account Annual Expenses: 1.35%
</TABLE>
4
<PAGE> 14
PORTFOLIO ANNUAL EXPENSES
(EXPRESSED AS A PERCENTAGE OF NET ASSETS OF EACH PORTFOLIO)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
OTHER ANNUAL
PORTFOLIO MANAGEMENT FEES 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% 0.04% 0.89%
Calvert Social Money Market Portfolio 0.50% 0.20% 0.70%(1)
Calvert Social Small Cap Growth Portfolio 1.00% 0.20% 1.20%(1)
Calvert Social Mid Cap Growth Portfolio 0.90% 0.15% 1.05%(1)
Calvert Social International Equity Portfolio 1.10% 0.47% 1.57%(1)
Calvert Social Balanced Portfolio 0.69% 0.12% 0.81%(1)
Dreyfus Stock Index Fund 0.25% 0.03% 0.28%
Neuberger & Berman Advisers Management Trust Limited
Maturity Bond Portfolio 0.65% 0.12% 0.77%
Neuberger & Berman Advisers Management Trust Growth 0.83% 0.07% 0.90%
Portfolio
Oppenheimer Aggressive Growth Fund 0.71% 0.02% 0.73%(2)
Oppenheimer Growth Fund 0.73% 0.02% 0.75%
Oppenheimer Growth & Income Fund 0.75% 0.08% 0.83%
Oppenheimer High Income Fund 0.75% 0.07% 0.82%
Oppenheimer Strategic Bond Fund 0.75% 0.08% 0.83%
Strong International Stock Fund II 1.00% 0.51% 1.51%
Strong Discovery Fund II 1.00% 0.18% 1.18%
Van Eck Worldwide Hard Assets Fund 1.00% 0.17% 1.17%(3)
</TABLE>
- --------
(1)The figures above are based on expenses for fiscal year 1997, and
have been restated to reflect an increase in transfer agency expenses of 0.01%
for each Portfolio expected to be incurred in 1998. Management Fees includes for
CS Balanced and CS Mid Cap, a performance adjustment, which depending on
performance, could cause the fee to be as high as 0.85% or as low as 0.55% for
CS Balanced, and as high as 0.95% or as low as 0.85% for CS Mid Cap. The CS
Small Cap expenses have been restated to reflect the lower advisory fee and
administrative services fee. Other Expenses reflect an indirect fee. Net fund
operating expenses after reductions for fees paid indirectly (again, restated)
would be 0.78% for CS Balanced, 0.97% for CS Mid Cap, 0.60% for CS Money Market,
1.18% for CS International Equity and 0.89% for CS Small Cap. Management Fees
for CS Mid Cap, CS Small Cap, and CS International Equity includes an
administrative service fee of 0.10% paid to the advisor's affiliate. Prior to
January 1, 1998, Calvert Variable Series, Inc., was named Acacia Capital
Corporation and the Calvert Social Money Market Portfolio was named the Calvert
Responsibly Invested Portfolio; the Calvert Social Small Cap Growth Portfolio
was named the Calvert Responsibly Invested Strategic Growth Portfolio; the
Calvert Social Mid Cap Growth Portfolio was named the Calvert Responsibly
Invested Capital Accumulation Portfolio; the Calvert Social International Equity
Portfolio was named the Calvert Responsibly Invested Global Equity Portfolio;
and the Calvert Social Balanced Portfolio was named the Calvert Responsibly
Invested Balanced Portfolio.
(2)The Oppenheimer Aggressive Growth Fund was formerly named
Oppenheimer Capital Appreciation Fund.
(3)Prior to April 30, 1997, Worldwide Hard Assets Fund was named Gold
and Natural Resources Fund. Other Expenses are net of soft dollar credits.
Without such credits, Other Expenses would have been 0.18% and Total Portfolio
Annual Expenses would have been 1.18%.
5
<PAGE> 15
The purpose of the following table is to assist you in understanding
the various costs and expenses that you will bear directly and indirectly. The
Table reflects charges and expenses of the Variable Account and charges and
expenses of the Portfolios for the year ended December 31, 1997; 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
Calvert Variable Series, Inc. Calvert Social Money Market Portfolio 102 148
Calvert Variable Series, Inc. Calvert Social Small Cap Growth Portfolio 107 163
Calvert Variable Series, Inc. Calvert Social Mid Cap Growth Portfolio 106 158
Calvert Variable Series, Inc. Calvert Social International Equity Portfolio 111 173
Calvert Variable Series, Inc. Calvert Social Balanced Portfolio 103 151
Dreyfus Stock Index Fund 98 135
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Portfolio 103 150
Neuberger & Berman Advisers Management Trust Growth Portfolio 104 154
Oppenheimer Aggressive Growth Fund 102 149
Oppenheimer Growth Fund 103 149
Oppenheimer Growth & Income Fund 103 152
Oppenheimer High Income Fund 103 152
Oppenheimer Strategic Bond Fund 103 152
Strong International Stock Fund II 110 172
Strong Discovery Fund II 107 162
Van Eck Worldwide Hard Assets Fund 107 162
</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
Calvert Variable Series, Inc. Calvert Social Money Market Portfolio 22 68
Calvert Variable Series, Inc. Calvert Social Small Cap Growth Portfolio 27 83
Calvert Variable Series, Inc. Calvert Social Mid Cap Growth Portfolio 26 78
Calvert Variable Series, Inc. Calvert Social International Equity Portfolio 31 93
Calvert Variable Series, Inc. Calvert Social Balanced Portfolio 23 71
Dreyfus Stock Index Fund 18 55
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Portfolio 23 70
Neuberger & Berman Advisers Management Trust Growth Portfolio 24 74
Oppenheimer Aggressive Growth Fund 22 69
Oppenheimer Growth Fund 23 69
Oppenheimer Growth & Income Fund 23 72
Oppenheimer High Income Fund 23 72
Oppenheimer Strategic Bond Fund 23 72
Strong International Stock Fund II 30 92
Strong Discovery Fund II 28 82
Van Eck Worldwide Hard Assets Fund 25 82
</TABLE>
In addition, ANLIC will deduct a charge for premium taxes when they are
incurred.
6
<PAGE> 16
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.
CONDENSED FINANCIAL INFORMATION
The Accumulation Unit Values and the number of accumulation units
outstanding for each Sub-account in 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS
ACCUMULATION UNIT VALUE AS OF: OUTSTANDING AS OF:
START DATE* 12/31/96 12/31/97 12/31/96 12/31/97
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Alger American Growth Portfolio 10.00 10.91 13.71 26,933 132,282
Alger American MidCap Growth Portfolio 10.00 10.77 12.39 12,949 64,878
Alger American Small Capitalization Portfolio 10.00 10.30 11.48 27,028 132,551
Calvert Social Money Market Portfolio 1.00 1.02 1.07 137,527 1,140,175
Calvert Social Small Cap Growth Portfolio 10.00 10.84 9.76 5,157 31,049
Calvert Social Mid Cap Growth Portfolio 10.00 N/A 12.44 N/A 7,302
Calvert Social International Equity Portfolio 10.00 N/A 11.02 N/A 7,669
Calvert Social Balanced Portfolio 10.00 10.85 13.03 646 39,756
Dreyfus Stock Index Fund 10.00 11.22 14.91 135,684 366,377
Neuberger & Berman Advisers Management
Trust Limited Maturity Bond Portfolio 10.00 10.32 11.01 33,612 240,629
Neuberger & Berman Advisers Management
Trust Growth Portfolio 10.00 10.96 14.13 24,534 100,057
Oppenheimer Aggressive Growth Fund 10.00 N/A 12.53 N/A 60,337
Oppenheimer Growth Fund 10.00 N/A 12.10 N/A 120,465
Oppenheimer Growth & Income Fund 10.00 N/A 12.84 N/A 38,357
Oppenheimer High Income Fund 10.00 N/A 11.12 N/A 46,452
Oppenheimer Strategic Bond Fund 10.00 N/A 10.77 N/A 6,641
Strong International Stock Fund II 10.00 10.28 8.61 50,712 284,776
Strong Discovery Fund II 10.00 10.63 11.99 796 10,687
Van Eck Worldwide Hard Assets Fund 10.00 10.52 10.34 10,740 53,425
</TABLE>
(Units are shown in thousands)
* Date of commencement of operations of the Alger American Growth Portfolio,
the Alger American MidCap Growth Portfolio, the Alger American Small
Capitalization Portfolio, the Calvert Social Money Market Portfolio, the
Calvert Social Small Cap Growth Portfolio, the Calvert Social Balanced
Portfolio, the Dreyfus Stock Index Fund, the Neuberger & Berman Advisers
Management Trust Limited Maturity Bond Portfolio, the Neuberger & Berman
Advisers Trust Growth Portfolio Management, the Strong International Stock
Fund II, the Strong Discovery Fund II, and the Van Eck Worldwide Hard Assets
Fund is 8/26/96. Date of commencement of operations of the Calvert Social Mid
Cap Growth Portfolio, the Calvert Social International Equity Portfolio, the
Oppenheimer Aggressive Growth Fund, the Oppenheimer Growth Fund, the
Oppenheimer Growth & Income Fund, the Oppenheimer High Income Fund, and the
OPPENHEIMER Strategic Bond Fund is 5/1/97.
7
<PAGE> 17
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 Life Insurance Company ("Acacia Life") owns all the outstanding
stock of ANLIC. The principal offices of both ANLIC and Acacia Life are at 7315
Wisconsin Avenue, Bethesda, Maryland 20814. Acacia Life, domiciled in the
District of Columbia, is a stock subsidiary of a Mutual Holding Corporation,
Acacia Mutual Holding Company. There is an intermediary holding company, Acacia
Financial Group, LTD. Acacia Life 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 Life, the assets of Acacia Life do not
support the obligations of ANLIC under the Policy.
A number of the directors and officers of ANLIC are also either
directors or officers or both of Acacia Life. Acacia Life's employees perform
certain administrative functions for ANLIC for which Acacia Life is reimbursed.
Acacia Life 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., the investment adviser of Calvert
Variable Series, Inc., 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.
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, as amended (the "1940 Act"). Registration with
the SEC does not involve supervision of the management or investment practices
or policies of the Variable Account or ANLIC by the SEC.
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.
8
<PAGE> 18
THE ALGER AMERICAN FUND
The Variable Account has three Sub-accounts that invest exclusively in
shares of the Alger American Fund. The LargeCap Growth Sub-account, the MidCap
Growth Sub-account and the SmallCap 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.
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.
CALVERT VARIABLE SERIES, INC.
The Variable Account has five Sub-accounts that invest exclusively in
shares of Calvert Variable Series, Inc.. The Social Money Market, Social
Strategic Growth, Social Managed Growth, Social Global and Social Balanced
Sub-accounts of the Variable Account invest in shares of the Calvert Social
Money Market Portfolio, the Calvert Social Small Cap Growth Portfolio, the
Calvert Social Mid Cap Growth Portfolio, the Calvert Social International Equity
Portfolio, and the Calvert Social Balanced Portfolio, respectively, of Calvert
Variable Series, Inc.. Calvert Variable Series, Inc. 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
9
<PAGE> 19
more than is customary with other investment portfolios. (See the individual
Portfolio Prospectuses for a complete description of each social screen).
The Calvert Social Money Market Portfolio ("CS 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. CS 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 Social Small Cap Growth ("CS Small Cap") seeks, with a concern
for social impact to achieve long-term capital appreciation by investing
primarily in the equity securities of small companies publicly traded in the
United States. In seeking capital appreciation, the Portfolio invests primarily
in equity securities of small capitalized growth companies that have
historically exhibited exceptional growth characteristics and that in the
advisor's opinion, have strong earnings potential relative to the U.S. market as
a whole.
CS Small Cap 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 Social Mid Cap Growth ("CS Mid Cap") 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.
CS Mid Cap 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.") .
Calvert Social International Equity Portfolio ("CS International") 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, CS International will invest at least 65% of
its assets in the securities of issuers in no less than three countries, other
than the United States (See "The Portfolios - Risks Attendant to Investments in
Foreign Securities.") As an operating policy, the portfolio will limit its
investment in securities of U.S. issuers to 5% of its net assets. CS
International 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 Social Balanced Portfolio ("CS Balanced") 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.
CS Balanced 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 Portfolios of Calvert Variable Series, Inc.. 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 CS International, 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 CS International,
although CAM may manage part of CS International's cash reserves required for
liquidity purposes.
On behalf of CS Balanced, 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 CS Small Cap, CAM has entered into a
subadvisory agreement with Awad & Associates of New York. 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.
10
<PAGE> 20
DREYFUS STOCK INDEX FUND
The S&P 500 Index Sub-account of the Variable Account invests
exclusively in shares of the Dreyfus Stock Index Fund.
Dreyfus Stock Index Fund 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 investment manager of Dreyfus Stock Index Fund is Dreyfus
Corporation ("Dreyfus"), a wholly-owned subsidiary of Mellon Bank, N.A., which
is a wholly-owned subsidiary of Mellon Bank Corporation, a publicly owned
multibank holding company.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has two Sub-Accounts that invest exclusively in
shares of Portfolios of the Neuberger & Berman Advisers Management Trust
("AMT"). The Income and Growth 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.
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 Portfolio 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.
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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 Aggressive Growth, Large Cap Growth, Balanced, High
Income, and Managed Income Sub-accounts of the Variable Account invest in shares
of the Aggressive Growth Fund, Growth Fund, Growth & Income Fund, High Income
Fund and Strategic Bond Fund respectively, of the Oppenheimer Funds. The
Oppenheimer Funds are managed by OppenheimerFunds, 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 Aggressive Growth Fund ("Aggressive Growth 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
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 one Portfolio 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.
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<PAGE> 22
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 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 the Strong
Variable Insurance Funds, Inc. and the Strong Discovery Fund II and, pursuant to
its investment advisory agreements, manages the investment and reinvestment of
the assets of each Portfolio, and is responsible for their overall business
affairs.
VAN ECK WORLDWIDE HARD ASSETS FUND
The Hard Assets/Metals Sub-account of the Variable Account invests
exclusively 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
Portfolio 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
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<PAGE> 23
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.
CS Balanced, CS Small Cap, 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. CS International, 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.
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 CS Money
Market Portfolio, .80% CS Mid Cap, 1.00% the CS International Equity .70% of net
assets of CS Balanced and .90% of net assets of CS Small Cap 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: 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>
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<PAGE> 24
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 Aggressive Growth 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 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.
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<PAGE> 25
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.
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
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<PAGE> 26
the Policy for each Sub-account is determined at the time of initial Premium
Payment by dividing the net Premium Payments allocated to each Sub-account by
the Accumulation Unit Value for that Sub-account for the Valuation Period during
which the Application is accepted. For additional Premium Payments, the number
of units of each Sub-account credited under the Policy is determined by dividing
the net Premium Payments allocated to that Sub-account by the unit value for
that Sub-account at the end of the Valuation Period during which the Premium
Payment was received at our Service Office.
Each Sub-account's Accumulation Unit Value for any Valuation Period is
determined by multiplying its Accumulation Unit Value for the immediately
preceding Valuation Period by the "net investment factor" for the Valuation
Period for which the value is being determined. The net investment factor is an
index that measures the investment performance of a Sub-account from one
Valuation Period to the next. For a complete description on how the net
investment factor is calculated, see "Net Investment Factor" in the Statement of
Additional Information.
Fixed Account Value. At the end of any Valuation Period, the Fixed
Account Value is equal to: (1) the sum of your net Premium Payments allocated to
the Fixed Account; plus (2) any amounts that you transferred from the Variable
Account to the Fixed Account; plus (3) the total interest credited to your
Policy Account Value in the Fixed Account; less (4) any amounts that you
transferred from the Fixed Account to the Variable Account; less (5) the portion
of any withdrawals and Surrender Charges allocated to your Policy Account Value
in the Fixed Account; less (6) the portion of the Annual Policy Fee which is
allocated to your Policy Account Value in the Fixed Account.
SURRENDER AND PARTIAL WITHDRAWALS
Surrender. You may, prior to the earlier of the Maturity Date or the
date of your death, withdraw all or a portion of your then-current Surrender
Value, upon written request to our Service Office. If there are Joint Owners,
both of you must agree to the withdrawal. We may defer payment of your Surrender
Value allocated to the Fixed Account for a period not longer than six months
after you request its withdrawal. Payment of amounts from the Variable Account
will normally be made within seven days, but may be delayed in certain
circumstances. (See "Delay or Suspension of Payments" in the Statement of
Additional Information.)
You may, prior to the earlier of the Maturity Date or your death,
withdraw 100% of earnings (since the last Policy Anniversary) in all
Sub-accounts and the Fixed Account free of Surrender Charges. (No free
withdrawals are permitted during the first six months.) There is a $100 minimum
on all withdrawals. 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.
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<PAGE> 27
Similar restrictions apply to variable annuity contracts used as funding
vehicles for retirement plans qualifying under Section 403(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). Section 403(b) provides for
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. In accordance with the requirements of Section
403(b), any Policy used for a Section 403(b) plan will prohibit distributions of
(i) elective contributions made in years beginning after December 31, 1988, and
(ii) earnings on those contributions and (iii) earnings on amounts attributable
to elective contributions held as of the end of the last year beginning before
January 1, 1989. However, distributions of such amounts will be allowed upon
death of the employee, attainment of age 59-1/2, separation from service,
disability, or financial hardship, except that income attributable to elective
contributions may not be distributed in the case of hardship.
Restrictions Under Other Qualified Policies. Other restrictions on
surrenders or with respect to the election, commencement, or distributions of
benefits may apply under Qualified Policies or under the terms of the plans in
respect of which Qualified Policies are issued.
TRANSFERS
You may transfer all or part of the value of a Sub-account of the
Variable Account to one or more of the other Sub-accounts or the Fixed Account
at any time prior to the Maturity Date, free of charge. The minimum for each
transfer is $50. The transfer will be made as of the date we receive the written
request for such transfer at our Service Office.
The maximum amount allowed to be transferred out of the Fixed Account
during one Policy Year is 100% of Fixed Account interest accrued since the last
Policy Anniversary; plus 10% of:
(1) Account Value of the Fixed Account as of the last Policy
Anniversary; plus
(2) Deposits and transfers made into the Fixed Account since the
last Policy Anniversary; minus
(3) All partial withdrawals from the Fixed Account since the last
Policy Anniversary.
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
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<PAGE> 28
transfer pursuant to this program is subject to the $50 minimum transfer amount
with a minimum 5% designated percentage proportion per sub-account Dollar cost
averaging does not guarantee profits, nor does it assure that you will not lose
principal.
The Interest Sweep Program allows you to systematically reallocate
interest earnings from the Fixed Account to one or more of the Sub-accounts on a
monthly, quarterly, semi-annual, or annual basis to meet your Investment
Allocation percentages.
If a periodic transfer would reduce the value in the Money Market
Sub-account below the minimum dollar amount, we reserve the right to transfer
the entire remaining Policy Account Value allocated to the Money Market
Sub-account. We also reserve the right to establish a minimum Money Market
Sub-account balance before allowing you or any other Owner to elect to
participate in the Dollar cost Averaging Program.
Transfers and adjustments pursuant to these Programs will occur on the
monthly Policy Anniversary date in the month in which the transaction is to take
place, or the next succeeding business day if the monthly Policy Anniversary
Date falls on a day other than a Valuation Date.
DEATH BENEFIT
The Policy pays a Death Benefit to a beneficiary you designate (the
"Beneficiary") if any Owner or any Joint Owner dies prior to the Maturity Date
while the Policy is in force (unless the Beneficiary is the 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.
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As far as permitted by law, the proceeds under the Policy will not be
subject to any claim of the Beneficiary's creditors.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for Federal income tax
purposes, Section 72(s) of the Code requires any Nonqualified Policy to provide
that (a) if any Owner dies on or after the annuity starting date but prior to
the time the entire interest in the Policy has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death; and (b)
if any Owner dies prior to the annuity starting date, the entire interest in the
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 1940 Act, is deducted to partially compensate us for expenses
incurred in administering the Policy. These expenses include costs of
maintaining records, processing Death Benefit claims, surrenders, transfers and
Policy changes, providing reports to Owners, and overhead costs. This charge is
guaranteed not to increase during the life of the Policy. This deduction will be
made from the Sub-accounts in the same proportion that the values in the
Sub-accounts bear to the total Variable Account Value. This charge is deducted
on each Policy Anniversary, the Maturity Date, and a full surrender.
The Annual Policy Fee is waived if the Policy Account Value exceeds
$50,000 at the time the Annual Policy Fee would be imposed.
ADMINISTRATIVE EXPENSE CHARGE
In addition to the Annual Policy Fee, we deduct a monthly charge from
the Sub-accounts at an effective annual rate of .10% of the average daily net
assets of each Sub-account to partially compensate us for expenses incurred in
administering the Variable Account and the Policy. These expenses include costs
of maintaining records, processing Death Benefit claims, surrenders, transfers
and Policy changes, providing reports to Owners, and overhead costs. This charge
is guaranteed not to increase during the life of the Policy.
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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>
POLICY ANNIVERSARIES
SINCE RECEIPT OF SURRENDER
PREMIUM PAYMENT CHARGE RATE
--------------- -----------
<S> <C>
0 8%
1 8%
2 8%
3 6%
4 4%
5 or more 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.
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The Surrender Charge will be deducted from the remaining Policy Account
Value, or from the amount paid if the remaining value is insufficient. The
Surrender Charge partially compensates us for sales expenses with regard to the
Policy, including agent sales commissions, the cost of printing prospectuses and
sales literature, advertising, and other marketing and sales promotional
activities.
The amounts we receive from the Surrender Charge may not be sufficient
to cover sales expenses. We expect to recover any deficiency from our general
assets (which include amounts derived from the Mortality and Expense Risk
Charge). We believe that this distribution financing arrangement will benefit
you, the Variable Account, and all other Owners.
Waiver of Surrender Charges. ANLIC may waive the Surrender Charge described
above provided that certain conditions described in the Policy are met,
including: (a) you are confined to a "hospital", "nursing home", or a "Long Term
Care Facility" (as defined in the Policy) for at least 30 days; (b) written
notice and satisfactory proof of confinement are received no later than 91 days
after confinement ends; and (c) confinement was recommended by a physician for
medically necessary reasons. We will not accept any additional Premium Payments
on a Policy after this waiver has been exercised under that Policy.
This waiver is not available if you were confined to a nursing home,
hospital, or Long Term Care Facility on the Policy Date.
PREMIUM TAXES
We will deduct a charge for premium taxes, if any, when 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 Policy 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. The Reduction of Charges for certain groups does not apply to
policies sold in the State of New Jersey.
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<PAGE> 32
ANNUITY PAYMENTS
ELECTION OF AN ANNUITY PAYMENT OPTION
You have the sole right to elect or change one of the Annuity Payment
Options listed below during the lifetime of the Annuitant and prior to the
Maturity Date, either in the application or by written request to our Service
Office any time at least 30 days before the Maturity Date. We may require the
exchange of the Policy for a contract covering the option selected.
MATURITY DATE
The first annuity payment will be made as of the Maturity Date. We will
assume a Maturity Date of the first day of the calendar month of the Annuitant's
90th birthday unless you tell us otherwise. 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.
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<PAGE> 33
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, 408A, 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 before the Maturity
Date, 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. Withdrawals under Roth IRA before the Maturity Date that
are qualified distributions are not subject to Federal income tax.
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<PAGE> 34
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". In the case of a full surrender under
a Roth IRA that is a qualified distribution, the amount received is not subject
to Federal income tax.
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.
Section 408A of the Code permits eligible individuals to make
nondeductible contributions to an individual retirement program known as a Roth
IRA and provides limits on how much an individual may contribute to a Roth IRA
and when distributions may commence. Qualified distributions from Roth IRAs are
excluded from gross income if made more than five
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<PAGE> 35
years after the taxable year of the trust contribution and certain other
requirements are met. Subject to certain limitations and other rules, a
traditional individual retirement account or annuity may be converted to a Roth
IRA.
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, 1998, 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.
ANNUITY OWNERS THAT ARE NONRESIDENT
ALIENS OR FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. Federal
income tax consequences to Annuity Owners that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. Federal income tax and withholding on annuity distributions at a 30% rate,
unless a lower treaty rate applies and any required tax forms are submitted to
ANLIC. In addition, purchasers may be subject to state premium tax, other state
and/or municipal taxes, and taxes that may be imposed by the purchaser's country
of citizenship or residence. Prospective purchasers are advised to consult with
a qualified tax adviser regarding U.S., state, and foreign taxation with respect
to the purchase of a Policy.
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
26
<PAGE> 36
attributable to that Sub-account. Prior to the Maturity Date, you hold a
voting interest in each Sub-account to which your Policy Account Value is
allocated. After the Maturity Date, the person receiving variable annuity
payments has the voting interest. The number of votes prior to the Maturity Date
will be determined by dividing the value of the Policy allocated to the
Sub-account by the net asset value per share of the corresponding Portfolio.
After the Maturity Date, you have no voting rights.
The number of votes of a Portfolio which are available will be
determined as of the date coincident with the date established by that Portfolio
for determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Fund.
Portfolio shares attributable to the Policies as to which no timely
instructions are received will be voted in proportion to the voting instructions
which are received with respect to all Policies participating in the
Sub-account. Voting instructions to abstain on any item to be voted upon will be
applied on a pro rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in an Sub-account will receive
proxy material, reports and other 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 Social Money Market
Sub-account. These figures will be based on historical earnings and are not
intended to indicate future performance.
The yield of the Social 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 Social
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 Social 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.
27
<PAGE> 37
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.
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 1290 Silas Deane Highway,
Wethersfield, 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.
PREPARATIONS FOR THE YEAR 2000
ANLIC is currently evaluating, on an ongoing basis, its computer systems
and the systems of other companies on which ANLIC's operations rely to determine
if they will function properly with respect to dates in the year 2000 and
beyond. These activities are designed to ensure that there is no adverse effect
on ANLIC's core business operations. While ANLIC believes its planning efforts
are adequate to address its year 2000 concerns, there can be no guarantee that
the systems of other companies on which ANLIC's operations rely will be
converted on a timely basis and will not have a material effect on ANLIC.
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.
28
<PAGE> 38
EXPERTS
The statements of financial condition - statutory basis of ANLIC as of
December 31, 1997 and 1996 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,
1997 and for each of the periods 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 Boros Cicchetti 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.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC, under the
Securities Act of 1933 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.
29
<PAGE> 39
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
Social 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
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 - 13
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>
30
<PAGE> 40
Front side of postcard:
Place
STAMP
Here
ACACIA NATIONAL LIFE INSURANCE COMPANY
Variable Product Service Center
P.O. Box 79574 Baltimore, Maryland 21279-0574
Back side of postcard:
Allocator 2000 Annuity Logo
(Put in the upper left corner)
[ ] I wish to receive the Statement of Additional Information.
Send To:
---------------------------
Name:
---------------------------
Address:
---------------------------
---------------------------
<PAGE> 41
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
ALLOCATOR 2000 FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
OFFERED BY
ACACIA NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Allocator 2000 Flexible Premium Deferred Variable
Annuity Policy ("Policy") offered by Acacia National Life Insurance Company
("ANLIC"). You may obtain a copy of the Prospectus dated May 1, 1998, by writing
to ANLIC Service Office, P.O. Box 79574, Baltimore, Maryland 21279-0574 or
telephoning 1-800-369-9407. Terms used in the current Prospectus for the Policy
are incorporated in this Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated: May 1, 1998
B - 1
<PAGE> 42
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
GENERAL PROVISIONS.............................................. B - 3
The Policy............................................. B - 3
Misstatement of Age or Sex............................. B - 3
Nonparticipating....................................... B - 3
Periodic Reports....................................... B - 3
Policy Dates........................................... B - 3
Termination............................................ B - 3
Owner and Joint Owner.................................. B - 4
Beneficiary Change..................................... B - 4
Assignment............................................. B - 4
Delay or Suspension of Payments........................ B - 4
ACCUMULATION UNITS.............................................. B - 5
Accumulation Units..................................... B - 5
Net Investment Factor.................................. B - 5
FIXED ACCOUNT................................................... B - 5
General Description.................................... B - 6
Transfer Limitation.................................... B - 6
Fixed Account Value.................................... B - 6
SURRENDER CHARGE CALCULATIONS................................... B - 7
PERFORMANCE DATA CALCULATIONS................................... B - 8
Social 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
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 - 13
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>
B - 2
<PAGE> 43
Throughout this Statement of Additional Information, the words "us",
"we", "our", and "ANLIC" refer to Acacia National Life Insurance Company, and
the words "you", "your", and "Owner" refer to the policy owner.
GENERAL PROVISIONS
THE POLICY
The Policy is a flexible premium deferred variable annuity policy.
(a) The Policy may be purchased on a non-tax qualified basis
("Nonqualified Policy"). The Policy may also be purchased and
used in connection with retirement plans or individual retirement
accounts that qualify for favorable federal income tax treatment
("Qualified Policy").
(b) Before it will issue a Policy, we must receive a completed Policy
Application. A minimum Premium Payment of $300 during the first
Policy year is required.
(c) The Policy and the copy of the Application attached thereto
(except as otherwise may be required by law), and any applicable
riders are the entire contract. Only our Elected Officers can
agree to change or waive any provisions of the Policy. Any change
or waiver must be in writing and signed by such Elected Officer.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, the benefits
payable under the Policy will be equal to the benefits which the Premium
Payments would have provided for the correct age or sex (if such distinction
based upon sex is allowed by law).
We may require proof of the age of the Annuitant before making any
Annuity Payments provided for by the Policy.
If a misstatement of age or sex results in monthly income payments that
are too large, the overpayments will be deducted from future payments. If we
have made payments that are too small, the underpayment will be added to the
next payment. Adjustments for overpayments or underpayment will include the
compound interest rate used to determine the Annuity Payments.
NONPARTICIPATING
No dividends will be paid. Neither you nor the Beneficiary will have the
right to share in our surplus earnings or profits.
PERIODIC REPORTS
At least once each Policy year we will send you a statement showing your
Policy Account Value as of a date not more than two months prior to the date of
mailing. We will also send such statements as may be required by applicable
state and federal laws, rules, and regulations.
POLICY DATES
Policy months, years and Policy Anniversaries are measured from the
Policy Date shown on the Policy.
TERMINATION
The Policy will remain in force until surrendered for its Surrender
Value, an Annuity Payment Option has been elected, or the Death Benefit has been
paid.
B - 3
<PAGE> 44
After the first five Policy years, we may cancel the Policy if for two
subsequent years you have not made any Premium Payments and the Policy Account
Value is less than $2,000 or would provide for less than $20 monthly payments
under any Annuity Payment Option. We will then pay you the Surrender Value in
one lump sum.
OWNER AND JOINT OWNER
The Owner is the individual named as such in the Application or in any
later change shown in ANLIC's records. There may be Joint Owners. Prior to the
Maturity Date and during any Annuitant's lifetime, only the Owner has the right
to receive all benefits and may exercise the rights under this Policy. If there
are Joint Owners, the signatures of both Owners are needed to exercise rights
under the Policy.
If the Annuitant is not an Owner and the Annuitant dies before the
Maturity Date, the Owner may name a new Annuitant. If the Owner doesn't name a
new Annuitant, the Owner will become the Annuitant. If one of the Joint
Annuitants dies prior to the Maturity Date, the survivor shall become the sole
Annuitant.
Joint Owners are not permitted for Policies issued in connection with
Qualified Plans. If there are Joint Owners, the signatures of both Owners are
needed to exercise rights under the Policy.
BENEFICIARY CHANGE
You may change the named Beneficiary by sending a written request in a
form acceptable to us to our Service Office unless the Beneficiary is
irrevocable. If the named Beneficiary is irrevocable, you may change the named
Beneficiary only by joint written request from you and such named Beneficiary.
You need not send us the Policy unless we request it. When recorded and
acknowledged by us, the change will be effective as of the date you signed the
request. The change will not apply to any payments made or other action taken by
us before we recorded and acknowledged the request.
ASSIGNMENT
You may assign this policy as collateral, unless prohibited elsewhere in
this Policy or applicable rider. We will not be bound by the Assignment until a
copy is filed with us. We assume no responsibility for determining whether an
Assignment is valid or the extent of the assignee's interest.
No Beneficiary may assign any benefits under the Policy until they are
due, and to the extent permitted by law payments are not subject to the debts of
any Beneficiary nor to any judicial process for payment of the Beneficiary's
debts.
DELAY OR SUSPENSION OF PAYMENTS
We will normally pay a surrender or any withdrawal within seven days
after we receive your Written Request in our Service Office. However, transfers
and payment of any amount from the Sub-accounts of the Variable Account may be
delayed or suspended whenever:
a) the New York Stock Exchange is closed other than customary weekend and
holiday closing, or trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission ("SEC");
b) the SEC by order permits postponement for the protection of Owners; or
c) an emergency exists, as determined by the SEC, as a result of which
disposal of the securities held in the Sub-accounts is not reasonably
practicable or it is not reasonably practicable to determine the value
of the Variable Account's net assets.
Payment of any amounts from the Fixed Account may be deferred for up to
six months from the date of the request to surrender. If payment is deferred for
more than 30 days, we will pay interest on the amount deferred at a rate not
less the Guaranteed Minimum Interest Rate.
B - 4
<PAGE> 45
Payments under the Policy of any amounts derived from Premium Payments
paid by check may be delayed until such time as the check has cleared your bank.
ACCUMULATION UNITS
ACCUMULATION UNITS
An Accumulation Unit is an accounting unit of measure used to calculate
the value of your interest in Sub-accounts of the Variable Account. The portion
of a net Premium Payment that you allocate to a Sub-account of the Variable
Account is credited as Accumulation Units in that Sub-account. Similarly, the
value that you transfer to a Sub-account of the Variable Account is credited as
Accumulation Units in that Sub-account. The number of Accumulation Units to be
credited to the Policy for each Sub-account is determined by dividing (1) the
net Premium Payments allocated to each Sub-account by (2) the Accumulation Unit
Value for that Sub-account for the Valuation Period during which we received the
Premium Payment or transfer request at our Service Office, or in the case of the
initial Premium Payment, for the Valuation Period during which the Application
is accepted.
The value of an Accumulation Unit for each Sub-account was initially
arbitrarily set at ten dollars $10 when the first investments were bought except
the Social Money Market Sub-account which was set at one dollar ($1). The value
for any later Valuation Period is found by multiplying the Accumulation Unit
Value for a Sub-account for the last prior Valuation Period by such
Sub-account's "net investment factor" for the following Valuation Period. Like
the Policy Account Value, the value of an Accumulation Unit may increase or
decrease from one Valuation Period to the next.
NET INVESTMENT FACTOR
The "net investment factor" is an index that measures the investment
performance of a Sub-account from one Valuation Period to the next. The net
investment factor may be greater or less than one, so the value of a Sub-account
may increase or decrease.
The net investment factor for each Sub-account for any Valuation Period
is determined by dividing (a) by (b), where:
(a) is the net result of:
(1) the net asset value per share of the Portfolio shares held
in the Sub-account determined as of the end of the current
Valuation Period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the Portfolio on shares held in the
Sub-account, if the "ex-dividend" date occurs during the
current Valuation Period; plus or minus
(3) a per unit charge or credit for any taxes incurred by or
reserved for in the Sub-account, which is determined by
ANLIC to have resulted from the maintenance of the
Sub-account; and
(b) is the net result of:
(1) the net asset value per share of the Portfolio shares held
in the Sub-account, determined as of the end of the
immediately preceding Valuation Period; plus or minus
(2) the per unit charge or credit for any taxes reserved for
the immediately preceding Valuation Period.
FIXED ACCOUNT
This Prospectus is generally intended to serve as a disclosure document
only for the Policy and the Variable Account. For complete details regarding the
Fixed Account, see the Policy itself.
Premium Payments allocated and amounts transferred to the Fixed Account
become part of the General Account assets of ANLIC. Interests in the General
Account have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), nor is the General Account registered as an investment company
under the Investment Company Act of
B - 5
<PAGE> 46
1940 Act, as amended (the "1940 Act"). Accordingly, neither the General Account
nor any interests therein are generally subject to the provisions of the 1933 or
1940 Acts, and ANLIC has been advised that the staff of the SEC has not reviewed
the disclosures in this Prospectus which relate to the Fixed Account.
GENERAL DESCRIPTION
The General Account consists of all assets owned by ANLIC other than
those in the Variable Account and other separate accounts. Subject to applicable
law, ANLIC has sole discretion over the investment of the assets in the General
Account.
The General Account is supported by ANLIC's assets that are held in the
General Account. Premium Payments applied and any amounts transferred to the
General Account are credited with a fixed rate of interest for a specified
period. This is the account known as the "Fixed Account".
The allocation of Premium Payments and/or transfer of Policy Account
Value to the Fixed Account does not entitle an Owner to share in the investment
experience of the General Account. Instead, the guaranteed interest rate used in
the calculation of the Fixed Account Value is the amount stated in the Policy,
compounded annually, or any higher amount of interest in excess of the
guaranteed rate may be used in the calculation of the Fixed Account Value at
such times and in such a manner as we may determine. Interest rates will be
determined on no less than an annual basis.
Prior to the Maturity Date you may elect to allocate net Premium
Payments to the Fixed Account or to transfer Accumulation Value to or from the
Fixed Account (subject to certain restrictions upon transfers from the Fixed
Account, as discussed, below).
TRANSFER LIMITATION
The maximum amount allowed to be transferred out of the Fixed Account
during one Policy Year is 100% of Fixed Account interest accrued since the last
Policy Anniversary; plus 10% of:
(1) Account Value of the Fixed Account as of the last Policy Anniversary; plus
(2) Deposits and transfers made into the Fixed Account since the last Policy
Anniversary; minus
(3) All partial withdrawals from the Fixed Account since the
last Policy Anniversary.
You may also elect to systematically reallocate all interest generated from the
Fixed Account into the Sub-accounts of the Variable Account on an interest only
basis according to your allocation election. (See "Interest Sweep Program" in
the prospectus.)
FIXED ACCOUNT VALUE
We will credit all net Premium Payments allocated to the Fixed Account to
your Fixed Account Value. The Fixed Account Value at any time equals:
(1) The net Premium Payments allocated to the Fixed Account; plus
(2) The total of all amounts transferred to the Fixed Account from the
Variable Account; minus
(3) The total of all amounts transferred from the Fixed Account to the
Variable Account, minus
(4) The total of all Policy fees attributable to the Fixed Account; minus
(5) The total of all partial withdrawals from the Fixed Account (including
any Surrender charges); plus
(6) Interest.
ANLIC'S MANAGEMENT HAS COMPLETE AND SOLE DISCRETION TO DETERMINE THE CURRENT
INTEREST RATES. ANLIC CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE CURRENT
INTEREST RATES, EXCEPT THAT ANLIC GUARANTEES THAT FUTURE CURRENT INTEREST RATES
WILL NOT BE BELOW AN EFFECTIVE RATE OF 4% PER YEAR COMPOUNDED ANNUALLY. THE
OWNER BEARS THE RISK THAT CURRENT INTEREST RATES WILL NOT EXCEED AN EFFECTIVE
RATE OF 4% PER YEAR.
B - 6
<PAGE> 47
SURRENDER CHARGE CALCULATIONS
Owners may, prior to the earlier of the Maturity Date or death, withdraw
100% of earnings (since the last Policy Anniversary) in all Sub-accounts of the
Variable Account and the Fixed Account free of Surrender Charges. Additionally,
up to 10% of the Policy Account Value (as of the last Policy Anniversary); plus
10% of:
(1) Deposits since the last Policy Anniversary; minus
(2) Withdrawals since the last Policy Anniversary
may also be withdrawn free of Surrender Charges.
Upon a Partial Withdrawal, Surrender, or Annuitization We will apply the
Surrender Charge Percentage shown below to those Premium Payments received
within five years of the Partial Withdrawal or Surrender or Annuitization Date.
After the free amounts are determined, the calculation will be based on a
first-in, first-out basis.
Surrender Charges are assessed on Premium Payments made within five
years of a surrender or partial withdrawal. To determine the Surrender Charge
for a particular Premium Payment, the Surrender Charge percentage is multiplied
by the Premium Payment less any withdrawals previously allocated to the Premium
Payment. The total Surrender Charge is then determined by summing the previous
result over all Premium Payments used in the calculation. The Surrender Charge
will be based on the excess of the Surrender amount over the Free Withdrawal
Amounts. This excess is distributed over the Premium Payments on a first-in,
first-out basis until the excess is exhausted. Partial surrenders will be
charged based on the above method. There are no Surrender Charges assessed on
distributions made pursuant to the death of the Owner. The Surrender Charge
percentages are as follows:
<TABLE>
<S> <C>
Years 1-3.................... 8%
Year 4....................... 6%
Year 5....................... 4%
Year 6....................... 0%
</TABLE>
EXAMPLE:
PREMIUM PAYMENTS:
02/10/90 $4,000
12/10/90 $1,000
06/02/91 $1,500
08/21/92 $3,000
10/02/95 $2,000
01/12/95 $1,000
WITHDRAWAL ONE - 05/12/92
<TABLE>
<S> <C>
Requested Withdrawal Amount (not including the $3,000.00
Surrender Charge)
Policy Account Value (before withdrawal) 7,114.45
Policy Year Gain (free of charge) 109.22
Gross Premium Payments 6,500.00
10% Free Withdrawal Amount 6,500 X 0.10 = 650.00
Total Free Amount 109.22 + 650 = 759.22
Non-Free Amount 3,000 - 759.22 = 2,240.78
</TABLE>
<TABLE>
<CAPTION>
SURRENDER SURRENDER
PREMIUM PAYMENT CHARGE % CHARGE
- --------------- -------- ------
<S> <C> <C>
$4,000 x .08 = 320.
1,000 x .08 = 80.
1,500 x .08 = 120.
Total Surrender Charge 520.
Partial Surrender Charge (2,240.78/.92) x .08 = 194.85
Total Withdrawal 3,194.85
Policy Account Value (after withdrawal) 3,919.60
</TABLE>
B - 7
<PAGE> 48
Only those Premium Payments made before 5/12/92 will be used to
determine the Surrender Charge. The $3,000 withdrawal is less than the first
Premium Payment, therefore, we will use the Surrender Charge percentage on that
Premium Payment. However, it seems that we are applying one surrender Charge
percentage for all premiums. The reason is that the Surrender Charge for the
first three years is 8%.
Assume that your Policy Account Value is split among four Sub-accounts
in the following proportions:
<TABLE>
<S> <C> <C>
Sub-account 1 $ 784.02 .1102%
Sub-account 2 3,111.15 .4373%
Sub-account 3 1,730.23 .2432%
Sub-account 4 1,489.05 .2093%
-------- ------
$ 7,114.45 1.000%
</TABLE>
The process for allocating the Surrender Charge among the Sub-accounts is as
follows:
<TABLE>
<S> <C> <C>
.1102 Sub-account 1 $ 784.01 - 12.04 = $ 771.97
.4373 Sub-account 2 3,111.15 - 47.76 = 3,063.39
.2432 Sub-account 3 1,730.23 - 26.56 = 1,703.67
.2093 Sub-account 4 1,489.05 - 22.86 = 1,466.19
.1102 Sub-account 1 771,97 - 71.63 = 700.34
.4373 Sub-account 2 3,063.39 - 284.25 = 2,779.14
.2432 Sub-account 3 1,703,67 - 158.08 = 1,545.59
.2093 Sub-account 4 1,466.19 - 136.04 = 1,330.15
.1102 Sub-account 1 700.34 - 268.41 = 431.93
.4373 Sub-account 2 2,779.14 - 1,065.10 = 1,714.04
.2432 Sub-account 3 1,545.59 - 592.35 = 953.25
.2093 Sub-account 4 1,330.15 - 509.78 = 820.38
------
$ 3,919.60
</TABLE>
PERFORMANCE DATA CALCULATIONS
We may advertise the yield and effective yield of the Social Money
Market Sub-account. In addition, we may advertise yield and the total returns
for other Sub-accounts. All performance data calculations for Sub-accounts or
the Variable Account will be in accordance with SEC regulations.
SOCIAL MONEY MARKET SUB-ACCOUNT'S YIELD CALCULATION
In accordance with regulations adopted by the SEC, if we disclose the
annualized yield of the Social Money Market Sub-account for a seven-day period,
it is required to be in a manner which does not take into consideration any
realized or unrealized gains or losses of the CS Money Market Portfolio or on
its portfolio securities. The annualized yield is computed by determining the
net change (exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical account
having a balance of one unit of the Social Money Market Sub-account at the
beginning of the seven-day period, dividing the net change in Sub-account Value
by the value of the account at the beginning of the period to determine the base
period return, and annualizing this quotient on a 365-day basis. The net change
in Sub-account Value reflects the deduction for the Mortality and Expense Risk
Charge and the Administration Fee as well as reflecting income and expenses
accrued during the period. Because of these deductions, the yield for the Social
Money Market Sub-account will be lower than the yield for the CS Money Market
Portfolio.
The SEC also permits us to disclose the effective yield of the Social
Money Market Sub-account for the same seven-day period, determined on a
weekly-compounded basis. The effective yield is calculated by compounding the
base period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one from the result according
to the following formula:
365/7
Effective Yield = [(Base period return + 1) ] - 1
The actual yield of the Social Money Market Sub-account is affected by:
(l) changes in interest rates on money market securities; (2) the average
portfolio maturity of the CS Money Market Portfolio; (3) the types and quality
of securities
B - 8
<PAGE> 49
held by the CS Money Market Portfolio; and (4) its operating expenses. The yield
on amounts held in the Social Money Market Sub-account normally will fluctuate
on a daily basis. Therefore, the disclosed yields for any given past period is
not an indication or representation of future yields or rates of return.
OTHER SUB-ACCOUNTS' YIELD CALCULATIONS
We may from time to time advertise or disclose the annualized yield for
each Sub-account other than the Social Money Market Sub-account for 30-day (or
one-month) periods. Calculation of the yield of a Sub-account begins with the
income generated by an investment in the Sub-account over a specific 30-day (or
one-month) period. This income is then annualized. That is, the amount of income
generated by the investment during that 30-day (or one-month) period is assumed
to be generated during, and reinvested at the end of, each such period over a
360-day (or twelve-month) year. The 30-day (or one-month) yield is calculated
according to the following formula:
6
Yield = 2[(a-b/cd + 1) - 1]
where
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Sub-account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of Accumulation Units outstanding during the
period; and
d = the maximum offering price per Accumulation Unit (i.e., net asset value per
Accumulation Unit) the last day in the period.
Because of the charges and deductions imposed by the Variable Account,
the yield for a Sub-account will be lower than the yield for its corresponding
Portfolio. The yield calculations do not reflect the effect of any premium taxes
or Surrender Charge that may be applicable to a particular Policy. Surrender
Charges range from 8% to 0% of the Premium Payments included in the Withdrawal,
depending on the number of years since each Premium Payment was received. The
yield on amounts held in the Sub-accounts of the Variable Account normally will
fluctuate over time. Therefore, the disclosed yield for any given past period is
not an indication or representation of future yields or rates of return. A
Sub-account's actual yield is affected by the types and quality of the
Portfolio's investments and the Portfolio's operating expenses.
AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
For each Sub-account other than the Money Market Sub-account, an average
annual total return may be calculated for a given period. It is computed by
finding the average annual compounded rate of return over one-, five-, and
ten-year periods (or, where a Sub-account has been in existence for a period
less than one, five, or ten years, for such lesser period) that would equate the
initial amount invested to the ending redeemable value (i.e., Surrender Value),
according to the following formula:
n
P(1 + T) = ERV
where
P = a hypothetical initial Premium Payment of $1,000;
T = average annual total return;
n = number of years in the period; and
ERV = ending redeemable value of a hypothetical $1,000 Premium Payment made
at the beginning of the one-, five-, or ten-year periods (or
fractional portion thereof) at the end of such period.
All recurring fees that are charged to all Policy Owner accounts are
recognized in the ending redeemable value. The average annual total return
calculation will also reflect the effect of Surrender Charges that may be
applicable due to surrender of the Policy at the end of a particular period.
B - 9
<PAGE> 50
From time to time we may also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above. The
only difference between the two methods is that the non-standard format assumes
a Surrender Charge of 0%.
CUMULATIVE TOTAL RETURN CALCULATIONS
We may from time to time also disclose cumulative total return for each
Sub-account in conjunction with the standard format described above. The
cumulative returns will be calculated using the following formula:
CTR = (ERV / P) - 1
where
CTR = the cumulative total return net of Sub-account recurring charges for the
period;
ERV = ending redeemable value of a hypothetical $1,000 Premium Payment made at
the beginning of the one-, five-, or ten-year period (or fractional
portion thereof) at the end of such period; and
P = a hypothetical initial Premium Payment of $1,000.
PERFORMANCE FIGURES
The performance information provided below reflects only the performance
of a Policy's allocation to the stated Sub-account during the time period on
which the calculations are based. Performance information provided for any given
past period is not an indication or representation of future yields or rates of
return.
The yield for the Social Money Market Sub-account for the seven-day
period ending December 31, 1997, on an annualized basis, was 2.68%. The
effective yield for the Social Money Market Sub-account for the seven-day period
ending December 31, 1997, on an annualized basis, was 2.71%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN - STANDARD FORMAT
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Name From the From the Date of For the 1-year For the 5- For the 10-
Date of Inception of the period ended year period year period
Inception of Portfolio* 12/31/97 ended ended
the Sub- 12/31/97* 12/31/97*
account
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Growth 12.21 18.08 17.12 17.86 N/A
- ----------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth 1.04 9.54 6.38 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Alger American Small Cap Growth -16.65 17.64 2.76 11.22 N/A
- ----------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced 7.58 10.31 12.88 11.47 10.68
- ----------------------------------------------------------------------------------------------------------------------
Calvert Social Small Cap -11.81 7.67 -18.49 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Calvert Social International Equity 9.12 9.10 4.60 11.75 N/A
- ----------------------------------------------------------------------------------------------------------------------
Calvert Social Mid Cap 16.51 11.15 14.90 15.53 N/A
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index 29.35 14.51 24.33 18.28 N/A
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Ltd Mat Bond -18.64 6.66 -1.89 4.20 6.69
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Growth Portfolio 16.12 13.30 20.38 12.05 12.91
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund 14.03 13.72 3.04 14.49 14.58
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth 22.36 14.54 18.05 17.17 14.07
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth and Income 16.33 27.29 23.85 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond 2.02 5.00 0.08 5.67 N/A
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer High Income 12.03 11.87 3.58 12.32 12.29
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
B-10
<PAGE> 51
<TABLE>
<S> <C> <C> <C> <C> <C>
Strong International Fund II -26.50 -5.16 -15.13 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Strong Discovery Fund II 11.83 4.99 29.03 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Hard Assets Fund -16.93 5.52 -10.30 8.51 N/A
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The inception date of the Policies is September 10, 1996. Date of
commencement of operations of the Alger American Growth Portfolio, the Alger
American MidCap Growth Portfolio, the Alger American Small Capitalization
Portfolio, the Calvert Social Money Market Portfolio, the Calvert Social Small
Cap Growth Portfolio, the Calvert Social Balanced Portfolio, the Dreyfus Stock
Index Fund, the Neuberger & Berman Advisers Management Trust Limited Maturity
Bond Portfolio, the Neuberger & Berman Advisers Trust Growth Portfolio
Management, the Strong International Stock Fund II, the Strong Discovery Fund
II, and the Van Eck Worldwide Hard Assets Fund is 8/26/96. Date of commencement
of operations of the Calvert Social Mid Cap Growth Portfolio, the Calvert Social
International Equity Portfolio, the Oppenheimer Aggressive Growth Fund, the
Oppenheimer Growth Fund, the Oppenheimer Growth & Income Fund, the Oppenheimer
High Income Fund, and the Oppenheimer Strategic Bond Fund is 5/1/97. Performance
data for earlier periods are hypothetical figures based on the performance of
the Portfolio in which the Policy assets may be invested.
The annual Policy charge is converted into a percentage of account value
charge by assuming an average Policy Account Value of $50,000.
AVERAGE ANNUAL TOTAL RETURN - NON STANDARD FORMAT
THIS FORMAT ASSUMES NO SURRENDER CHARGE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Name From the From the Date of For the 1-year For the 5- For the 10-
Date of Inception of the period ended year period year period
Inception of Portfolio* 12/31/97 ended ended
the Sub- 12/31/97* 12/31/97*
account
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Growth 19.41 18.08 24.32 17.86 N/A
- ----------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth 8.24 16.74 13.58 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Alger American Small Cap Growth -9.45 17.64 9.96 11.22 N/A
- ----------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced 14.78 10.31 20.08 11.47 10.68
- ----------------------------------------------------------------------------------------------------------------------
Calvert Social Small Cap -4.61 14.87 -11.29 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Calvert Social International Equity 16.32 9.10 11.80 11.75 N/A
- ----------------------------------------------------------------------------------------------------------------------
Calvert Social Mid Cap 23.71 11.15 22.10 15.53 N/A
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index 36.55 14.51 31.53 18.28 N/A
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Ltd Mat Bond -11.44 6.66 5.31 4.20 6.69
- ----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Growth 23.32 13.30 27.58 12.05 12.91
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth 21.23 13.72 10.24 14.49 14.58
Fund
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth 29.56 14.54 25.25 17.17 14.07
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth and Income 23.53 34.49 31.05 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond 9.22 5.00 7.28 5.67 N/A
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer High Income 19.23 11.87 10.78 12.32 12.29
- ----------------------------------------------------------------------------------------------------------------------
Strong International Fund II -19.30 2.04 -7.93 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Strong Discovery Fund II 19.03 12.19 36.23 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Hard Assets -9.73 5.52 -3.10 8.51 N/A
Fund
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The inception date of the Policies is September 10, 1996. Date of
commencement of operations of the Alger American Growth Portfolio, the Alger
American MidCap Growth Portfolio, the Alger American Small Capitalization
Portfolio, the Calvert Social Money Market Portfolio, the Calvert Social Small
Cap Growth Portfolio, the Calvert Social Balanced Portfolio, the Dreyfus Stock
Index Fund, the Neuberger & Berman Advisers Management Trust Limited Maturity
Bond Portfolio, the Neuberger & Berman Advisers Trust Growth
B - 11
<PAGE> 52
Portfolio Management, the Strong International Stock Fund II, the Strong
Discovery Fund II, and the Van Eck Worldwide Hard Assets Fund is 8/26/96. Date
of commencement of operations of the Calvert Social Mid Cap Growth Portfolio,
the Calvert Social International Equity Portfolio, the Oppenheimer Aggressive
Growth Fund, the Oppenheimer Growth Fund, the Oppenheimer Growth & Income Fund,
the Oppenheimer High Income Fund, and the Oppenheimer Strategic Bond Fund is
5/1/97. Performance data for earlier periods are hypothetical figures based on
the performance of the Portfolio in which the Policy assets may be invested.
The annual Policy charge is converted into a percentage of account value
charge by assuming an average Policy Account Value of $50,000.
FEDERAL TAX MATTERS
TAXATION OF ANLIC
ANLIC is taxed as a life insurance company under Part 1 of Subchapter L
of the Internal Revenue Code of 1986 (the "Code"). Since the Variable Account is
not an entity separate from ANLIC and its operations form a part of ANLIC, it
will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized net capital gains on
the assets of the Variable Account are reinvested and taken into account in
determining the Policy Account Value. As a result, such investment income and
realized net capital gains are automatically retained as part of the reserves
under the Policy. Under existing federal income tax law, we believe that
Variable Account investment income and realized net capital gains should not be
taxed to the extent that such income and gains are retained as part of the
reserves under the Policy.
TAX STATUS OF THE POLICIES
Section 817(h) of the Code provides that the investments of the Variable
Account must be "adequately diversified" in accordance with Treasury regulations
in order for the Policies to qualify as annuity contracts under Section 72 of
the Code. The Variable Account, through each Portfolio of the Funds, intends to
comply with the diversification requirements prescribed by the Treasury in
Treas. Reg. Section 1.817-5, which affect how the Portfolios' assets may be
invested. We do not control any of the Funds or their Portfolios' investments.
However, we have entered into an agreement regarding participation in each Fund,
which requires each participating Portfolio of the Funds to be operated in
compliance with the diversification requirements prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includible in the variable
contract owner's gross income. The IRS has stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the contract owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the policyholder), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating premium payments and
Policy Account Values. These differences could result in an Owner being treated
as the owner of a pro rata portion of the assets of the Variable Account. In
addition, we do not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. We therefore reserve the right to modify the Policy as necessary to
attempt to prevent an Owner from being considered the owner of a pro rata share
of the assets of the Variable Account.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding
for the recipient's federal income tax liability at rates that vary according to
the type of distribution and the recipient's tax status. Generally, the
recipient is given the opportunity to elect not to have tax withheld from
distributions. However, certain distributions from Section 401(a) and 403(b)
plans are subject to mandatory withholding.
B - 12
<PAGE> 53
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We cannot guarantee that shares of the Portfolios currently being
offered will be available in the future for investment of Premium Payments or
for transfers. We reserve the right, subject to compliance with applicable law,
to make additions to, deletions from, or substitutions for, the shares of the
Funds that are held by the Variable Account (or any Sub-account) or that the
Variable Account (or any Sub-account) may purchase. We reserves the right to
eliminate the shares of any of the Portfolios of the Funds and to substitute
shares of another Portfolio of the Funds or any other investment vehicle or of
another open-end, registered investment company if laws or regulations are
changed, if the shares of any of the Funds or a Portfolio are no longer
available for investment, or if in our judgment further investment in any
Portfolio should become inappropriate in view of the purposes of the
Sub-account. We will not substitute any shares attributable to an Owner's
interest in a Sub-account without notice and prior approval of the SEC and the
insurance regulator of the state where the Policy was delivered, where required.
Nothing contained herein shall prevent the Variable Account from purchasing
other securities for other series or classes of policies, or from permitting a
conversion between series or classes of policies on the basis of requests made
by Owners.
We also reserve the right to establish additional Sub-accounts of the
Variable Account, each of which would invest in a new Portfolio of one of the
Funds, or in shares of another investment company or suitable investment, with a
specified investment objective. New Sub-accounts may be established when, in our
sole discretion, marketing needs or investment conditions warrant, and any new
Sub-accounts will be made available to existing Owners on a basis to be
determined by us. We may also eliminate one or more Sub-accounts if, in its sole
discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, we may, by appropriate
endorsement, make such changes in the Policies as may be necessary or
appropriate to reflect such substitution or change. If deemed by us to be in the
best interests of persons having voting rights under the Policies, the Variable
Account may be operated as a management company under the 1940 Act, it may be
deregistered under that Act in the event such registration is no longer
required, or it may be combined with other ANLIC separate accounts.
DISTRIBUTION OF THE POLICIES
Applications for the Policies are solicited by agents who are licensed
by state insurance authorities to sell our variable annuity insurance policies,
and who are also registered representatives of The Advisors Group, Inc. ("TAG")
or registered representatives of broker/dealers who have Selling Agreements with
TAG or registered representatives of broker/dealers who have Selling Agreements
with such broker/dealers. TAG, whose address is 7315 Wisconsin Avenue, Bethesda,
Maryland 20814, is a registered broker/dealer under the Securities Exchange Act
of 1934 ("1934 Act") and a member of the National Association of Securities
Dealers, Inc. ("NASD"). TAG is a second tier wholly-owned subsidiary of Acacia
Life Insurance Company of Washington, D.C. TAG acts as the principal
underwriter, as defined in the 1940 Act, of the Policies (as well as other
variable life policies) pursuant to an Underwriting Agreement with ANLIC. The
Policies are offered and sold only in those states where their sale is lawful.
We will refund any Premium Payments paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is canceled during the
Free Look Period.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. Agent commissions will
vary, but in any event will not exceed 5% of Premium Payments made:
STATE REGULATION
We are subject to the insurance laws and regulations of states within
which we are licensed or may become licensed to operate. Generally, the
insurance department of a state applies the laws of the state of the insurance
company's domicile in determining permissible investments by that insurance
company. A Policy is governed by the law of the state in which it is delivered.
The values and benefits of each Policy are at least equal to those required by
the state in which it is delivered.
RECORDS AND REPORTS
All records and accounts relating to the Variable Account will be
maintained by ANLIC. As presently required by the 1940 Act and regulations
promulgated thereunder, reports containing such information as may be required
under that Act or by any other applicable law or regulation will be sent to
Owners at their last known address of record.
B - 13
<PAGE> 54
LEGAL MATTERS
Legal advice regarding certain matters relating to federal securities
laws applicable to the issuance of the Policy described in the Prospectus have
been provided by Jorden Burt Boros Cicchetti Berenson & Johnson LLP of
Washington, D.C.
EXPERTS
The statements of financial condition - statutory basis of ANLIC as of
December 31, 1996 and 1997 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 Variable Account as of December 31, 1997
and for each of the periods indicated therein have been included herein in
reliance upon the report of Coopers & Lybrand L.L.P., independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
OTHER INFORMATION
A Registration Statement has been filed with the SEC under the 1933 Act,
as amended, with respect to the Policies discussed in this Statement of
Additional Information. Not all of the information set forth in the Registration
Statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the Policies and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The financial statements of ANLIC, which are included in this Statement
of Additional Information, should be considered only as bearing on ANLIC's
ability to meet ANLIC's obligations under the Policies. They should not be
considered as bearing on the investment performance of the assets held in the
Variable Account.
B - 14
<PAGE> 55
FINANCIAL STATEMENTS
<PAGE> 56
AUDITED FINANCIAL STATEMENTS
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
DECEMBER 31, 1997 AND 1996
Report of Independent Accountants .........................1
Statement of Assets and Liabilities .......................2
Statements of Operations and Changes in Net Assets ......3-4
Notes to the Financial Statements .......................5-8
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Acacia National Life
Insurance Company and Contract Owners of Acacia
National Variable Life Insurance Separate Account I
We have audited the accompanying statement of assets and liabilities
for each of the following sub-accounts comprising the Acacia National Variable
Life Insurance Separate Account I (the Account): the Social Money Market;
Social Balanced; Social Strategic Growth; Large Cap Growth; Mid Cap Growth;
Small Cap Growth; S&P 500 Index; Income; Growth; International Growth;
Aggressive Growth; and Hard Assets/Metals sub-accounts as of December 31, 1997,
and the related statements of operations and changes in the net assets for the
years ended December 31,1997 and 1996; the statement of assets and liabilities
for the Social Managed Growth; Social Global; High Income; Aggressive Growth;
Large Cap Growth; Balanced; and Managed Income sub-accounts as of December
31,1997 and the related statements of operations and changes in the net assets
for the period May 1, 1997 (date of inception) to December 31, 1997; and the
statements of operations and changes in net assets of the Income; and Balance
sub-accounts for the period January 1,1997 to November 6, 1997 (date of
closure) and for the period September 9, 1996 (date of inception) to December
31, 1996. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997
by correspondence with the registered investment companies. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all respect, the financial position of each of the respective sub-accounts
comprising the Acacia National Variable Life Insurance Separate Account I as of
December 31, 1997 and the results of their operations and changes in
net assets for the respective periods indicated herein, in conformity with
generally accepted accounting principles.
Washington, D.C.
April 22, 1998
<PAGE> 58
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
CALVERT ALGER
------------------------------------------------------------ --------------------------------------
SOCIAL SOCIAL SOCIAL
MONEY SOCIAL STRATEGIC MANAGED SOCIAL LARGE CAP MID CAP SMALL CAP
MARKET BALANCED GROWTH GROWTH GLOBAL GROWTH GROWTH GROWTH
------------- ----------- ----------- ----------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments,
identified costs $1,219,988 $533,832 $314,512 $101,334 $92,759 $1,645,300 $720,612 $1,393,909
============= =========== =========== =========== ========== ============ =========== =============
Investments, at market $1,219,988 $518,034 $303,034 $90,848 $84,509 $1,813,578 $803,834 $1,521,686
============= =========== =========== =========== ========== ============ =========== =============
Number of shares 1,219,988 261,633 25,232 3,409 4,441 42,413 33,244 34,781
============= =========== =========== =========== ========== ============ =========== =============
Net Assets $1,219,988 $518,034 $303,034 $90,848 $84,509 $1,813,578 $803,834 $1,521,686
============= =========== =========== =========== ========== ============ =========== =============
ACCUMULATION UNITS
NUMBER OF UNITS 1,140,175 39,756 31,049 7,302 7,669 132,282 64,878 132,551
============= =========== =========== =========== ========== ============ =========== =============
NET ASSET VALUE PER
ACCUMULATION UNIT
DECEMBER 31, 1997 $1.07 $13.03 $9.76 $12.44 $11.02 $13.71 $12.39 $11.48
============= =========== =========== =========== ========== ============ =========== =============
DECEMBER 31, 1996 $1.02 $10.85 $10.84 --- --- $10.91 $10.77 $10.30
============= =========== =========== =========== ========== ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
DREYFUS
------------- NEUBERGER & BERMAN
S & P ---------------------
500
INDEX INCOME
------------- -------------
<S> <C> <C>
ASSETS
Investments,
identified costs $4,840,150 $2,595,021
============= =============
Investments, at market $5,462,674 $2,649,323
============= =============
Number of shares 212,143 187,629
============= =============
Net Assets $5,462,674 $2,649,323
============= =============
ACCUMULATION UNITS
NUMBER OF UNITS 366,377 240,629
============= =============
NET ASSET VALUE PER
ACCUMULATION UNIT
DECEMBER 31, 1997 $14.91 $11.01
============= =============
DECEMBER 31, 1996 $11.22 $10.32
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE> 59
<TABLE>
<CAPTION>
BERMAN STRONG VAN ECK OPPENHEIMER
---------- ------------------------- ---------- -------------------------------------------------------------------
HARD
INTERNATIONAL AGGRESSIVE ASSETS/ HIGH AGGRESSIVE LARGE CAP MANAGED
GROWTH GROWTH GROWTH METALS INCOME GROWTH GROWTH BALANCED INCOME
---------- ------------- ----------- ---------- ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,259,288 $2,908,933 $113,588 $571,653 $515,157 $765,379 $1,444,800 $475,478 $71,746
========== ============= =========== ========== ============ =========== ============= ============= =============
$1,413,815 $2,451,925 $128,147 $552,416 $516,541 $756,016 $1,457,619 $492,500 $71,526
========== ============= =========== ========== ============ =========== ============= ============= =============
46,294 263,082 10,652 35,141 44,839 18,457 44,933 23,931 13,970
========== ============= =========== ========== ============ =========== ============= ============= =============
$1,413,815 $2,451,925 $128,147 $552,416 $516,541 $756,016 $1,457,619 $492,500 $71,526
========== ============= =========== ========== ============ =========== ============= ============= =============
100,057 284,776 10,687 53,425 46,452 60,337 120,465 38,357 6,641
========== ============= =========== ========== ============ =========== ============= ============= =============
$14.13 $8.61 $11.99 $10.34 $11.12 $12.53 $12.10 $12.84 $10.77
========== ============= =========== ========== ============ =========== ============= ============= =============
$10.96 $10.28 $10.63 $10.52 --- --- --- --- ---
========== ============= =========== ========== ============ =========== ============= ============= =============
</TABLE>
2
<PAGE> 60
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CALVERT ALGER
--------------------------------------------------------------------- -----------
SOCIAL SOCIAL SOCIAL
MONEY SOCIAL STRATEGIC MANAGED SOCIAL LARGE CAP
MARKET BALANCED GROWTH GROWTH * GLOBAL * GROWTH
----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Investment Income
Dividends $64,961 $36,031 $27,229 $9,408 $8,438 $10,030
Mortality and expense charge (19,061) (2,310) (2,999) (344) (625) (14,930)
----------- ----------- ---------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) 45,900 33,721 24,230 9,064 7,813 (4,900)
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption
of fund shares --- 737 (9,679) 44 508 38,682
Unrealized appreciation (depreciation)
of investments --- (15,137) (12,986) (10,486) (8,251) 171,097
----------- ----------- ---------- ----------- ----------- -----------
NET GAIN(LOSS) ON INVESTMENTS --- (14,400) (22,665) (10,442) (7,743) 209,779
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 45,900 19,321 1,565 (1,378) 70 204,879
CAPITAL TRANSACTIONS:
Transfer of premium 2,998,427 182,688 241,253 70,218 45,127 1,297,026
Contract terminations (2,529) --- (35) --- --- (5,902)
Policy account value charges (38) (26) (111) --- --- (154)
Sub-account transfers (1,961,363) 309,038 4,470 22,008 39,312 24,017
----------- ----------- ---------- ----------- ----------- -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 1,034,497 491,700 245,577 92,226 84,439 1,314,987
----------- ----------- ---------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS 1,080,397 511,021 247,142 90,848 84,509 1,519,866
NET ASSETS, AT THE BEGINNING OF THE
YEAR 139,591 7,013 55,892 --- --- 293,712
----------- ----------- ---------- ----------- ----------- -----------
NET ASSETS, AT END OF THE YEAR $1,219,988 $518,034 $303,034 $90,848 $84,509 $1,813,578
=========== =========== ========== =========== =========== ===========
UNITS ISSUED AND REDEEMED
Beginning balance 137,527 646 5,157 --- --- 26,933
Units issued 4,128,605 40,008 39,680 7,302 8,607 139,737
Units redeemed 3,125,957 898 13,788 --- 938 34,388
----------- ----------- ----------- ----------- ----------- -----------
ENDING BALANCE 1,140,175 39,756 31,049 7,302 7,669 132,282
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALGER DREYFUS
------------------------ -----------
S & P
MID CAP SMALL CAP 500
GROWTH GROWTH INDEX
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS:
Investment Income
Dividends $9,045 $41,086 $120,071
Mortality and expense charge (8,022) (13,620) (46,643)
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) 1,023 27,466 73,428
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption
of fund shares 5,524 7,228 52,894
Unrealized appreciation (depreciation)
of investments 84,526 127,659 652,827
----------- ----------- -----------
NET GAIN(LOSS) ON INVESTMENTS 90,050 134,887 705,721
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 91,073 162,353 779,149
CAPITAL TRANSACTIONS:
Transfer of premium 455,018 1,178,023 2,964,441
Contract terminations (524) (1,596) (33,324)
Policy account value charges (142) (134) (317)
Sub-account transfers 118,923 (95,479) 230,856
----------- ----------- -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 573,275 1,080,814 3,161,656
----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS 664,348 1,243,167 3,940,805
NET ASSETS, AT THE BEGINNING OF THE
YEAR 139,486 278,519 1,521,869
----------- ----------- -----------
NET ASSETS, AT END OF THE YEAR $803,834 $1,521,686 $5,462,674
=========== =========== ===========
UNITS ISSUED AND REDEEMED
Beginning balance 12,949 27,028 135,684
Units issued 68,691 151,147 280,880
Units redeemed 16,762 45,624 50,187
----------- ----------- -----------
ENDING BALANCE 64,878 132,551 366,377
=========== =========== ===========
</TABLE>
* From Sub-account inception, May, 1997.
** Sub-account closed November, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 61
<TABLE>
<CAPTION>
NEUBERGER & BERMAN STRONG VAN ECK
----------------------- ----------------------------------------------- -----------
HARD
INTERNATIONAL AGGRESSIVE ASSETS /
INCOME GROWTH INCOME ** BALANCE ** GROWTH GROWTH METALS
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$56,915 $33,636 $0 $7,583 $16,762 $0 $5,569
(19,186) (12,001) (259) (3,182) (23,821) (1,174) (4,487)
---------- ---------- ---------- --------- ---------- --------- --------
37,729 21,635 (259) 4,401 (7,059) (1,174) 1,082
(27,270) 25,296 (173) 41,997 (6,729) 1,415 823
53,453 151,202 93 4,747 (458,423) 14,637 (21,641)
---------- ---------- ---------- --------- ---------- --------- --------
26,183 176,498 (80) 46,744 (465,152) 16,052 (20,818)
63,912 198,133 (339) 51,145 (472,211) 14,878 (19,736)
2,210,048 905,220 18,515 173,019 1,905,310 31,900 401,897
(10,806) (4,586) --- (309) (7,409) --- (1,833)
(193) (112) (19) (23) (261) --- (51)
39,484 46,272 (31,381) (305,537) 505,179 72,911 59,159
---------- ---------- ---------- --------- ---------- --------- --------
2,238,533 946,794 (12,885) (132,850) 2,402,819 104,811 459,172
---------- ---------- ---------- --------- ---------- --------- --------
2,302,445 1,144,927 (13,224) (81,705) 1,930,608 119,689 439,436
346,878 268,888 13,224 81,705 521,317 8,458 112,980
---------- ---------- ---------- --------- ---------- --------- --------
$2,649,323 $1,413,815 $0 $0 $2,451,925 $128,147 $552,416
========== ========== ========== ========= ========== ========= ========
33,612 24,534 1,320 7,530 50,712 796 10,740
316,194 97,573 1,849 37,662 283,605 12,531 47,780
109,177 22,050 3,169 45,192 49,541 2,640 5,095
----------- ----------- ----------- ----------- ----------- ----------- -----------
240,629 100,057 0 0 284,776 10,687 53,425
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER
- ----------------------------------------------------------------
HIGH AGGRESSIVE LARGE CAP MANAGED
INCOME * GROWTH * GROWTH * BALANCED * INCOME *
- ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
$13,028 $0 $0 $1,487 $3,556
(2,086) (3,007) (6,077) (1,927) (420)
- ---------- ---------- ---------- -------- ----------
10,942 (3,007) (6,077) (440) 3,136
128 5,186 6,345 4,296 (15)
1,385 (9,363) 12,820 17,322 (220)
- ---------- ---------- ---------- -------- ----------
1,513 (4,177) 19,165 21,618 (235)
12,455 (7,184) 13,088 21,178 2,901
341,056 524,024 964,009 403,720 55,814
(1,492) (1,585) (3,132) --- ---
(11) (47) (87) --- ---
164,533 240,808 483,741 67,602 12,811
- ---------- ---------- ---------- -------- ----------
504,086 763,200 1,444,531 471,322 68,625
- ---------- ---------- ---------- -------- ----------
516,541 756,016 1,457,619 492,500 71,526
--- --- --- --- ---
- ---------- ---------- ---------- -------- ----------
$516,541 $756,016 $1,457,619 $492,500 $71,526
========== ========== ========== ======== ==========
--- --- --- --- ---
51,260 67,873 128,512 43,527 9,415
4,808 7,536 8,047 5,170 2,774
- ---------- ---------- ---------- -------- ----------
46,452 60,337 120,465 38,357 6,641
========== ========== ========== ======== ==========
</TABLE>
3
<PAGE> 62
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD SEPTEMBER 9, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CALVERT ALGER
---------------------------------------------- ------------------------------
SOCIAL SOCIAL
MONEY SOCIAL STRATEGIC LARGE CAP MID CAP
MARKET BALANCED GROWTH GROWTH GROWTH
------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Investment Income
Dividends $1,813 $526 $176 --- ---
Mortality and expense charge (599) (13) (132) (750) (340)
------------- ----------- ------------ ------------ -----------
NET INVESTMENT INCOME (LOSS) 1,214 513 44 (750) (340)
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares --- 155 (734) 3,994 1,789
Unrealized appreciation (depreciation)
of investments --- (661) 1,508 (2,818) (1,305)
------------- ----------- ------------ ------------ -----------
NET GAIN(LOSS) ON INVESTMENTS --- (506) 774 1,176 484
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 1,214 7 818 426 144
CAPITAL TRANSACTIONS:
Transfer of premium 196,883 5,427 55,074 285,998 137,081
Contract terminations --- --- --- --- ---
Policy account value charges --- --- --- --- ---
Sub-account transfers (58,506) 1,579 --- 7,288 2,261
------------- ----------- ------------ ------------ -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 138,377 7,006 55,074 293,286 139,342
------------- ----------- ------------ ------------ -----------
TOTAL INCREASE IN NET ASSETS 139,591 7,013 55,892 293,712 139,486
NET ASSETS, AT INCEPTION --- --- --- --- ---
------------- ----------- ------------ ------------ -----------
NET ASSETS, AT END OF THE YEAR $139,591 $7,013 $55,892 $293,712 $139,486
============= =========== ============ ============ ===========
UNITS ISSUED AND REDEEMED
Beginning balance --- --- --- --- ---
Units issued 317,908 2,096 7,446 33,793 17,969
Units redeemed 180,381 1,450 2,289 6,860 5,020
------------- ----------- ------------ ------------ -----------
ENDING BALANCE 137,527 646 5,157 26,933 12,949
============= =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
ALGER DREYFUS
------------ ------------- NEUBERGER & BERMAN
S & P ------------------
SMALL CAP 500
GROWTH INDEX INCOME
------------ ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Investment Income
Dividends --- $20,596 ---
Mortality and expense charge (660) (3,491) (779)
----------- ------------- -------------
NET INVESTMENT INCOME (LOSS) (660) 17,105 (779)
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares (2,904) 13,609 1,963
Unrealized appreciation (depreciation)
of investments 119 (30,303) 851
----------- ------------- -------------
NET GAIN(LOSS) ON INVESTMENTS (2,785) (16,694) 2,814
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS (3,445) 411 2,035
CAPITAL TRANSACTIONS:
Transfer of premium 275,740 1,495,454 343,641
Contract terminations --- --- ---
Policy account value charges --- --- ---
Sub-account transfers 6,224 26,004 1,202
----------- ------------- -------------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 281,964 1,521,458 344,843
----------- ------------- -------------
TOTAL INCREASE IN NET ASSETS 278,519 1,521,869 346,878
NET ASSETS, AT INCEPTION --- --- ---
----------- ------------- -------------
NET ASSETS, AT END OF THE YEAR $278,519 $1,521,869 $346,878
=========== ============= =============
UNITS ISSUED AND REDEEMED
Beginning balance --- --- ---
Units issued 35,703 151,870 44,214
Units redeemed 8,675 16,186 10,602
----------- ------------- -------------
ENDING BALANCE 27,028 135,684 33,612
=========== ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 63
<TABLE>
<CAPTION>
BERMAN STRONG VAN ECK
- ------------- ---------------------------------------------------- -------------
INTERNATIONAL AGGRESSIVE HARD
GROWTH INCOME BALANCE GROWTH GROWTH ASSETS /
METALS
------------ ------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
--- $99 $4,927 $91 --- ---
($646) (34) (187) (1,292) ($15) ($278)
------------ ------------- ------------ ---------- ---------- -------------
(646) 65 4,740 (1,201) (15) (278)
3,359 6 1,027 3,174 80 1,068
3,325 (58) (4,604) 1,415 (78) 2,405
------------ ------------- ------------ ---------- ---------- -------------
6,684 (52) (3,577) 4,589 2 3,473
6,038 13 1,163 3,388 (13) 3,195
257,825 13,211 80,542 515,225 2,236 109,785
--- --- --- --- --- ---
--- --- --- --- --- ---
5,025 --- --- 2,704 6,235 ---
------------ ------------- ------------ ---------- ---------- -------------
262,850 13,211 80,542 517,929 8,471 109,785
------------ ------------- ------------ ---------- ---------- -------------
268,888 13,224 81,705 521,317 8,458 112,980
--- --- --- --- --- ---
------------ ------------- ------------ ---------- ---------- -------------
$268,888 $13,224 $81,705 $521,317 $8,458 $112,980
============ ============= ============ ========== ========== =============
--- --- --- --- --- ---
31,468 2,137 11,847 65,607 1,379 12,631
6,934 817 4,317 14,895 583 1,891
------------ ------------- ------------ ---------- ---------- -------------
24,534 1,320 7,530 50,712 796 10,740
============ ============= ============ ========== ========== =============
</TABLE>
4
<PAGE> 64
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF OPERATIONS
The Acacia National Variable Annuity Separate Account II (the Account) began
operations on September 9, 1996 as a separate investment account within Acacia
National Life Insurance Company (the Company) to receive and invest net premiums
paid under a flexible premium deferred variable annuity policy (the Policy). The
purpose of the Policy is to provide long-term financial planning and to provide
for the accumulation of capital on a tax-deferred basis for retirement or other
long-term purposes. The Policy may be purchased with a minimum premium payment
of $300 the first year and a minimum of $30 for premium payments thereafter. The
Policy may be purchased on a non-qualified tax basis or used in connection with
plans qualifying for favorable Federal income tax treatment.
The Company is a member of the Acacia Group which includes Acacia Life Insurance
Company (known prior to June 30, 1997 as Acacia Mutual Life Insurance Company)
and its other wholly-owned subsidiaries: Acacia Financial Corporation (AFCO) and
its subsidiaries: Acacia Federal Savings Bank F.S.B., Calvert Group, Ltd. and
The Advisors Group, Inc.
Assets of the Account are the property of the Company. However, those assets
attributable to the policies are not chargeable with liabilities arising out of
any other business which the Company may conduct. The Account operates and is
registered as a unit investment trust under the Investment Company Act of 1940.
The net assets maintained in the Account attributable to the policies provide
the base for the periodic determination of the increased or decreased benefits
under the policies.
NOTE 2 - SEPARATE ACCOUNT ASSETS
As of December 31, 1997, the Account has nineteen separate sub-accounts which
are invested as directed by the contract owner. The Account purchases shares of
each of the sub-accounts subject to the terms of the Participation Agreements
between the Company and the sub-accounts. Shares of each sub-account are offered
at a price equal to their respective net asset values per share, without sales
charge, which represents their fair value. Calvert Asset Management Company,
Inc., an indirectly wholly-owned subsidiary of AFCO, serves as an investment
advisor to the Calvert Variable Series Inc. Calvert Social Money Market, Calvert
Social Small Cap, Calvert Social Mid Cap and Calvert Social International Equity
Portfolios. The Advisors Group, Inc. acts as a principal underwriter of the
policies pursuant to an underwriting agreement with the Company.
In addition to the nineteen separate sub-accounts, a contract owner may also
allocate net premiums to the General Account, which is part of the Company.
Because of exclusionary provisions, interests in the General Account have not
been registered as securities under the Securities Act of 1933 and the General
Account has not been registered as an investment company under the Investment
Company Act of 1940.
5
<PAGE> 65
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
The sub-accounts and the respective portfolios in effect during 1997 were as
follows:
<TABLE>
<CAPTION>
Sub-Account Portfolio Invested
----------- ------------------
<S> <C>
Calvert Variable Series, Inc.:
Social Money Market - Calvert Social Money Market
Social Balanced - Calvert Social Balanced
Social Strategic Growth - Calvert Small Cap Growth
Social Managed Growth - Calvert Mid Cap Growth
Social Global - Calvert Social International Equity
Alger American:
Large Cap Growth - Growth
Mid Cap Growth - Mid Cap Growth
Small Cap Growth - Small Capitalization
S & P 500 Index Dreyfus Stock Index
The Neuberger & Berman Advisors
Management Trust:
Income - Limited Maturity Bond
Growth - Growth
Strong:
Income (closed November, 1997) - Advantage Fund II
Balance (closed November 1997) - Asset Allocation Fund II
International Growth - International Stock Fund II
Aggressive Growth - Discovery Fund II
Hard Assets / Metals Van Eck Worldwide Hard Assets Fund
Oppenheimer Variable Account Funds:
High Income - High Income Fund
Aggressive Growth - Aggressive Growth Fund
Large Cap Growth - Growth Fund
Balanced - Growth & Income Fund
Managed Income - Strategic Bond Fund
</TABLE>
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Account in the preparation of the financial statements in
conformity with generally accepted accounting principles.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
6
<PAGE> 66
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INVESTMENTS VALUATION
Investments are stated at market value based on the net asset value of the
underlying investment in each of the respective funds. Net asset values are
based upon market quotations of the securities held in each of the corresponding
portfolios of the sub-accounts.
ACCOUNTING FOR INVESTMENTS
Investment transactions are accounted for on the trade date. Dividend income is
recorded on the ex-dividend date. Identified cost is the basis followed in
determining the cost of investments sold for financial statement purposes.
FEDERAL INCOME TAXES
The operations of the Account are taxed as part of the total operations of the
Company. The Company is taxed as a life insurance company under the Internal
Revenue Code. Under existing law, no taxes are payable on investment income or
realized capital gains of the Account.
NOTE 4 - RELATED PARTY TRANSACTIONS
The following charges are deducted by the Company from the Account's net assets
attributed to each policy:
Annual Policy Fee: An annual charge of $42 will be made on each
policy anniversay to compensate the Company for the cost of
administering the Policy for all policies with an account value less
than $50,000.
Administrative Expense Charge: A monthly charge at an effective
annual rate of 0.10% of the average daily net asset value of the
variable account will be made to compensate the Company for the
costs of administering the Policy. Net investment income is reduced
by charges for investment management fees and other expenses
incurred by the Portfolios.
Mortality and Expense Risk Charge: A monthly charge at an effective
annual rate of 1.25% of the average daily net asset value of the
sub-accounts will be made to compensate the Company for assuming
certain mortality and expense risks. The charge will decrease by
0.05% on each Policy anniversary beginning in year 16 until it
reaches an effective rate of 0.50% at the end of year 30.
Surrender Charge: A surrender charge is deducted on a percentage
basis from premium payments made within five years of surrender. The
amount of the charge is equal to 8%
7
<PAGE> 67
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
of premium payments made within three years of surrender, 6% of
premium payments made during the fourth year prior to surrender, and
4% of premium payments made during the fifth year prior to
surrender.
Premium Taxes: Certain states impose premium taxes. The Company will
deduct amounts equal to these taxes as applicable. Premium tax rates
vary from 0 to 3.5%.
NOTE 5 - PURCHASES AND SALES
The cost of purchases and proceeds from sales for the two years ended December
31,1997 and 1996 for the sub-accounts are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Cost of Proceeds Cost of Proceeds
Portfolio Purchases from Sales Purchases from Sales
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Social Money Market $4,322,028 $3,241,631 $ 321,690 $ 182,098
Social Balanced 536,568 10,410 23,033 15,515
Social Strategic Growth 402,402 142,274 79,633 23,713
Social Managed Growth 101,645 311 --- ---
Social Global 102,506 9,747 --- ---
Large Cap Growth 1,750,761 401,991 368,032 76,298
Mid Cap Growth 764,846 185,025 194,085 54,616
Small Cap Growth 1,605,526 490,017 370,039 88,504
S & P 500 Index 3,845,059 557,081 1,739,044 183,232
Income 3,419,436 1,170,442 453,444 109,143
Growth 1,261,094 267,369 337,515 75,726
Income (closed November, 1997) 18,465 31,857 21,502 8,206
Balance (closed November, 1997) 428,465 514,774 131,433 46,001
International Growth 2,890,242 501,211 676,888 154,673
Aggressive Growth 132,810 27,758 14,687 6,231
Hard Assets / Metals 515,399 54,321 129,521 20,013
High Income 565,864 50,707 --- ---
Aggressive Growth 856,525 91,146 --- ---
Large Cap Growth 1,534,627 89,827 --- ---
Balanced 532,547 57,368 --- ---
Managed Income 101,553 29,807 --- ---
</TABLE>
8
<PAGE> 68
AUDITED FINANCIAL STATEMENTS (STATUTORY BASIS)
ACACIA NATIONAL LIFE INSURANCE COMPANY
DECEMBER 31, 1997 AND 1996
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2
Statements of Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations and Changes
in Capital and Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 - 17
Supplemental Schedule of Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 18 - 20
</TABLE>
<PAGE> 69
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Acacia National Life Insurance Company
We have audited the accompanying statutory statements of financial condition of
Acacia National Life Insurance Company as of December 31, 1997 and 1996, and
the related statutory statements of operations and changes in capital and
surplus, and cash flow for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described more fully in Note 2 to the financial statements, these financial
statements were prepared in conformity with accounting practices prescribed or
permitted by the Bureau of Insurance, State Corporation Commission of the
Commonwealth of Virginia, which practices differ from generally accepted
accounting principles. The effects on the financial statements of the
variances between the statutory basis of accounting and generally accepted
accounting principles are material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial
position of Acacia National Life Insurance Company as of December 31, 1997 and
1996 or the results of its operations or its cash flow for the years then
ended.
In our opinion, however, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities, and surplus
of Acacia National Life Insurance Company as of December 31, 1997 and 1996, and
the results of its operations and its cash flow for the years then ended, on
the basis of accounting described in Note 2.
<PAGE> 70
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Selected
Financial Data is presented for purposes of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by the National Association of Insurance Commissioners.
Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and in our opinion is fairly stated, in
all material respects, in relation to the basic financial statements taken as a
whole.
/s/ COOPERS & LYBRAND LLP
Washington, D.C.
February 24, 1998
2
<PAGE> 71
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL CONDITION (STATUTORY BASIS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Debt securities $ 570,348 $ 596,394
Equity securities 2,373 2,405
Mortgage loans 5,031 47
Policy loans 8,100 8,091
Cash and cash equivalents 13,090 16,246
Accrued investment income 9,992 10,520
Separate account assets 31,095 6,433
Other assets 2,820 2,671
--------------- ---------------
TOTAL ASSETS $ 642,849 $ 642,807
=============== ===============
LIABILITIES
Insurance and annuity reserves $ 508,884 $ 539,065
Deposit administration contracts and other
deposit reserves 26,459 25,659
Other policyowner funds 28,666 19,633
Policy claims 3,143 2,821
Interest maintenance reserve 2,587 2,230
Asset valuation reserve 5,188 5,712
Separate account liabilities 31,095 6,433
Other liabilities 4,321 11,613
--------------- ---------------
TOTAL LIABILITIES 610,343 613,166
CAPITAL AND SURPLUS
Preferred stock, 8% non-voting, non-cumulative, $1,000 par value,
10,000 shares authorized; 6,000 shares issued and outstanding 6,000 6,000
Common stock, $170 par value; 15,000 shares authorized
issued and oustanding 2,550 2,550
Gross paid-in surplus 13,450 13,450
Surplus 10,506 7,641
--------------- ---------------
TOTAL CAPITAL AND SURPLUS 32,506 29,641
--------------- ---------------
TOTAL LIABILITIES AND CAPITAL AND SURPLUS $ 642,849 $ 642,807
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 72
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN CAPITAL AND SURPLUS (STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1997 1996
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 59,646 $ 42,444
Net investment income 47,774 45,701
Supplementary contracts 16,809 12,589
Other income 1,042 3,845
-------------- ---------------
125,271 104,579
BENEFITS AND EXPENSES
Benefits for policyholders and beneficiaries:
Benefit payments, surrenders, and withdrawals 108,148 114,085
Decrease in insurance and annuity reserves (21,269) (24,741)
Increase in deposit administration funds 800 977
-------------- ---------------
87,679 90,321
Commissions to managing directors
and account managers 5,202 3,146
Net transfers to separate accounts 20,387 ---
Operating expenses allocated from Acacia Life 12,724 13,539
Other operating expenses and taxes 1,247 162
-------------- ---------------
127,239 107,168
-------------- ---------------
NET (LOSS) GAIN FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES AND REALIZED CAPITAL LOSSES (1,968) (2,589)
Federal income tax benefit (expense) 2,511 (642)
-------------- ---------------
NET GAIN (LOSS) FROM OPERATIONS BEFORE
REALIZED CAPITAL GAINS (LOSSES) 543 (3,231)
REALIZED CAPITAL GAINS (LOSSES)
Net realized capital gains 1,183 339
Capital gains taxes (521) (335)
Transferred to interest maintenance reserve (516) (224)
-------------- ---------------
NET REALIZED CAPITAL GAINS (LOSSES) 146 (220)
-------------- ---------------
NET INCOME (LOSS) 689 (3,451)
Capital and surplus, beginning of year 29,641 26,775
Issuance of preferred stock --- 6,000
Contribution of gross paid-in surplus --- 6,000
Change in valuation basis of reserves (119) ---
Change in asset valuation reserve 524 (1,068)
Change in net unrealized capital gains 495 323
Change in non-admitted assets 1,276 (4,938)
-------------- ---------------
CAPITAL AND SURPLUS, END OF YEAR $ 32,506 $ 29,641
============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 73
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW (STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1997 1996
--------------- ------------------
OPERATING ACTIVITIES (IN THOUSANDS)
<S> <C> <C>
Premiums and annuity considerations $ 59,646 $ 42,453
Other premiums, considerations and deposits 16,809 12,589
Net investment income received 47,368 43,220
Cash and short-term investments received from
execution of assumption reinsurance agreement --- 52,671
Annuity and other fund deposits 2,167 4,069
Benefits paid to policyholders (10,980) (10,092)
Commissions and other expenses paid (20,698) (16,601)
Surrender benefits and other fund withdrawals paid (96,822) (103,994)
Net transfers to separate accounts (22,815) ---
Federal and state income tax paid (1,093) (41)
--------------- ------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (26,418) 24,274
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 68,392 52,368
Equities 756 191
Mortgage loans 16 ---
Partnership and other interests 240 ---
Cost of investments acquired:
Bonds (40,619) (92,269)
Mortgage loans (5,000) ---
Partnership and other interests (1,158) (435)
Net change in policy loans and premium notes (9) 210
--------------- ------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 22,618 (39,935)
FINANCING ACTIVITIES
Cash provided:
Issuance of preferred stock --- 6,000
Capital contribution --- 6,000
Other provisions (applications) 644 (80)
--------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 644 11,920
DECREASE IN CASH AND CASH EQUIVALENTS (3,156) (3,741)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 16,246 19,987
--------------- ------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,090 $ 16,246
=============== ==================
NON-CASH TRANSACTIONS:
Non-cash items received from execution of assumption
reinsurance agreement:
Investment in bonds --- $68,429
Policy loans --- $1,600
Annuity reserve liabilities --- $127,851
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 74
ACACIA NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF OPERATIONS
Acacia National Life Insurance Company (the Company) is a wholly-owned
subsidiary of Acacia Life Insurance Company (Acacia Life), known prior to June
30, 1997 as Acacia Mutual Life Insurance Company. Acacia Life is a
wholly-owned subsidiary of Acacia Financial Group, Ltd (AFG) which is wholly
owned by Acacia Mutual Holding Corporation (AMHC). AMHC and AFG were formed in
1997 pursuant to a plan of reorganization whereby Acacia Life became a stock
life insurance company. AMHC and its wholly-owned subsidiaries are
collectively known as The Acacia Group (the Group). Other members of the Group
include Acacia Financial Corporation and its subsidiaries, Acacia Federal
Savings Bank, Calvert Group, Ltd. and The Advisors Group, Inc.
The Company underwrites and markets deferred and immediate annuities and life
insurance products within the United States and is licensed to operate in 46
states and the District of Columbia. On December 1, 1995 and September 9,
1996, respectively, operations began for the Acacia National Variable Life
Insurance Separate Account I and Acacia National Variable Annuity Separate
Account II which are separate investment accounts within the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING PRACTICES
The Company, domiciled in Virginia, prepares its statutory financial statements
in accordance with statutory accounting practices (SAP) prescribed or permitted
by the Bureau of Insurance, State Corporation Commission of the Commonwealth of
Virginia. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners (NAIC), as
well as state laws, regulations, and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed. Such practices vary, in some respects, from generally accepted
accounting principles (GAAP). The significant statutory basis accounting
practices followed by the Company are described below.
The preparation of the financial statements in conformity with statutory
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
6
<PAGE> 75
In general, the SAP basis of accounting varies in certain respects from GAAP in
that:
- - Acquisition costs incurred at policy issuance, such as commissions and
other costs in connection with acquiring new business, are charged to
expense in the year in which they are incurred, rather than being
deferred and amortized over the periods benefited.
- - Certain assets designated as "non-admitted' are excluded from the
balance sheets by a direct charge to unassigned surplus.
- - The asset valuation reserve and interest maintenance reserve are not
recorded for GAAP purposes.
- - Federal income taxes are computed in accordance with those sections of
the Internal Revenue Code applicable to life insurance companies and
are based solely on currently taxable income. Under GAAP, the
recognition of deferred tax liabilities and assets is required for the
expected future tax consequences of temporary differences between the
carrying amounts for financial statements purposes and the tax basis
of other assets and liabilities.
- - The liability for policy reserves is based on statutory assumptions
for interest and mortality without considerations of withdrawals,
rather than assumptions for interest, mortality and withdrawals based
on actual experience.
- - Premiums for universal life, single premium non-life contingent
immediate annuity and single premium deferred annuity contracts are
reported as premium income or fund deposits rather than additions to
liabilities.
- - Reinsurance ceded to other companies is reported on a net basis for
premium revenue, benefits and underwriting, acquisition and insurance
expenses, and policy reserves and accruals. Under GAAP, policy
reserves and claim liabilities ceded are reported separately in the
balance sheet as a reinsurance recoverable asset.
- - Debt securities are generally carried at amortized costs, whereas,
under GAAP, investments in debt securities are stated at amortized
cost or current market values depending on the classification pursuant
to FASB Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Any difference between cost and current market
values of debt securities classified as available-for-sale, net of
deferred income taxes or benefit and related deferred acquisition cost
effects, is reported as a separate component in GAAP shareholder's
equity and does not affect net income.
7
<PAGE> 76
The impact of the differences between SAP and GAAP basis reporting on Net
Income and Capital and Surplus is as follows:
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---- ----
NET CAPITAL NET CAPITAL
INCOME AND SURPLUS INCOME AND SURPLUS
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
AS REPORTED UNDER SAP: $ 689 $32,506 $(3,451) $29,641
Adjustments:
Deferred policy acquisition costs (66) 53,937 (663) 62,324
AVR and IMR 357 7,775 17 7,942
Deferred Federal income taxes (2,372) (19,561) (307) (15,244)
Net policyholder liabilities 731 (9,813) 5,287 (10,664)
Investments --- 22,521 --- 9,135
Other 1,289 (456) 444 (467)
------- ------ ------- -------
AMOUNTS UNDER GAAP $ 628 $86,909 $ 1,327 $82,667
======= ======= ======= =======
</TABLE>
VALUATION OF ASSETS
Debt and equity securities are valued in accordance with rules prescribed by
the NAIC. Debt securities are generally stated at amortized cost, preferred
stocks at cost and common stocks at market value. Collateralized mortgage
obligations are valued using the prospective method and currently anticipated
prepayment assumptions, based on data from current actual experience. Mortgage
loans and policy loans are recorded at their unpaid balance. Discount or
premium on debt securities is amortized using the interest method. Unrealized
capital gains and losses are reflected directly in surplus and are not included
in net income. Realized gains and losses are determined on a first-in,
first-out basis and are presented in the statements of operations, net of taxes
and excluding amounts transferred to the Interest Maintenance Reserve.
As prescribed by the NAIC, the Company maintains an Asset Valuation Reserve
(AVR). The AVR is computed in accordance with a prescribed formula. The
purpose of the AVR is to stabilize surplus against fluctuations in the value of
stocks and credit-related declines in the value of bonds, mortgage loans and
other invested assets. Changes to the AVR are charged or credited directly to
surplus.
As also prescribed by the NAIC, the Company maintains an Interest Maintenance
Reserve, which represents the net accumulated unamortized realized capital
gains and losses attributable to changes in the general level of interest rates
on sales of fixed income investments, principally bonds and mortgage loans.
Such gains or losses are amortized into income using schedules prescribed by
the NAIC over the remaining period to expected maturity of the individual
securities sold.
8
<PAGE> 77
CASH EQUIVALENTS
The Company considers overnight repurchase agreements, money market funds and
short-term investments with original maturities of less than three months at
the time of acquisition to be cash equivalents. Cash equivalents are carried
at cost.
SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain life
insurance and annuity contracts, for which the investment risk lies solely with
the holder of the contract rather than the Company. Consequently, the
insurer's liability for these Separate Accounts equals the value of the
Separate Account assets. Investment income and realized gains (losses) related
to Separate Accounts are excluded from the statements of operations and cash
flows. Assets held in Separate Accounts are primarily shares in mutual funds,
which are carried at fair value, based on the quoted net asset value per share.
NON-ADMITTED ASSETS
Certain assets, primarily goodwill, are designated as "non-admitted" under SAP.
The cost of these assets is charged directly to surplus. Non-admitted balances
totaled $3,662,000 and $4,938,000 at December 31, 1997 and 1996, respectively.
POLICY RESERVES
Life policy reserves are computed by using the Commissioners Reserve Valuation
Method and the Commissioners Standard Ordinary Mortality table. Annuity
reserves are calculated using the Commissioners Annuity Reserve Valuation
Method and the maximum valuation interest rate; for annuities with life
contingencies, the prescribed valuation mortality table is used. Policy claims
in process of settlement include provision for reported claims and claims
incurred but not reported. The valuation rates for fixed immediate and deferred
annuities range between 6.0% and 11.25% as of December 31, 1997.
FEDERAL INCOME TAXES
The Company files a consolidated tax return with the Group. Under statutory
accounting practices, no provision is made for deferred federal income taxes
related to temporary differences between statutory and taxable income. Such
temporary differences arise primarily from Internal Revenue Code requirements
regarding the capitalization and amortization of deferred policy acquisition
costs, calculation of life insurance reserves and recognition of realized gains
or losses on sales of debt securities.
9
<PAGE> 78
PREMIUMS AND RELATED EXPENSE
Premiums are recognized as income over the premium paying period of the
policies. Annuity considerations and fund deposits are included in revenue as
received. Commissions and other policy acquisition costs are expensed as
incurred.
REINSURANCE
The Company cedes reinsurance to provide for greater diversification of
business, additional capacity for growth as well as a way for management to
control exposure to potential losses arising from large risks. A significant
portion of reinsurance is ceded to Acacia Life.
The excess of the amount of liabilities assumed over the amount of assets
received upon execution of an assumption reinsurance agreement is recorded as
goodwill, a non-admitted asset, and charged directly to surplus. Goodwill is
being amortized over a period of ten years using the interest method.
RECLASSIFICATIONS
Certain reclassifications of 1996 amounts were made to conform with the 1997
financial statement presentation.
NOTE 3 - INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
FAIR VALUES OF FINANCIAL INSTRUMENTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Debt securities $570,348 $610,928 $596,394 $620,368
Equity securities 2,373 2,713 2,405 2,773
Mortgage loans 5,031 5,084 47 50
Cash and cash equivalents 13,090 13,090 16,246 16,246
FINANCIAL LIABILITIES:
Investment-type insurance
contracts $407,643 $475,678 $440,645 $512,452
</TABLE>
10
<PAGE> 79
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks and mortgage backed securities) are based on quoted
market prices, where available. For fixed maturity securities not actively
traded and for private placements, fair values are estimated using values
obtained from independent pricing services. The fair values for equity
securities are based on quoted market prices.
MORTGAGE LOANS: The fair values for mortgage loans are estimated using
discounted cash flow analysis, based on interest rates currently being offered
for similar loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair values
because of the short maturity of these instruments.
POLICY LOANS: Policy loans are an integral component of insurance contracts
and have no maturity dates. Future cash flows are uncertain and difficult to
predict. Therefore, management has concluded that it is not practical to
estimate their fair value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. The carrying values for the deposit administration contracts and
supplementary contracts without life contingencies approximate their fair
values.
INVESTMENTS
Major categories of investment income for the years ended December 31 are
summarized as follows:
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Fixed maturity securities $ 47,086 $ 44,932
Common stock --- 54
Preferred stock 60 81
Mortgage loans 110 4
Policy loans 502 436
Other 1,001 1,544
-------- --------
Gross investment income 48,759 47,051
Investment expenses (1,143) (1,558)
Interest maintenance reserve amortization 158 208
-------- --------
Net investment income $ 47,774 $ 45,701
======== ========
</TABLE>
11
<PAGE> 80
Realized gains (losses) on investments for the years ended December 31 are
summarized as follows:
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Available for sale fixed maturity securities
Gross realized gains 963 355
Gross realized losses (11) (16)
Equity securities
Gross realized gains 230 --
Gross realized losses -- --
Other invested assets 1 --
------- -------
$ 1,183 $ 339
======= =======
</TABLE>
The statement values and estimated fair values of the Company's investments in
debt securities are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-------- ---------- ----------- -------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997
- --------------------
U.S. government and agencies $ 87,514 $ 8,228 $ -- $ 95,742
Other government 30,943 856 (73) 31,726
Mortgaged backed securities 150,831 5,592 (402) 156,021
Corporate 301,060 26,994 (615) 327,439
-------- -------- ------- --------
$570,348 $41,670 $(1,090) $610,928
======== ======== ======= ========
AT DECEMBER 31, 1996
- --------------------
U.S. government and agencies $117,448 $ 7,161 $ (28) $124,581
Other government 3,300 23 --- 3,323
Mortgaged backed securities 153,001 2,641 (1,627) 154,015
Corporate 322,645 17,503 (1,699) 338,449
-------- -------- -------- --------
$596,394 $27,328 $(3,354) $620,368
======== ======== ======== ========
</TABLE>
12
<PAGE> 81
The amortized cost and estimated fair value of debt securities, by contractual
maturity at December 31, 1997 are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
($ IN THOUSANDS) STATEMENT FAIR
VALUE VALUE
-------- -------
<S> <C> <C>
Maturities in 1998 $ 16,980 $ 17,243
In 1999 to 2002 121,926 130,953
In 2003 to 2007 153,737 163,299
After 2007 126,874 143,412
Mortgaged-backed securities 150,831 156,021
-------- --------
$570,348 $610,928
========= ========
</TABLE>
INVESTMENT PORTFOLIO CREDIT RISK
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1997 and 1996, approximately $3.9
million and $2.7 million, respectively, in debt security investments (0.7% and
0.5%, respectively, of the total debt security portfolio) are considered "below
investment grade." Securities are classified as "below investment grade" by
utilizing rating criteria established by the NAIC.
NOTE 4 - REINSURANCE
The Company reinsures all life insurance risks over its retention limit of $10
thousand per policy under yearly renewable term insurance agreements with
Acacia Life and several other non-affiliated companies. The Company remains
obligated for amounts ceded in the event that reinsurers do not meet their
obligations. Since the reinsurance treaties are of such a nature as to pass
economic risk to the reinsurer, appropriate reductions are made from income,
claims, expense and liability items in accounting for the reinsurance ceded.
13
<PAGE> 82
Premiums and benefits have been reduced by amounts reinsured as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
------- -------
<S> <C> <C>
Premiums ceded:
Acacia Life $3,384 $3,559
Others 533 540
------ ------
Total premium ceded $3,917 $4,099
====== ======
Death benefits reimbursed:
Acacia Life $2,989 $3,380
Other 277 1,841
------ ------
Total benefits reimbursed $3,236 $5,221
====== ======
Amounts recoverable on paid and unpaid losses:
Acacia Life $643 $424
Other --- 24
----- ---
Total amounts recoverable on paid
and unpaid losses $643 $448
==== ====
Policy reserves ceded:
Acacia Life $1,897 $3,238
Others 350 379
------ ------
Total policy reserves ceded $2,247 $3,617
====== ======
Life insurance in force ceded:
Acacia Life $1,206,052 $ 926,529
Others 90,471 74,550
---------- ----------
Total life insurance in force ceded $1,296,523 $1,001,079
========== ==========
</TABLE>
During 1997, the Company terminated a reinsurance agreement whereby disability
benefits were ceded to Acacia Life. Termination of the agreement resulted in
net expense to the Company of $372,000.
ASSUMPTION REINSURANCE AGREEMENT
Effective May 31, 1996 under an assumption reinsurance agreement, the Company
assumed certain assets and liabilities relating to annuities previously
underwritten by the National American Life Insurance Company (NALICO), which
had been in rehabilitation. Under the agreement, the Company assumed fixed
annuity policies with statutory liabilities of $127.9 million. The Company
received from NALICO assets with a fair value of approximately $122.7,
consisting principally of investment grade bonds and short-term investments.
The difference between assets
14
<PAGE> 83
acquired and liabilities assumed of $5.2 million was capitalized as goodwill
and treated as a non-admitted asset. Based on adjustments in 1997, additional
assets of $0.4 million were received and reduced the goodwill. Approximately
$1.1 million was amortized through operations during 1997 as an offset to
miscellaneous income. At December 31, 1997, the balance of goodwill was $3.7
million.
NOTE 5 - ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposit liabilities have the following withdrawal
characteristics:
($ in thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
------------------- --------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with adjust-
ment, at book value less surrender charge $228,262 46% $362,603 72%
Subject to discretionary withdrawal without adjust-
ment, at book value (minimal or no charge) 226,606 45 107,453 21
Not subject to discretionary withdrawal provision 46,550 9 32,205 7
-------- ---- ------ --
Total annuity actuarial reserves and deposit
fund liabilities $501,418 100% $502,261 100%
======== === ======== ====
</TABLE>
NOTE 6 - FEDERAL INCOME TAXES
Under a tax sharing agreement between the Company and other members of the
Group, Acacia Life reimburses or receives from the Company an amount
representing the taxes that would have been paid or refunded had the Company
filed a separate income tax return.
Under the statutes in effect before the Deficit Reduction Act of 1984, a
portion of "net income" was not subject to current income taxation for stock
life insurance companies, but was accumulated for tax purposes in a memorandum
tax account. The 1984 Act prohibited any additions to the memorandum tax
account after 1983. The balance in this account for the Company was $6.6
million at December 31, 1997 and 1996. In the event that either cash
distributions from the Company to Acacia Life or the balance in the memorandum
tax account exceeds certain stated minimums, such amounts distributed would
become subject to federal income taxes at rates then in effect.
15
<PAGE> 84
NOTE 7 - OTHER RELATED PARTY TRANSACTIONS
The Company has entered into an agreement whereby Acacia Life provides such
services and facilities as are necessary for the operation of the Company. Net
amounts payable to Acacia Life at December 31, 1997 and 1996 are $1.5 million
and $5.5 million, respectively, and are included in other liabilities.
During 1997, the Company purchased participations of $5 million in two
commercial mortgage loans from Acacia Life. The participations were purchased
at the unpaid principal balance.
NOTE 8 - CONTINGENT LIABILITIES
The Company is involved in various lawsuits that have arisen in the ordinary
course of business. Management believes that its defenses are meritorious and
the eventual outcome of these lawsuits will not have a material effect on the
Company's financial position.
The Company is also subject to insurance guaranty laws in the states in which
it does business. Periodically, the Company is assessed by various state
guaranty funds as part of those funds' activities to collect funds from solvent
insurance companies to cover certain losses to policyholders that resulted from
the insolvency or rehabilitation of other insurance companies. The Company has
established an estimated liability for guaranty fund assessments for those
insolvencies or rehabilitations that have actually occurred prior to the
balance sheet date. For those payments made which are expected to offset
future premium taxes, an asset has been recorded. Because of the many
uncertainties regarding the amounts that will be assessed against the Company,
the ultimate assessments may vary from the estimated liability included in the
accompanying financial statements. Expected premium tax offsets, net of the
estimated liability for future assessments, at December 31, 1997 and 1996 were
$359,000 and $736,000, respectively.
NOTE 9 - CAPITAL AND DIVIDEND RESTRICTIONS
The maximum amount of annual dividends and other distributions which may be
remitted by the Company to its shareholder without prior approval of the
appropriate state insurance commissioner is subject to restrictions relating to
statutory capital and surplus and statutory gains from operations. The maximum
dividend payout which may be made in 1998 without prior approval is $ 688,503.
Regulatory risk-based capital rules require a specified level of capital
depending on the types and quality of investments held, the types of business
written and the types of liabilities maintained. Depending on the ratio of an
insurer's adjusted surplus to its risk-based capital, the insurer could be
subject to various regulatory actions ranging from increased scrutiny to
conservatorship. The Company's risk-based capital ratios for 1997 and 1996
are significantly above the regulatory action levels.
16
<PAGE> 85
NOTE 10 - CAPITAL AND SURPLUS
During 1996, the Company received a $6 million capital contribution from Acacia
Life and also issued to Acacia Life $6 million of 8% non-voting, non-cumulative
preferred stock at par.
During 1997, the Company changed the valuation interest rates for certain
supplementary contracts, resulting in an increase in the liability of
approximately $700,000. Based on an agreement with the Bureau of Insurance,
the increase is being recognized evenly over three years, with $119,000 charged
directly against surplus and the remainder charged through operations.
17
<PAGE> 86
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997
SUPPLEMENTAL SCHEDULE OF SELECTED FINANCIAL DATA (IN THOUSANDS)
<TABLE>
<S> <C>
INVESTMENT INCOME EARNED
Government bonds $6,863
Other bonds (unaffiliated) 40,223
Bonds of Affiliates ---
Preferred stocks (unaffiliated) 60
Preferred stocks of affiliates ---
Common stocks (unaffiliated) ---
Common stocks of affiliates ---
Mortgage loans 110
Real estate ---
Premium notes, policy loans and liens 502
Collateral loans ---
Cash on hand and on deposit ---
Short-term investments 896
Other invested assets 105
Derivative instruments ---
Aggregate write-ins for investment income ---
--------------
Gross investment income $48,759
==============
REAL ESTATE OWNED - BOOK VALUE LESS ENCUMBRANCES ---
==============
MORTGAGE LOANS - BOOK VALUE:
Farm mortgages ---
Residential mortgages $46
Commercial mortgages 4,985
--------------
Total mortgage loans $5,031
==============
MORTGAGE LOANS BY STANDING - BOOK VALUE:
Good standing $5,031
==============
Good standing with restructured terms ---
==============
Interest overdue more than three months, not in foreclosure ---
==============
Foreclosure in process ---
==============
OTHER LONG TERM ASSETS - STATEMENT VALUE $699
==============
COLLATERAL LOANS ---
==============
BONDS AND STOCKS OF PARENTS, SUBSIDIARIES AND AFFILIATES - BOOK VALUE:
Bonds ---
==============
Preferred stocks ---
==============
Common stocks ---
==============
</TABLE>
18
<PAGE> 87
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997
SUPPLEMENTAL SCHEDULE OF SELECTED FINANCIAL DATA (IN THOUSANDS)
<TABLE>
<S> <C>
BONDS AND SHORT-TERM INVESTMENTS BY CLASS AND MATURITY:
BONDS AND SHORT-TERM INVESTMENTS BY MATURITY - STATEMENT VALUE
Due within one year $42,315
Over 1 year through 5 years 162,771
Over 5 years through 10 years 206,802
Over 10 years through 20 years 99,753
Over 20 years 69,582
--------------
Total by Maturity $581,223
==============
BONDS AND SHORT-TERM INVESTMENTS BY CLASS - STATEMENT VALUE
Class 1 $341,820
Class 2 212,120
Class 3 23,348
Class 4 1,980
Class 5 1,955
Class 6 ---
--------------
Total by Class $581,223
==============
TOTAL BONDS AND SHORT-TERM INVESTMENTS PUBLICLY TRADED $551,865
==============
TOTAL BONDS AND SHORT-TERM INVESTMENTS PRIVATELY PLACED $29,358
==============
PREFERRED STOCKS - STATEMENT VALUE $546
==============
COMMON STOCKS - MARKET VALUE $1,827
==============
SHORT-TERM INVESTMENTS - BOOK VALUE $10,875
==============
FINANCIAL OPTIONS OWNED - STATEMENT VALUE ---
==============
FINANCIAL OPTIONS WRITTEN AND IN-FORCE - STATEMENT VALUE ---
==============
FINANCIAL FUTURES CONTRACTS OPEN - CURRENT PRICE ---
==============
CASH ON DEPOSIT $2,215
==============
LIFE INSURANCE IN FORCE:
Industrial ----
==============
Ordinary $1,463,791
==============
Credit Life ----
==============
Group Life ----
==============
AMOUNT OF ACCIDENTAL DEATH INSURANCE IN FORCE UNDER ORDINARY POLICIES $103,610
==============
LIFE INSURANCE POLICIES WITH DISABILITY PROVISIONS IN FORCE
Industrial ----
==============
Ordinary $587
==============
Credit Life ----
==============
Group Life ----
==============
</TABLE>
19
<PAGE> 88
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997
SUPPLEMENTAL SCHEDULE OF SELECTED FINANCIAL DATA (IN THOUSANDS)
<TABLE>
<S> <C>
SUPPLEMENTARY CONTRACTS IN FORCE:
Ordinary - Not Involving Life Contingencies
Amount on Deposit $3,412
=============
Income Payable $25,492
=============
Ordinary - Involving Life Contingencies
Income Payable $9,975
=============
Group - Not Involving Life Contingencies
Amount on Deposit ----
Income Payable ----
=============
Group - Involving Life Contingencies
Income Payable ----
=============
ANNUITIES -- ORDINARY
Immediate - Amount of Income Payable $3,119
=============
Deferred - Fully Paid - Account Balance $388,585
=============
Deferred - Not Fully Paid - Account Balance $49,131
=============
ANNUITIES -- GROUP
Amount of Income Payable $18
=============
Fully Paid - Account Balance ----
=============
Not Fully Paid - Account Balance $300
=============
ACCIDENT AND HEALTH INSURANCE - PREMIUM IN FORCE:
Ordinary ----
=============
Group ----
=============
Credit ----
=============
DEPOSIT FUNDS AND DIVIDEND ACCUMULATIONS:
Deposits Funds - Account Balance $26,459
=============
Dividend Accumulations - Account Balance ----
=============
CLAIM PAYMENTS - YEAR ENDED DECEMBER 31, 1997:
Group Accident and Health
1997 ----
=============
1996 ----
=============
1995 ----
=============
Other Accident and Health
1997 ----
=============
1996 ----
=============
1995 ----
=============
Other Coverage that use developmental methods to calculate claims reserves
1997 ----
=============
1996 ----
=============
1995 ----
=============
</TABLE>
20
<PAGE> 89
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Part A: None.
Part B: Audited Financial Statements of the Registrant for the fiscal years
ended December 31, 1997 and 1996.
Audited Financial Statements of Acacia National Life Insurance Company
for the fiscal years ended December 31, 1997 and 1996.
Part C: None.
(b) Exhibits
(1) Resolution of the Board of Directors of Acacia National Life
Insurance Company ("ANLIC") authorizing establishment of the Acacia
National Variable Annuity Separate Account II. 1/
(2) N/A
(3) (A) Principal Underwriting Agreement.1/
(B) Form of Broker-Dealer Sales Agreement. 1/
(C) Commission Schedule. 1/
(4) Form of Annuity Policy. 1/
(5) Form of Application. 4/
(6) (A) Restated Articles of Incorporation of ANLIC. 2/
(B) By-Laws of ANLIC. 2/
(7) N/A
(8) (A) Participation Agreements. 1/
Oppenheimer 2/
(B) Form of Administration Agreement. 1/
Amendment dated May 30, 1996 3/
(9) Opinion and Consent of Ellen Jane Abromson, Esq. 4/
(10) (A) Consent of Jorden Burt Boros Cicchetti Berenson & Johnson
LLP. 4/
(B) Consent of Coopers & Lybrand L.L.P. 4/
(11) N/A
(12) N/A
(13) N/A
(14) Financial Data Schedules 4/
1/ Incorporated by reference to the initial filing of the Registration
Statement on Form N-4 (File No. 333-03963) filed on May 16, 1996.
2/ Incorporated by reference to the Post-Effective Amendment No. 3 to the
Registration Statement on Form S-6 (File No. 33- 90208) filed on May 1,
1997.
3/ Incorporated by reference to the Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File No. 333- 03963) filed on May 1,
1997.
4/ Filed herewith.
<PAGE> 90
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
POSITION(S) WITH DEPOSITOR LAST FIVE YEARS
-------------------------- --------------------
<S> <C>
CHARLES T. NASON (1) President and Chief Executive Officer since June
Chairman of the Board, President, 1988 Acacia Life Insurance Company.
Chief Executive Officer, and
Director
ROBERT-JOHN H. SANDS (1) Senior Vice President and General Counsel since 1991
Senior Vice President, General Counsel, Acacia Life Insurance Company.
and Director
ROBERT W. CLYDE (1) Executive Vice President, Marketing and Sales since
Executive Vice President, Marketing and Sales, September 1994 Acacia Life Insurance Company; Vice
and Director President, Retail Long-Term Care September 1993
until August 1994, Vice President, General Agency
July 1991 until August 1993, John Hancock Mutual
Life; Managing General Agent March 1989 until July
1991, Mutual Benefit Life Insurance Company
PAUL L. SCHNEIDER (1) Senior Vice President, Chief Financial Officer since
Senior Vice President, Chief Financial Officer, March 1989, Chief Investment Officer since April
Chief Investment Officer and Director 1997; Vice President, Financial Analysis April 1988
to March 1989 Acacia Life Insurance Company.
HALUK ARITURK (1) Senior Vice President, Operations and Chief Actuary
Senior Vice President, Operations, since June 1989 Acacia Life Insurance Company.
Chief Actuary, and Director
</TABLE>
(1) The principal business address of each person listed is Acacia National
Life Insurance Company, 7315 Wisconsin Avenue, Bethesda, Maryland 20814.
C - 2
<PAGE> 91
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
[ORGANIZATIONAL CHART]
1) AIMCo, a subsidiary of AFC, merged into its affiliate CAMCo 2-29-88
2) AESCo, a subsidiary of AFC, merged into its affiliate CSC 12-29-89
3) AISCo, a subsidiary of AFC, merged into its parent AFC 8-1-91
4) AIMC, a subsidiary of AFSB, dissolved 9-4-91
5) AFC, a subsidiary of AMLIC, a 1994 DC Corporation merged into AFC, a MD
Corporation organized in 1991
6) CSC changed its name to the Advisors Group, Inc. 3-1-95
7) The Advisors Group, Inc. reorganized under AFC 3-31-95
8) Griffin Realty Corporation changed its name to Acacia Realty Corporation
5-24-95
9) Enterprise Resources, Inc. reorganized into LLC 12/31/97
* Investment Advisor to the following funds:
1) First Variable Rate Fund for Government Income
2) Calvert Tax-Free Reserves
3) Calvert Social Investment Fund
4) Calvert Cash Reserves (d/b/a Money Management Plus)
5) The Calvert Fund
6) Calvert Municipal Fund, Inc.
7) Calvert World Values Fund, Inc.
8) Calvert Variable Series, Inc.
** Investment Advisor to the following fund:
1) Calvert New World Fund
*** TAG controls the corporation through a Voting Trust Agreement with
shareholders
C - 3
<PAGE> 92
ITEM 27. NUMBER OF POLICY OWNERS
As of March 31, 1998 there were 590 holders of Policies offered by the
Registrant.
ITEM 28. INDEMNIFICATION
Article VII of ANLIC's By-Laws provides, in part:
SECTION 2 INDEMNIFICATION. In the event any action, suit or proceeding is
brought against a present or former Director, elected officer, appointed officer
or other employee because of any action taken by such person as a Director,
officer or employee of the Company, the Company shall reimburse or indemnify him
for all loss reasonably incurred by him in connection with such action to the
fullest extent permitted by Section 13.1-3.1 of the Code of Virginia, as is now
or hereafter amended, except in relation to matters as to which such person
shall have been finally adjudged to be liable by reason of having been guilty of
gross negligence or willful misconduct in the performance of duties as such
director, officer or employee. In case any such suit, action or proceeding shall
result in a settlement prior to final judgment and if, in the judgment of the
Board of Directors, such person in taking the action or failing to take the
action complained of was not grossly negligent or guilty of wilful misconduct in
the performance of his duty, the Company shall reimburse or indemnify him for
the amount of such settlement and for all expenses reasonably incurred in
connection with such action and its settlement. This right of indemnification
shall not be exclusive of any other rights to which any such person may be
entitled.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Directors, officers and controlling persons, or
otherwise, the Registrant has been advised that in the opinion of the SEC such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ANLIC Officers and Directors are covered under a Fidelity Bond issued by Chubb
Group of Insurance Companies with an aggregate limit of $8,000,000, a single
loss limit of $4,000,000, and a deductible of $50,000.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The Advisors Group, Inc. is the principal underwriter of the Policies
as defined in the Investment Company Act of 1940, and is also the principal
underwriter for the following investment companies:
<TABLE>
<CAPTION>
INVESTMENT COMPANY PRODUCT
- ------------------ -------
<S> <C>
Acacia National Variable Life Individual Flexible Premium
Insurance Separate Account I Variable Life Insurance
</TABLE>
(b) The following table sets forth certain information regarding directors and
officers of The Advisors Group:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
- ----------------- ----------------
<S> <C>
Charles T. Nason Chairman of the Board
Robert W. Clyde Director
Robert-John H. Sands Director
Jeffrey W. Helms Vice Chairman of the Board, President and Chief Executive Officer
Joseph Thomas Vice President and Chief Operating Officer
Victor M. Frye Vice President and Counsel
Leona Glowicz Vice President, Tax and Treasurer
Scott A. Grebenstein Vice President, Product Development
M. Catherine Hill Secretary
Todd D. Green Assistant Secretary
</TABLE>
C - 4
<PAGE> 93
* The principal business address of each person listed is:
The Advisors Group, Inc.
7315 Wisconsin Avenue
Bethesda, Maryland 20814
(c) Commissions Received by Each Principal Underwriter from the Registrant
during the Registrant's Last Fiscal Year
<TABLE>
<CAPTION>
NET UNDERWRITING COMPENSATION
NAME OF PRINCIPAL DISCOUNTS AND ON
UNDERWRITER COMMISSIONS REDEMPTION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
The Advisors Group, (N/A) (N/A) (N/A) (N/A)
Inc.
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of
the 1940 Act and the rules under it are maintained by ANLIC at its Service
Office, P.O. Box 79574, Baltimore, MD 21270-0574, and at its Principal Office,
7315 Wisconsin Avenue, Bethesda, Maryland 20814.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a Post-Effective Amendment to
this Registration Statement as frequently as necessary to ensure that
the audited financial statements in the Registration Statement are never
more than 16 months old for so long as payments under the variable
annuity contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written communication affixed
to or included in the Prospectus that the applicant can remove to send
for a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this
Form promptly upon written or oral request to ANLIC at the address or
phone number listed in the Prospectus.
STATEMENT PURSUANT TO RULE 6c-7
ANLIC and the Variable Account rely on 17 C.F.R. Sections 270.6c-7 and
represent that the provisions of that Rule have been or will be complied with.
Accordingly, ANLIC and the Variable Account are exempt from the provisions of
Sections 22(e), 27(c)(1) and 27(d) of the Investment Company Act of 1940 with
respect to any variable annuity contract participating in such account to the
extent necessary to permit compliance with the Texas Optional Retirement
Program.
SECTION 403(b) REPRESENTATIONS
ANLIC represents that it is relying on a no-action letter dated November
28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88) regarding
Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in
connection with redeemability restrictions on Section 403(b) policies, and that
paragraphs numbered (1) through (4) of that letter will be complied with.
C - 5
<PAGE> 94
SECTION 26(e)(2)(A) REPRESENTATIONS
Pursuant to Section 26 (e)(2)(A) of the Investment Company Act of 1940,
as amended, ANLIC represents that the fees and charges deducted under the
Policy, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred and the risks assumed by ANLIC.
C - 6
<PAGE> 95
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, Acacia National Variable Annuity Separate Account II,
certifies that it meets the requirements of Securities Act Rule 485 (b) for
effectiveness of this registration statement and has duly caused this
registration statement to be signed on its behalf in the City of Bethesda, in
the State of Maryland, on the 29th day of April, 1998.
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
By: /s/ Ellen Jane Abromson
----------------------------------------------
Ellen Jane Abromson
Second Vice President and Associate Counsel
By: ACACIA NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ Ellen Jane Abromson
----------------------------------------------
Ellen Jane Abromson
Second Vice President and Associate Counsel
Attest: /s/ Todd D. Green
------------------------------
Todd D. Green
Assistant Secretary
<PAGE> 96
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in their capacities with the depositor
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Charles T. Nason Chairman of the Board, President, April 29, 1998
- ---------------------------- Chief Executive Officer, and
Charles T. Nason Director
/s/ Robert W. Clyde Executive Vice President, Marketing April 29, 1998
- ---------------------------- and Sales, and Director
Robert W. Clyde
/s/ Paul L. Schneider Senior Vice President, Chief April 29, 1998
- ---------------------------- Financial Officer, Chief Investment
Paul L. Schneider Officer, and Director
/s/ Robert-John H. Sands Senior Vice President, General April 29, 1998
- ---------------------------- Counsel, and Director
Robert-John H. Sands
/s/ Haluk Ariturk Senior Vice President, Operations, April 29, 1998
- ---------------------------- Chief Actuary, and Director
Haluk Ariturk
</TABLE>
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
(5) Form of Policy Application
(9) Opinion and Consent of Ellen Jane Abromson
(10)(A) Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP
(B) Consent of Coopers & Lybrand L.L.P.
24(b)(14) Financial Data Schedules
</TABLE>
<PAGE> 1
[LOGO] THE ACACIA GROUP
Acacia National Life [LOGO] ALLOCATOR No.
7513 Wisconsin Ave. ------
Bethesda, MD 20814 2000(REGISTERED) ANNUITY
(301) 280-1000
ALLOCATOR 2000 ANNUITY APPLICATION
Please Print Using Dark Ink
================================================================================
OWNER'S NAME
- --------------------------------------------------------------------------------
Last First Middle
- --------------------------------------------------------------------------------
Number & Street
- --------------------------------------------------------------------------------
City State Zip
- -------- -------------------- ------- -----------------------------------
Age Date of Birth Sex Social Security Number
OWNER IS: Individual Corporation Other
------- ------- ------- -----------------
Trust (Date of Trust Agreement)
- ----- ---------------------------
ANNUITANT (If different from Owner)
- --------------------------------------------------------------------------------
Last First Middle
- --------------------------------------------------------------------------------
Number & Street
- --------------------------------------------------------------------------------
City State Zip
- -------- -------------------- ------- -----------------------------------
Age Date of Birth Sex Social Security Number
Relationship to Owner
----------------------------------------------------------
JOINT ANNUITANT (Optional)
- --------------------------------------------------------------------------------
Last First Middle
- -------- -------------------- ------- -----------------------------------
Age Date of Birth Sex Social Security Number
Relationship to Owner
----------------------------------------------------------
BENEFICIARY DESIGNATION: (Beneficiary in the event of Owner's
Death; Provide SSN# if available)
<PAGE> 2
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
Primary Beneficiary(ies):
-------------------------------------------------------
- --------------------------------------------------------------------------------
Secondary Beneficiary(ies):
-----------------------------------------------------
- --------------------------------------------------------------------------------
(Survivors of each class share equally unless otherwise designated) The Owner
has the right to change the Beneficiary(ies) unless indicated above or otherwise
restricted by law.
PREMIUM PAYMENTS:
I would like to make a premium payment of $ ; and then I would like to
-----------
pay subsequent premium payment of $ at the following frequency:
-----------
Amount
Annual Semi-Annual Quarterly Monthly CAM Other
- ---- ---- ---- ---- ---- ----
Direct Bill (Must be checked to receive bills on a regular basis)
- ----
If CAM option is elected, please attach a void check and
choose Monthly Date: 7th 14th 21st
---- ---- ----
Make check payable to Acacia National Life Insurance Company
Deferred until age:
---------
(If no age is indicated, age 70 will be assumed for qualified plans and age 90
for non-qualified plans.)
STATE WHERE APPLICATION WAS COMPLETED:
---------------
REPLACEMENT:
Will this policy replace or change any existing life insurance or annuity
Yes No If yes, you MUST attach Replacement report.
- ---- ----
Page 2
<PAGE> 3
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
TAX STATUS OF ANNUITY: IRA ROTH IRA: (select one)
---- ----
Regular Rollover HR-10 TSA Pension Simple IRA
- ---- ---- ---- ---- ---- ----
Non-Qualified
- ----
If Qualified: Title of Plan:
----------------------------------------------------
Name of Any Trustee:
-----------------------------------------------------------
Percentage of Contribution made by:
--------------%
Employer
--------------%
Employee
SUITABILITY QUESTIONNAIRE
(Please provide us with the following information:)
1. Name of Spouse and dependents and dates of birth:
---------------------------
----------------------------------------------------------------------------
2. Annual Earned Income of Applicant:
-----------------------------------------,
Other income of Applicant
--------------------------------------------------;
Total other Assets:
---------------
Principal Residence Car(s)
------------------------- -------------------------
Stock(s) Bond(s)
----------------------------- -------------------------------
Money Market
----------------------
Checking and Savings Account
-----------------------------------------------
Life Insurance (cash value)
------------------------------------------------
Total Debts Total Net Worth
------------------------ ------------------------
What is your current annual tax bracket?
-----------------------------------%
3. Other retirement resources: (include annuities, permanent life insurance and
pensions, including whether fixed, variable or combinations, social security
or railroad retirement).
-----------------------------------------------------
----------------------------------------------------------------------------
Page 3
<PAGE> 4
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
4. Do you understand the insurance features of this product? Yes No;
------ ------
5. a) Will the purchase be funded by loans or surrender of another policy or
investment?
----------------------------------------------------------------
b) If replacing coverage, has your representative discussed the risks and
costs of replacement?
Not a replacement Yes Need more information
---- ---- ----
6. Have you received an Acacia National Flexible Premium Variable Annuity
Prospectus? Yes No; Date of Prospectus
---- ---- -----------------------------
7. What is your investment objective?
Preservation of Capital Income Growth Aggressive Growth
---- ---- ---- ----
Speculation Other
---- ---- --------------------------------------------------
8. Do you understand the Non-guaranteed nature of this policy, surrender
charges, and tax treatment as described in the prospectus?
-----------------
ALLOCATION OF PREMIUM PAYMENTS
Choose either I or II, Acacia National Variable Annuity allows you to choose
either the (I) Model Asset Allocation Program and its option or (II) Other
Directed Asset Allocation Program and its options.
I. I want to participate in the Model Asset Allocation Program (Quarterly
rebalancing is automatic.)
Yes If yes, please select one Portfolio A-J
----
Portfolio A Conservative (with International)
-------
Portfolio B Conservative-Moderate
(with International) -------
Portfolio C Moderate (with international)
-------
Page 4
<PAGE> 5
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
Portfolio D Moderate-Aggressive (with International)
-------
Portfolio E Aggressive (with International)
-------
Portfolio F Conservative (without International)
-------
Portfolio G Conservative-Moderate (without International)
-------
Portfolio H Moderate (without International)
-------
Portfolio I Moderate-Aggressive (without International)
-------
Portfolio J Aggressive (without International)
-------
Other
----------------------------------------------------------- -------
Optional:
Check here if systematic partial withdrawal is desired with the Model Asset
- ----
Allocation Program.
Indicate dollar amount to be withdrawn and frequency.
Start date:
$-------------- ---------
Amount
Taxes withheld: Yes No;
------- -------
Frequency of Withdrawals: Monthly Quarterly Semi-Annually Annually
--- --- --- ---
II. I want to participate in Owner Directed Asset Allocation Program Yes
-----
If yes, please choose no more than 10 accounts. Each selection must be
allocated at least 5% of the total premium. (No fractional Percentages are
allowed.)
______% General Account (#201)
______% Alger American Growth Portfolio (#205)
______% Alger American Mid Cap Growth Portfolio (#206)
Page 5
<PAGE> 6
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
_____% Alger American Small Capitalization Portfolio (#207)
_____% Calvert Social Money Market Portfolio (#202)
_____% Calvert Social Balanced Portfolio (#203)
_____% Calvert Social Small-Cap Growth Portfolio (#204)
_____% Calvert Social Mid-Cap Growth Portfolio (#216)
_____% Calvert Social International Equity Portfolio (#217)
_____% Dreyfus Stock Index Fund (#208)
_____% Neuberger & Berman Advisers Management
Trust Limited Maturity Bond Portfolio (#209)
_____% Neuberger & Berman Advisers Management
Trust Growth Portfolio (#210)
_____% Oppenheimer High Income Fund (#218)
_____% Oppenheimer Capital Appreciation Fund (#219)
_____% Oppenheimer Growth Fund (#220)
_____% Oppenheimer Growth and Income Fund (#221)
_____% Oppenheimer Strategic Bond Fund (#222)
_____% Strong International Stock Fund II (#213)
_____% Strong Discovery Fund II (#214)
_____% Van Eck World Wide Hard Assets Fund (#215)
- ------------
100% TOTAL (MUST EQUAL 100%)
A. TRANSFER SCHEDULE (With Item A under Owner Directed asset Allocation you
may choose item 1 or 2)
You may select either Automatic Rebalancing Or Dollar Cost Averaging
(not both):
1. Automatic Rebalancing I elect Automatic rebalancing
-----
Page 6
<PAGE> 7
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
Indicate frequency, (Unless otherwise specified, quarterly will be chosen)
Rebalancing will occur based on selections you have allocated. This option
shall not apply to the Fixed Account.
Frequency: Monthly Quarterly Semi-Annually Annually
---- ---- ---- ----
OR
2. Dollar Cost Averaging I elect Dollar Cost Averaging
--------
Frequency (choose one or if left blank the default is monthly)
Monthly Quarterly Semi-Annually Annually
---- ---- ---- -----
Please transfer from the Money Market Account (minimum transfer amount is $50
per sub-account):
Amount to be Account to which transferred
Transferred (for Dollar Cost Averaging only)
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
Amount to be Account to which transferred
Transferred (for Dollar Cost Averaging only)
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
Transfer to be effective on . If no date given it will become effective
--------
on next monthly anniversary. Dollar Cost Averaging will continue until
notification is received to cancel or money market account contains less than
the required minimum transfer amount.
Page 7
<PAGE> 8
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
If you have selected Owner Directed Asset Allocation, you may also choose from
the following options:
B. SYSTEMATIC PARTIAL WITHDRAWAL. Indicate dollar
----- amount to be withdrawn and frequency.
$ Start Date:
-------------- ----------------
Amount
Taxes Withheld: Yes No
----- -----
Frequency: Monthly Quarterly Semi-Annually Annually
--- --- --- ---
C. ____ INTEREST SWEEP
Interest sweep allows you to transfer interest from the fixed account
(#201) to the variable sub- accounts on a periodic basis. Indicate
the percentage of interest and the sub-accounts to which the interest
shall be allocated. (You may transfer interest to sub-accounts
different from those chosen under your Owner Directed Asset
Allocation Program.) (Sweep must add up to 100%). Indicate frequency,
percentage and sub-account.
Frequency: Monthly Quarterly Semi-Annually Annually
--- --- --- ---
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
$ sub-account
---------- -----------------
Page 8
<PAGE> 9
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
Telephone Transfer Authorization
By initializing this box, the Owner gives the Registered Representative/
- ------
Agent of Record the authority to transfer account values among the subaccounts
and the fixed account. This authorization is subject to the terms and provisions
in the contract and prospectus.
Acacia National, its agents and employees shall not be liable for any loss,
liability or expense incurred or sustained by reason of (i) Acacia National's
good faith reliance upon a telephone call which purports to have been initiated
by such third party requesting a transfer transaction, or (ii) for failure to
honor one or more transfer requests due to such requests failing to comply with
terms, conditions, limitations of the prospectus or this agreement.
CONSENT FOR ELECTRONIC DELIVERY
By initializing here the owner consents to receive the Acacia
----------
National Annual Prospectus dated May 1st of the Prospective year and all
subsequent prospectus amendments thereto, semi-annual and annual reports
electronically in lieu of paper version.
I would like to receive delivery:
On diskette
----
Or
Via E-Mail - My E-Mail address is:
---- -----------------------------------
Page 9
<PAGE> 10
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
AGREEMENT
I represent, to the best of my knowledge and belief, statements made in the
application are complete, true and correctly recorded. I agree that:
1. This application and any required supplements shall be the application and
become part of the annuity policy applied for.
2. Upon Company approval of the application and payment of the premium, the
annuity policy shall immediately become effective and the payment will
become the absolute property of the Company. There shall be no refund of
the premium or any other payment made under the policy except in
accordance with its terms.
3. If proof of age is not given with this application, the Annuitant(s) will
furnish the Company with proof satisfactory to it, before annuity payments
begin.
4. No agent has the right to modify any policy issued on the basis of this
application or extend the time of payment for any premium. Notice to or
knowledge of the agent is not notice to or knowledge of the company.
5. As required by law under penalties of perjury, I certify that (1) the
Social Security or other Taxpayer Identification Number (TIN) provided on
this form is my correct TIN, and (2) that I am not subject to backup
withholding as a result of a failure to report all interest dividends, or
(b) IRS had notified me that I am no longer subject to backup withholding.
(Please strike out clause (2) if you are currently under notification).
6. I/WE BELIEVE THIS POLICY WILL MEET MY/OUR FINANCIAL OBJECTIVES.
Page 10
<PAGE> 11
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
7. I/WE UNDERSTAND THAT POLICY VALUES MAY INCREASE OR DECREASE DEPENDING ON
THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNTS.
8. ACCUMULATED VALUES UNDER THE VARIABLE ACCOUNTS ARE NOT GUARANTEED AS TO
DOLLAR AMOUNTS; NO MINIMUM VALUE IS GUARANTEED.
Date:
-------------------
Month/Day/Year
Signed at:
----------------------------------------------------------------------
City State
Authorized Signature
of Individual Owner:
------------------------------------------------------------
Signature of
Proposed Annuitant:
-------------------------------------------------------------
(if not Owner and must be over age 18)
Registered
Representative
------------------------------------------------------------------
(Witness to all Signatures)
Signature of Proposed
Joint Owner:
--------------------------------------------------------------------
(Optional - must be spouse of Owner)
Warning: Any person who knowingly, and with intent to injure, defraud or deceive
any insurer, makes any claim for the proceeds of any annuity containing
any false, incomplete or misleading information may be guilty of a
felony.
Page 11
<PAGE> 12
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity -----
Please Print Using Dark Ink
REGISTERED REPRESENTATIVE INFORMATION
Deposit Amount $ Existing TAG Account #
------------- ---- --------------------
<TABLE>
<S> <C> <C> <C> <C>
Agency # Registered Representative Schedule Percent Broker/Dealer or Name/Code
A or B
- -------- ------------------------- --- --- ------- --------------------------
Agency # Registered Representative Schedule Percent Broker/Dealer or Name/Code
A or B
- -------- ------------------------- --- --- ------- --------------------------
Agency # Registered Representative Schedule Percent Broker/Dealer or Name/Code
A or B
- -------- ------------------------- --- --- ------- --------------------------
</TABLE>
Page 12
<PAGE> 13
[LOGO] Acacia National Life Insurance Company No.
Application for a Flexible Premium Variable Annuity ------
Please Print Using Dark Ink
<TABLE>
<S> <C> <C> <C> <C>
Agency # Registered Representative Schedule Percent Broker/Dealer or Name/Code
A or B
- -------- ------------------------- --- --- ------- --------------------------
</TABLE>
(1) Is this personal business (account manager or immediate family) for
account receiving credit?
Yes No
----- -----
(2) To the best of your knowledge does the policy applied for involve
replacement as defined under applicable state regulation?
Yes No
----- -----
(3) If the answer to number 2 was yes, have you attached the required
replacement report?
Yes No
----- ----- If no explain:
---------------------------------------
(4) Registered Representative Signature
---------------------------------------
(5) Comments:
----------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Page 13
<PAGE> 14
[LOGO] Acacia National Life Insurance Company
TEMPORARY RECEIPT - To be given to Applicant for Payment Made to Account
Manager.
Received from the sum of $ as a deposit to be
----------------------- ----------
transmitted to the Company's Principal Office in connection with an application
dated for an Annuity on the life or lives of
-------------- --------------------
. Should the application not be
- -------------------------------------------------
approved by the Company, the deposit will be returned upon surrender of this
receipt.
This is a temporary receipt only. If you do not hear from the company in
relation to the proposed policy within thirty days, notify the Company at 7315
Wisconsin Ave. Bethesda, MD 20814.
If this deposit check is a draft, the amount of the deposit shall be considered
as paid only if such check or draft is honored in the usual course of collection
and such amount is unconditionally credited to the Company.
ALL PREMIUM CHECKS MUST BE PAYABLE TO THE INSURANCE COMPANY - DO NOT MAKE CHECK
PAYABLE TO THE AGENT OR LEAVE THE PAYEE BLANK.
Page 14
<PAGE> 15
TWENTY DAY RIGHT TO EXAMINE POLICY:
You as owner may return this policy for any reason within twenty days after
receiving it. On written request, an insurer is required to provide the owner
within a reasonable time, reasonable factual information regarding the benefits
and provisions of the Variable Annuity Policy. If returned, the policy will be
considered void from the beginning and any premium will be refunded.
REGISTERED REPRESENTATIVES IN THE STATE OF ARIZONA
This notice must be removed and left with the
Proposed Insured.
Variable products distributed by
THE ADVISORS GROUP, INC.,
a registered broker/dealer of
THE ACACIA GROUP.
<PAGE> 1
OPINION AND CONSENT
April 29, 1998
Acacia National Life Insurance Company
7315 Wisconsin Avenue
Bethesda, Maryland 20814
Gentlemen:
With reference to the Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 (#333-03963), filed by Acacia National Life Insurance
Company and Acacia National Variable Annuity Separate Account II with the
Securities and Exchange Commission covering its flexible premium deferred
variable annuity policy, "Allocator 2000," I have examined such documents and
such law as I considered necessary and appropriate, and on the basis of such
examination, it is my opinion that:
1. Acacia National Life Insurance Company is duly organized and
validly existing under the laws of the Commonwealth of Virginia
and has been duly authorized to issue variable annuity policies
by the Corporation Insurance Commission of the Commonwealth of
Virginia.
2. Acacia National Variable Annuity Separate Account II is duly
authorized and existing separate account established pursuant to
the provisions of Section 38.2.3113 of the Code of Virginia.
3. The flexible premium deferred variable annuity policy, when
issued as contemplated by said Form N-4 Registration Statement,
will constitute legal, validly issued and binding obligations of
Acacia National Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to said
Post-Effective Amendment No. 2 to the Registration Statement and to the use of
my name under the caption "Legal Matters" in the Prospectus contained in the
Registration Statement.
Very truly yours,
/s/ Ellen Jane Abromson
Ellen Jane Abromson
2nd Vice President & Associate Counsel
Acacia National Life Insurance Company
<PAGE> 1
April 29, 1998
Acacia National Life Insurance Company
Acacia National Variable Annuity Separate Account II
7315 Wisconsin Avenue
Bethesda, Maryland 2-814
RE: ACACIA NATIONAL LIFE INSURANCE COMPANY
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
POST-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT ON
FORM N-4 (FILE NOS. 811-07627 AND 333-03963)
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus and Statement of Additional Information of Acacia
National Variable Annuity Separate Account II, a separate account of Acacia
National Life Insurance Company, contained in Post-Effective Amendment No. 2 to
the Registration Statement on Form N-4 (File Nos. 811-07627 and 333-03963) filed
by Acacia National Life Insurance Company and Acacia National Variable Annuity
Separate Account II with the Securities and Exchange Commission under the
Securities Act of 1933 and the Investment Company Act of 1940.
Very truly yours,
/s/ Jorden Burt Boros Cicchetti Berenson & Johnson LLP
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No.2 dated May 1, 1998
on Form N-4 (file Nos. 333-03963, 811-07627) of our report dated February 24,
1998, on our audit of the financial statements of Acacia National Life
Insurance Company as of and for the years ended December 31, 1997 and 1996 and
our report dated April 22, 1998 on our audit of the financial statements of
Acacia National Variable Annuity Separate Account II as of December 31, 1997
and for the year ended December 31, 1997 and the period from inception
on September 9, 1996 to December 31, 1996.We also consent to the reference to
our Firm under the caption "Experts".
Washington, D.C.
April 29,1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 1
<NAME> Large Cap Growth (underlying fund Alger American Growth)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,645,300
<INVESTMENTS-AT-VALUE> 1,813,578
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,813,578
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,813,578
<DIVIDEND-INCOME> 10,030
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 14,930
<NET-INVESTMENT-INCOME> (4,900)
<REALIZED-GAINS-CURRENT> 38,682
<APPREC-INCREASE-CURRENT> 171,097
<NET-CHANGE-FROM-OPS> 204,879
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44,591
<NUMBER-OF-SHARES-REDEEMED> 10,734
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,519,866
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 2
<NAME> Mid Cap Growth (underlying fund Alger American Mid Cap)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 720,612
<INVESTMENTS-AT-VALUE> 803,834
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 803,834
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 803,834
<DIVIDEND-INCOME> 9,045
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8,022
<NET-INVESTMENT-INCOME> 1,023
<REALIZED-GAINS-CURRENT> 5,524
<APPREC-INCREASE-CURRENT> 84,526
<NET-CHANGE-FROM-OPS> 91,073
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,790
<NUMBER-OF-SHARES-REDEEMED> 8,079
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 664,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 3
<NAME> Small Cap Growth (underlying fund Alger American Small Cap)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,393,909
<INVESTMENTS-AT-VALUE> 1,521,686
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,521,686
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,521,686
<DIVIDEND-INCOME> 41,086
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 13,620
<NET-INVESTMENT-INCOME> 27,466
<REALIZED-GAINS-CURRENT> 7,228
<APPREC-INCREASE-CURRENT> 127,659
<NET-CHANGE-FROM-OPS> 162,353
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,760
<NUMBER-OF-SHARES-REDEEMED> 10,787
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,243,167
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 4
<NAME> Social Balanced (underlying fund Calvert Variable Series, Inc.
Calvert Social Balanced)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 533,832
<INVESTMENTS-AT-VALUE> 518,034
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 518,034
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 518,034
<DIVIDEND-INCOME> 36,031
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2,310
<NET-INVESTMENT-INCOME> 33,721
<REALIZED-GAINS-CURRENT> 737
<APPREC-INCREASE-CURRENT> (15,137)
<NET-CHANGE-FROM-OPS> 19,321
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 263,096
<NUMBER-OF-SHARES-REDEEMED> 5,416
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 511,021
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 5
<NAME> Social Global Equity (fund underlying Calvert Variable Series,
Inc. Calvert Social International Equity)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 92,759
<INVESTMENTS-AT-VALUE> 84,509
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,509
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 84,509
<DIVIDEND-INCOME> 8,438
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 625
<NET-INVESTMENT-INCOME> 7,813
<REALIZED-GAINS-CURRENT> 508
<APPREC-INCREASE-CURRENT> (8,251)
<NET-CHANGE-FROM-OPS> 70
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,485
<NUMBER-OF-SHARES-REDEEMED> 44
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 84,509
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 6
<NAME> Social Managed Growth (underlying fund Calvert Variable Series,
Inc. Calvert Mid Cap Growth)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 101,334
<INVESTMENTS-AT-VALUE> 90,848
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 90,848
<DIVIDEND-INCOME> 9,408
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 344
<NET-INVESTMENT-INCOME> 9,064
<REALIZED-GAINS-CURRENT> 44
<APPREC-INCREASE-CURRENT> (10,486)
<NET-CHANGE-FROM-OPS> (1,378)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 3,421
<NUMBER-OF-SHARES-REDEEMED> 12
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 90,848
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 7
<NAME> Social Money Market (underlying fund Calvert Variable Series,
Inc. Calvert Social Money Market)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,219,988
<INVESTMENTS-AT-VALUE> 1,219,988
<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,219,988
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<SENIOR-LONG-TERM-DEBT> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,219,988
<DIVIDEND-INCOME> 64,961
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 19,061
<NET-INVESTMENT-INCOME> 45,900
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 45,900
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,257,067
<NUMBER-OF-SHARES-REDEEMED> 3,176,670
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,080,397
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 8
<NAME> Social Strategic Growth (underlying fund Calvert Variable
Series, Inc. Calvert Small Cap Growth)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 314,512
<INVESTMENTS-AT-VALUE> 303,034
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 303,034
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 303,034
<DIVIDEND-INCOME> 27,229
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2,999
<NET-INVESTMENT-INCOME> 24,230
<REALIZED-GAINS-CURRENT> (9,679)
<APPREC-INCREASE-CURRENT> (12,986)
<NET-CHANGE-FROM-OPS> 1,565
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,355
<NUMBER-OF-SHARES-REDEEMED> 7,938
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 247,142
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 9
<NAME> S & P 500 Index (underlying fund Dreyfus Stock Index)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 4,840,150
<INVESTMENTS-AT-VALUE> 5,462,674
<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,462,674
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,462,674
<DIVIDEND-INCOME> 120,071
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 46,643
<NET-INVESTMENT-INCOME> 73,428
<REALIZED-GAINS-CURRENT> 52,894
<APPREC-INCREASE-CURRENT> 652,827
<NET-CHANGE-FROM-OPS> 779,149
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 157,314
<NUMBER-OF-SHARES-REDEEMED> 20,214
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,940,805
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 10
<NAME> Income (underlying fund The Neuberger & Berman Advisors Bond)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,595,021
<INVESTMENTS-AT-VALUE> 2,649,323
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,649,323
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,649,323
<DIVIDEND-INCOME> 56,915
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 19,186
<NET-INVESTMENT-INCOME> 37,729
<REALIZED-GAINS-CURRENT> (27,270)
<APPREC-INCREASE-CURRENT> 53,453
<NET-CHANGE-FROM-OPS> 63,912
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 241,643
<NUMBER-OF-SHARES-REDEEMED> 78,703
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,302,445
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 11
<NAME> Growth (underlying fund The Neuberger & Berman Advisors Growth)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,259,288
<INVESTMENTS-AT-VALUE> 1,413,815
<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,413,815
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 1,413,815
<DIVIDEND-INCOME> 33,636
<INTEREST-INCOME> 0
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<EXPENSES-NET> 12,001
<NET-INVESTMENT-INCOME> 21,635
<REALIZED-GAINS-CURRENT> 25,296
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<NUMBER-OF-SHARES-SOLD> 44,687
<NUMBER-OF-SHARES-REDEEMED> 8,823
<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 12
<NAME> Aggressive Growth (underlying fund Oppenheimer Variable Account
Funds Aggressive Growth Fund)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 765,379
<INVESTMENTS-AT-VALUE> 756,016
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 756,016
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<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 756,016
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 3,007
<NET-INVESTMENT-INCOME> (3,007)
<REALIZED-GAINS-CURRENT> 5,186
<APPREC-INCREASE-CURRENT> (9,363)
<NET-CHANGE-FROM-OPS> (7,184)
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<NUMBER-OF-SHARES-SOLD> 20,769
<NUMBER-OF-SHARES-REDEEMED> 2,312
<SHARES-REINVESTED> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 13
<NAME> Balanced (underlying fund Oppenheimer Variable Account Funds
Growth & Income Fund)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 475,478
<INVESTMENTS-AT-VALUE> 492,500
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<TOTAL-ASSETS> 492,500
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<NET-ASSETS> 492,500
<DIVIDEND-INCOME> 1,487
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<OTHER-INCOME> 0
<EXPENSES-NET> 1,927
<NET-INVESTMENT-INCOME> (440)
<REALIZED-GAINS-CURRENT> 4,296
<APPREC-INCREASE-CURRENT> 17,322
<NET-CHANGE-FROM-OPS> 21,178
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<NUMBER-OF-SHARES-SOLD> 27,064
<NUMBER-OF-SHARES-REDEEMED> 3,133
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 492,500
<ACCUMULATED-NII-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 14
<NAME> Large Cap Growth (underlying fund Oppenheimer Variable Account
Funds Growth Fund)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,444,800
<INVESTMENTS-AT-VALUE> 1,457,619
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,457,619
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,457,619
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 6,077
<NET-INVESTMENT-INCOME> (6,077)
<REALIZED-GAINS-CURRENT> 6,345
<APPREC-INCREASE-CURRENT> 12,820
<NET-CHANGE-FROM-OPS> 13,088
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 47,935
<NUMBER-OF-SHARES-REDEEMED> 3,002
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,457,619
<ACCUMULATED-NII-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 15
<NAME> High Income (underlying fund Oppenheimer Variable Account Funds
High Income Fund)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<INVESTMENTS-AT-VALUE> 516,541
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<TOTAL-ASSETS> 516,541
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<NET-ASSETS> 516,541
<DIVIDEND-INCOME> 13,028
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<REALIZED-GAINS-CURRENT> 128
<APPREC-INCREASE-CURRENT> 1,385
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 16
<NAME> Managed Income (underlying fund Oppenheimer Variable Account
Funds Strategic Bond Fund)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 71,746
<INVESTMENTS-AT-VALUE> 71,526
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<EXPENSES-NET> 420
<NET-INVESTMENT-INCOME> 3,136
<REALIZED-GAINS-CURRENT> (15)
<APPREC-INCREASE-CURRENT> (220)
<NET-CHANGE-FROM-OPS> 2,901
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<NET-CHANGE-IN-ASSETS> 71,526
<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 17
<NAME> Income (underlying Strong Advantage Fund II)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 0
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<EXPENSES-NET> 259
<NET-INVESTMENT-INCOME> (259)
<REALIZED-GAINS-CURRENT> (173)
<APPREC-INCREASE-CURRENT> 93
<NET-CHANGE-FROM-OPS> (339)
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<NET-CHANGE-IN-ASSETS> (13,224)
<ACCUMULATED-NII-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 18
<NAME> Balance (underlying fund Strong Asset Allocation Fund II)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<RECEIVABLES> 0
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<NET-ASSETS> 0
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<INTEREST-INCOME> 0
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<NET-INVESTMENT-INCOME> 4,401
<REALIZED-GAINS-CURRENT> 41,997
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<DISTRIBUTIONS-OF-GAINS> 0
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<NET-CHANGE-IN-ASSETS> (81,705)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 19
<NAME> Aggressive Growth (underlying fund Strong Discovery Fund II)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 113,588
<INVESTMENTS-AT-VALUE> 128,147
<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128,147
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 128,147
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,174
<NET-INVESTMENT-INCOME> (1,174)
<REALIZED-GAINS-CURRENT> 1,415
<APPREC-INCREASE-CURRENT> 14,637
<NET-CHANGE-FROM-OPS> 14,878
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,490
<NUMBER-OF-SHARES-REDEEMED> 2,631
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 119,689
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 20
<NAME> International Growth (underlying fund Strong International
Stock Fund II)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,908,933
<INVESTMENTS-AT-VALUE> 2,451,925
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,451,925
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<NET-ASSETS> 2,451,925
<DIVIDEND-INCOME> 16,762
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<OTHER-INCOME> 0
<EXPENSES-NET> 23,821
<NET-INVESTMENT-INCOME> (7,059)
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<NET-CHANGE-FROM-OPS> (472,211)
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<NUMBER-OF-SHARES-SOLD> 260,664
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<NET-CHANGE-IN-ASSETS> 1,930,608
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001014792
<NAME> Acacia National Variable Annuity Separate Account II
<SERIES>
<NUMBER> 21
<NAME> Hard Assets / Metals (underlying fund Van Eck Worldwide
Hard Assets Fund)
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 571,653
<INVESTMENTS-AT-VALUE> 552,416
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<NET-ASSETS> 552,416
<DIVIDEND-INCOME> 5,569
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<EXPENSES-NET> 4,487
<NET-INVESTMENT-INCOME> 1,082
<REALIZED-GAINS-CURRENT> 823
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<NET-CHANGE-FROM-OPS> (19,736)
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<NUMBER-OF-SHARES-SOLD> 31,381
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</TABLE>
