As filed with the Securities and Exchange Commission on April 30, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
[x] Registration Statement Under the Securities Act of 1933
[x] Post-Effective Amendment No. 4 and
[x] Registration Statement Under the Investment Company Act of 1940
[x] Amendment No. 4
(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)
It is proposed that this filing will come effective:
[ ] immediately upon filing pursuant to paragraph (b)
[x] on May 1, 1999 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.
------------------------------------------------
<PAGE>
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
Caption(s) in the Statement
Item of Form N-4 Caption(s) in the Prospectus of Additional Information
- ---------------- ---------------------------- ---------------------------
PART A: INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page Cover page
2. Definitions Glossary of Defined Terms
3. Synopsis Questions and Answers About
Your Policy
4. Financial Condensed Financial
Information Information
5. General Description of ANLIC and the Variable
Registrant, Depositor and Account;
Portfolio Companies The Portfolios; Voting Rights;
Administration
6. Deductions Summary; Charges and Surrender Charge
Deductions; Calculation
The Portfolios
7. General Description of Summary; The Policy; Annuity General
Variable Annuity Contracts Payments; Voting Rights; Provisions;
Additional Information Fixed Account
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
i
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Caption(s) in the Statement
Item of Form N-4 Caption(s) in the Prospectus of Additional Information
- ---------------- --------------------------- ----------------------------
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and N/A
History
18. Services Administration Experts;
Distribution of the
Policies; Records
and Reports
19. Purchase of Securities Being Summary; The Policy General Provisions;
Offered Distribution
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
ii
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PROSPECTUS
THE DATE OF THIS PROSPECTUS IS: May 1, 1999
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
ISSUED BY
ACACIA NATIONAL LIFE INSURANCE COMPANY
7315 WISCONSIN AVENUE, BETHESDA, MARYLAND 20814
TELEPHONE: (301) 280-1000
This Prospectus describes information you should know before you purchase the
Allocator 2000 variable annuity. Please read it carefully.
The Allocator 2000 variable annuity is a contract between you and Acacia
National Life Insurance Company (ANLIC) where you agree to make payments to us
and we agree to make a series of payments to you at a later date. The Allocator
2000 is a flexible premium, tax-deferred, variable annuity offered to
individuals. It is:
- Flexible, because you may add payments at any time.
- Tax-deferred, which means you don't pay taxes until you take
payments out or until we start to make payments to you.
Variable, because the value of your annuity will fluctuate with the
performance of the underlying investments. After purchase, you allocate your
payments to "Sub-accounts" or subdivisions of our Variable Account, an account
that keeps that keeps your annuity assets separate from our company assets.
These Sub-accounts then purchase shares of mutual funds set up exclusively for
variable annuity or variable life insurance products. These mutual funds are not
the same mutual funds that you buy through your stockbroker or through a retail
mutual fund, but they have similar investment strategies and the same portfolio
managers as retail mutual funds. This annuity offers you funds with investment
strategies ranging from conservative to aggressive and you may pick those funds
that meet your investment style. The Sub-accounts and the funds are listed
below:
Large Cap Sub-account which purchases shares of Alger American Growth Portfolio
Mid Cap Sub-account which purchases shares of Alger American MidCap Growth
Portfolio
Small Cap Sub-account which purchases shares of Alger American Small
Capitalization Portfolio
Social Money Market Account Sub-account which purchases shares of Calvert Social
Money Market Portfolio
Social Strategic Growth Sub-account which purchases shares of Calvert Social
Small Cap Growth Portfolio
Social Managed Growth Sub-account which purchases shares of Calvert Social Mid
Cap Growth Portfolio
Social Global Sub-account which purchases shares of Calvert Social International
Equity Portfolio
Social Balanced Sub-account which purchases shares of Calvert Social Balanced
Portfolio
S&P 500 Index Sub-account which purchases shares of Dreyfus Stock Index Fund
Income Sub-account which purchases shares of Neuberger Berman Advisers
Management Trust Limited Maturity Bond Portfolio
Growth Sub-account which purchases shares of Neuberger Berman Advisers
Management Trust Growth Portfolio
Aggressive Growth Sub-account which purchases shares of Oppenheimer Aggressive
Growth Fund/VA
Large Cap Growth Sub-account which purchases shares of Oppenheimer Capital
Appreciation Fund/VA
Balanced Sub-account which purchases shares of Oppenheimer Main Street Growth &
Income Fund/VA
High Income Sub-account which purchases shares of Oppenheimer High Income
Fund/VA
Managed Income Sub-account which purchases shares of Oppenheimer Strategic Bond
Fund/VA
International Growth Sub-account which purchases shares of Strong International
Stock Fund II
Aggressive Growth Sub-account which purchases shares of Strong Discovery Fund II
Hard Assets/Metals Sub-account which purchases shares of Van Eck Worldwide Hard
Assets Fund
You also may allocate some or all of your payments to the "Fixed Account", which
pays an interest rate guaranteed for at least one year from the time the payment
is made. Payments put in the Fixed Account are not separated from our assets
like the assets of the Variable Account. (Continued on next page.)
iii
<PAGE>
You may not purchase a Policy if either you or the annuitant are 85 years old or
older before we receive your application. We will not accept additional premium
payments once the annuitant reaches age 75.
If you decide to buy this annuity, you should keep this prospectus for your
records. You may call us at 1-800- 369-9407 to get a Statement of Additional
Information, free of charge. The Statement of Additional Information contains
more information about this annuity and, like this prospectus, is filed with the
Securities and Exchange Commission. You should read the Statement of Additional
Information because you are bound by the Terms contained in it. We have included
the Table of Contents for the Statement of Additional Information on page 32.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THE INFORMATION IS TRUTHFUL OR COMPLETE. ANYONE WHO
REPRESENTS THAT THE SECURITIES AND EXCHANGE COMMISSION DOES THESE THINGS MAY BE
GUILTY OF A CRIMINAL OFFENSE.
This Prospectus and Statement of Additional Information can also be obtained
from the Securities and Exchange Commission's website (HTTP://WWW.SEC.GOV).
This annuity is not:
* a bank deposit
* federally insured
* endorsed by any bank or governmental agency
* available for sale in all states
Prospectus Dated: May 1, 1999
Statement of Additional Information Dated: May 1, 1999
iv
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TABLE OF CONTENTS
Page
GLOSSARY OF DEFINED TERMS.................................................iii
QUESTIONS AND ANSWERS ABOUT YOUR POLICY................................... 1
SUMMARY OF FEES AND CHARGES............................................... 4
PORTFOLIO ANNUAL EXPENSES................................................. 5
CONDENSED FINANCIAL INFORMATION........................................... 7
ANLIC AND THE VARIABLE ACCOUNT............................................ 9
Acacia National Life Insurance Company............................... 9
The Variable Account................................................. 9
THE PORTFOLIOS............................................................ 10
The Alger American Fund.............................................. 10
Calvert Variable Series, Inc......................................... 11
Dreyfus Stock Index Fund............................................. 12
Neuberger & Berman Advisers Management Trust......................... 13
Oppenheimer Varible Account Funds.................................... 13
Strong Variable Insurance Funds, Inc. and Strong Discovery Fund II... 14
Van Eck Worldwide Hard Assets Fund................................... 15
Risks Attendant to Investments in Junk Bonds......................... 16
Risk Attendant to Investments in Foreign Securities.................. 16
Investment Advisory.................................................. 16
Resolving Material Conflicts......................................... 17
The Fixed Account.................................................... 18
The Policy........................................................... 18
Issuance of a Policy................................................. 18
Telephone Requests................................................... 18
Free Look Period..................................................... 19
Premium Payments..................................................... 19
Allocation of Premium Payments....................................... 19
Policy Account Value................................................. 19
Surrender and Partial Withdrawals.................................... 20
Transfers............................................................ 21
Automatic Rebalancing, Dollar Cost Averaging,
and Interest Sweep Programs....................................... 21
Death Benefit........................................................ 22
Required Distributions............................................... 23
CHARGES AND DEDUCTIONS.................................................... 23
Annual Policy Fee.................................................... 23
Administrative Expense Charge........................................ 24
Mortality and Expense Risk Charge.................................... 24
Surrender Charge..................................................... 24
Premium Taxes........................................................ 25
Federal Taxes........................................................ 26
Fund Expenses........................................................ 26
Reduction In Charges For Certain Groups.............................. 26
ANNUITY PAYMENTS.......................................................... 26
Election of an Annuity Payment Option................................ 26
Maturity Date........................................................ 26
Available Options.................................................... 26
Annuity Payment Options.............................................. 27
FEDERAL TAX MATTERS........................................................ 27
Introduction......................................................... 27
Taxation of Annuities in General..................................... 28
ANNUITY OWNERS THAT ARE NONRESIDENT ALIENS OR
FOREIGN CORPORATIONS...................................................... 30
VOTING RIGHTS............................................................. 30
PERFORMANCE DATA.......................................................... 31
PUBLISHED RATINGS......................................................... 31
LEGAL PROCEEDINGS......................................................... 32
FINANCIAL STATEMENTS...................................................... 32
ADMINISTRATION............................................................ 32
PREPARATIONS FOR THE YEAR 2000............................................ 32
POLICY REPORTS............................................................ 33
STATE REGULATION.......................................................... 33
EXPERTS................................................................... 33
LEGAL MATTERS............................................................. 33
ADDITIONAL INFORMATION.................................................... 33
STATEMENT OF ADDITIONAL INFORMATION....................................... 34
v
<PAGE>
Throughout this Prospectus, the words "us", "we", "our", and "ANLIC" refer to
Acacia National Life Insurance Company, and the words "you", "your", and "Owner"
refer to the policy owner.
GLOSSARY OF DEFINED TERMS
ACCUMULATION PERIOD The period between the Policy Date
and the Maturity Date and during the
lifetime of the Owner.
ACCUMULATION UNIT Unit of measure that is used to
calculate the value of the Policy prior to
the Maturity Date.
ACCUMULATION UNIT VALUE The value of each Accumulation Unit is
calculated on each Valuation Date.
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 to receive
payments at the death of the owner.
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.
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.
vi
<PAGE>
INVESTMENT OPTIONS The Fixed Account and the Sub-accounts
which invest in Portfolios described in
the Fund prospectuses.
IRREVOCABLE BENEFICIARY A Beneficiary or Beneficiaries whose
interest cannot be changed without,
his, her, or their consent or as required by
law.
MATURITY DATE The date upon which Annuity Payments
begin. You may choose a Maturity Date no
later than the first day of the calendar
month after the Annuitant's 90th birthday.
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 The flexible premium variable annuity
offered by ANLIC and described in this
prospectus.
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 the
Funds, a mutual fund in which the Variable
Account invests. Portfolio also will be used
to refer to the Sub-account that invests in
the corresponding Portfolio.
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.
SUB-ACCOUNT A subdivision of the Variable Account. Each
Sub-account is invested in shares of a
specified Portfolio of the Funds.
vii
<PAGE>
SURRENDER CHARGE A charge measured as a percent of
premium and based upon Policy Anniversaries,
which may be imposed upon a partial
withdrawal, surrender or distribution of the
proceeds.
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
WITHDRAWAL a level dollar amount of Policy Account
Value on a periodic basis. Systematic
Partial Withdrawals are subject to the
same Surrender Charges as partial
withdrawals, as set forth on the
Specifications Page of the Policy.
VALUATION DATE Each day 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 established by ANLIC
to receive and invest the Net Premium
Payments paid under the Policy.
VARIABLE ACCOUNT VALUE The sum of the values held on your behalf in
all the Sub-accounts of the Variable
Account.
viii
<PAGE>
Questions and Answers About Your Policy
The following summary is intended to highlight the most important features of an
Allocator 2000 Annuity that you, should consider. You will find more detailed
information in the main portion of the prospectus. As you review this Summary,
take note of the terms that appear in italics. Each italicized term is defined
in the Glossary of Defined Terms that begins on page VI of this prospectus. This
summary and all other parts of this prospectus are qualified in their entirety
by the terms of the Allocator 2000 Annuity Policy, which is available upon
request from ANLIC.
Who is the issuer of an Allocator 2000 Annuity?
ANLIC is the issuer of each Allocator 2000 Annuity. ANLIC enjoys a rating of A
(Excellent) from A.M. Best Company, a firm that analyzes insurance carriers. A
stock life insurance company organized in Virginia, ANLIC is a wholly owned
subsidiary of Acacia Life Insurance Company which is, in turn, a second tier
subsidiary of Ameritas Acacia Mutual Holding Company (page 9).
How do I purchase the Allocator 2000 Annuity?
You must complete our application form and submit it to us for approval with
your first Premium Payment. Acceptance is subject to our rules, and we reserve
the right to reject any application or Premium Payment. The Policy can be
purchased with a minimum Premium Payment of $300 the first year. Additional
Premium Payments must be at least $30.00. If you wish to make automatic monthly
payments into your annuity, you may enroll in our pre-authorized checking
account program (CAM). Under this program, monthly Premium Payments will be
deducted from your checking account.
After you've purchased the Policy, you have a right to a "free look" which gives
you 10 days to change your mind without the imposition of a Surrender Charge. If
you decide you don't want the policy, we will void the policy and refund the
Policy Account Value (or the Premium Payments made to that point where required
by state law).
What is an individual flexible premium deferred variable annuity policy?
The Policy is an individual flexible premium deferred variable annuity. It is
designed for tax-deferred retirement investing by individuals. The Policy is
available for both qualified and non-qualified retirement plans. As a deferred
annuity it has two time periods, the Accumulation Period and the time period
after the Maturity Date. During the Accumulation Period earnings accumulate on a
tax-deferred basis and are taxed as income when withdrawn. During the time
period after the Maturity Date and during the lifetime of the Annuitant, you
receive payments under the Annuity Payment Option selected.
Your Policy is "variable" because the Policy Account Value is not guaranteed.
The Policy Account Value will vary with your investment experience. The Policy
Account Value on the Maturity Date along with the payment option chosen will be
used to determine the amount of your annuity payments.
How will my Policy Account Value be determined?
Your Premium Payments are invested in one or more of the Sub-accounts of the
Variable Account or allocated to the Fixed Account, as you instruct us. Your
Policy Account Value is the sum of the values of your interests in the
Sub-accounts of the Separate Account, plus the value in the Fixed Account. Your
Policy Account Value will depend on the investment performance of the
Sub-accounts, and the amount of interest we credit to the Fixed Account, as well
as the Net Premium Payments, partial withdrawals, and charges assessed. Each
Sub-account will invest in a single investment portfolio of a mutual fund. These
Portfolios offer a wide range of investment options from conservative to
aggressive and from Government Bond to international. You bear the entire
investment risk on your Variable Account Value. The investment strategies and
risks of each Portfolio are described in the accompanying prospectuses for the
Portfolios.
What Annuity Payment Options does the Contract Offer?
1
<PAGE>
You have the right to elect or change any of the Annuity Payment Options listed
below, any time before the Maturity Date, or elect to receive a lump sum:
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 you designate. You may elect to have no guaranteed period or a
guaranteed period of 5, 10, or 25 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.
You may select the date to annuitize the contract. A Maturity Date may be the
first day of any calender month. However, you must begin to take payments by the
first full calendar month after the Annuitant's 90th birthday. If you fail to
give us a Maturity Date, we will assume a Maturity Date of the first day of the
calendar month of the Annuitant's 90th birthday. 2
<PAGE>
What are my charges and deductions under the Policy?
Annual Policy Fee. On each Policy Anniversary, we will deduct an annual Policy
Fee of $42.00 which partially compensates us for the costs of maintaining the
Policy. This charge is waived if the Policy Account Value exceeds $50,000 at the
time the Annual Policy Fee would be imposed. (Page 22).
ANLIC will deduct a daily Administrative Expense Charge from the value of the
net assets of the Variable Account. This charge will not exceed 0.10% annually.
No Adminstrative Expense Charge is deducted from the amount in the Fixed
Account. (Page 22)
Mortality and Expense Risk Charge. ANLIC will deduct a daily Mortaility and
Expense Risk Charge from the value of the net assets of the Variable Account.
For the first 15 years of your Policy, this charge is at the rate of 1.25%
annually. Beginning in the 16th Policy year, this charge is reduced by 0.05%
annually until it reaches 0.50% annually in Policy year 30; the rate remains
level thereafter. No Mortality and Expense Risk Charge will be deducted from the
amount in the Fixed Account.
Surrender Charge. The Surrender Charges will vary depending upon the number of
Policy Anniversaries that have passed since the Receipt of Premium Payments
(Page 23).
3
<PAGE>
Policy Anniversaries Since Receipt Surrender Charge
of Premium Payment Rate
- ---------------------------- -----------------
0 8%
1 8%
2 8%
3 6%
4 4%
5 or more None
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.
Investment Advisory Fee. Policy Owners who choose to allocate Net Premiums to
one or more of the Sub-accounts will also bear a pro rata share of the
Investment advisory fee paid by each of the investment portfolios in which the
various Sub-accounts invest. No such fees are assessed against amounts in the
Fixed Account (page 24).
How does the investment component of my Allocator 2000 Policy work?
ANLIC has established the Variable Account, which is separate from all other
assets of ANLIC, as a vehicle to receive and invest premiums received from
Allocator 2000. The Variable Account is divided into separate Sub-accounts. Each
Sub-account invests exclusively in shares of one of the investment portfolios
available through Allocator 2000. In the inital application Each Policyowner may
allocate Net Premiums to one or more Investment Options. In the initial
application. These allocations may be changed, without charge, by notifying
ANLIC's Service Office. The aggregate value of your interests in the
Sub-accounts and the Fixed Account will represent the Policy Account Value of
your Allocator 2000 Policy (page 18).
What investment options are available through the Allocator 2000 Policy?
The Investment Options available through Allocator 2000 include 19 investment
portfolios, each of which is a separate series of a mutual fund from: The Alger
American Fund; Calvert Variable Series, Inc.; Dreyfus Stock Index Fund;
Neuberger Berman Advisers Management Trust; Oppenheimer Variable Account Funds;
Strong Variable Insurance Funds, Inc.; and Van Eck Worldwide Insurance Trust.
These Portfolios are:
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
Calvert Social Money Market Portfolio
Calvert Social Small Cap Growth Portfolio
Calvert Social Mid Cap Growth Portfolio
Calvert Social International Equity Portfolio
Calvert Social Balanced Portfolio
Dreyfus Stock Index Fund
Neuberger Berman Advisers Management Trust Limited Maturity Bond Portfolio
Neuberger Berman Advisers Management Trust Growth Portfolio
Oppenheimer Aggressive Growth Fund/VA
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer High Income Fund/VA
Oppenheimer Strategic Bond Fund Strong/VA
International Stock Fund II
Strong Discovery Fund II
Van Eck Worldwide Hard Assets Fund
4
<PAGE>
Details about the investment objectives and policies of each of the available
investment Portfolios, including management fees and expenses, begin on page 10
of this prospectus. You may also elect to allocate Net Premium Payments to
ANLIC's Fixed Account (page 18).
Are there any risks involved in owning an Allocator 2000 Policy?
Yes. Over the life of your Allocator 2000 Policy, the Sub-accounts to which you
allocate your premiums will fluctuate with changes in the stock market and
overall economic factors. These fluctuations will be reflected in the Variable
Account Value of your Allocator 2000 Policy and may result in loss of principal.
For this reason, the purchase of an Allocator 2000 Policy may not be suitable
for all individuals. It may not be advantageous to purchase an Allocator 2000
Policy for retirement or other long-term capital accumulation purposes.
What is the Death Benefit under the Policy ?
The Policy provides a Death Benefit if you (Owner) or a Joint Owner dies before
the Maturity Date while the Policy is in force. The Death Benefit is guaranteed
not to be less than the greater of the Policy Account Value or the cumulative
premium payments you have made less the cumulative withdrawals you have taken.
In addition, up to Owner age 75 we guarantee that the Death Benefit will not be
less than the Minimum Guaranteed Death Benefit which is described later in this
prospectus (Page 20 ).
Who can I contact for more information concerning the Allocator 2000 Annuity?
You can contact your Registered Representative or you can write to us at our
Service Office, Acacia National Life Insurance Company, P.O. Box 79574,
Baltimore, MD 21279-0574 or telephone 1-800-369-9407.
SUMMARY OF FEES AND CHARGES
The following information summarizes the fees and charges payable by the
Owner of a Policy:
Owner transaction expenses:
Surrender Charge - on premiums paid only Maximum 8.00%
----------------------------------------------- -------
Year %
---- ----
1 8%
2 8%
3 8%
4 6%
5 4%
6 0%
Transfer fee $ 0.00
Annual Policy Fee $42.00
Variable Account annual expenses (as a percentage of average Variable
Account Value)
Maximum Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.10%
-----
Total Variable Account Annual Expenses : 1.35%
Portfolio Annual Expenses
(Expressed as a Percentage of Net Assets of each Portfolio)
5
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<TABLE>
<CAPTION>
Portfolio Annual Expenses
(Expressed as a Percentage of Net Assets of each Portfolio)
TOTAL
PORTFOLIO ANNUAL
PORTFOLIO MANAGEMENT FEES OTHER EXPENSE 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% 0.16% 0.66%
Calvert Social Small Cap Growth Portfolio 1.00% 0.33% 1.33%/1
Calvert Social Mid Cap Growth Portfolio 0.89% 0.16% 1.05%/1
Calvert Social International Equity Portfolio 1.10% 0.70% 1.80%/1
Calvert Social Balanced Portfolio 0.69% 0.18% 0.87%/1
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
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/VA 0.69% 0.02% 0.71%/2
Oppenheimer Capital Appreciation Fund/VA 0.72% 0.03% 0.75%
Oppenheimer Main Street Growth & Income Fund/VA 0.74% 0.05% 0.79%/2
Oppenheimer High Income Fund/VA 0.74% 0.04% 0.78%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.06% 0.80%
Strong International Stock Fund II 1.00% 0.62% 1.62%
Strong Discovery Fund II 1.00% 0.18% 1.18%
Van Eck Worldwide Hard Assets Fund 1.00% 0.16% 1.16%/3
</TABLE>
/1Management Fees includes for Calvert Social Balanced and Calvert Social
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 Calvert Social Balanced,
and as high as 0.95% or as low as 0.85% for Calvert Social Mid Cap. The Calvert
Social Small Cap expenses have been restated to reflect the lower advisory fee
and administrative services fee. 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/VA was formerly named Oppenheimer
Capital Appreciation Fund. The Oppenheimer Main Street Growth & Income Fund/VA
was formerly named Oppenheimer Growth & Income Fund.
3/Prior to April 30, 1997, Van Eck Worldwide Hard Assets Fund was named Van
Eck 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%.
6
<PAGE>
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, 1998; 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 5 YEARS 10 YEARS
- --------- ------ -------- ------- --------
<S> <C> <C> <C> <C>
Alger American Growth $ 99 $137 $138 $212
Alger American Small-Cap $100 $140 $144 $223
Alger American MidCap Growth $ 99 $139 $141 $217
Calvert Social Money Market $ 97 $133 $132 $198
Calvert Social Small Cap $104 $154 $166 $268
Calvert Social Mid Cap $101 $146 $152 $240
Calvert Social International Equity $109 $168 $189 $314
Calvert Social Balanced $ 99 $140 $143 $221
Dreyfus Stock Index Fund $ 93 $121 $111 $154
Neuberger Berman Lim Mat Bond $ 98 $136 $137 $209
Neuberger Berman Growth $100 $141 $145 $226
Oppenheimer High Income Fund/VA $ 98 $137 $138 $211
Oppenheimer Strategic Bond Fund/VA $ 99 $138 $139 $213
Oppenheimer Aggressive Growth Fund/VA $ 98 $135 $134 $203
Oppenheimer Capital Appreciation Fund/VA $ 98 $136 $136 $208
Oppenheimer Main Street Growth
& Income Fund/VA $ 99 $137 $138 $212
Strong International Stock Fund II $103 $150 $159 $255
Strong Discovery Fund II $103 $151 $161 $258
Van Eck Worldwide Hard Assets $103 $150 $159 $255
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:
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------- ------ -------- ------- --------
Alger American Growth $ 19 $ 57 $ 98 $212
Alger American Small-Cap $ 20 $ 60 $104 $223
Alger American MidCap Growth $ 19 $ 59 $101 $217
Calvert Social Money Market $ 17 $ 53 $ 92 $198
Calvert Social Small Cap $ 24 $ 74 $126 $268
Calvert Social Mid Cap $ 21 $ 66 $112 $240
Calvert Social International Equity $ 29 $ 88 $149 $314
Calvert Social Balanced $ 19 $ 60 $103 $221
Dreyfus Stock Index Fund $ 13 $ 41 $ 71 $154
Neuberger Berman Lim Mat Bond $ 18 $ 56 $ 97 $209
Neuberger Berman Growth $ 20 $ 61 $105 $226
Oppenheimer High Income Fund/VA $ 18 $ 57 $ 98 $211
Oppenheimer Strategic Bond Fund/VA $ 19 $ 58 $ 99 $213
Oppenheimer Aggressive Growth Fund/VA $ 18 $ 55 $ 94 $203
Oppenheimer Capital Appreciation Fund/VA $ 18 $ 56 $ 96 $208
Oppenheimer Growth & Income Fund/VA $ 19 $ 57 $ 98 $212
Strong International Stock Fund II $ 23 $ 70 $119 $255
Strong Discovery Fund II $ 23 $ 71 $121 $258
Van Eck Worldwide Hard Assets Fund $ 23 $ 70 $119 $255
In addition, ANLIC will deduct a charge for premium taxes when they are
incurred.
</TABLE>
7
<PAGE>
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.
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
The Accumulation Unit Values and the
number of accumulation units
outstanding for each Sub-account in
1997 and 1998 are as follows:
Accumulation Unit Value as of: Number of units
outstanding as of:
----------------------------------- -------------------------
Start Date* 12/31/97 12/31/98 12/31/97 12/31/98
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Alger American Growth Portfolio 10.00 13.71 20.31 132,282 215,879
Alger American MidCap Growth Portfolio 10.00 12.39 16.14 64,878 102,971
Alger American Small Capitalization Portfolio 10.00 11.48 13.26 132,551 243,767
Calvert Social Money Market Portfolio 1.00 1.07 1.12 1,140,175 1,704,121
Calvert Social Small Cap Growth Portfolio 10.00 9.76 9.16 31,049 39,943
Calvert Social Mid Cap Growth Portfolio 10.00 12.44 16.15 7,302 59,588
Calvert Social International Equity Portfolio 10.00 11.02 13.06 7,669 63,614
Calvert Social Balanced Portfolio 10.00 13.03 15.15 39,756 71,077
Dreyfus Stock Index Fund 10.00 14.91 19.12 366,377 608,764
Neuberger Berman Advisers Management
Trust Limited Maturity Bond Portfolio 10.00 11.01 11.49 240,629 447,966
Neuberger Berman Advisers Management
Trust Growth Portfolio 10.00 14.13 16.33 100,057 169,192
Oppenheimer Aggressive Growth Fund/VA 10.00 12.53 14.08 60,337 142,725
Oppenheimer Capital Appreciation Fund/VA 10.00 12.10 15.00 120,465 264,865
Oppenheimer Main Street Growth & Income Fund/VA 10.00 12.84 13.44 38,357 171,939
Oppenheimer High Income Fund/VA 10.00 11.12 11.15 46,452 121,519
Oppenheimer Strategic Bond Fund/VA 10.00 10.77 11.08 6,641 57,232
Strong International Stock Fund II 10.00 8.61 8.47 284,776 347,949
Strong Discovery Fund II 10.00 11.99 12.86 10,687 19,136
Van Eck Worldwide Hard Assets Fund 10.00 10.34 7.14 53,425 133,906
(Units are shown in thousands)
</TABLE>
*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 Management Trust Growth Portfolio, 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.
8
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY 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. ANLIC is a wholly owned subsidiary of
Acacia Life Insurance Company ("Acacia Life"), a District of Columbia stock
company. The principal offices of both ANLIC and Acacia Life are at 7315
Wisconsin Avenue, Bethesda, Maryland 20814. 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 is in turn a second tier subsidiary of
Ameritas Acacia Mutual Holding Corporation ("Ameritas/Acacia"), a Nebraska
mutual holding corporation.
On January 1, 1999, Ameritas Mutual Holding Corporation ("Ameritas
Mutual"), a Nebraska mutual holding corporation and Acacia Mutual Holding
Corporation ("Acacia Mutual"), a District of Columbia mutual holding corporation
merged and became Ameritas Acacia Mutual Holding Company ("Ameritas Acacia") a
Nebraska mutual holding corporation. Both Ameritas Acacia and Ameritas Holding
Company, an intermediate holding company are organized under the Nebraska Mutual
Insurance Holding Company Act. Acacia Life Insurance Company, a subsidiary of
Ameritas Holding Company is regulated by the District of Columbia Insurance
Department. Prior to the Merger, Ameritas Mutual and its subsidiaries had total
assets at December 31, 1997 of over $3.4 billion and Acacia Life and its
subsidiaries had total assets as of December 31, 1997 of over $2.3 billion.
The combined group has total assets of over $5.7 billion.
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.
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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 Life. Calvert is the sponsor of
the Fund.
These Portfolios seek to achieve competitive returns while encouraging
responsible corporate conduct. The Portfolios look for enterprises that make a
significant contribution to society through their products and the way they do
business. Each proposed portfolio investment that is deemed financially viable
is then screened according to the stated social criteria of the particular
Portfolio. Investments must, in the judgment of the investment adviser, be
consistent with these criteria. It should be noted that the Portfolios' social
criteria tend to limit the availability of investment opportunities more than is
customary with other investment portfolios. (See the individual Portfolio
Prospectuses for a complete description of each social screen).
The Calvert 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.")
12
<PAGE>
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 Life. 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.
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.
13
<PAGE>
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 ("NB Management"). NB
Management retains Neuberger Berman, L.P., without cost to AMT, as subadviser to
furnish it with investment recommendations and research information. NB
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. NB
Management provides administrative services to each Portfolio that include
furnishing similar facilities and personnel for the Portfolio. With the
Portfolio's consent, NB Management is authorized to subcontract some of its
responsibilities under its administration agreement with the Portfolio to third
parties.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Variable Account has five Sub-accounts that invest exclusively in
shares of Portfolios of the Oppenheimer Variable Account Funds (the "Oppenheimer
Funds"). The Aggressive Growth, Capital Appreciation, Growth & Income, High
Income, and Strategic Bond Income Sub-Accounts of the Variable Account invest in
shares of the Aggressive Growth Fund/VA, Capital Appreciation Fund/VA, Main
Street Growth & Income Fund/VA, High Income Fund/VA and Strategic Bond Fund/VA
respectively, of the Oppenheimer Funds. The Oppenheimer Funds are managed by
Oppenheimer Funds, Inc. ("the Manager"), which is responsible for selecting the
Oppenheimer Funds' investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board of
Trustees, under investment advisory agreements for each Oppenheimer Fund which
state the Manager's responsibilities.
Oppenheimer Aggressive Growth Fund/VA ("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 Capital Appreciation Fund/VA ("Capital Appreciation Fund")
seeks to achieve capital appreciation by investing insecurities of well-known
established companies. Such securities generally have a history of earnings and
dividends and are issued by seasoned companies.
Oppenheimer Main Street Growth & Income Fund/VA ("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/VA ("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).
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.")
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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.
The Variable Account has two Sub-account that invests exclusively in
shares of Portfolios of the Strong Variable Insurance Funds, Inc. The
International Growth Sub-account of the Variable Account invests in shares of
the Strong International Stock Fund II, and the Aggressive Growth Sub-account
of the Variable Account invests exclusively in shares of the Strong Discovery
Fund II of Strong Variable Insurance Funds, Inc. ("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. The Portfolio will invest at least 65% of its total assets in foreign
equity securities, including common stocks, preferred stocks, and securities
that are convertible into common or preferred stocks, such as warrants and
convertible bonds, that are issued by companies whose principal headquarters are
located outside the United States.
Under normal conditions, the Portfolio expects to invest at least 90% of
its total assets in foreign equity securities. The Portfolio may, however,
invest up to 35% of its total assets in equity securities of U.S. issuers or
debt obligations, including intermediate to long-term debt obligations of U.S.
issuers or foreign-government entities. When the investment advisor 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 non-investment-grade debt
obligations. Investments in such securities involve special risks and Policy
Owners should consider the risks associated with foreign securities and junk
bonds before investing in the Sub-account. These risks are described in the
Prospectus of the Portfolio.
The Portfolio will normally invest in securities of issuers located in
at least three different countries. The investment advisor 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 advisor believes represent growth opportunities.
The Portfolio normally emphasizes equity securities, although it has the
flexibility to invest in any type of security that the Advisor 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 Advisor 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 non-investment-grade debt
obligations. Investments in which securities involve special risks in addition
to the risks associated with investments in higher rated debt securities and
Owners should consider the risks associated with junk bonds before investing in
the Sub-account. These risks are described in the Prospectus of the Portfolio.
The Portfolio may invest up to 15% of its total assets directly in the
securities of foreign issuers. It may also invest without limitation in foreign
securities in domestic markets through depositary receipts. However, as a matter
of policy, the Advisor intends to limit total foreign exposure, including both
direct investments and depositary receipts, to no more than 25% of the Fund's
total assets. Owners should consider the risks associated with foreign
securities before investing in the Sub-account. These risks are described in the
Prospectus of the Portfolio.
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The investment advisor seeks to uncover emerging investment trends and
attractive growth opportunities. In its search for potential investments, the
investment advisor 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 Advisor
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 advisor for the Strong
Variable Insurance Funds, Inc. and, pursuant to its investment advisory
agreements, manages the investment and reinvestment of the assets of both
Portfolios, 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 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.
Calvert Social Balanced, Calvert Social 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
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Investments in foreign securities involve substantial and different risks.
You should consider these risks carefully. Calvert Social 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 .30% of net assets from Calvert
Social Money Market Portfolio, .65% Calvert Social Mid Cap, .75% the Calvert
Social International Equity .43% of net assets of Calvert Social Balanced and
.75% of net assets of Calvert Social 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
.25 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:
Limited Maturity Bond Portfolio: Growth Portfolio:
Average Daily Net Assets Fee Average Daily Net Assets Fee
- ------------------------ --- ------------------------ ---
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%
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, Capital Appreciation 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
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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 FIXED ACCOUNT
You may allocate all or a part of your Premium Payments to the Fixed
Account in states where it is available. The Fixed Account is part of the
General Account of ANLIC. The General Account consists of all of ANLIC's assets
other than those in any separate account. We guarantee that we will credit the
Fixed Account with interest at a rate of not less than 4% per year ("Guaranteed
Interest Rate"). We may credit interest at a rate in excess of the Guaranteed
Interest Rate in our sole discretion. You assume the risk that interest credited
to the Fixed Account allocations may not exceed the Guaranteed Interest Rate.
Transfers out of the Fixed Account are subject to certain limitations. (See,
"The Policy - Transfers").
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 Policy 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 the Annuitant is 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 either you or the Annuitant is 85 years old or
older.
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
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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 total Premium Payments during the first Policy year must be at least
$300. 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 and cancel the Policy.
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 amount in the Fixed Account.
Variable Account Value. On each Valuation Date, the Variable Account
Value is determined by multiplying the number of Accumulation Units of each
Sub-account by the current Accumulation Unit Value for the Sub-account, and
adding together all these amounts. When a Net Premium Payment or transfer is
allocated to a Sub-account, a certain number of Accumulation Units are credited
to your Policy. The number of Accumulation Units is determined by dividing the
dollar amount allocated to the Portfolio by the Accumulation Unit Value for that
Portfolio as of the end of the Valuation Period in which the allocation is made.
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.
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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. There is a $100 minimum on
all withdrawals. If there are Joint Owners, both of you must agree to the
withdrawal. We may defer payment of your Surrender Value allocated to the Fixed
Account for a period not longer than six months after you request its
withdrawal. Payment of amounts from the Variable Account will normally be made
within seven days, but may be delayed in certain circumstances. (See "Delay or
Suspension of Payments" in the Statement of Additional Information.)
You may, prior to the earlier of the Maturity Date or your death,
withdraw 100% of earnings (since the last Policy Anniversary) in all
Sub-accounts and the Fixed Account free of Surrender Charges. Additionally, up
to 10% of the Policy Account Value (as of the last Policy Anniversary); plus 10%
of:
(1) Deposits since the last Policy Anniversary; minus
(2) Withdrawals since the last Policy Anniversary
may also be withdrawn free of Surrender Charges.
Upon a partial withdrawal, surrender, or annuitization we will apply the
Surrender Charge percentage shown on the Policy specification page to those
Premium Payments received within five years of the partial withdrawal,
surrender, or annuitization date. After the free amounts are determined, the
calculation will be 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 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 pro-rated among the Fixed Account and the Sub-accounts based
upon your current Policy Account Value allocated to each account.
Restrictions Under the Texas Optional Retirement Program and Section
403(b) Plans. The Texas Educational Code permits participants in the Texas
Optional Retirement Program ("ORP") to withdraw or surrender their interest in a
variable annuity contract issued under the ORP only upon (1) termination of
employment in the Texas public institutions of higher education, (2) retirement,
or (3) death. Accordingly, a participant in the ORP (or the participant's estate
if the participant has died) will be required to obtain a certificate of
termination from the employer or a certificate of death before the account can
be redeemed.
Similar restrictions apply to variable annuity contracts used as funding
vehicles for retirement plans qualifying under Section 403(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). Section 403(b) provides for
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. In accordance with the requirements of Section
403(b), any Policy used for a Section 403(b) plan will prohibit distributions of
(i) elective contributions made in years beginning after December 31, 1988, and
(ii) earnings on those contributions and (iii) earnings on amounts attributable
to elective contributions held as of the end of the last year beginning before
January 1, 1989. However, distributions of such amounts will be allowed upon
death of the employee, attainment of age 59-1/2, separation from service,
disability, or financial hardship, except that income attributable to elective
contributions may not be distributed in the case of hardship.
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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 of
5% per Sub-account.
The Dollar Cost Averaging Program is an option under which you may
"dollar cost average" your allocations to the Variable Account by authorizing us
to make periodic transfers of specific dollar amounts from the Money Market
Sub-account to one or more other designated Sub-accounts, on a monthly,
quarterly, semi-annual, or annual basis. Each transfer is subject to the $50
minimum transfer amount with a minimum 5% 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.
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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 to participate in the Dollar Cost
Averaging Program.
Transfers and adjustments pursuant to these programs will occur on the
same date of the month as the Policy Date, or the next Valuation Date if that
date is not 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 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 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 the death of the Annuitant occurs prior to the Maturity Date and the
Annuitant is not the Owner, the Owner may name a new Annuitant.
If both Joint Owners die simultaneously, the Death Benefit will be paid
to the named Beneficiary.
If the Owner is a corporation or other entity, the Annuitant will be
treated as an Owner for purposes of the timing or the amount of any payout under
the Policy.
As far as permitted by law, the proceeds under the Policy will not be
subject to any claim of the Beneficiary's creditors.
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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 Investment Options in the same proportion that the values in the
Investment Options bear to the Policy 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
As compensation for administrative expenses incurred in connection with
the policy, ANLIC will deduct a daily Administrative Expense Charge from the
value of the net assets of the Variable Account. This charge will not exceed
0.10% annually. No Administrative Expense Charge is deducted from the amount in
the Fixed Account.
ANLIC does not expect to make a profit from the administrative expense
charge.
MORTALITY AND EXPENSE RISK CHARGE
As compensation for mortality and expense risks assumed in connection
with the Policy, ANLIC will deduct a daily mortality and expense risk charge
from the value of the net assets of the Variable Account. For the first 15 years
of your Policy, this charge is at the rate of 1.25% annually. Beginning in the
16th Policy year, this charge is reduced by 0.05% annually until it reaches
0.50% annually in Policy year 30; the rate remains level thereafter. No
mortality and expense risk charge will be deducted from the amount in the Fixed
Account.
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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
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:
Policy Anniversaries
Since Receipt of Surrender
Premium Payment Charge Rate
----------------- -----------
0 8%
1 8%
2 8%
3 6%
4 4%
5 or more None
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 be withdrawn free of Surrender Charges. However, income taxes and a tax
penalty may apply.
Amounts withdrawn in addition to the Free Withdrawal Amount may be
subject to a Surrender Charge. The Surrender Charge is determined by multiplying
each Premium Payment included in the withdrawal by the Surrender Charge rate
applicable to the year in which the Premium Payment was received.
For purposes of calculating the Surrender Charge, (1) the oldest Premium
Payments will be treated as the first withdrawn; (2) amounts withdrawn up to the
Free Withdrawal Amount will not be considered a withdrawal of Premium Payments;
and (3) if the Surrender Value is withdrawn or applied under an Annuity Payment
Option, the Surrender Charge will apply to all Premium Payments not previously
assessed with a Surrender Charge. Thus, the Surrender Charges are applied to
Premium Payments on a first-in, first-out basis.
As shown above, the Surrender Charge percentage varies, depending on the
Policy Year in which the Premium Payment included in the withdrawal was made. A
Surrender Charge rate of 8% applies to Premium Payments withdrawn that are less
than three years old. Thereafter the Surrender Charge rate decreases to 6% in
the fourth year and 4% in the fifth year. Amounts representing Premium Payments
five years old or older may be withdrawn without charge.
The Surrender Charge will be deducted from the remaining Policy Account
Value, or from the amount paid if the remaining value is insufficient. The
Surrender Charge partially compensates us for sales expenses with regard to the
Policy, including agent sales commissions, the cost of printing prospectuses and
sales literature, advertising, and other marketing and sales promotional
activities.
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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.
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 also may 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.
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.
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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.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
INTRODUCTION
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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.
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.
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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 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.
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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.
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The number of votes which are available to you will be calculated separately for
each Sub-account. That number will be determined by applying your percentage
interest, if any, in a particular Sub-account to the total number of votes
attributable to that Sub-account. Prior to the Maturity Date, you hold a voting
interest in each Sub-account to which your Policy Account Value is allocated.
After the Maturity Date, the person receiving variable annuity payments has the
voting interest. The number of votes prior to the Maturity Date will be
determined by dividing the value of the Policy allocated to the Sub-account by
the net asset value per share of the corresponding Portfolio. After the Maturity
Date, you have no voting rights.
The number of votes of a Portfolio which are available will be
determined as of the date coincident with the date established by that Portfolio
for determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Fund.
Portfolio shares attributable to the Policies as to which no timely
instructions are received will be voted in proportion to the voting instructions
which are received with respect to all Policies participating in the
Sub-account. Voting instructions to abstain on any item to be voted upon will be
applied on a pro rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in an Sub-account will receive
proxy material, reports and other materials relating to the appropriate
Portfolio.
PERFORMANCE DATA
We may advertise yields and total returns for the Sub-accounts. In
addition, we may advertise the effective yield of the Money Market Sub-account.
These figures will be based on historical earnings and are not intended to
indicate future performance.
The yield of the Money Market Sub-account refers to the annualized income
generated by an investment in the Sub-account over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Sub-account is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
The total return calculation of a Sub-account other than the Money Market
Sub-account assumes an investment has been held in the Sub-account for various
periods of time including: (a) one year; (b) five years; (c) ten years; and (d)
a period measured from the date the Sub-account commenced operations. The total
return will represent the average annual compounded rates of return that would
equate an initial investment of $1,000 to the redeemable value of that
investment as of the last day of each of the periods referenced above. Total
return figures in non-standard formats for the Sub-accounts other than the Money
Market Sub-account may also be disclosed from time to time. The non-standard
total return will assume that no surrender occurs at the end of the applicable
period. All non-standard performance data disclosed will be accompanied by
standard performance data for the same period.
ANLIC may also advertise performance figures for the Sub-accounts based
on the performance of a Portfolio prior to the time the corresponding
Sub-account commenced operations.
Performance data calculations are discussed in further detail in the
Statement of Additional Information.
PUBLISHED RATINGS
We may publish in advertisements, sales literature, and reports to
Owners, the ratings and other information assigned to ANLIC by one or more
independent insurance industry analyst or rating organizations such as A. M.
Best Company, Standard & Poor's Ratings Group, and Weiss Research, Inc. These
ratings reflect the current opinion of an insurance company's financial strength
and operating performance in comparison to the norms for the insurance industry;
they do not reflect the strength, performance, or safety (or lack thereof) of
the Variable Account. The claims-paying ability rating as measured by Standard &
Poor's is an opinion of an operating insurance company's financial capacity to
meet the obligations of its insurance and annuity policies in accordance with
their terms. These ratings should not be considered as bearing on the investment
performance of the assets held in the Variable Account or the degree of risk
associated with an investment in the Variable Account.
LEGAL PROCEEDINGS
30
<PAGE>
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
Like other insurance companies and their separate accounts, ANLIC and the
Separate Account could be adversely affected if the computer systems they rely
upon do not properly process date-related information and data involving the
years 2000 and after. This issue arose because both mainframe and PC-based
computer hardware and software have traditionally used two digits to identify
the year. For example, the year 1999 is input, stored and calculated as "99."
Similarly, the year 2000 would be input, stored and calculated as "00." If
computers assume this means 1900, it could cause errors in calculations,
comparisons, and other computing functions. Like all insurance companies, ANLIC
makes extensive use of dates and date calculations. We began a corporate-wide
Year 2000(Y2K) project in mid-1997. Our goal is to ensure that our computer
systems continue to operate smoothly with no service disruptions before, during
or after the year 2000.
As of December 31, 1998, ANLIC continues to make progress on the plan to make
its computer applications and operating systems Y2K compliant. Continuous
testing and monitoring throughout 1999 will help ANLIC continue to meet our
contractual and service obligations to our customers. In addition to our
internal efforts, ANLIC is working closely with vendors and other business
partners to confirm that they too are addressing Y2K issues on a timely basis.
We except to be fully compliant by July 31, 1999; however, in the event we or
our service providers, vendors, financial institutions or others with which we
conduct business, fail to be Y2K - compliant, there would be a materially
adverse effect on us.
POLICY REPORTS
At least once each Policy Year a statement will be sent to you
describing the status of the Policy, including setting forth the current Death
Benefit, the current Policy Account Value, the value in the Fixed Account, the
value in each Sub-account, Premium Payments paid since the last report, charges
deducted since the last report, any partial surrenders since the last report,
and the current Surrender Value. In addition, a statement will be sent to you
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.
31
<PAGE>
STATE REGULATION
We are subject to regulation and supervision by the Insurance Department
of the Commonwealth of Virginia which periodically examines our affairs. We are
also subject to the insurance laws and regulations of all jurisdictions where we
are authorized to do business. A copy of the Policy form has been filed with
and, where required, approved by insurance officials in each jurisdiction where
the Policies are sold. We are required to submit annual statements of our
operations, including financial statements, to the insurance departments of the
various jurisdictions in which we do business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
EXPERTS
The statements of financial condition - statutory basis of ANLIC as of
December 31, 1998 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 the Variable Account as of December 31,
1998, 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
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
LEGAL MATTERS
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.
32
<PAGE>
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:
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
<PAGE>
Front side of postcard:
Place
STAMP
Here
ACACIA NATIONAL LIFE INSURANCE COMPANY
Product Service Center
P.O. Box 82579 Lincoln, Nebraska 68501
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>
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
Prospectus for the Allocator 2000 Flexible Premium Deferred Variable Annuity
Policy ("Policy") offered by Acacia National Life Insurance Company ("ANLIC")
and funded by Acacia National Variable Annuity Separate Account II ("Variable
Account"). You may obtain a copy of the Prospectus dated May 1, 1998, by writing
to ANLIC's Service Office, P.O. Box 82579, Lincoln, Nebraska 68501 or by
telephoning 1-800-369-9407. The Prospectus is available in both printed and
digital formats. Terms used in the Prospectus are incorporated into 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, 1999
<PAGE>
TABLE OF CONTENTS
Page
GENERAL PROVISIONS.................................................. 3
The Policy................................................. 3
Misstatement of Age or Sex................................. 3
Nonparticipating........................................... 3
Periodic Reports........................................... 3
Policy Date................................................ 3
Termination................................................ 4
Owner and Joint Owner...................................... 4
Beneficiary Change......................................... 4
Assignment................................................. 4
Delay or Suspension of Payments............................ 4
ACCUMULATION UNITS.................................................. 5
Accumulation Units......................................... 5
Net Investment Factor...................................... 5
FIXED ACCOUNT....................................................... 6
General Description........................................ 6
Transfer Limitation........................................ 7
Fixed Account Value........................................ 7
SURRENDER CHARGE CALCULATIONS....................................... 7
PERFORMANCE DATA CALCULATIONS....................................... 9
Social Money Market Sub-account's Yield Calculation........ 9
Other Sub-accounts' Yield Calculations..................... 10
Standardized Average Annual Total Return Calculations...... 10
Non-Standardized Return Calculations....................... 11
Cumulative Total Return Calculations....................... 11
PERFORMANCE FIGURES................................................. 11
FEDERAL TAX MATTERS................................................. 14
Taxation of ANLIC.......................................... 14
Tax Status of the Policies................................. 14
Withholding................................................ 14
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS................... 15
DISTRIBUTION OF THE POLICIES........................................ 15
STATE REGULATION.................................................... 16
RECORDS AND REPORTS................................................. 16
LEGAL MATTERS....................................................... 16
EXPERTS............................................................. 16
OTHER INFORMATION................................................... 16
FINANCIAL STATEMENTS................................................ 16
B-2
<PAGE>
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 also may 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 we will issue a Policy, we must receive a completed
application. A minimum Premium Payment of $300 during the first
Policy year is required.
(c) The Policy, the application 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 Officers.
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 under 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 also will send such statements as may be required by
applicable state and federal laws, rules, and regulations.
POLICY DATE
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, Annuity Payments begin, or the Death Benefit has been paid.
B-3
<PAGE>
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 and cancel the Policy.
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. Only the Owner may exercise the rights
under this Policy. There may be Joint Owners. If there are Joint Owners, the
signatures of both Owners are needed to exercise rights under the Policy. Joint
Owners are not permitted for Policies issued in connection with Qualified Plans.
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.
BENEFICIARY CHANGE
Unless the Beneficiary is irrevocable, you may change the named
Beneficiary by sending a written request in a form acceptable to us to our
Service Office. 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 the Policy as collateral, unless prohibited elsewhere in
the Prospectus or in the Policy itself. 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 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 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.
B-4
<PAGE>
Payment of any amounts from the Fixed Account may be deferred for up to
six months from the date of the request to surrender. If payment is deferred for
more than 30 days, we will pay interest on the amount deferred at a rate not
less the Guaranteed Minimum Interest Rate.
Payments under the Policy of any amounts derived from Premium Payments
paid by check may be delayed until such time as the check has cleared your bank.
ACCUMULATION UNITS
ACCUMULATION UNITS
An Accumulation Unit is an accounting unit of measure used to calculate
the value of your interest in the Sub-accounts. When a Net Premium Payment or
transfer is allocated to a Sub-account, a certain number of Accumulation Units
are credited to your Policy. The number of Accumulation Units is determined by
dividing the dollar amount allocated to the Sub-account by the Accumulation Unit
Value for that Sub-account as of the end of the Valuation Period in which the
allocation is made.
The Accumulation Unit Value for each Sub-account was arbitrarily set at
ten dollars ($10) when the first investments were bought, except for the Social
Money Market Sub-account which was set at one dollar ($1). The value for any
later Valuation Period is determined 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 Accumulation Unit Value may increase or decrease from one Valuation
Period to the next.
NET INVESTMENT FACTOR
The "net investment factor" 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; minus
(3) an adjustment for the mortality and expense risk charge
and the administrative expense charge; plus or minus
(4) a per unit charge or credit for any taxes incurred by or
reserved for in the Sub-account, which is determined by
ANLIC to have resulted from the maintenance of the
Sub-account; and
(b) is the net result of:
(1) the net asset value per share of the Portfolio shares held
in the Sub-account, determined as of the end of the
immediately preceding Valuation Period; plus or minus
(2) the per unit charge or credit for any taxes reserved for
the immediately preceding Valuation Period.
B-5
<PAGE>
FIXED ACCOUNT
The Prospectus and this Statement of Additional Information are
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 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 the 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, ANLIC guarantees that value in the
Fixed Account will accrue interest at an effective annual rate of at least 4%,
independent of the actual investment experience of the General Account. 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 Policy Account 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.
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.
B-6
<PAGE>
ANLIC'S MANAGEMENT HAS COMPLETE AND SOLE DISCRETION TO DETERMINE THE
CURRENT INTEREST RATES. ANLIC CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE
CURRENT INTEREST RATES, EXCEPT THAT ANLIC GUARANTEES THAT FUTURE CURRENT
INTEREST RATES WILL NOT BE BELOW AN EFFECTIVE RATE OF 4% PER YEAR COMPOUNDED
ANNUALLY. THE OWNER BEARS THE RISK THAT CURRENT INTEREST RATES WILL NOT EXCEED
AN EFFECTIVE RATE OF 4% PER YEAR.
SURRENDER CHARGE 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 and the
Fixed Account free of Surrender Charges. Additionally, Owners may also withdraw
free of Surrender Charges 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.
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 withdrawals will be
charged based on the above method. There are no Surrender Charges assessed on
distributions made upon the death of the Owner. The Surrender Charge percentages
are as follows:
Years 1-3.................. 8%
Year 4..................... 6%
Year 5..................... 4%
Year 6..................... 0%
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
Requested Withdrawal Amount (not including $3,000.00
the 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
Surrender Surrender
Premium Payment Charge % Charge
------------ ----------
$4,000 x .08 = 320.00
$1,000 x .08 = 80.00
$1,500 x .08 = 120.00
Total Surrender Charge 520.00
Partial Surrender Charge (2,240.78/.92) x .08 = 194.85
Total Withdrawal 3,194.85
Policy Account Value (after withdrawal) 3,919.60
Only those Premium Payments made before May 12, 1992 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:
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%
The process for allocating the Surrender Charge among the Sub-accounts
is as follows:
.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
PERFORMANCE DATA CALCULATIONS
We may advertise the yield and effective yield of the Money Market
Sub-account. In addition, we may advertise yield and total returns for other
Sub-accounts. All performance data calculations for the Sub-accounts will be in
accordance with SEC rules and regulations.
MONEY MARKET SUB-ACCOUNT'S YIELD CALCULATION
In accordance with regulations adopted by the SEC, if we disclose the
annualized yield of the Calvert 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 Calvert Social 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 Accumulation Unit of the Calvert
Social Money Market Sub-account at the beginning of the seven-day period,
dividing the net change in the value of the Sub-account 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
Administrative Expense Charge as well as income and expenses accrued during the
period. Because of these deductions, the yield for the Calvert Social Money
Market Sub-account will be lower than the yield for the Calvert Social Money
Market Portfolio.
B-7
<PAGE>
The SEC also permits us to disclose the effective yield of the Money Market
Sub-account for the same seven-day period, determined on a weekly-compounded
basis. The effective yield is calculated by compounding the base period return
by adding one to the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result according to the following
formula:
Effective Yield = [(Base period return + 1) 365/7 ] - 1
The actual yield of the Social Money Market Sub-account is affected by: (1)
changes in interest rates on money market securities; (2) the average portfolio
maturity of the Calvert Social Money Market Portfolio; (3) the types and quality
of securities held by the Calvert Social Money Market Portfolio; and (4) its
operating expenses. The yield on amounts held in the Money Market Sub-account
normally will fluctuate on a daily basis. Therefore, the disclosed yields for
any given past period is not an indication or representation of future yields or
rates of return.
OTHER SUB-ACCOUNTS' YIELD CALCULATIONS
We may from time to time advertise or disclose the annualized yield for
each Sub-account other than the Money Market Sub-account for 30-day (or
one-month) periods. Calculation of the yield of a Sub-account begins with the
income generated by an investment in the Sub-account over a specific 30-day (or
one-month) period. This income is then annualized. That is, the amount of income
generated by the investment during that 30-day (or one-month) period is assumed
to be generated during, and reinvested at the end of, each such period over a
360-day (or twelve-month) year. The 30-day (or one-month) yield is calculated
according to the following formula:
Yield = 2[((a-b)/cd + 1)6 - 1]
where
a = net investment income earned during the period by the Portfolio
attributable to shares owned by the Sub-account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of Accumulation Units outstanding during the
period; and
d = the maximum offering price per Accumulation Unit (i.e., net asset value
per Accumulation Unit) on 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. The yield on
amounts held in the Sub-accounts 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.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
For each Sub-account, we may advertise standardized average annual total
return calculated as prescribed by the rules of the SEC. The calculation assumes
a single $1,000 Premium Payment made at the beginning of the stated period and a
surrender at the end of the period. The ending redeemable value (i.e., the
Surrender Value) reflects all recurring fees that are charged to Owner accounts,
including the Annual Policy Fee, Administrative Expense Charge and Mortality and
Expense Risk Charge, and any applicable Surrender Charge.
Quotations of average annual total return are computed by finding the
average annual compounded rates of return over a period of one, three, five, and
ten years (or, if less, up to the life of the Portfolio), and up to the life of
the Sub-Account that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1 + T)n = ERV
where
P = a hypothetical initial Premium Payment of $1,000;
T = average annual total return;
n = number of years in the period; and
ERV = ending redeemable value of a hypothetical $1,000 Premium Payment made
at the beginning of the period (or fractional portion thereof).
NON-STANDARDIZED RETURN CALCULATIONS
In addition to the standardized calculation described above, we may
disclose non-standardized total returns and non-standardized average annual
total returns for each Sub-account. Like the standardized calculation,
non-standardized calculations assume a single $1,000 Premium Payment made at the
beginning of the stated period. However, non-standardized calculations do not
assume a surrender at the end of the period or reflect recurring separate
account charges. Non-standardized total returns represent the percentage change
in Accumulation Unit Value with respect to periods of one year or less.
Non-standardized average annual total returns represent the average annual
change in Accumulation Unit Value over the stated period. For periods of one
year or less, the two non-standardized rates of return are equal. For periods
greater than one year, the non-standardized average annual total return is the
effective annual compounded rate of return.
CUMULATIVE TOTAL RETURN CALCULATIONS
We may also disclose cumulative total return for each Sub-account.
Cumulative total return is non-standardized and unaveraged. It reflects the
simple percentage change in value of a hypothetical investment in a Sub-account
over the stated period. Cumulative total return is 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 period (or fractional portion thereof); and
P = a hypothetical initial Premium Payment of $1,000.
PERFORMANCE FIGURES
The performance information provided in the tables below is as of
December 31, 1998, and reflects only the performance of a Policy's allocation to
the Sub-accounts during the time period on which the calculations are based. For
periods prior to the inception date of a Sub-account, performance information
represents hypothetical returns based on the performance of the corresponding
Portfolio and the assumption that the Sub-account had been in existence for the
period indicated. All returns for periods greater than one year are annualized.
Performance information provided for any given past period is not an indication
or representation of future rates of return.
The yield for the Money Market Sub-account for the seven-day period
ending December 31, 1998 on an annualized basis, was 3.41%. The effective yield
for the Money Market Sub-account for the seven-day period ending December 31,
1998, on an annualized basis, was 3.47%.
B-8
<PAGE>
Standardized Average Annual Total Return - reflects historical investment
results based on a $1,000 hypothetical investment over the period indicated,
less separate account and underlying charges. The separate account charges
include an annual policy fee, an administrative expense charge, a mortality and
expense risk charge, and any surrender charge applicable if an owner surrendered
the policy at the end of the period indicated. The underlying portfolio charges
include management fees and other operating expenses.
<TABLE>
<CAPTION>
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
SUBACCOUNT PORTFOLIO 10 YEAR OR SINCE
INCEPTION INCEPTION 1 YEAR 3 YEAR 5 YEAR SINCE PORTFOLIO SUB-ACCOUNT
DATE DATE INCEPTION INCEPTION
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE ALGER AMERICAN FUND
Growth Portfolio 8/26/96 1/9/89 37.95% 24.75% 21.77% 20.29% 31.60%
MidCap Growth Portfolio 8/26/96 5/3/93 20.44% 15.12% 16.85% 21.74% 18.59%
Small Cap Growth Portfolio 8/26/96 9/21/88 5.88% 6.39% 10.95% 8.34%
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
CALVERT VARIABLE SERIES INC.
Calvert Social Money Market Portfolio 8/26/96 6/30/92 -4.36% 1.05% 2.71% 2.91% 0.26%
Calvert Social Small Cap Growth 8/26/96 3/15/95 -15.49% 0.28% N/A 2.99% -8.94%
Portfolio 5/1/97 7/16/91 19.93% 16.23% 14.58% 13.41% 22.12%
Calvert Social Mid Cap Growth 5/1/97 6/30/92 8.84% 11.67% 8.92% 10.58% 6.56%
Portfolio 8/26/96 9/2/86 6.61% 12.55% 12.45% 11.26% 15.17%
Calvert Social International Equity
Portfolio
Calvert Social Balanced Portfolio
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
DREYFUS STOCK INDEX FUND 8/26/96 9/29/89 18.38% 24.30% 21.45% 15.45% 28.07%
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
Neuberger Berman ADVISERS
MANAGEMENT TRUST
Limited Maturity Bond Portfolio 8/26/96 9/10/84 -5.10% 1.09% 2.98% 5.26% 1.37%
Growth Portfolio 8/26/96 9/10/84 5.88% 13.90% 13.15% 12.26% 19.20%
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Aggressive Growth Fund/VA 5/1/97 8/15/86 2.75% 10.92% 10.92% 14.46% 11.87%
Capital Appreciation Fund/VA 5/1/97 4/3/85 14.23% 21.73% 19.97% 15.18% 16.50%
Main Street Growth & Income Fund/VA 5/1/97 7/5/95 -4.80% 18.88% N/A 24.19% 8.56%
Strategic Bond Fund/VA 5/1/97 5/3/93 -6.57% 3.86% 4.64% 5.26% -4.18%
High Income Fund/VA 5/1/97 4/30/86 -9.12% 5.14% 6.45% 11.10% -3.80%
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong International Stock Fund II 8/26/96 10/20/95 -14.14% -7.53 N/A -5.63% -12.30%
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
STRONG DISCOVERY FUND II 8/26/96 5/8/92 -2.27% 2.40% 6.88% 9.79% 6.81%
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
VAN ECK WORLDWIDE HARD ASSETS FUND
Worldwide Hard Assets Fund 8/26/96 9/1/89 -39.92% -11.72% -5.63% .64% -19.26%
- ------------------------------------------ ------------ ------------ --------- --------- --------- ---------------- ----------------
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Average Annual Total Return - reflects historical investment
results based on a $1000 hypothetical investment over the period indicated, less
the underlying portfolio charges consisting of management fees and other
operating expenses. The returns do not reflect recurring separate account
charges or the maximum Surrender Charge that would apply for the period
indicated. If reflected, those deductions would reduce the performance quoted.
SUBACCOUNT PORTFOLIO 10 YEAR OR SINCE
INCEPTION INCEPTION 1 YEAR 3 YEAR 5 YEAR SINCE PORTFOLIO SUB-ACCOUNT
DATE DATE INCEPTION INCEPTION
- ------------------------------------------ ------------ -------------- --------- --------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE ALGER AMERICAN FUND
Growth Portfolio 8/26/96 1/9/89 48.07% 28.27% 23.90% 22.03% 35.94%
MidCap Growth Portfolio 8/26/96 5/3/93 30.30% 18.80% 18.98% 23.50% 23.08%
Small Cap Growth Portfolio 8/26/96 9/21/88 15.53% 10.27% 13.09% 19.85% 13.02%
- ------------------------------------------ ------------ -------------- --------- --------- --------- ----------------- -------------
CALVERT VARIABLE SERIES INC.
Calvert Social Money Market Portfolio 8/26/96 6/30/92 5.14% 5.10% 4.92% 4.40% 5.14%
Calvert Social Small Cap Growth
Portfolio 8/26/96 3/15/95 -6.15% 4.36% N/A 5.93% -3.75%
Calvert Social Mid Cap Growth Portfolio 5/1/97 7/16/91 29.78% 15.42% 16.71% 15.05% 33.28%
Calvert Social International
Equity Portfolio 5/1/97 6/30/92 18.53% 16.28% 11.07% 12.18% 17.34%
Calvert Social Balanced Portfolio 8/26/96 9/2/86 16.27% 14.58% 12.87% 19.72%
---------------------------------------- ------------ -------------- --------- --------- --------- ----------------- -------------
DREYFUS STOCK INDEX FUND 8/26/96 9/29/89 28.21% 27.83% 23.58% 17.12% 32.44%
- ------------------------------------------ ------------ -------------- --------- --------- --------- ----------------- -------------
Neuberger Berman ADVISERS
MANAGEMENT TRUST
Limited Maturity Bond Portfolio 8/26/96 9/10/84 4.39% 5.14% 5.18% 6.79% 6.22%
Growth Portfolio 8/26/96 9/10/84 15.53% 17.60% 15.28% 13.89% 23.68%
- ------------------------------------------ ------------ -------------- --------- --------- --------- ----------------- -------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Aggressive Growth Fund/VA 5/1/97 8/15/86 12.36% 14.69% 13.06% 16.12% 22.78%
Capital Appreciation Fund/VA 5/1/97 4/3/85 24.00% 25.29% 22.10% 16.85% 27.53%
Main Street Growth & Income Fund/VA 5/1/97 7/5/95 4.70% 22.49% /A 27.00% 19.39%
Strategic Bond Fund/VA 5/1/97 5/3/93 2.90% 7.82% 6.83% 6.79% 6.34%
High Income Fund/VA 5/1/97 4/30/86 0.31% 9.06% 8.62% 12.71% 6.73%
- ------------------------------------------ ------------ -------------- --------- --------- --------- ----------------- -------------
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong International Stock Fund II 8/26/96 10/20/95 -4.78% -3.13% N/A -2.15% -6.97
- ------------------------------------------ ------------ -------------- --------- --------- --------- ----------------- -------------
STRONG DISCOVERY FUND II 8/26/96 5/8/92 7.26% 6.40% 9.04% 11.38% 11.53%
- ------------------------------------------ ------------ -------------- --------- --------- --------- ----------------- -------------
VAN ECK WORLDWIDE HARD ASSETS FUND
Worldwide Hard Assets Fund 8/26/96 9/1/89 -30.93% -7.10% -3.26% 2.10% -13.60
- ------------------------------------------ ------------ -------------- --------- --------- --------- ----------------- -------------
</TABLE>
B-10
<PAGE>
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, as amended (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, intends to comply with
the diversification requirements prescribed by the Treasury Department 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 to be operated in compliance with the
diversification requirements prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includible in the variable
contract owner's gross income. The IRS has stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the contract owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the policyholder), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policy owners were not owners of separate account assets. For example, the
Owner has additional flexibility in allocating premium payments and Policy
Account Values. These differences could result in an Owner being treated as the
owner of a pro rata portion of the assets of the Variable Account. In addition,
we do not know what standards will be set forth, if any, in the regulations or
rulings which the Treasury Department has stated it expects to issue. We
therefore reserve the right to modify the Policy as necessary to attempt to
prevent an Owner from being considered the owner of a pro rata share of the
assets of the Variable Account.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Generally, the recipient is
given the opportunity to elect not to have tax withheld from distributions.
However, certain distributions from Section 401(a) and 403(b) plans are subject
to mandatory withholding.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
B-11
<PAGE>
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 reserve the right to
eliminate the shares of any of the Portfolios and to substitute shares of
another Portfolio 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 objectives and policies 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 of 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
B-12
<PAGE>
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.
LEGAL MATTERS
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 thereunder, have been passed upon by Ellen
Jane Abromson, our Legal Officer.
EXPERTS
The financial statements (statutory basis) of ANLIC as of December 31, 1997 and
1998, and the financial statements of the Variable Account as of December 31,
1998 and for each of the periods indicated therein, have been included in this
Statement of Additional Information in reliance upon the report of
PricewaterhouseCoopers, LLP independent certified public accountants, which is
also included 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
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 Policy 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
We have included financial statements of ANLIC and of the Variable
Account in this Statement of Additional Information. The financial statements of
ANLIC should be considered only as bearing on ANLIC's ability to meet its
obligations under the Policy. They should not be considered as bearing on the
investment performance of the assets held in the Variable Account.
B-13
<PAGE>
Audited Financial Statements
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
As of December 31, 1998 and the Years Ended
December 31, 1998 and 1997
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............................................5-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Acacia National Life Insurance Company and
Contract Owners of Acacia National Variable Annuity Separate Account II
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and changes in net assets present fairly, in
all material respects, the financial position of each of the following
sub-accounts comprising the Acacia National Variable Annuity Separate Account II
(the Account): the Social Money Market; Social Balanced; Social Strategic
Growth; Social Managed Growth; Social Global; Large Cap Growth; Mid Cap Growth;
Small Cap Growth; S&P 500 Index; Income; Growth; International Growth;
Aggressive Growth; Hard Assets/Metals; High Income; Aggressive Growth; Large Cap
Growth; Balanced; and Managed Income sub-accounts at December 31, 1998, and the
results of their operations and the changes in their net assets for each of the
periods presented, in conformity with generally accepted accounting principles.
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 of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the mutual funds, provide a reasonable
basis for the opinion expressed above.
/S/ PricewaterhouseCooper
Washington, D.C.
April 30, 1999
1
<PAGE>
<TABLE>
<CAPTION>
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
Calvert Alger Dreyfus
---------------------------------------------------- ------------------------------- --------
Social Social Social S & P
Money Social Strategic Managed Social Large Cap Mid Cap Small Cap 500
Market Balanced Growth Growth Global Growth Growth Growth Index
-------- -------- ------- ------- -------- -------- ------- ------- --------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments, identified costs $1,912,874 $1,078,394 $382,996 $977,582 $859,563 $3,600,418 $1,671,315 $2,798,119 $9,459,694
======== ======== ======= ======= ======== ======== ======= ======= ========
Investments, at market $1,912,874 $1,076,499 $365,954 $962,353 $830,660 $4,383,502 $1,662,162 $3,232,676 $11,639,493
======== ======== ======= ======= ======== ======== ======= ======= ========
Number of shares 1,912,874 503,037 32,910 31,625 39,916 82,366 57,574 73,520 357,918
======== ======== ======= ====== ======== ======== ======= ======= ========
Total and net assets $1,912,874 $1,076,499 $365,954 $962,353 $830,660 $4,383,502 $1,662,162 $3,232,676 $11,639,493
======== ======== ======= ======= ======== ======== ======= ======= ========
ACCUMULATION UNITS
Number of units 1,704,121 71,077 39,943 59,588 63,614 215,879 102,971 243,767 608,764
======== ======== ======= ======= ======== ======== ======= ======= ========
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1998 $1.12 $15.15 $9.16 $16.15 $13.06 $20.31 $16.14 $13.26 $19.12
======== ======== ======= ======= ======== ======== ======= ======= ========
Neuberger & Berman Strong Van Eck Oppenheimer
-------------------- ------------------------------ --------------------------------------------------
Internationl Aggressive Hard High Aggressive Large Cap Managed
Income Growth Growth Growth Assets/Metals Income Growth Growth Balanced Income
--------- ------- -------- ------- -------- -------- -------- -------- ------ -------
ASSETS
Investments, identified
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
costs $5,119,014 $2,672,066 $3,442,058 $237,176 $1,257,279 $1,394,245 $1,877,435 $3,585,617 $2,304,622 $629,434
========= ======= ======== ======= ======== ======== ======== ======== ======== =======
Investments, at market $5,149,191 $2,762,658 $2,945,390 $246,116 $955,745 $1,354,799 $2,009,971 $3,974,010 $2,311,061 $634,102
========= ======= ======== ======= ======== ======== ======== ======== ======== =======
Number of shares 372,590 105,084 335,466 19,349 103,885 122,940 44,835 108,372 112,845 123,848
========= ======= ======== ======= ======== ======== ======== ======== ======== =======
Total and net assets $5,149,191 $2,762,658 $2,945,390 $246,116 $955,745 $1,354,799 $2,009,971 $3,974,010 $2,311,061 $634,102
========= ======= ======== ======= ======== ======== ======== ======== ======== =======
ACCUMULATION UNITS
Number of units 447,966 169,192 347,949 19,136 133,906 121,519 142,725 264,865 171,939 57,232
========= ======= ======== ======= ======== ======== ======== ======== ======== =======
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1998
$11.49 $16.33 $8.47 $12.86 $7.14 $11.15 $14.08 $15.00 $13.44 $11.08
========= ======= ======== ======= ======== ======== ======== ======== ======== =======
</TABLE>
See notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1998
Calvert Alger Dreyfus
-------------------------------------------- ------------------------ ------
Social Social Social S & P
Money Social Strategic Managed Social Large Cap Mid Cap Small Cap 500
Market Balanced Growth Growth Global Growth Growth Growth Index
------ ------ ------ ------ ------- ------ ------ ------ ------
OPERATIONS:
Investment Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $99,957 $77,846 $4,815 $113,069 $63,989 $405,331 $88,825 $269,251 $320,587
Mortality and expense
charge (31,303) (9,942) (4,864) (5,540) (5,262) (39,319) (15,029) (30,197) (112,282)
------ ------ ------ ------ ------- ------ ------ ------ ------
Net Investment Income (Loss) 68,654 67,904 (49) 107,529 58,727 366,012 73,796 239,054 208,305
Realized and Unrealized
Gains (Losses) on
Investments:
Realized gains (losses)
from redemption of
fund shares - 16,551 (42,746) 2,888 2,838 155,749 103,565 53,800 302,629
Unrealized appreciation
(depreciation)
of investments - 13,903 (5,564) (4,743) (20,653) 614,806 (92,375) 306,780 1,557,275
------ ------ ------ ------ ------- ------ ------ ------ ------
Net Gain(Loss) on Investments - 30,454 (48,310) (1,855) (17,815) 770,555 11,190 360,580 1,859,904
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 68,654 98,358 (48,359)105,674 40,912 1,136,567 84,986 599,634 2,068,209
CAPITAL TRANSACTIONS:
Transfer of premium 11,872,929 235,521 109,536 201,503 189,970 975,496 311,491 801,523 2,678,860
Contract terminations (110,154) (3,886) 0 (6,875) (1,466) (77,934) (35,443) (66,108) (256,784)
Policy account value charges (74) (154) (163) (46) (12) (1,176) (504) (961) (2,770)
Sub-account transfers (11,138,469) 228,626 1,906 571,249 516,747 536,971 497,798 376,902 1,689,304
------ ------ ------ ------ ------- ------ ------ ------ ------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 624,232 460,107 111,279 765,831 705,239 1,433,357 773,342 1,111,356 4,108,610
------ ------ ------ ------ ------- ------ ------ ------ ---------
TOTAL INCREASE
IN NET ASSETS 692,886 558,465 62,920 871,505 746,151 2,569,924 858,328 1,710,990 6,176,819
NET ASSETS, at the
beginning of the year 1,219,988 518,034 303,034 90,848 84,509 1,813,578 803,834 1,521,686 5,462,674
------ ------ ------ ------ ------- ------ ------ ------ ---------
NET ASSETS, at end
of the year $1,912,874$1,076,499 $365,954 $962,353 $830,660 $4,383,50$1,662,16$3,232,67$11,639,493
====== ====== ====== ====== ======= ====== ====== ====== =========
UNITS ISSUED AND REDEEMED
Beginning balance 1,140,175 39,756 31,049 7,302 7,669 132,282 64,878 132,551 366,377
Units issued 9,603,132 62,551 40,105 63,376 66,292 122,602 78,824 156,870 297,954
Units redeemed 9,039,186 31,230 31,211 11,090 10,347 39,005 40,731 45,654 55,567
------ ------ ------ ------ ------- ------ ------ ------ ------
Ending balance 1,704,121 71,077 39,943 59,588 63,614 215,879 102,971 243,767 608,764
====== ====== ====== ====== ======= ====== ====== ====== ======
Neuberger & Berman Strong Van Eck Oppenheimer
----------------- ---------------- ---------- ---------------------------------------------
Internatiol Aggressive Hard High AggressiveLarge Cap Managed
Income Growth Growth Growth Assets/Metals Income Growth Growth Balanced Income
-------- ------ ------ ------ ------ ------ ------- ------- ------ ------
OPERATIONS:
Investment Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $184,703 $417,995 $78,354 $2,440 $88,463 $34,016 $25,650 $188,491 $49,612 $5,473
Mortality and expense (52,410) (26,566) (36,712) (2,739) (10,287) (12,214) (17,021) (35,729) (18,232) (4,594)
charge -------- ------ ------ ------ ------ ------ ------- ------- ------ ------
Net Investment Income (Loss) 132,293 391,429 41,642 (299) 78,176 21,802 8,629 152,762 31,380 879
Realized and Unrealized
Gains (Losses) on
Investments:
Realized gains (losses)
from redemption of
fund shares (1,905) (19,136) (191,046) 13,684 (88,651) (6,596) 27,104 30,966 15,370 (1,033)
Unrealized appreciation
(depreciation) (24,125) (63,935) (39,660) (5,619) (282,297) (40,830) 141,899 375,574 (10,583) 4,888
of investments -------- ------ ------ ------ ------ ------ ------- ------- ------ ------
Net Gain(Loss) on Investments 26,030) (83,071) (230,706) 8,065 (370,948) (47,426) 169,003 406,540 4,787 3,855
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 106,263 308,358 (189,064) 7,766 292,772) (25,624) 177,632 559,302 36,167 4,734
CAPITAL TRANSACTIONS:
Transfer of premium 1,210,955 700,034 427,882 70,724 325,174 398,400 574,040 1,192,132 785,872 268,917
Contract terminations (171,676) (52,358) (76,513) 0 (30,203) (20,725) (48,789) (108,049) (12,028) (1,577)
Policy account
value charges (1,452) (802) (1,494) (59) (327) (271) (617) (955) (364) (81)
Sub-account transfers 1,355,778 393,611 332,654 39,538 401,457 486,478 551,689 873,961 1,008,914 290,583
-------- ------ ------ ------ ------ ------ ------- ------- ------ ------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 2,393,605 1,040,485 682,529 110,203 696,101 863,882 1,076,323 1,957,089 1,782,394 557,842
-------- ------ ------ ------ ------ ------ ------- ------- ------ ------
TOTAL INCREASE
IN NET ASSETS 2,499,868 1,348,843 493,465 117,969 403,329 838,258 1,253,955 2,516,391 1,818,561 562,576
NET ASSETS, at the
beginning of the year 2,649,323 1,413,815 2,451,925 128,147 552,416 516,541 756,016 1,457,619 492,500 71,526
-------- ------ ------ ------ ------ ------ ------- ------- ----- ------
NET ASSETS, at end
of the year $5,149,191 $2,762,658 $2,945,390 $246,116 $955,745 $1,354,799 $2,009,971 $3,974,010 $2,311,061 $634,102
======== ====== ====== ====== ====== ====== ======= ======= ====== ======
UNITS ISSUED AND REDEEMED
Beginning balance 240,629 100,057 284,776 10,687 53,425 46,452 60,337 120,465 38,357 6,641
Units issued 277,354 97,054 144,493 13,673 102,123 97,833 105,637 183,763 156,253 55,082
Units redeemed 70,017 27,919 81,320 5,224 21,642 22,766 23,249 39,363 22,671 4,491
-------- ------ ------ ------ ------ ------ ------- ------- ------ ------
Ending balance 447,966 169,192 347,949 19,136 133,906 121,519 142,725 264,865 171,939 57,232
======== ====== ====== ====== ====== ====== ======= ======= ====== ======
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1997
Calvert Alger Dreyfus
------------------------------------------ ------------------------- ------
Social Social Social S & P
Money Social Strategic Managed Social Large Cap Mid Cap Small Cap 500
Market Balanced Growth Growth * Global * Growth Growth Growth Index
------ ------ ------- ------- ------ ------- ------ ------ ------
OPERATIONS:
Investment Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $64,961 $36,031 $27,229 $9,408 $8,438 $10,030 $9,045 $41,086 $120,071
Mortality and expense
charges (19,061)(2,310) (2,999) (344) (625) (14,930) (8,022) (13,620) (46,643)
------ ------ ------- ------- ------ ------- ------ ------ ------
Net Investment Income (Loss) 45,900 33,721 24,230 9,064 7,813 (4,900) 1,023 27,466 73,428
Realized and Unrealized Gains
(Losses) on Investments:
Realized gains (losses)
from redemption of
fund shares --- 737 (9,679) 44 508 38,682 5,524 7,228 52,894
Unrealized appreciation
(depreciation)
of investments --- (15,137) (12,986) (10,486) (8,251) 171,097 84,526 127,659 652,827
------ ------ ------- ------- ------ ------- ------ ------ ------
Net Gain(Loss) on Investments --- (14,400) (22,665) (10,442) (7,743) 209,779 90,050 134,887 705,721
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 45,900 19,321 1,565 (1,378) 70 204,879 91,073 162,353 779,149
CAPITAL TRANSACTIONS:
Transfer of premium 2,998,427 182,688 241,253 70,218 45,127 1,297,026 455,018 1,178,023 2,964,441
Contract terminations (2,529) --- (35) --- --- (5,902) (524) (1,596) (33,324)
Policy account value charges (38) (26) (111) --- --- (154) (142) (134) (317)
Sub-account transfers (1,961,363 309,038 4,470 22,008 39,312 24,017 118,923 (95,479) 230,856
------ ------ ------- ------- ------ ------- ------ ------ ------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 1,034,497 491,700 245,577 92,226 84,439 1,314,987 573,275 1,080,814 3,161,656
------ ------ ------- ------- ------ ------- ------ ------ ------
TOTAL INCREASE
IN NET ASSETS 1,080,397 511,021 247,142 90,848 84,509 1,519,866 664,348 1,243,167 3,940,805
NET ASSETS, at
the beginning of the year 139,591 7,013 55,892 --- --- 293,712 139,486 278,519 1,521,869
------ ------ ------ ------- ------ ------- ------ ------ ------
NET ASSETS, at end
of the year $1,219,988 $518,034 $303,034 $90,848 $84,509 $1,813,578 $803,834 $1,521,686 $5,462,674
====== ====== ====== ======= ====== ======= ====== ====== ======
UNITS ISSUED AND REDEEMED
Beginning balance 137,527 646 5,157 --- --- 26,933 12,949 27,028 135,684
Units issued 4,128,605 40,008 39,680 7,302 8,607 139,737 68,691 151,147 280,880
Units redeemed 3,125,957 898 13,788 --- 938 34,388 16,762 45,624 50,187
------ ------ ------- ------- ------ ------- ------ ------ ------
Ending balance 1,140,175 39,756 31,049 7,302 7,669 132,282 64,878 132,551 366,377
====== ====== ======= ======= ====== ======= ====== ====== ======
Neuberger & Berman Strong Van Eck Oppenheimer
---------------- ------------------------------------------ ---------------------------------------------
International AggressivHard High AggressiveLarge Cap Managed
Income Growth Income **Balance **Growth Growth Assets / MIncome * Growth * Growth * Balanced Income*
-------- ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
OPERATIONS:
Investment Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $56,915 $33,636 $0 $7,583 $16,762 $0 $5,569 $13,028 $0 $0 $1,487 $3,556
Mortality and
expense charges (19,186) (12,001) (259) (3,182) (23,821) (1,174) (4,487) (2,086) (3,007) (6,077) (1,927) (420)
-------- ------ ------ ------ ------ ------ ------ ------- ----- ------ ------ -------
Net Investment
Income (Loss) 37,729 21,635 (259) 4,401 (7,059) (1,174) 1,082 10,942 (3,007) (6,077) (440) 3,136
Realized and Unrealized Gain
(Losses) on Investments:
Realized gains (losses)
from redemption of
fund shares (27,270) 25,296 (173) 41,997 (6,729) 1,415 823 128 5,186 6,345 4,296 (15)
Unrealized appreciation
(depreciation) 53,453 151,202 93 4,747 (458,423)14,637 (21,641) 1,385 (9,363) 12,820 17,322 (220)
of investments -------- ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
Net Gain(Loss)
on Investments 26,183 176,498 (80) 46,744 (465,152)16,052 (20,818) 1,513 (4,177) 19,165 21,618 (235)
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING FROM
OPERATIONS 63,912 198,133 (339) 51,145 (472,211) 14,878 (19,736) 12,455 (7,184) 13,088 21,178 2,901
CAPITAL TRANSACTIONS:
Transfer
of premium 2,210,048 905,220 18,515 173,019 1,905,310 31,900 401,897 341,056 524,024 964,009 403,720 55,814
Contract
terminations (10,806) (4,586) --- (309) (7,409) --- (1,833) (1,492) (1,585) (3,132) --- ---
Policy account
value (193) (112) (19) (23) (261) --- (51) (11) (47) (87) --- ---
Sub-account
transfers 39,484 46,272 (31,381) (305,537) 505,179 72,911 59,159 164,533 240,808 483,741 67,602 12,811
-------- ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ ------
TOTAL INCREASE
IN NET ASSETS
RESULTING FORM CAPITAL
TRANSACTIONS
TOTAL INCREASE IN NET
ASSETS 2,238,533 946,794 (12,885)(132,850) 2,402,819 104,811 459,172 504,086 763,200 1,444,531 471,322 68,625
-------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSETS, at
the beginning of
the year 2,302,445 1,144,927 (13,224) (81,705) 1,930,608 119,689 439,436 516,541 756,016 1,457,619 492,500 71,526
NET ASSETS, at end
of the year 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$516,541 $756,016 $1,457,619 $492,500$71,526
======== ====== ====== ====== ====== ====== ====== ======= ====== ====== ====== =======
UNITS ISSUED AND REDEEMED
Beginning balance 33,612 24,534 1,320 7,530 50,712 796 10,740 --- --- --- --- ---
Units issued 316,194 97,573 1,849 37,662 283,605 12,531 47,780 51,260 67,873 128,512 43,527 9,415
Units redeemed 109,177 22,050 3,169 45,192 49,541 2,640 5,095 4,808 7,536 8,047 5,170 2,774
-------- ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ ------
Ending balance 240,629 100,057 0 0 284,776 10,687 53,425 46,452 60,337 120,465 38,357 6,641
* From Sub-account inception, May, 1997.
** Sub-account closed November, 1997.
</TABLE>
See notes to financial statements.
4
<PAGE>
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
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. Effective January 1, 1999, the Company's ultimate
parent, Acacia Mutual Holding Corporation, merged with Ameritas Mutual Holding
Company to create Ameritas Acacia Mutual Holding Company.
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, 1998, 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>
The sub-accounts and the respective portfolios in effect during 1998 and 1997
were as follows:
Sub-Account Portfolio Invested
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 Advisers
Management Trust:
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
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
6
<PAGE>
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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. However, dividends of $82,499 for the S&P 500
Index sub-account and $40,186 for the International Growth sub-account were
received in 1997 and recorded in 1998. All affected policyholder accounts were
adjusted. 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.
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.
7
<PAGE>
Surrender Charge: A surrender charge is deducted on a percentage basis
from premium payments made within five years of surrender. The amount of
the charge is equal to 8% of premium payments made within three years of
surrender, 6% of premium payments made during the fourth year prior to
surrender, and 4% of premium payments made during the fifth year prior
to surrender.
Premium Taxes: Certain states impose premium taxes. The Company will
deduct amounts equal to these taxes as applicable. Premium tax rates
vary from 0 to 3.5%.
In addition, contract owners bear the investment management fees and
other expense incurred by the Portfolios.
NOTE 5 - PURCHASES AND SALES
The cost of purchases and proceeds from sales for the two years ended December
31,1998 and 1997 for the sub-accounts are as follows:
<TABLE>
<CAPTION>
1998 1997
Cost of Proceeds Cost of Proceeds
Portfolio Purchases From Sales Purchases from Sales
<S> <C> <C> <C> <C>
Social Money Market $17,032,527 $16,439,154 $4,322,028 $3,241,631
Social Balanced 916,657 466,503 536,568 10,410
Social Strategic Growth 419,522 312,953 402,402 142,274
Social Managed Growth 951,342 190,876 101,645 311
Social Global 859,122 159,567 102,506 9,747
Large Cap Growth 2,490,238 1,116,278 1,750,761 401,991
Mid Cap Growth 1,255,045 733,845 764,846 185,025
Small Cap Growth 2,168,406 858,693 1,605,526 490,017
S & P 500 Index 6,258,847 2,265,852 3,845,059 557,081
Income 4,057,816 1,715,684 3,419,436 1,170,442
Growth 1,720,369 707,819 1,261,094 267,369
Income (closed November, 1997) --- --- 18,465 31,857
Balance (closed November, 1997) --- --- 428,465 514,774
International Growth 1,684,012 1,062,001 2,890,242 501,211
Aggressive Growth 176,769 69,306 132,810 27,758
Hard Assets / Metals 1,060,441 375,492 515,399 54,321
High Income 1,276,677 424,793 565,864 50,707
Aggressive Growth 1,555,759 497,268 856,525 91,146
Large Cap Growth 3,067,213 1,147,723 1,534,627 89,827
Balanced 2,200,398 436,267 532,547 57,368
Managed Income 610,959 55,159 101,553 29,807
</TABLE>
8
<PAGE>
- -------------------------------------------------
Audited Financial Statements (Statutory Basis)
ACACIA NATIONAL LIFE INSURANCE COMPANY
December 31, 1998 and 1997
Report of Independent Accountants...........................................1
Statements of Financial Condition...........................................2
Statements of Operations and Changes
in Capital and Surplus...................................................3
Statements of Cash Flow.....................................................4
Notes to Financial Statements............................................5-16
<PAGE>
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 (the Company) as of December 31, 1998 and
1997, 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 the Company as of December 31, 1998 and 1997 or the results of its operations
or its cash flow for the years then ended.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, and surplus of the
Company as of December 31, 1998 and 1997, and the results of its operations and
its cash flow for the years then ended, on the basis of accounting described in
Note 2.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
March 31, 1999
1
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
Statements of Financial Condition (Statutory Basis)
December 31,
1998 1997
--------- -------
---------------------------------
(In thousands)
ASSETS
Debt securities $ 556,127 $ 570,348
Equity securities 2,323 2,373
Mortgage loans --- 5,031
Policy loans 7,579 8,100
Cash and cash equivalents 13,678 6,737
Accrued investment income 9,775 9,992
Separate account assets 73,334 31,095
Other assets 3,252 2,820
-------------- --------------
Total Assets $ 666,068 $ 636,496
============== ==============
LIABILITIES
Insurance and annuity reserves $ 483,126 $ 508,884
Deposit administration contracts and other
deposit reserves 25,949 26,459
Other policyowner funds 36,116 28,666
Policy claims 2,113 3,143
Interest maintenance reserve 3,202 2,587
Asset valuation reserve 5,513 5,188
Separate account liabilities 73,334 31,095
Other liabilities 5,025 (2,032)
-------------- --------------
Total Liabilities 634,378 603,990
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 9,690 10,506
-------------- --------------
Total Capital and Surplus 31,690 32,506
-------------- --------------
Total Liabilities and
Capital and Surplus $ 666,068 $ 636,496
============== ==============
See notes to financial statements.
2
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
Statements of Operations and Changes in Capital and Surplus (Statutory Basis)
For the Years Ended
December 31,
1998 1997
--------- --------------
-----------------------------
(In thousands)
INCOME
Premiums and annuity considerations $ 63,318 $ 59,646
Net investment income 46,305 47,774
Supplementary contracts 6,221 16,809
Other income 1,412 1,042
------------- -----------
117,256 125,271
BENEFITS AND EXPENSES
Benefits for policyholders and beneficiaries:
Benefit payments, surrenders, and withdrawals 83,190 108,148
Decrease in insurance and annuity reserves (18,427) (21,269)
Change in deposit administration funds (510) 800
------------- -----------
64,253 87,679
Commissions to managing directors
and account managers 7,353 5,202
Net transfers to separate accounts 30,725 20,387
Operating expenses allocated from Acacia Life 16,343 12,724
Other operating expenses and taxes 1,201 1,247
------------- -----------
119,875 127,239
------------- -----------
Net (Loss) from Operations Before Federal
Income Taxes and Realized Capital Losses (2,619) (1,968)
Federal income tax benefit 1,822 2,511
------------- -----------
Net Gain (Loss) from Operations Before
Realized Capital Gains (Losses) (797) 543
Realized Capital Gains (Losses)
Net realized capital gains 1,516 1,183
Capital gains taxes (760) (521)
Transferred to interest maintenance reserve (965) (516)
------------- -----------
Net Realized Capital Gains (Losses) (209) 146
------------- -----------
Net Income (Loss) (1,006) 689
Capital and surplus, beginning of year 32,506 29,641
Change in valuation basis of reserves (120) (119)
Change in asset valuation reserve (325) 524
Change in net unrealized capital gains (49) 495
Change in non-admitted assets 684 1,276
========== ---------
Capital and Surplus, End of Year $ 31,690 $ 32,506
========== ==========
See notes to financial statements.
3
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
Statements of Cash Flow (Statutory Basis)
For the Years Ended
December 31,
1998 1997
----------- ----------
OPERATING ACTIVITIES (In thousands)
Premiums and annuity considerations $ 63,318 $ 59,646
Other premiums, considerations and deposits 8,176 18,976
Net investment income received 44,953 47,368
Benefits paid to policyholders (13,297) (10,980)
Commissions and other expenses paid (23,804) (20,698)
Surrender benefits and other fund withdrawals paid (71,062) (96,822)
Net transfers to separate accounts (34,192) (22,815)
Federal and state income taxes received (paid)
(excluding tax on capital gains) 2,596 (1,093)
--------- --------
Net Cash (Used In) Operating Activities (23,312) (26,418)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 178,064 68,392
Equities --- 756
Mortgage loans 5,031 16
Partnership and other interests 77 240
Tax payments on net capital gains (760) ---
Cost of investments acquired:
Bonds (161,139) (40,619)
Mortgage loans --- (5,000)
Partnership and other interests (30) (1,158)
Net change in policy loans and premium notes 522 (9)
--------- --------
Net Cash Provided By Investing Activities 21,765 22,618
FINANCING ACTIVITIES Cash provided (used):
Net other provisions (uses) 8,488 (1,862)
--------- --------
Net Cash Provided By (used in) Financing Activities 8,488 (1,862)
Increase (Decrease) in Cash and Cash Equivalents 6,941 (5,662)
Cash and Cash Equivalents, Beginning of Year 6,737 12,399
--------- --------
Cash and Cash Equivalents, End of Year $ 16,678 $ 6,737
========= ========
See notes to financial statements
4
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998 and 1997
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.
5
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
In general, the SAP basis of accounting varies in certain respects from GAAP in
that:
X Acquisition costs incurred at policy issuance, such as commissions and
other costs incurred 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.
X Certain assets designated as "non-admitted" are excluded from the balance
sheets by a direct charge to unassigned surplus.
X The asset valuation reserve and interest maintenance reserve are not
recorded for GAAP purposes.
X 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 statement purposes and the tax basis of other assets and
liabilities.
X 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.
X 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.
X 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.
X Debt securities are generally carried at amortized cost, 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
6
<PAGE>
taxes or benefit and related deferred acquisition cost effects, is reported
as other comprehensive income. Trading securities consist of debt
securities purchased with the intent to resell in the near term and are
reported at fair value. Unrealized gains and losses on trading securities
are credited or charged to net investment income.
The impact of the differences between SAP and GAAP basis reporting on Net Income
and Capital and Surplus is as follows:
1998 1997
($ in thousands Net Capital Net Capital
Income And Surplus Income And Surplus
As reported under SAP $ (1,006) $ 31,690 $ 689 $ 32,506
Adjustments:
Deferred policy acquisition costs 2,874 58,017 (66) 53,937
AVR and IMR 615 8,715 357 7,775
Deferred Federal income tax (732) (20,077) (2,372) (19,561)
Net policyholder liabilities (1,601) (11,291) 731 (9,813)
Investments (59) 20,013 -- 22,521
Other (500) (946) 1,289 (456)
------- --------- ----- -------
Amounts under GAAP $ (409) $ 86,121 $ 628 $ 86,909
======= ========= ===== ========
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.
7
<PAGE>
As also prescribed by the NAIC, the Company maintains an Interest Maintenance
Reserve, which represents the net accumulated unamortized realized capital gains
and losses attributable to changes in the general level of interest rates on
sales of fixed income investments, principally bonds and mortgage loans. Such
gains or losses are amortized into income using schedules prescribed by the NAIC
over the remaining period to expected maturity of the individual securities
sold.
Cash Equivalents
The Company considers overnight reverse 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 $2,978,000 and $3,662,000 at December 31, 1998 and 1997, 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, 1998.
8
<PAGE>
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.
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 1997 amounts were made to conform with the 1998
financial statement presentation.
NOTE 3 - INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
December 31, 1998 December 31, 1997
----------------- -----------------
($ in thousands Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
Debt securities $556,127 $591,776 $570,348 $610,928
Equity securities 2,323 2,696 2,373 2,713
Mortgage loans --- --- 5,031 5,084
Cash and cash equivalents 13,678 13,678 6,767 6,767
Financial Liabilities:
Investment-type insurance contracts 376,589 376,589 $407,643 $407,643
9
<PAGE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks and mortgage backed securities) are based on quoted
market prices, where available. For fixed maturity securities not actively
traded and for private placements, fair values are estimated using values
obtained from independent pricing services. The fair values for equity
securities are based on quoted market prices.
Mortgage loans: The fair values for mortgage loans are estimated using
discounted cash flow analysis, based on interest rates currently being offered
for similar loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Cash and cash equivalents: The carrying amount approximates fair values because
of the short maturity of these instruments.
Policy loans: Policy loans are an integral component of insurance contracts and
have no maturity dates. Future cash flows are uncertain and difficult to
predict. Therefore, management has concluded that it is not practical to
estimate their fair value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. The carrying values for the deposit administration contracts and
supplementary contracts without life contingencies approximate their fair
values.
10
<PAGE>
Investments
Major categories of investment income for the years ended December 31 are
summarized as follows:
($ in thousands)
1998 1997
----- ----
Fixed maturity securities $ 45,499 $ 47,086
Common stock -- --
Preferred stock 56 60
Mortgage loans 334 110
Policy loans 447 502
Other 906 1,001
------- ------
Gross investment income 47,242 48,759
Investment expenses (1,287) (1,143)
Interest maintenance reserve amortization 350 158
------- ------
Net investment income $ 46,305 $ 47,774
======== ========
Realized gains (losses) on investments for the years ended December 31 are
summarized as follows:
($ in thousands)
1998 1997
----- ----
Fixed maturity securities
Gross realized gains $ 1,631 $ 963
Gross realized losses (145) (11)
Equity securities
Gross realized gains -- 230
Gross realized losses -- ---
Other invested assets 30 1
------- ------
$ 1,516 $ 1,183
======== =======
The statement values and estimated fair values of the Company's investments in
debt securities are as follows:
($ in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
At December 31, 1998
U.S. government and agencies $72,543 $9,705 $ -- $82,248
Other government 23,004 624 (728) 22,900
Mortgage backed securities 166,042 4,928 (708) 170,262
Corporate 294,538 24,557 (2,729) 316,366
----------- -------- ------- -------
$ 556,127 $ 39,814 $ (4,165) $ 591,776
=========== ========== ========= =========
11
<PAGE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
At December 31, 1997
U.S. government and agencies $87,514 $ 8,228 $ -- $ 95,742
Other government 30,943 856 (73) 31,726
Mortgage 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
======= ======== ======== =========
The amortized cost and estimated fair value of debt securities, by contractual
maturity at December 31, 1998 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.
($ in thousands)
Statement Fair
Value Value
Maturities in 1999 $ 12,704 $ 12,601
In 2000 to 2003 140,232 148,163
In 2004 to 2008 130,680 138,730
After 2008 106,469 122,020
Mortgaged-backed securities 166,042 170,262
-------- --------
$ 556,127 $ 591,776
========= =========
Investment Portfolio Credit Risk
The Company's bond investment portfolio is predominately comprised of investment
grade securities. At December 31, 1998 and 1997, approximately $8.9 million and
$3.9 million, respectively, in debt security investments (1.6% and 0.7%,
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.
12
<PAGE>
Premiums and benefits have been reduced by amounts reinsured as follows (in
thousands):
1998 1997
----- ----
Premiums ceded:
Acacia Life $ 3,971 $ 3,384
Others 630 533
----- -----
Total premium ceded $ 4,601 $ 3,917
====== ======
Death benefits reimbursed:
Acacia Life $ 3,610 $ 2,989
Others 233 277
----- -----
Total benefits reimbursed $ 3,843 $ 3,236
====== =======
Amounts recoverable on paid and unpaid losses:
Acacia Life $ 543 $ 643
Others 139 --
----- -----
Total amounts recoverable on paid
and unpaid losses $ 682 $ 643
==== =====
Policy reserves ceded:
Acacia Life $ 2,108 $ 1,897
Others 392 350
----- -----
Total policy reserves ceded $ 2,500 $ 2,247
====== =======
Life insurance in force ceded:
Acacia Life $ 1,692,820 $ 1,206,052
Others 104,285 90,471
--------- -----------
Total life insurance in force ceded $ 1,797,105 $ 1,296,523
========= ==========
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
13
<PAGE>
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 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 $0.7 million and $1.1 million was amortized through operations
during 1998 and 1997, respectively, as an offset to miscellaneous income. At
December 31, 1998 and 1997, the balance of goodwill was $3.0 million and $3.7
million, respectively.
NOTE 5 - ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposit liabilities have the following withdrawal
characteristics:
($ in thousands)
December 31,
1998 1997
Subject to discretionary withdrawal with adjust- ------------ -------------
ment, at book value less surrender charge $219,324 43% $228,262 46%
Subject to discretionary withdrawal without adjust-
ment, at book value (minimal or no charge) 236,303 47 226,606 45
Not subject to discretionary withdrawal provision 51,618 10 46,550 9
-------- ---- ------- ---
Total annuity actuarial reserves and deposit
fund liabilities $507,245 100% $501,418 100%
======== === ======== ====
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, 1998 and 1997. 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.
14
<PAGE>
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.
Expenses allocated to the Company were based on a consistent method for 1998 and
1997. Net amounts payable to Acacia Life at December 31, 1998 and 1997 are $7.6
million and $1.5 million, respectively, and are included in other liabilities.
During 1997, the Company purchased participations of $5.0 million in two
commercial mortgage loans from Acacia Life. The participations were purchased at
the unpaid principal balance.
The assets of the defined contribution plan under Internal Revenue Code Section
401(k) for the employees of Acacia Life include an investment in a deposit
administration contract with Acacia National of $18.7 million and $18.1 million
at December 31, 1998 and 1997, respectively.
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.
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. Due to a
statutory loss from operations in 1998, the Company may not pay any dividend in
1999 without prior approval.
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 1998 and 1997 are
significantly above the regulatory action levels.
15
<PAGE>
NOTE 10 - CAPITAL AND SURPLUS
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.
NOTE 11 - SUBSEQUENT EVENT
Effective January 1, 1999, the Company's ultimate parent, Acacia Mutual Holding
Corporation merged with the Ameritas Mutual Insurance Holding Company to create
Ameritas Acacia Mutual Holding Company.
16
<PAGE>
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, 1998 and 1997.
Audited Financial Statements of Acacia National Life Insurance Company
for the fiscal years ended December 31, 1998 and 1997.
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 PricewaterhouseCoopers LLP
(11) N/A
(12) N/A
(13) N/A
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/ Incorporated by reference to the Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4 (File No. 333-03963) filed on March 1,
1999.
C-1
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
EXECUTIVE OFFICERS AND DIRECTORS OF ANLIC
Shows name and position(s) with ANLIC followed by the principal occupations for
the last five years.***
OFFICERS AND DIRECTORS OF ANLIC
Name and Position(s) Principal Occupation
With Acacia National Last Five Years
- -------------------- --------------------------
Charles T. Nason Chairman of the Board, CEO, and President
Chairman of the Board, Since June 1988
and Chief Executive Chairman of the Board and CEO
Officer and Director Since October 1998
Robert W. Clyde President and COO, Since October 1998
President & Chief Executive Vice President,
Operating Officer Marketing and Sales Since September 1994;
Vice President, Retail Long-Term Care September 1993
until August 1994, Vice President, General Agency
July 1991 until August 1993, John Hancock Mutual Life
Robert-John H. Sands Senior Vice President and
Senior Vice President and General Counsel
General Counsel Since 1991
Paul L. Schneider Senior Vice President, Chief
Senior Vice President, Financial Officer Since 1989 and Chief
Chief Financial Officer Investment Officer Since April 1997
and Chief Investment
Officer
Haluk Ariturk Senior Vice President and
Senior Vice President, Operations and & Chief Actuary
Operations and Chief Since June 1989
Actuary
Janet Schmidt Senior Vice President
Senior Vice President Human Resources
Human Resources Since 1994
Brian J. Owens Vice President,
Senior Vice President Acacia Financial Centers
Career Distribution Since 1995
R. Larry Mauzy Senior Vice President
Senior Vice President and Chief Information Officer
and Chief Information Since 1997
Officer
C-2
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
AMERITAS MUTUAL INSURANCE HOLDING COMPANY ORGANIZATION CHART
- --------------------------------------------------------------------------------
AMERITAS LIFE INSURANCE CORP. SUBSIDIARIES
------------------
AMERITAS
MUTUAL INSURANCE
HOLDING COMPANY
------------------
------------------
AMERITAS
HOLDING COMPANY
------------------
-------------- --------------
AMERITAS ACACIA
LIFE INSURANCE CORP. LIFE INSURANCE
COMPANY
-------------- --------------
C-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
------------------
AMERITAS
LIFE INSURANCE CORP.
------------------
SEPARATE ACCOUNTS
- ------------- ------------- -------------- ------------------ --------------- --------------
AMERITAS AMERITAS FIRST PATHMARK VERITAS CORP., AMAL
INVESTMENT MANAGED DENTAL AMERITAS ASSURANCE COMPANY CORPORATION
ADIVSORS, INC. PLAN, INC. LIFE INS. A JOINT VENTURE OF
CORP. OF NEW YORK AMERITAS AND AMERUS
--------------- ----------------
AMERITAS AMERITAS
INVESTMENT CORP. VARIABLE LIFE
INSURANCE COMPANY
SEPARATE ACCOUNTS
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
---------------------------------
Acacia Life Insurance
Company
(as a stock life
insurance company)
(Acacia Mutual Life Ins.
Co. estb.
1869, reorganized as
Acacia Life,
1997 D.C.)
---------------------------------
-
-
-----------------------------------------------------------------------
- - - -
------------ -------------------- -------------------- ------------------------
100% 100% 100% 100%
Enterprise Acacia Realty Acacia Financial Acacia National Life
Resources, Square, LLC Corp. Ins. Co.
LLC 1997 DE (Holding Company) (Life Ins. Annuity
1997 DE 1991 MD Sales)
1974 VA
------------ -------------------- -------------------- ------------------------
-
- ----------------------------------------------------------------------------
- - - - -
- ----------- --------------- -------------- ----------------- ----------------
100% 100% 100% 100% 100%
Cal
ver Acacia Realty Gardner Acacia Federal The Advisors
Group, Corp. Montgomery Savings Bank Group, Inc.
Ltd. (Real Estate Company 1985 Fed. (Broker,
(Holding Joint Venture) (Tax Return Dealer & Inv.
Company) 1984 DC Prep. Srvs) Advisor)
1991 1994 DE 1982 DE
DE
- ---------- ---------------- --------------- -------------------- ---------------
- -
- -
- - - - -
- -
- ---------------------- --------------------------------
- - - - - -
- ------------------ --------------- ------------- ------------ -------------
-
- 100% 100% 100% 100% 100 Shares
- Acacia Acacia Title The Acacia Shares*** The
- Services Agency, Inc. Ins. Agency The Advisors
- Corp. 1997 VA of Mass, Advisors Group Ins.
- (Solicits Inc. Group Ins. Agency of
- Deposits) (Agent, Agency of Texas, Inc.
- 1985 VA Broker) Ohio, Inc. (Agent,
- 1996 MA 1995 OH Broker)
- 1996 TX
- --------------------- --------------- ------------- ------------ -------------
-
- ------------------------------------------------------------------------------
- - - - - -
- - - - - -
- -------------------- ------------- ------------- ----------------- ------------
100% 100% 100% 100% 50%
Calvert Calvert Calvert Calvert Calvert**
Asset Shareholder Admin. Distributors, Sloan
Mgt.* Srvs. Inc. Srvs. Comp. Inc. (Broker Advisers,
Comp. (Transfer (Legal & Dealer) LLC
(Inv. Agent) Acctg. 1994 DE (Inv.
Advisor 1980 DE Srvs.) Advisor)
1981 1980 DE 1995 MD
DE
- ----- ----------------------------- ------------- ----------------- ---------
</TABLE>
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<PAGE>
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
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<PAGE>
ITEM 27. NUMBER OF POLICY OWNERS
As of January 31, 1998 there were 1,042 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:
Investment Company Product
------------------------- -------------
Acacia National Variable Life Individual Flexible Premium
Insurance Separate Account I Variable Life Insurance
(b)The following table sets forth certain information regarding directors and
officers of The Advisors Group:
Name and Principal Positions and Offices
Business Address* With Underwriter
-----------------------------------------------------------------------------
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
Brian J. Owens Director
James E. Harvey Director
Leona Glowicz Vice President, Tax and Treasurer
Scott A. Grebenstein Vice President, Product Development
David A. Glazer Regional Vice President
Minday Gasthalter Assistant Vice President, Training & Development
Michael A. Grimmer Assistant Vice President, Trading and Operations
Myles Edwards, IV Compliance Officer
M. Catherine Hill Secretary
Todd D. Green Staff Attorney & Assistant Secretary
Mey Marcovici Treasurer
* The principal business address of each person listed is:
The Advisors Group, Inc.
7315 Wisconsin Avenue
Bethesda, Maryland 20814
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<PAGE>
(c) Commissions Received by Each Principal Underwriter from the Registrant
during the Registrant's Last Fiscal Year
Net Underwriting Compensation
Name of Principal Discounts and on
Underwriter Commissions Redemption Commissions Compensation
- --------------------------------------------------------------------------------
The Advisors Group, (N/A) (N/A) (N/A) (N/A)
Inc.
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.
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<PAGE>
SECTION 403(b) REPRESENTATIONS
ANLIC represents that it is relying on a no-action letter dated November 28,
1988, to the American Council of Life Insurance (Ref. No. IP-6-88) regarding
Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in
connection with redeemability restrictions on Section 403(b) policies, and that
paragraphs numbered (1) through (4) of that letter will be complied with.
SECTION 26(e)(2)(A) REPRESENTATIONS
Pursuant to Section 26 (e)(2)(A) of the Investment Company Act of 1940, as
amended, ANLIC represents that the fees and charges deducted under the Policy,
in the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred and the risks assumed by ANLIC.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the depositor, certifies that it meets the requirements of
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this post-effective
amendment number 4 to its registration statement to be signed on its behalf by
the undersigned duly authorized in the City of Bethesda, in the State of
Maryland, on the 29th day of April, 1999.
ACACIA NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT II
By: /s/ Ellen Jane Abromson
Ellen Jane Abromson
Second Vice President and Associate Counsel
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>
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.
Signature Title Date
- --------- ------------ --------
/s/ Charles T. Nason Chairman of the Board, President, April 29, 1999
- -------------------- Chief Executive Officer, and
Charles T. Nason Director
/s/ Robert W. Clyde Executive Vice President, Marketing April 29, 1999
- ------------------ and Sales, and Director
Robert W. Clyde
/s/ Paul L. Schneider Senior Vice President, Chief April 29, 1999
- --------------------- Financial Officer, Chief Investment
Paul L. Schneider Officer, and Director
/s/ Robert-John H. Sands Senior Vice President, General April 29, 1999
- ------------------------ Counsel, and Director
Robert-John H. Sands
/s/ Haluk Ariturk Senior Vice President, Operations, April 29, 1999
- -------------------
Haluk Ariturk Chief Actuary, and Director
/s/ Janet L. Schmidt Senior Vice President April 29, 1999
- ------------------- Human Resources
Janet L. Schmidt
/s/ Brian J. Owens Senior Vice President April 29, 1999
- ------------------- Career Distribution
Brian J. Owens
/s/ R. Larry Mauzy Senior Vice President April 29, 1999
- -------------------- and Chief Information Officer
R. Larry Mauzy
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
(10)(A) Consent of PricewaterhouseCoopers LLP
26 Persons controlled by or under common control with the Depositor or
Registrant
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 4 dated May 1,1999
on Form N-4 (file Nos. 333-03963, 811-07627) of our report dated April 30, 1998,
on our audit of the financial statements of Acacia National Life Insurance
Company as of and for the years ended December 31,1998 and 1997, and our report
dated April 30, 1998 on our audit of the financial statements of Acacia National
Variable Annuity Separate Account II as of December 31,1998 and for the years
ended December 31,1998 and 1997. We also consent to the reference to our Firm
under the caption "Experts".
/s/PricewaterhouseCoopers
Washington, D.C.
April 30, 1999
