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Rule 497(e)
File Nos.
33-90208
811-08993
PROSPECTUS
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
ACACIA NATIONAL LIFE INSURANCE COMPANY
51 LOUISIANA AVENUE, N.W., WASHINGTON, DC
TELEPHONE: (202) 628-4506
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
The flexible premium variable life insurance policy ("Policy") offered
by Acacia National Life Insurance Company ("ANLIC") and described in this
Prospectus is designed to provide lifetime insurance protection and maximum
flexibility in connection with premium payments and death benefits, together
with the opportunity to allocate net premiums among investment alternatives
with different investment objectives. An Owner may, subject to certain
restrictions, vary the frequency and amount of premium payments and increase or
decrease the level of life insurance benefits payable under the Policy. This
flexibility allows an Owner to provide for changing insurance needs under a
single insurance policy.
The Policy provides for a death benefit payable at the Insured's
death. If net premiums are allocated to Acacia National Variable Life
Insurance Separate Account I ("Variable Account"), the amount of the death
benefit may, and the Policy Account Value will, reflect the investment
experience of the chosen Sub-accounts of the Variable Account, as well as the
frequency and amount of premiums, any partial surrenders, any loans, and the
charges assessed in connection with the Policy. The proceeds paid to the
Policy beneficiary will be reduced by any outstanding indebtedness and any due
and unpaid charges. The Policy will remain in force so long as the Cash
Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy. The Owner bears the entire investment risk for
all amounts allocated to the Variable Account; no minimum Policy Account Value
is guaranteed.
After the Free Look Period, the Owner may allocate net premiums to
one or more of the Sub-accounts of the Variable Account or to the General
Account. Each Sub-account of the Variable Account will invest solely in a
corresponding series ("Portfolio") of various mutual funds ("Funds"). The
accompanying prospectuses for the Funds describe the investment objectives and
the attendant risks of the Portfolios.
The Policy Account Value will reflect the monthly deductions and
certain other fees and charges such as the Mortality and Expense Risk Charge.
Also, a surrender charge may be imposed if, during the first 9 Policy Years or
within 9 years after a Face Amount increase, the Policy lapses, is surrendered
or if the Owner effects a partial surrender. Generally, during the first five
Policy Years, the Policy will remain in force as long as the Benchmark Premium
is paid or the Cash Surrender Value is sufficient to pay certain monthly
charges imposed in connection with the Policy. After the fifth Policy Year,
whether the Policy remains in force may depend upon whether the Cash Surrender
Value is sufficient to pay the monthly charges under the Policy or whether the
Guaranteed Death Benefit Premium ("GDBP") has been paid.
It may not be advantageous to purchase a Policy as a replacement for
another type of life insurance or as a means to obtain additional protection if
the purchaser already owns life insurance. An ANLIC representative will be
able to explain the risks or disadvantages of replacement of life insurance.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS FOR THE PORTFOLIOS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE PRIMARY PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE
INSURANCE PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR
OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE POLICY IS NOT AVAILABLE IN ALL STATES. PLEASE READ THIS PROSPECTUS
CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Policy Summary Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Allocation of Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Change in Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Free Look Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Charges Associated with the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Policy Lapse and Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Loan Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Illustrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Acacia National and the Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Acacia National Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Alger American Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Acacia Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Dreyfus Stock Index Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Oppenheimer Variable Account Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Strong Variable Insurance Funds, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Strong Discovery Fund II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Van Eck Worldwide Hard Assets Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Resolving Material Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Addition, Deletion, or Substitution of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Applicable Percentage Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Payment of Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Payment and Allocation of Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Policy Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Allocation of Premiums and Policy Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Policy Lapse and Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Charges and Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Partial Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Premium Expense Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Policy Account Value Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Investment Advisory Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Portfolio Annual Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Reduction of Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Policy Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Loan Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Surrender Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Partial Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Examination of the Policy Privilege (Free Look) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<TABLE>
<S> <C>
General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
General Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
General Account Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
General Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
General Policy Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Postponement of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Change of Owner or Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Collateral Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Reports and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Optional Insurance Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Federal Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Tax Status of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Treatment of Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Special Rules for Pension and Profit Sharing Plans . . . . . . . . . . . . . . . . . . . . . . . . 36
Possible Charge for ANLIC's Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Policies Issued in Conjunction with Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 37
Legal Developments Regarding Unisex Actuarial Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Officers and Directors of ANLIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Distribution of the Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Policy Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
Appendix A - Illustrations
Appendix B - Automatic Rebalancing and Dollar Cost Averaging Programs
Financial Statements
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DEFINITIONS
Age -- The age at the Insured's last birthday.
Attained Age -- The age of the Insured on the last Policy Anniversary.
Benchmark Premium -- A monthly premium listed in the Policy for the
original face amount and any increase made during the first sixty months that
the Policy is in force. During the first sixty months that the Policy is in
force, the Policy is guaranteed not to lapse provided the sum of the premiums
paid equals or exceeds the sum of the scheduled Benchmark Premiums since the
Policy date and any Increase date. Electing to have the Benchmark Premium
feature will reduce premium flexibility.
Beneficiary -- The Beneficiary is designated by the Owner in the
application. If changed, the Beneficiary is as shown in the latest change
filed with ANLIC. If no Beneficiary survives the Insured, the Owner or the
Owner's estate will be the Beneficiary. The interest of any Beneficiary is
subject to that of any assignee.
Cash Surrender Value -- The Policy Account Value minus any applicable
surrender charges, minus any outstanding indebtedness and due charges.
Due Proof of Death -- One of the following:
(a) A copy of a certified death certificate.
(b) A copy of a certified decree of a court of competent jurisdiction
as to the finding of death.
(c) A written statement by a medical doctor who attended the insured.
(d) Any other proof satisfactory to ANLIC.
Face Amount -- The minimum death benefit payable under the Policy so long as
the Policy remains in force. The death benefit proceeds will be reduced by any
outstanding indebtedness and any due and unpaid charges.
Fixed Benefit Policy - For any increase in face amount, the Owner may request
a conversion of the amount of increase to a Fixed Benefit Policy.
Free Look Period -- The period of time in which the Owner may cancel the
Policy and receive a refund of the total premiums paid. The Owner may cancel
the Policy within 20 days of receipt of the Policy and free look notice, or 45
days after completion of Part 1 of the application, whichever is later. This
provision also applies in the event of an increase in coverage.
General Account -- The assets of ANLIC other than those allocated to the
Variable Account or any other separate account.
Grace Period -- The 62 days allowed from the mailing of the notice of the
start of the Grace Period until the date the policy will Lapse for non payment
of premium.
Guaranteed Death Benefit Premium ("GDBP") -- An annual premium listed in
the Policy, based on the Insured's age, sex, rate class and amount of insurance
coverage at the time of issue. Provided GDBP is paid and the Owner does not
elect to take any loans or partial surrenders, the Policy is guaranteed not to
lapse before the Insured's age 65 or for ten years from the effective date of
coverage, whichever is later.
Indebtedness -- The sum of all unpaid Policy loans and accrued interest on
loans.
Insured -- The person upon whose life the Policy is issued.
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Loan Value -- The maximum amount that may be borrowed under the Policy. The
loan value equals 90% of the Policy's Cash Surrender Value.
Maturity Date -- The Insured's 95th birthday, if living.
Monthly Anniversary -- The same date in each succeeding month as the Policy
Date. For purposes of the Variable Account, whenever the Monthly Anniversary
falls on a date other than a Valuation Date, the Monthly Anniversary will be
deemed the next Valuation Date.
Owner -- The Policy Owner as defined below.
Planned Periodic Premium -- A scheduled premium of a level amount at a fixed
interval over a specified period of time.
Policy -- The Flexible Premium Variable Life Insurance Policy offered by
ANLIC and described in this Prospectus.
Policy Account Value -- The sum of the Policy's values in the Sub-accounts
and the General Account.
Policy Date -- The date set forth in the Policy that is used to determine
Policy years and Policy months. Policy anniversaries are measured from the
Policy Date.
Policy Month -- A month beginning on the Monthly Anniversary.
Policyowner ("Owner") -- The person so designated in the Application or as
subsequently changed. If a Policy has been absolutely assigned, the assignee
is the Owner. A collateral assignee is not the Owner.
Portfolio -- A separate investment portfolio of a mutual fund in which the
Variable Account assets are invested.
Premium Expense Charge - A charge to cover all Premium Taxes imposed by the
states and any subdivision thereof.
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 sub-division of the Variable Account. Each Sub-account
invests exclusively in the shares of a specified Portfolio of a Fund.
Surrender Charge -- The amount deducted from the Policy Account Value upon
lapse or surrender of the Policy during the first 9 years that the original
Policy coverage is effective and during the first 9 years from the effective
date of an increase. The Surrender Charge is shown in the Policy.
Target Premium -- An annual premium amount based on the Insured's age, sex
and risk class that is used to calculate surrender charges and agent
compensation.
Valuation Date -- Each regular business day that ANLIC and the New York
Stock Exchange are open for business, excluding holidays, and any other day in
which there is sufficient trading in the Fund's 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 on the next succeeding Valuation Date.
Variable Account -- Acacia National Variable Life Insurance Separate Account
I, a separate investment account established by ANLIC to receive and invest the
net premiums paid under the Policy.
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POLICY SUMMARY DESCRIPTION
This is a brief analysis of the Policy provisions and how they relate
to your rights and benefits. Complete details are contained elsewhere in the
Prospectus and should be read carefully in conjunction with this summary
information.
THE CONTRACT
The Policy offered by this Prospectus is issued by ANLIC. The Policy
allows for a flexible premium schedule. Payments may be made with varied
amounts and frequency within stated limitations. While the Policy is in force,
ANLIC will provide:
1) Death Benefit protection to the Maturity Date;
2) Surrender and loan value upon request;
3) Additional insurance benefits that you elect.
The primary purpose of the Policy is to provide life insurance
protection in the event of the Insured's death. It is not offered primarily as
an investment accumulation vehicle. The Owner should consider the need for
life insurance protection with respect to the Insured and compare such
advantages with the purchase of other investment accumulation products. Also,
the Owner should ask ANLIC's representative if changing or adding to current
coverage is advantageous. Generally, replacement of existing life insurance is
not advantageous.
PREMIUMS
Despite the ability of the Owner to vary the timing and amount of
premium payments for the Policy, there are regular monthly charges that must be
funded for the Policy to continue in force. The Owner may choose to pay a lump
sum premium deposit or to regularly deposit premium payments to cover expenses
associated with the Policy. There is a stated maximum amount of premium which
may be paid for the Policy to assure that it will qualify as life insurance
under the Internal Revenue Code. Any premium paid above the maximum premium
limitation will be refunded. To help the Owner determine the amount of premium
needed to fund the current costs associated with the Policy, the Policy has a
stated Planned Periodic Premium schedule. The Owner may elect to pay at a
minimum the scheduled Benchmark Premiums and if that is done, then the Policy
is guaranteed not to lapse during the first sixty months. Similarly, if the
Owner pays the Guaranteed Death Benefit Premium ("GDBP"), the Policy is
guaranteed not to lapse before the Insured's age 65 or for ten years from the
effective date of coverage whichever is later. The GDBP will not apply in the
event the Owner elects to take a Policy loan or partial surrender. Otherwise,
the value available to fund the Policy expenses will be a factor of the amount
of premium paid and whether premium is allocated to the General Account, which
has minimum guaranteed value, or to the Variable Account, where the value
varies with investment experience.
Provided the Benchmark Premiums or GDBP has not been paid during their
guarantee periods, the Policy will lapse when the Cash Surrender Value is
insufficient to pay the next monthly deduction and no payments are received
during the sixty-two day Grace Period. ANLIC will send a notice to the Owner
at the start of the Grace Period with instructions as to the amount of premium
that must be paid to keep the Policy in force. Each year the Owner will
receive a report showing the Policy's value, premiums received and monthly
charges during the past year.
ALLOCATION OF PREMIUM PAYMENTS
A Premium Expense Charge is taken from each paid premium to cover the
cost for an amount ANLIC considers necessary to pay all premium taxes imposed
by the states and any subdivisions thereof. The premium net of the Premium
Expense Charge, may be allocated to either the General Account or the Variable
Account, or a combination of these accounts. If you allocate net premiums to
the Variable Account, then you must allocate them among one or more
Sub-accounts of the Variable Account. Each Sub-account invests its assets in a
Portfolio of a registered, open end investment management company (" Fund" ).
Each Portfolio is a separate investment series with its own stated investment
strategies and objectives.
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Currently there are nineteen Sub-accounts available for the Policy
which invest in corresponding Fund Portfolios.
<TABLE>
<CAPTION>
PORTFOLIO NAME CATEGORY
<S> <C>
Alger American Growth Portfolio Large Cap Growth
Alger American MidCap Growth Portfolio Mid Cap Growth
Alger American Small Capitalization Portfolio Small Cap Growth
Acacia Capital Corporation Calvert Responsibly Invested Money Market Portfolio Cash-Money Market
Acacia Capital Corporation Calvert Responsibly Invested Strategic Growth Portfolio Strategic Growth
Acacia Capital Corporation Calvert Responsibly Invested Capital Accumulation Portfolio Managed Growth
Acacia Capital Corporation Calvert Responsibly Invested Global Equity Portfolio Global Equity
Acacia Capital Corporation Calvert Responsibly Invested Balanced Portfolio Balanced Growth
Dreyfus Stock Index Fund S & P 500 Index
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Portfolio Limited Bond
Neuberger & Berman Advisers Management Trust Growth Portfolio Long Term Value
Oppenheimer Capital Appreciation Fund Long Term Growth
Oppenheimer Growth Fund Strategic Growth
Oppenheimer Growth & Income Fund Established Growth & Income
Oppenheimer High Income Fund High Income
Oppenheimer Strategic Bond Fund Strategic Bond
Strong International Stock Fund II International Growth
Strong Discovery Fund II Aggressive Growth
Van Eck Worldwide Hard Assets Fund Aggressive Global
</TABLE>
THE DEATH BENEFITS
ANLIC will pay to the Beneficiary the death benefits after receipt of
due proof that the Insured died prior to the Maturity Date while the Policy was
in force. If the Insured is living on the Maturity Date, ANLIC will pay the
Owner the Policy's Cash Surrender Value and the Policy will terminate. The
amount of death benefits ANLIC will pay depends on which death benefit option
is in effect on the date of death.
Under Type A Option, the death benefit equals the face amount of
coverage. Under the Type B Option, the death benefit equals the face amount
plus the Policy Account Value. Indebtedness is deducted from any amount
payable. Under both death benefit options, the death benefits will be
increased if the Policy Account Value, when multiplied by a specific percentage
as stated in the Policy, is greater than the amount selected under Option A or
B (See, Death Benefits).
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CHANGE IN DEATH BENEFITS
After the first Policy year, the Policy allows the Owner to adjust the
death benefit by changing the death benefit option or by increasing or
decreasing face amount (See, Death Benefits). The minimum amount of an
increase in coverage is $25,000 and is subject to proof of continued
insurability. Any decrease in face amount of coverage must be at least $25,000
and may not result in a death benefit amount below the $25,000 minimum required
by ANLIC as stated in the Policy. Changes in death benefit amounts will result
in different charges for the Policy. Any increase in death benefit will result
in higher monthly deductions for the Policy and will increase surrender
charges. For any decrease in death benefits, Surrender Charges will remain
unchanged for the Policy until the time of lapse or surrender. A decrease will
also affect the cost of insurance charges.
POLICY ACCOUNT VALUE
The Policy Account Value is the total value held in both the Variable
Account and the General Account without any deduction for Indebtedness.
The Policy Account Value in the Variable Account is the sum total of
all values held in the Sub-accounts. This value reflects the investment
performance of the Sub-accounts, net premiums paid, transfers, and partial
surrenders. The Owner bears the entire investment risk for amounts allocated
to the Variable Account and consequently there is no guaranteed minimum amount
of value for premiums allocated to the Sub-accounts.
The General Account Value earns a minimum 4.5% of interest. Interest
credited to net premiums in the General Account will be declared by ANLIC in
advance and will vary from year to year in the complete discretion of ANLIC.
Interest rates will also vary depending on Policy indebtedness (See, Loan
Privileges). The General Account Value will reflect net premiums allocated or
transferred to it, plus credited interest, less any amounts transferred or
withdrawn (See, General Account).
FREE LOOK PERIOD
The Free Look Period allows the Owner to review the Policy and to
reject it if, for any reason, the Policy is not satisfactory. The Free Look
Period lasts until twenty days after the Owner receives the Policy or 45 days
after completion of Part I of the application, if later. The Free Look Period
also applies after an increase in Face Amount [See, Examination of the Policy
Privilege (Free Look)]. If exercised, the Policy will be considered void from
the beginning and all premiums paid will be refunded.
During the first fifteen days measured from the Policy Date, the net
premium allocated to Sub-accounts of the Variable Account will be automatically
allocated to the Sub-account that invests exclusively in the Calvert
Responsibly Invested Money Market Portfolio. Upon expiration of the fifteen
days, net premiums will be allocated in accordance with instructions in the
application. The Owner may change future allocations of premiums by notifying
ANLIC in writing. The Free Look Period also applies to the amount of any
increase in coverage.
TRANSFERS
The Owner may transfer amounts from the General Account to the
Sub-accounts. The minimum amount that may be transferred is $100. The maximum
amount allowed in any one Policy year is 25% of the General Account Value as of
the last Policy Anniversary Date. During the first Policy year, the maximum
amount is 25% of the General Account Value on the date of the request.
Unlimited transfers are allowed from the Variable Account to the
General Account or between Sub-accounts. The Owner may also choose an automatic
transfer option called The Automatic Rebalancing Program or dollar cost
averaging under the Dollar Cost Averaging Program (See, Automatic Rebalancing
and Dollar Cost Averaging).
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CHARGES ASSOCIATED WITH THE POLICY
Premium Expense Charge - A deduction for certain charges will be made from each
premium payment. A charge of 2.25% of each premium will be deducted to
compensate ANLIC for expenses associated with state premium taxes for the
Policy.
Policy Account Value Charges - The Policy Account Value will be reduced by a
monthly deduction equal to the sum of the cost of insurance charge, the cost of
any optional insurance benefits added by rider, and a monthly administrative
charge equal to $27 per month for the first Policy year and $8 each month
thereafter. The monthly deduction will be made on the Monthly Anniversary of
the Policy Date and may vary in amount from month to month. The cost of
insurance charge will vary based upon a number of factors, including the amount
of insurance applied for, the age, the issue age and the rate class of the
Insured.
Surrender Charge - A surrender charge is imposed if the Policy is surrendered
or lapses any time before it has been in force for ten years. The surrender
charge is equal to the product of the surrender charge factor as stated in the
Policy times the Target Premium for the original Policy face amount or an
increase. The maximum surrender charge is 30% of premiums paid up to Target
Premium as stated in the Policy (See, Surrender Privileges).
Partial Surrender Charge - During the surrender charge period for the Policy
and any increase in Policy amount, there will be a charge for a partial
surrender equal to 8% of the amount withdrawn or $25, whichever is greater.
Charges against the Variable Account - A charge not to exceed an annual rate
of .90% of the average daily net assets of the Sub-accounts will be imposed for
ANLIC's assumption of certain mortality and expense risks assumed in connection
with the Policy. This charge will be reduced after the fifteenth Policy year
(See, Mortality and Expense Risk Charge).
No charges are currently made against the Variable Account for federal
or state income taxes. Should ANLIC determine that such taxes may lawfully be
imposed, ANLIC may make deductions from the Variable Account to pay for these
taxes (See, Federal Tax Considerations).
In addition, because the Variable Account purchases shares of the
Portfolios, the value of the net assets in the Sub-accounts will reflect the
investment advisory or other expenses of the Portfolios.
GRACE PERIOD
The period of time allowed from the mailing of the notice that premium
is past due until the date the Policy will Lapse for non payment of Premium.
The Grace Period will be 62 days from the date a notice of the start of the
Grace Period is mailed. The Grace Period will start on any Monthly Anniversary
date when the Cash Surrender Value is not large enough to cover the next
monthly Premium deduction unless the sum of Benchmark Premiums or the GDBP has
been paid under conditions as stated below. On or about the first business day
of the Grace Period a notice of commencement of the Grace Period will be mailed
to the Owner at the mailing address on file with ANLIC.
If a premium large enough to cover past due Policy charges and the
next two monthly deductions is not paid by the end of the 62 day Grace Period,
the Policy will Lapse. The Policy will terminate without value. Partial
premium payments made during the Grace Period will be refunded. If the Insured
dies during the Grace Period, any past due monthly deductions will be deducted
from the Death Benefit.
POLICY LAPSE AND REINSTATEMENT
During the first five years, the Policy will lapse if the sum of the
scheduled Benchmark Premiums or GDBP has not been paid and the Cash Surrender
Value is insufficient to cover the monthly deductions, provided no premium is
received during the Grace Period. After the first five years, provided the
GDBP has not been paid, the Policy will lapse at the end of the grace period
when no premium has been received and the Cash Surrender Value is insufficient
to cover the next monthly deduction (See, Payment and Allocation of Premiums -
Policy Lapse and Reinstatement). The Owner may pay the GDBP for the Policy so
that the Policy will not lapse prior to the Insured's age 65 or for ten years
from the effective date of coverage whichever is later. The GDBP will not
apply in the event the Owner elects to take a Policy loan or partial surrender
(See, Policy Rights - Loan Privileges and Surrender Privileges).
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Subject to certain conditions, including evidence of continued
insurability satisfactory to ANLIC and payment of the required premium, the
Policy may be reinstated at any time within five years from the date of lapse
but prior to the stated Maturity Date (See, Payment and Allocation of Premiums
- - Policy Lapse and Reinstatement).
LOAN PRIVILEGE
The Owner may obtain Policy loans at any time the Policy has loan
value. The minimum loan request ANLIC allows is $1,000. The loan value of the
Policy equals 90% of the Cash Surrender Value. There is an interest rate of
6.45% per year charged for loans when the Policy Account Value is less than the
cumulative premiums paid. Otherwise, after the fifth Policy year the loan rate
charged will be 4.5% per year for the amount of the loan that equals or is less
than the amount that the Policy Account Value exceeds cumulative premiums
paid. The interest is due and payable at the end of each Policy Month. Loans
and interest may be repaid at any time prior to the Maturity Date. Loans may
be taxable transactions.
The Owner may allocate a Policy loan among the General Account and the
Sub-accounts. Unless you direct otherwise, loans will first be taken from the
General Account. When loan values are taken from the Variable Account, the
value equal to the portion of the Policy loan plus the projected interest until
the next Policy anniversary will be transferred from the designated
Sub-accounts to the General Account and credited with interest at a rate of
4.5% per year. Value from the General Account may be transferred to the
Sub-accounts upon repayment of the loan (See, Loan Privileges).
SURRENDER
The Owner may totally surrender the Policy at any time for its Cash
Surrender Value. Subject to certain conditions, the Owner may also partially
surrender the Policy prior to the Maturity Date (See, Surrender Privileges).
There will be a charge imposed for surrenders as reflected in the Cash
Surrender Value. There is also a charge for partial surrenders. If Death
Benefit Option A is in effect, partial surrenders will reduce the Policy's face
amount by 100% of the amount of the partial surrender request. For Death
Benefit Option B, there will be no reduction in face amount. (See, Death
Benefits). Surrenders may be taxable transactions (See, Federal Tax
Considerations). Payment of amounts from the General Account upon surrender
and refund of premium may be delayed under certain circumstances (See,
Postponement of Payments).
TAX TREATMENT
ANLIC believes (based upon Notice 88-128 and the proposed Regulations
under Section 7702, issued on July 5, 1991) that a Policy issued on a Standard
Rate class basis generally should meet the Section 7702 definition of a life
insurance contract. With respect to a Policy issued on a Table Rating (i.e.,
substandard) basis, there is insufficient guidance to determine if such a
Policy would satisfy the Section 7702 definition of a life insurance contract,
particularly if the Owner pays the full amount of premiums permitted under such
a Policy. An Owner of a Policy issued on a Table Rating basis may, however,
adopt certain self-imposed limitations on the amount of premiums paid for such
a Policy which should cause the Policy to meet the Section 7702 definition of a
life insurance contract. Any Owner contemplating the adoption of such
limitations should do so only after consulting a tax adviser.
Assuming that a Policy qualifies as a life insurance contract for
federal income tax purposes, an Owner should not be deemed to be in
constructive receipt of Policy Account Value under a Policy until there is a
distribution from the Policy. Moreover, death benefits payable under a Policy
should be completely excluded from the gross income of the Beneficiary. As a
result, the Beneficiary generally should not be taxed on these proceeds (See,
Tax Status of the Policy).
Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, will be treated first as a
distribution of taxable income and then as a return of basis or investment in
the contract. In addition, prior to age 59 1/2 any such distributions
generally will be subject to a 10% penalty tax (See, Treatment of Policy
Benefits).
If the Policy is not a Modified Endowment Contract, distributions
generally will be treated first as a return of basis or investment in the
contract and then as disbursing taxable income. Moreover, loans will not be
treated as distributions.
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Finally, neither distributions nor loans from a Policy that is not a Modified
Endowment are subject to the 10% penalty tax (See, Distributions from Policies
Not Classified as Modified Endowment Contracts).
ILLUSTRATIONS
Illustrations of how investment performance of the Sub-accounts may
cause Death Benefits, the Policy Account Value and the Cash Surrender Value to
vary are included in Appendix A. Illustrations in this Prospectus or used in
connection with the purchase of the Policy are based on hypothetical investment
rates of return. These rates are not guaranteed. They are illustrative only
and should not be deemed a representation of past or future performance.
Actual rates of return may be more or less than those reflected in the
illustrations and, therefore, actual values will be different than those
illustrated.
ACACIA NATIONAL 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 and has applications
pending in other states. The Company is one of the members of "The Acacia
Group(R)" of Companies.
Acacia Mutual Life Insurance Company ("Acacia Mutual") owns all the
outstanding stock of ANLIC. The principal offices of both ANLIC and Acacia
Mutual are at 51 Louisiana Avenue, N.W., Washington, D.C. 20001. Acacia Mutual
is a mutual life insurance company chartered by a Special Act of Congress in
1869 and is subject to the laws of the District of Columbia. It is the only
life insurance company operating today under a Federal Charter. Acacia Mutual
is licensed in 45 states and in the District of Columbia and offers a complete
line of life insurance products. While ANLIC is a wholly-owned subsidiary of
Acacia Mutual, the assets of Acacia Mutual do not support the obligations of
ANLIC under the Policy.
Acacia Mutual is undergoing a restructuring into a mutual insurance
holding company pursuant to the laws of the District of Columbia. The purpose
of the restructuring is to provide Acacia Mutual with the optimal corporate
structure in which to conduct business. The "mutual holding company" structure
has only recently become available under District of Columbia law. A tentative
effective date of July 1, 1997 is targeted. However, effectiveness of the
reorganization is subject to a number of conditions including policyowner
approval and approval by the Superintendent of Insurance for the District of
Columbia. Acacia Mutual will form a mutual insurance holding company to be
named Acacia Mutual Holding Company ("AMHC") and Acacia Mutual will continue
its corporate existence as a stock life insurance company under the name Acacia
Life Insurance Company ("Acacia Life"). In addition, AMHC will transfer the
shares of capital stock of Acacia Life to a holding company to be named Acacia
Financial Group, Ltd. ("Acacia Group"). Under this structure the Acacia Group
will be an intermediate holding company. The terms of the plan provide that
AMHC will at all times retain ownership and control of a majority of the
outstanding voting shares of the capital stock of the Acacia Group and directly
or indirectly retain ownership and control of a majority of the outstanding
voting shares of Acacia Life. Acacia Life Insurance Company will continue to
own all the outstanding voting stock of ANLIC.
The restructuring will not in any way change the benefits, guarantees
or other policy obligations of ANLIC to its Owners.
A number of the directors and officers of ANLIC are also either
directors or officers or both of Acacia Mutual and will continue to be so after
the restructuring. Acacia Mutual's employees perform certain administrative
functions for ANLIC for which Acacia Mutual is reimbursed.
Acacia Mutual also owns all of the outstanding stock of the Acacia
Financial Corporation, a holding company, which owns all of the stock of The
Advisors Group, Inc and of the Calvert Group, Ltd. ("Calvert"), which in turn
owns Calvert Asset Management Company, Inc. ("CAM"). CAM is the investment
adviser of Acacia Capital Corporation, one of the Funds available under the
Policies. The Advisors Group, Inc. is the principal underwriter for the
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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 Life Insurance Separate Account I ("Variable
Account") was established by ANLIC as a separate account on January 31, 1995.
The Variable Account will receive and invest the net premiums paid under this
Policy. Net premiums placed in the Variable Account constitute certain
reserves for benefits payable under the Policies, and these are actuarial
reserves for future benefits payable under the Policies. In addition, the
Variable Account may receive and invest net premiums for other flexible premium
variable life insurance policies issued by ANLIC.
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 assets of the Variable Account shall, however, be
available to cover the liabilities of the General Account of ANLIC to the
extent that the Variable Account's assets exceed its liabilities arising under
the Policies supported by it. Thus while Owners neither hold legal title to,
nor have any beneficial ownership interest in Separate Account assets, because
the assets are legally segregated from other assets of ANLIC subject to the
claims of creditor, Owners have preferential rights to the ANLIC Variable
Account assets.
The Variable Account is currently divided into nineteen Sub-accounts.
Each Sub-account invests exclusively in shares of a single Portfolio of a Fund.
Income and both realized and unrealized gains or losses from the assets of each
Sub-account of the Variable Account are credited to or charged against that
Sub-account without regard to income, gains or losses from any other
Sub-account of the Variable Account or arising out of any other business ANLIC
may conduct. Each Sub-account reinvests all dividends and income and capital
gain distributions declared by the Portfolio.
The Variable Account has been registered as a unit investment trust
under the Investment Company Act of 1940. Registration with the Securities and
Exchange Commission does not involve supervision of the management or
investment practices or policies of the Variable Account or ANLIC by the
Commission.
THE PORTFOLIOS
THE INVESTMENT OBJECTIVES OF EACH OF THE PORTFOLIOS ARE SUMMARIZED
BELOW. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS 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
PARTICIPATION AGREEMENTS BETWEEN ANLIC AND THE FUNDS. A COPY OF THE AGREEMENTS
HAVE BEEN FILED AS EXHIBITS TO THE REGISTRATION STATEMENT FOR THE VARIABLE
ACCOUNT. EACH OF THE FUNDS HAS OR MAY HAVE ADDITIONAL PORTFOLIOS THAT ARE NOT
AVAILABLE TO THE VARIABLE ACCOUNT.
THE ALGER AMERICAN FUND
The Variable Account has three Sub-accounts that invest exclusively in
shares of the Alger American Fund. The Large Cap Growth Sub-account, the
Mid Cap Growth Sub-account and the Small Cap Growth Sub-account invest in the
Alger American Growth Portfolio, the Alger American MidCap Growth Portfolio,
and the Alger American Small Capitalization Portfolio, respectively of the
Alger American Fund.
The Alger American Growth Portfolio seeks to provide long-term
capital appreciation by investing in equity securities, such as common or
preferred stocks, or securities convertible into or exchangeable for equity
securities, including warrants and rights, primarily of companies with total
market capitalization of $1 billion or greater. The Portfolio may invest up to
35% of its total assets in equity securities of companies that, at the time of
purchase, have total market capitalization of less than $1 billion and in
excess of that amount (up to 100% of its assets) during temporary defensive
periods. The Portfolio will invest primarily in companies whose securities are
traded on domestic stock exchanges or in the
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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, maybe 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" within the range of companies included in the Russell
2000 Growth Index, updated quarterly. The Russell 2000 Growth Index is
designed to track the performance of small capitalization companies. The
Portfolio may invest up to 35% of its total assets in equity securities of
companies that, at the time of purchase, have total market capitalization
outside the range of companies included in the Russell 2000 Growth Index and in
excess of that amount (up to 100% of its assets) during temporary defensive
periods. This amount may be higher than that maintained by other funds with
similar investment objectives.
Alger Management, Inc. serves as investment manager to the Alger
American Fund.
ACACIA CAPITAL CORPORATION
The Variable Account has five Sub-accounts that invest exclusively in
shares of Acacia Capital Corporation. The Money Market Sub-account, Strategic
Growth, the Managed Growth, Global Equity and the Balanced Growth Sub-account
of the Variable Account invest in shares of the Calvert Responsibly Invested
Money Market Portfolio, the Calvert Responsibly Invested Strategic Growth
Portfolio, Calvert Responsibly Invested Capital Accumulation Portfolio, Calvert
Responsibly Invested Global Equity Portfolio, and the Calvert Responsibly
Invested Balanced Portfolio, respectively, of Acacia Capital Corporation.
Acacia Capital Corporation is one of eight registered investment companies in
the Calvert Group, Ltd. Funds ("Calvert"). Calvert is a second tier
wholly-owned subsidiary of Acacia Mutual. Acacia National Life Insurance
Company, which is offering the Flexible Premium Variable Life Insurance Policy
is also a wholly owned subsidiary of Acacia Mutual Life Insurance Company. The
Fund has a number of Portfolios or classes of shares, each of which represents
an interest in a Portfolio of the Fund. Calvert Group, Ltd. is the sponsor of
the Fund.
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These Portfolios seek to achieve competitive returns while encouraging
responsible corporate conduct. The Portfolios look for enterprises that make a
significant contribution to society through their products and the way they do
business. Each proposed portfolio investment that is deemed financially viable
is then screened according to the stated social criteria of the particular
Portfolio. Investments must, in the judgment of the investment adviser, be
consistent with these criteria. It should be noted that the Portfolios' social
criteria tend to limit the availability of investment opportunities more than
is customary with other investment portfolios. (See the individual Portfolio
Prospectuses for a complete description of each social screen).
The Calvert Responsibly Invested Money Market Portfolio ("CRI Money
Market") seeks to provide the highest level of current income, consistent with
liquidity, safety and security of capital, by investing in money market
instruments, including repurchase agreements with recognized securities dealers
and banks secured by such instruments, selected in accordance with the
Portfolios' investment and social criteria. CRI Money Market attempts to
maintain a constant net asset value of $1.00 per share. There can be no
assurance that the Portfolio will maintain a constant net asset value of $1.00
per share. An investment in the Portfolio is neither insured nor guaranteed by
the United States government.
Calvert Responsibly Invested Strategic Growth Portfolio ("CRI
Strategic Growth") seeks, with a concern for social impact, maximum long-term
growth through investments primarily in the equity securities of companies that
have little or no debt, high relative strength and substantial management
ownership. The Portfolio considers issuers of all sizes, industries, and
geographic markets, and does not seek interest income or dividends.
CRI Strategic Growth may invest up to 35% of its assets in debt
securities, excluding money market instruments. These debt securities may
consist of investment-grade and non-investment grade obligations. The latter
are commonly referred to as "junk bonds." Investments in such 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.
Calvert Responsibly Invested Capital Accumulation Portfolio ("CRI
Capital Accumulation")seeks to provide long-term capital appreciation by
investing primarily in a nondiversified portfolio of the equity securities of
small- to mid-sized companies that are undervalued but demonstrate a potential
for growth.
CRI Capital Accumulation Portfolio may also invest in debt securities
and may invest up to 5% of its assets in non-investment grade securities and up
to 25% of its assets in foreign securities. 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.
Calvert Responsibly Invested Global Equity Portfolio ("CRI Global")
seeks to provide a high return consistent with reasonable risk by investing
primarily in a globally diversified portfolio of equity securities. The
Portfolio seeks total return through a globally diversified investment
portfolio.
Under normal circumstances, CRI Global will invest at least 65% of its
assets in the securities of issuers in no less than three countries, one of
which may be the USA. CRI Global may also purchase unrated debt securities and
may invest up to 5% of its assets in non-investment grade bonds. 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.
Calvert Responsibly Invested Balanced Growth Portfolio ("CRI Balanced
Growth") seeks to achieve a total return above the rate of inflation through an
actively managed portfolio of stocks, bonds and money market instruments
(including repurchase agreements secured by such instruments) selected with a
concern for the investment and social impact of each investment.
CRI Balanced Growth may invest up to 20% of its assets in
non-investment grade obligations commonly referred to as "junk bonds."
Investments in such 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.
Calvert Asset Management Company, Inc. ("CAM") is the investment
adviser to all the Acacia Capital Corporation Portfolios. CAM is a wholly
owned subsidiary of Calvert which is in turn an indirect wholly owned
subsidiary of Acacia
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Mutual. Pursuant to its investment advisory agreement, CAM manages the
investment and reinvestment of the assets of each Portfolio and is responsible
for the overall business affairs of each Portfolio. Calvert Administrative
Services, an affiliate of CAM, has been retained by Calvert Responsibly
Invested Strategic Growth Portfolio to provide administrative services and is
entitled to receive a fee from each of the Portfolios of a percentage of net
assets per year.
On behalf of CRI Global, CAM has entered into a subadvisory agreement
with Murray Johnstone International, Ltd. ("Murray Johnstone") of Glascow,
Scotland, which has its principal U.S. office in Chicago, Illinois, and is a
wholly-owned subsidiary of United Asset Management Company. Murray Johnstone
manages the investment and reinvestment of assets of CRI Global, although the
Advisor may manage part of CRI Global's cash reserves required for liquidity
purposes.
On behalf of CRI Balanced Growth, CAM has entered into a subadvisory
agreement with United States Trust Company of Boston, a Massachusetts chartered
commercial bank with full trust powers. On behalf of CRI Strategic Growth, CAM
has entered into a subadvisory agreement with Portfolio Advisory Services, Inc.
of California. The subadvisers manage the investment and reinvestment of the
assets of the Portfolio, although CAM may screen potential investments for
compatibility with the Portfolio's social criteria. CAM continuously monitors
and evaluates the performance of the subadvisers.
DREYFUS STOCK INDEX FUND
The Variable Account has one Sub-account that invests exclusively in
shares of the Dreyfus Stock Index Fund.
The S & P 500 Index Sub-account of the Variable Account invests in a
Portfolio of the Dreyfus Stock Index Fund.
Dreyfus Stock Index 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 Fund investment manager is Dreyfus Corporation ("Dreyfus"), a
wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned
subsidiary of Mellon Bank Corporation, a publicly owned multibank holding
company.
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
("Neuberger & Berman").
The Limited Bond and Long Term Value Sub-accounts of the Variable
Account invest in shares of the Limited Maturity Bond Portfolio and Growth
Portfolio, respectively, of Neuberger & Berman.
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. Neuberger
&
16
<PAGE> 17
Berman Limited Maturity Bond Investments may invest up to 5% of its net assets
in municipal securities when the Portfolio Manager believes such securities may
outperform other available issues. The Portfolio may purchase and sell covered
call and put options, interest-rate futures contracts, and options on those
futures contracts and may engage in lending portfolio securities. The
Portfolio's dollar-weighted average portfolio maturity may range up to five
years.
The Neuberger & Berman Growth Portfolio seeks capital appreciation,
without regard to income. Neuberger & Berman Growth Portfolio invests in
securities believed to have the maximum potential for long-term capital
appreciation. It does not seek to invest in securities that pay dividends or
interest, and any such income is incidental. The Portfolio expects to be
almost fully invested in common stocks, often of companies that may be
temporarily out of favor in the market. The Portfolios' aggressive growth
investment program involves greater risks and share price volatility than
programs that invest in more conservative securities. Moreover, the Portfolio
does not follow a Policy of active trading for short-term profits.
Accordingly, the Series may be more appropriate for investors with a
longer-range perspective. While the Portfolio uses the Neuberger & Berman
value-oriented investment approach, when the Portfolio Manager believes that
particular securities have greater potential for long-term capital
appreciation, the Portfolio may purchase such securities at prices with higher
multiples to measures of economic value (such as earnings). In addition, the
Portfolio focuses on companies with strong balance sheets and reasonable
valuations relative to their growth rates. It also diversifies its investments
into many companies and industries.
The investment adviser for the Limited Maturity Bond and Growth
Portfolios of AMT is Neuberger & Berman Management Incorporated ("N&B
Management"). N&B Management retains Neuberger & Berman, L.P., without cost to
AMT, as subadvisor to furnish it with investment recommendations and research
information. N&B Management provides investment management services to each
Portfolio that include, among other things, making and implementing investment
decisions and providing facilities and personnel necessary to operate the
Portfolio. N&B Management provides administrative services to each Portfolio
that include furnishing similar facilities and personnel for the Portfolio.
With the Portfolio's consent, N&B Management is authorized to subcontract some
of its responsibilities under its administration agreement with the Portfolio
to third parties.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Variable Account has five Sub-accounts that invest exclusively in
shares of Portfolios of the Oppenheimer Variable Account Funds, ( the
"Oppenheimer Funds"). The Long Term Growth, Strategic Growth, Established
Growth & Income, the High Income, and the Strategic Bond Sub-accounts of the
Variable Account invest in shares of the Capital Appreciation Fund, Growth
Fund, Growth & Income Fund, High Income Fund and Strategic Bond Fund
respectively, of the Oppenheimer Funds. The Funds are managed by
OppenheimerFunds, Inc. ("the Manager"), which is responsible for selecting the
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 Fund which state the Manager's
responsibilities.
Oppenheimer Capital Appreciation Fund ("Capital Appreciation Fund")
seeks to achieve capital appreciation by investing in "growth-type companies".
Such companies are believed to have relatively favorable long-term prospects
for increasing demand for their goods or services, or to be developing new
products, services or markets, and normally retain a relatively larger portion
of their earnings for research, development and investment in capital assets.
Oppenheimer Growth Fund ("Growth Fund") seeks to achieve capital
appreciation by investing in "growth-type" companies. Growth Fund will
emphasize investments in securities of well-known and established companies.
Such securities generally have a history of earnings and dividends and are
issued by seasoned companies.
Oppenheimer Growth & Income Fund ("Growth & Income Fund") seeks a high
total return (which includes growth in the value of its shares as well as
current income) from equity and debt securities. Its equity investments will
include common stocks, preferred stocks, convertible securities and warrants.
Its debt securities will include bonds, participation interests, asset-backed
securities, private-label mortgage-backed securities and collateralized
mortgage obligations, zero coupon securities and U.S. obligations. From time
to time the 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.
17
<PAGE> 18
The composition of the 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 the Growth & Income Fund's Assets
that may, at any given time, be invested in either type of investment.
Oppenheimer High Income Fund ("High Income Fund") seeks a high level
of current income from investment in high yield fixed-income securities
(including long-term debt and preferred stock issues, including convertible
securities) believed by the Manager not to involve undue risk. High Income
Fund's investment policy is to assume certain risks in seeking high yield
including securities in the lower rating categories, commonly known as "junk
bonds", which are subject to a greater risk of loss of principal and nonpayment
of interest than higher rated securities. These securities may be considered
to be speculative. Investments in such 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.
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.
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. Under normal circumstances, the Fund's assets will be invested
in each of these three sectors. However, Strategic Bond Fund may from time to
time invest up to 100% of its total assets in any one sector if, in the
judgment of the Manager, the Fund has the opportunity of seeking a high level
of current income without undue risk to principal.
STRONG VARIABLE INSURANCE FUNDS, INC. AND STRONG DISCOVERY FUND II
The Variable Account has one Sub-Account that invests exclusively in
shares of one Portfolio of the Strong Variable Insurance Funds, Inc. and one
Sub-account that invests exclusively in shares of the Portfolio of the Strong
Discovery Fund II.
The International Growth Sub-Account of the Variable Account invests
in shares of the Strong International Stock Fund II of Strong Variable
Insurance Funds, Inc.
The Aggressive Growth Sub-Account of the Variable Account invests
exclusively in shares of the Strong Discovery Fund II.
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<PAGE> 19
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
19
<PAGE> 20
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 Advisor determines that
market conditions warrant a temporary defensive position, the Portfolio may
invest without limitation in cash (U.S. dollars, foreign currencies, or
multicurrency 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 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 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.
The Advisor seeks to uncover emerging investment trends and attractive
growth opportunities. In its search for potential investments, the 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 all the
Strong Variable Insurance Funds Inc., and Strong Discovery Fund II Portfolios
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 Variable Account has one Sub-account that invests exclusively in
shares of a Portfolio of the Van Eck Worldwide Hard Assets Fund. The
Aggressive Global Sub-account of the Variable Account invests in shares of the
Van Eck Worldwide Hard Assets Fund.
20
<PAGE> 21
Van Eck Worldwide Hard Assets Fund seeks long-term capital
appreciation by investing globally, primarily in "Hard Assets" securities.
Income is a secondary consideration. The fund must invest at least 25% of its
assets in companies that are directly or indirectly (whether through supplier
relationships, servicing agreements or otherwise) engaged to a significant
extent in the exploration, development, production or distribution of one or
more of the following sectors: (I) precious metals, (ii) ferrous and
non-ferrous metals, (iii) oil and gas, (iv) forest products, (v) real estate,
and (vi) other basic non-agricultural commodities (together referred to as
"Hard Assets"). This policy is a fundamental policy, which can not be changed
without the vote of shareholders. As an additional but non-fundamental policy,
the Fund would be able to invest up to 50% of its assets in any one of the
above sectors.
The production and marketing of Hard Assets may be affected by actions
and changes in government. In addition, Hard Assets and securities of Hard
Assets companies may be cyclical in nature. During periods of economic or
financial instability, the securities of some Hard Assets companies may be
subject to broad price fluctuations, reflecting volatility of energy and basic
materials prices and possible instability of supply of various Hard Assets. In
addition, some Hard Assets companies may also be subject to the risks generally
associated with extraction of natural resources, such as the risks of mining
and oil drilling, and the risks of hazards associated with natural resources,
such as fire, drought, increased regulatory and environmental costs, and
others. Securities of Hard Assets companies may also experience greater price
fluctuations than the relevant Hard Assets. In periods of rising Hard Assets
prices, such securities may rise at a faster rate, and conversely, in times of
falling Hard Assets prices, such securities may suffer a greater price decline.
Policy 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.
The investment adviser for the Van Eck Worldwide Hard Assets Fund is
Van Eck Associates Corporation.
INVESTMENT ADVISORY FEES
ALGER. Alger Management, Inc. ("Alger Management") serves as
investment adviser to the Alger American Fund. It receives a management fee of
.75% of the annual value of the Alger American Growth Portfolio's average daily
net assets. Alger American Mid Cap Growth Portfolio pays Alger Management a
fee of .80% of the annual value of the Portfolio's average daily net assets.
Alger American Small Capitalization Portfolio pays Alger Management a fee at an
annual rate of .85% of the value of the Portfolio's average daily net assets.
21
<PAGE> 22
CALVERT. For its services, CAM is entitled to receive a fee based on
a percentage of the average daily net assets of each of the Portfolios. CAM is
currently entitled to receive a maximum fee of .50% of net assets from CRI
Money Market Portfolio, 80% CRI Capital Accumulation, 1.00% the CRI Invested
Global Equity .70% of net assets of CRI Balanced Growth and 1.50% of net assets
of Strategy Growth Portfolio.
DREYFUS. Pursuant to the terms of an investment management
agreement, the Dreyfus Stock Index Fund pays Dreyfus a monthly fee at the
annual rate of .245 of 1.00% of the value of the Portfolio's average daily net
assets.
NEUBERGER & BERMAN. For combined administrative and investment
management services, N&B Management is paid fees as a percentage of the average
daily net assets based upon the following schedules:
LIMITED MATURITY BOND PORTFOLIO: FOR THE GROWTH PORTFOLIO:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS FEE AVERAGE DAILY NET ASSETS FEE
------------------------ ---- ------------------------ -------
<S> <C> <C> <C>
First $500 million .65% First $250 million .85%
Next $500 million .615% Next $250 million .825%
Next $500 million .60% Next $500 million .75%
Next $500 million .575% Thereafter .725%
Thereafter .55%
</TABLE>
OPPENHEIMER. Oppenheimer Funds, Inc. Serves as manager to the
Oppenheimer Funds. The management fees computed on an annualized basis as a
percentage of net assets as of the close of business each day are as follows:
(i) For Capital Appreciation Fund, Growth Fund, Growth & Income Fund: 0.75% of
the first $200 million of net assets, 0.72% of the next $200 million, 0.69% of
the next $200 million,0.66% of the next$200 million and 0.60% of the 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
The Funds are used as the investment vehicle for variable life
insurance policies issued by ANLIC. In addition, 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 the
interest of Owners whose policies are allocated to the Variable Account and the
Owners of life insurance policies and variable annuities issued by such other
companies whose values are allocated to one or more other separate accounts
investing in any one of the Funds.
In addition, one or more of the Funds may sell shares to certain
retirement plans qualifying under Section 401 of the Code (including cash or
deferred arrangements under Section 401(k) of the Code). As a result, there is
a possibility that a
22
<PAGE> 23
material conflict may arise between the interests of Owners of policies
generally, or certain classes of Owners, 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 Fund, to resolve the
matter. The Board of Directors or Trustees of the Funds 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.)
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
ANLIC cannot guarantee that shares of the Portfolios will always be
available for investment of premium or for transfers. ANLIC reserves the
right, subject to compliance with applicable law, to make additions, to,
deletions from, or substitutions for the shares that are held by the Variable
Account or that the Variable Account may purchase. ANLIC reserves the right to
eliminate the shares of any of the Portfolios of the Funds and to substitute
shares of another Portfolio of the Funds or of another open-end registered
investment company, if the shares of a Portfolio are no longer available for
investment, or if in its judgment further investment in any Portfolio should
become inappropriate in view of the purposes of the Variable Account. ANLIC
will not substitute any shares attributable to an Owner's interest in a
Sub-account of the Variable Account without notice and prior approval of the
Securities and Exchange Commission, to the extent required by the Investment
Company Act of 1940 or other applicable law. Nothing contained herein shall
prevent the Variable Account from purchasing other securities for other
Portfolios or classes of Policies, or from permitting a conversion between
Portfolios or classes of Policies on the basis of requests made by Owners.
ANLIC also reserves the right to establish additional Sub-accounts of
the Variable Account, each of which would invest in a new series or Portfolio
of the Funds, or in shares of another investment company, with a specified
investment objective. New Sub-accounts may be established when, in the sole
discretion of ANLIC, 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 ANLIC. ANLIC 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, ANLIC may, by
appropriate endorsement, make such changes in this and other policies as may be
necessary or appropriate to reflect such substitution or change. If deemed by
ANLIC to be in the best interest of persons having voting rights under the
Policies, the Variable Account may be operated as a management company under
the Investment Company Act of 1940 (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.
POLICY BENEFITS
DEATH BENEFITS
As long as the Policy remains in force (See, Policy Lapse and
Reinstatement -- Lapse), ANLIC will, upon proof of the Insured's death, pay the
death benefit proceeds of a Policy to the named Beneficiary in accordance with
the designated death benefit option. The amount of the death benefits payable
will be determined as of the end of the Valuation Period on the date of death,
and will not reflect subsequent Variable Account investment performance. The
proceeds may be paid in a lump sum or under one or more of the settlement
options set forth in the Policy. The death benefit proceeds will be reduced by
any outstanding indebtedness and any due and unpaid charges. These proceeds
will be increased by any additional insurance provided by rider and by the
monthly deduction for the month in which death occurred.
The Policy provides two death benefit options: Death Benefit Option A
("Option A") and Death Benefit Option B ("Option B"). The Owner designates the
death benefit option in the application. ANLIC guarantees that as long as the
Policy remains in force (See, Policy Lapse and Reinstatement -- Lapse), under
either option the death benefit will never be less than the current face amount
of the Policy. These proceeds will be reduced by any outstanding indebtedness
and any due and unpaid charges.
Option A. The death benefit is the greater of the current face amount
of the Policy or the applicable percentage of Policy Account Value on the date
of death. The applicable percentage is 250% for an Insured age 40 or below on
the Policy
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<PAGE> 24
Anniversary prior to the date of death. For Insureds with an attained age over
40 on a Policy Anniversary, the percentage declines as shown in the Applicable
Percentage Table (See, Applicable Percentage Table). Accordingly, under Option
A, the death benefit will remain level unless the applicable percentage of
Policy Account Value exceeds the current face amount, in which case the amount
of the death benefit will vary as the Policy Account Value varies.
Illustration of Option A. For purposes of this illustration, assume
that the Insured's attained age is between 30 and 40 and that there is no
outstanding indebtedness. Under Option A, a Policy with a $100,000 face amount
will generally pay $100,000 in death benefits. However, because the death
benefit must be equal to or be greater than 250% of Policy Account Value, any
time the Policy Account Value of the Policy exceeds $40,000 the death benefit
will exceed the $100,000 face amount. Each additional dollar added to the
Policy Account Value above $40,000 will increase the death benefit by $2.50.
Thus, if the Policy Account Value exceeds $40,000 and increases by $100 because
of investment performance or premium payments, the death benefit will increase
by $250. An Owner with a Policy Account Value of $50,000 will be entitled to a
death benefit of $125,000 ($50,000 x 250%); a Policy Account Value of $75,000
will yield a death benefit of $187,500 ($75,000 x 250%); a Policy Account Value
of $100,000 will yield a death benefit of $250,000 ($100,000 x 250%).
Similarly, so long as the Policy Account Value exceeds $40,000, each
dollar taken out of the Policy Account Value will reduce the death benefit by
$2.50. If, for example, the Policy Account Value is reduced from $75,000 to
$70,000 because of partial surrenders, charges or negative investment
performance, the death benefit will be reduced from $187,500 to $175,000. If
at any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the face amount, the death benefit will equal the
current face amount of the Policy.
The applicable percentage becomes lower as the Insured's attained age
increases. If the attained age of the Insured in the illustration above were,
for example, 50 (rather than between 30 and 40), the applicable percentage
would be 185%. The death benefit would not exceed the $100,000 face amount
unless the Policy Account Value exceeded approximately $54,055 (rather than
$40,000), and each $1 then added to or taken from the Policy Account Value
would change the death benefit by $1.85 (rather than $2.50).
APPLICABLE PERCENTAGE TABLE
<TABLE>
<CAPTION>
ATTAINED AGE APPLICABLE PERCENTAGE ATTAINED AGE APPLICABLE PERCENTAGE
------------ --------------------- ------------ ---------------------
<S> <C> <C> <C>
41............ 243% 61............. 128%
42............ 236 62............. 126
43............ 229 63............. 124
44............ 222 64............. 122
45............ 215 65............. 120
46............ 209 66............. 119
47............ 203 67............. 118
48............ 197 68............. 117
49............ 191 69............. 116
50............ 185 70............. 115
51............ 178 71............. 113
52............ 171 72............. 111
53............ 164 73............. 109
54............ 157 74............. 107
55............ 150 75-90.......... 105
56............ 146 91............. 104
57............ 142 92............. 103
58............ 138 93............. 102
59............ 134 94............. 101
60............ 130 95 or older.... 100
</TABLE>
Option B. The death benefit is equal to the greater of the current
face amount plus the Policy Account Value of the Policy or the applicable
percentage of the Policy Account Value on the date of death. The applicable
percentage is 250% for an Insured age 40 or below on the Policy anniversary
prior to the date of death. For Insureds with an attained age over 40 on a
Policy anniversary, the percentage declines as shown in the Applicable
Percentage Table . Accordingly, under Option B the amount of the death benefit
will always vary as the Policy Account Value varies.
Illustration of Option B. For purposes of this illustration, assume
that the Insured is under the age of 40 and that there is no outstanding
indebtedness. Under Option B, a Policy with a face amount of $100,000 will
generally pay a death
24
<PAGE> 25
benefit of $100,000 plus the Policy Account Value. Thus, for example, a Policy
with a Policy Account Value of $20,000 will have a death benefit of $120,000
($100,000 + $20,000); a Policy Account Value of $40,000 will yield a death
benefit of $140,000 ($100,000, + $40,000). The death benefit, however, must be
at least 250% of the Policy Account Value. As a result, if the Policy Account
Value of the Policy exceeds approximately $66,667, the death benefit will be
greater than the face amount plus the Policy Account Value. Each additional
dollar of the Policy Account Value above $66,667 will increase the death
benefit by $2.50. Thus, if the Policy Account Value exceeds $66,667 and
increases by $100 because of investment performance or premium payments, the
death benefit will increase by $250. An Owner with a Policy Account Value of
$75,000 will be entitled to a death benefit of $187,500 ($75,000 X 250%); a
Policy Account Value of $100,000 will yield a death benefit of $250,000
($100,000 X 250%); a Policy Account Value of $125,000 will yield a death
benefit of $312,500 ($125,000 X 250%).
Similarly, any time the Policy Account Value exceeds $66,667, each
dollar taken out of the Policy Account Value will reduce the death benefit by
$2.50. If, for example, the Policy Account Value is reduced from $75,000 to
$70,000 because of partial surrenders, charges, or negative investment
performance, the death benefit will be reduced from $187,500 to $175,000. If
at any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the face amount plus the Policy Account Value, then the
death benefit will be the current face amount plus the Policy Account Value of
the Policy.
The applicable percentage becomes lower as the Insured's attained age
increases. If the attained age of the Insured in the illustration above were,
for example, 50 (rather than under 40), the applicable percentage would be
185%. The amount of the death benefit would be the sum of the Policy Account
Value plus $100,000 unless the Policy Account Value exceeded approximately
$117,647 (rather than $66,667), and each $1 then added to or taken from the
Policy Account Value would change the death benefit by $1.85 (rather than
$2.50).
Change in Face Amount. Subject to certain limitations, an Owner may
increase or decrease the face amount of a Policy. A change in face amount may
affect the cost of insurance rate and the net amount at risk, both of which may
affect an Owner's cost of insurance charge (See, Charges and Deductions -- Cost
of Insurance). A change in face amount may affect whether the Policy is a
"modified endowment contract" for federal income tax purposes (See, Federal Tax
Considerations).
Decreases. Any decrease in the face amount will become effective on
the monthly anniversary date on or following receipt by ANLIC of a written
request. Generally, no decrease in the face amount will be permitted during
the first Policy year (other than a decrease indirectly resulting from a
partial surrender) but ANLIC may waive this restriction. The face amount
remaining in force after any requested decrease may not be less than $25,000.
If, following the decrease in face amount, the Policy would not comply with the
maximum premium limitations required by federal tax law (See, Premiums --
Premium Limitations), the decrease may be limited (or, if the Policyholder so
elects, the Policy Account Value may be returned to the Owner) to the extent
necessary to meet these requirements. For purposes of determining the cost of
insurance charge, a decrease in the face amount will reduce the face amount in
the following order:
(a) The face amount provided by the most recent increase;
(b) The next most recent increase successively; and
(c) The face amount when the Policy was issued.
(See, Charges and Deductions--Cost of Insurance)
Increases. For an increase in the face amount, a written application
must be submitted. ANLIC may also require that additional evidence of
insurability be submitted. The effective date of the increase will be the
monthly anniversary on or following receipt of the written request and approval
of the increase by ANLIC. The increase currently may not be less than $25,000
(ANLIC reserves the right to change the minimum required increase in face
amount). An increase need not be accompanied by an additional premium; ANLIC
may, however, deduct any charges associated with the increase from existing
Policy Account Value (See, Charges and Deductions).
Change in Death Benefit Option. Generally, the death benefit option
in effect may be changed at any time by sending ANLIC a written request for
change. If the death benefit option is changed from Option B to Option A, the
face amount will be increased by an amount equal to the Policy Account Value on
the effective date of change. Changing from Option B to Option A does not
require evidence of insurability. The effective date of such a change will be
the monthly anniversary on or following receipt of the request. A change in
the death benefit option may affect whether the Policy will be treated as a
"modified endowment contract" for federal tax purposes (See, Federal Tax
Considerations).
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<PAGE> 26
If the death benefit option is changed from Option A to Option B, the
face amount will be decreased by an amount equal to the Policy Account Value on
the effective date of the change. This change may not be made if it would
result in a face amount less than $25,000. Changing from Option A to Option B
may require evidence of insurability satisfactory to ANLIC. The effective date
of such a change will be the monthly anniversary on or following the date the
change is approved by ANLIC.
No charges will be imposed upon a change in death benefit option, nor
will such a change in and of itself result in an immediate change in the amount
of the Policy Account Value. If, however, prior to or accompanying a change in
the death benefit option there has been an increase in the face amount, the
method of calculating the insurance charge may change (See, Charges and
Deductions--Cost of Insurance).
How Death Benefits May Vary in Amount. As long as the Policy remains
in force, ANLIC guarantees that the death benefit will never be less than the
current face amount of the Policy. These proceeds will be reduced by any
outstanding indebtedness and any due and unpaid charges. The death benefit
may, however, vary with the Policy Account Value. Under Option A, the death
benefit will only vary whenever the Policy Account Value multiplied by the
applicable percentage exceeds the face amount of the Policy. The death benefit
under Option B will always vary with the Policy Account Value because the death
benefit equals either the face amount plus the Policy Account Value or the
applicable percentage of Policy Account Value.
How the Duration of the Policy May Vary. The duration of the Policy
depends upon the Policy's Cash Surrender Value. The Policy will remain in
force so long as the Cash Surrender Value is sufficient to pay the monthly
deduction (See, Charges and Deductions--Policy Account Value Charges). Where,
however, the Cash Surrender Value is insufficient to pay the monthly deduction
or indebtedness exceeds Policy Account Value, and a grace period expires
without an adequate payment by the Owner, the Policy will lapse and terminate
without value. Special provisions apply if the Owner has paid either the GDBP
or Benchmark Premiums (See, Policy Lapse and Reinstatement -- Lapse).
PAYMENT OF POLICY BENEFITS
Death benefits under the Policy will ordinarily be paid within seven
days after ANLIC receives due proof of death. Policy Account Value benefits
will ordinarily be paid within seven days of receipt of a written request.
Payments may be postponed in certain circumstances (See, Postponement of
Payments). The Owner may decide the form in which the benefits will be paid.
During the Insured's lifetime, the Owner may arrange for the death benefits to
be paid in a lump sum or under one or more of the settlement options described
below. These choices are also available if the Policy is surrendered or
matures. If no election is made, ANLIC will pay the benefits in a lump sum
upon submission of due proof of death.
When death benefits are payable in a lump sum, the beneficiary may
select one or more of the settlement options. If death benefits become payable
under a settlement option and the beneficiary has the right to withdraw the
entire amount, the beneficiary may name and change contingent beneficiaries.
Settlement Options. Owners and beneficiaries may elect to have
benefits paid in a lump sum or in accordance with a wide variety of settlement
options offered under the Policy. Once a settlement option is in effect, there
will no longer be value in the Variable Account. ANLIC may make other
settlement options available in the future. For additional information
concerning these options, see the Policy itself.
Option A -- Interest for Life. Interest on the amount retained will
be paid during the lifetime of the payee. When the payee dies, the amount held
by ANLIC will be paid as agreed.
Option B -- Interest for a Fixed Period. Interest or compound
interest will be paid for a fixed period. The fixed period cannot exceed 30
years. At the end of the period the principal amount will be paid as agreed.
Option C -- Payments for a Fixed Period. The amount retained plus
interest will be paid in equal monthly installments for the period chosen. The
period chosen may not exceed 30 years.
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<PAGE> 27
Option D -- Payments of a Fixed Amount. The amount retained plus
interest will be paid in equal monthly installments until the fund has been
paid in full. The total payments in any year must be at least 5% of the amount
retained.
Option E -- Life Income. The amount retained plus interest will be
paid in equal installments for the guaranteed payment period elected and
continue for the life of the person on whose life the option is based.
Guaranteed payment periods may be elected for 10 or 20 years, or the period in
which the total payments will equal the amount retained.
Option F -- Joint and Survivor Life Income. The amount retained plus
interest will be paid during the joint lifetime of two persons and continue
during the lifetime of the survivor. Payments are guaranteed for 10 years.
Option G -- Additional Settlements. At the request of the Owner,
ANLIC will pay the amount retained in any manner acceptable to the Company.
PAYMENT AND ALLOCATION OF PREMIUMS
POLICY ISSUE
Premiums are payable at ANLIC's , Service Office (See, Glossary of
Defined Terms - Service Office) or to one of ANLIC's authorized agents. A
properly completed application must precede or accompany the initial premium.
No coverage will take effect unless (a) the application is approved; (b) the
first Planned Periodic Payment is paid; and (c) the Policy is accepted by the
Applicant. This must be during the lifetime of all persons proposed for
insurance. Also, their eligibility and health must remain as described in the
application.
The minimum face amount of a Policy is $25,000, under ANLIC's current
rules. ANLIC reserves the right to revise its rules from time to time to
specify a different minimum face amount at issue. A Policy will generally be
issued only to Insureds 80 years of age or under who supply satisfactory
evidence of insurability sufficient to ANLIC. ANLIC may, however, at its sole
discretion, issue a Policy to an individual above the age of 80. Acceptance is
subject to ANLIC's underwriting rules and ANLIC reserves the right to reject an
application for any reason. The Policy date is the date used to determine
Policy years and Policy months. If a premium is submitted with the
application, insurance coverage will begin as of the Policy Date. If a premium
is not paid with the application, the Policy Date will ordinarily be
approximately 15 days after underwriting approval. Insurance coverage will
begin on the later of the Policy date or the date the premium is received. A
Policy Date may also be any other date mutually agreeable to ANLIC and the
Owner. ANLIC will allocate net premiums on the later of the Policy Date or the
date the premium is received (See, Allocation of Premiums and Policy Account
Value).
PREMIUMS
Subject to certain limitations, an Owner has flexibility in
determining the frequency and amount of premiums.
Premium Flexibility. Unlike conventional insurance policies, this
Policy frees the Owner from the requirement that premiums be paid in accordance
with a rigid and inflexible premium schedule. ANLIC requires the Owner to pay
an initial premium that, when reduced by the premium expense charges (See,
Charges and Deductions -- Premium Expense Charges), will be sufficient to pay
the monthly deductions for the first two Policy Months.
Thereafter, subject to the minimum and maximum premium limitations
described below, an Owner may make unscheduled premium payments at any time in
any amount. The Policy, therefore, provides the Owner with the flexibility to
vary the frequency and amount of premium payments to reflect changing financial
conditions. The level of premium payments is an important factor in
determining whether the Policy will be treated as a "modified endowment
contract" for federal tax purposes (See, Federal Tax Considerations).
Planned Periodic Premiums. Each Owner will determine a Planned
Periodic Premium schedule that provides for the payment of a level premium at a
fixed interval over a specified period of time. The Owner is not required to
pay premiums in accordance with this schedule. Furthermore, the Owner has
considerable flexibility to alter the amount, frequency, and the time period
over which Planned Periodic Premiums are paid.
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<PAGE> 28
The payment of a Planned Periodic Premium will not guarantee that the
Policy remains in force. Instead, the duration of the Policy depends upon the
Policy Account Value. Thus, even if planned periodic premiums are paid by the
Owner, the Policy will nonetheless lapse at any time indebtedness exceeds
Policy Account Value or the Cash Surrender Value is insufficient to pay certain
monthly charges, and a grace period expires without a sufficient payment (See,
Policy Lapse and Reinstatement--Lapse). Exceptions may occur if the Owner pays
an amount equal to or greater than either the scheduled Benchmark Premiums or
Guaranteed Death Benefit Premiums.
Benchmark Premiums. When the Owner pays the monthly Benchmark
Premiums as stated in the Policy and if the sum of the premiums paid equals or
exceeds the sum of the scheduled Benchmark Premiums for the face amount and any
increase, then the Policy is guaranteed not to lapse during the first five
years that the Policy is in force. Payment of only the Benchmark Premium will
reduce the flexibility of premium payments.
Guaranteed Death Benefit Premium ("GDBP"). The Owner may also elect
to pay a GDBP premium for the Policy or any increase in coverage. The GDBP
premium is stated in the Policy and is calculated based on the Insured's age,
sex and rate class at the time coverage is applied for. Provided GDBP is paid
and the Owner makes no loans or partial surrenders, the Policy is guaranteed
not to lapse before the Insured reaches age 65 or for ten years from the
effective date of coverage, whichever is later.
Premium Limitations. In no event may the total amount of all premiums
paid, both scheduled and unscheduled, exceed the current maximum premium
limitations which are required by federal tax laws. If at any time a premium
is paid which would result in total premiums exceeding the current maximum
premium limitation, ANLIC will only accept that portion of the premium which
will make total premiums equal the maximum limitation. Any part of the premium
in excess of that amount will be returned and no further premiums will be
accepted until allowed by the current maximum premium limitations set forth in
the Policy. Every premium payment, whether scheduled or unscheduled, must be
at least $25. Premium payments less than this minimum amount will be returned
to the Owner.
Payment of Premiums. Payments made by the Owner will be treated first
as payment of premium, not indebtedness unless the Owner indicates that the
payment should be treated otherwise. Charges will be deducted from each
premium payment as stated in the Policy (See, Charges and Deductions--Premium
Expense Charges).
ALLOCATION OF PREMIUMS AND POLICY ACCOUNT VALUE
Net Premium. The net premium equals the premium paid less the premium
expense charge (See, Charges and Deductions--Premium Expense Charges).
Allocation of Net Premiums. In the application for a Policy, the
Owner can allocate net premiums or portions thereof to the General Account or
to Sub-accounts of the Variable Account, or both. Notwithstanding the
allocation in the Application, the portion of the net premium allocated to
Sub-accounts of the Variable Account will initially be allocated to the
Sub-account of the Variable Account that invests exclusively in shares of Money
Market Portfolio on the Policy Date or the date the first premium is received
by ANLIC, whichever is later. Net premiums allocated to any Sub-account of the
Variable Account will continue to be allocated to that Sub-account until the
end of the fifteenth day following the Policy Date. Upon expiration of the
fifteen day period, the value in this Sub-account will automatically be
transferred to Sub-accounts of the Variable Account in accordance with the
Owner's percentage allocation in the application.
Net premiums paid after the expiration of the initial fifteen day
period will be allocated in accordance with the Owner's instructions in the
application as of the end of the Valuation Date in which they are received.
The minimum percentage of each premium that may be allocated to the General
Account or any Sub-account of the Variable Account is 5%; percentages must be
in whole numbers. The allocation for future net premiums may be changed
without charge at any time by providing ANLIC with written notification. No
charge is imposed for any reallocations. No more than ten different
Sub-accounts may be chosen to receive premium payments.
The value of amounts allocated to Sub-accounts of the Variable Account
will vary with the investment experience of these Sub-accounts and the Owner
bears the entire investment risk. Owners should periodically review their
allocations of premiums and values in light of market conditions and overall
estate planning requirements.
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TRANSFERS
Transfers from the General Account
The Owner may ask to transfer value from the General Account, up to a
maximum each Policy year of 25% of the General Account Value as of the last
Policy anniversary date. The minimum amount each that may be transferred is
$100. During the first Policy year, the Owner may transfer a maximum of 25% of
the General Account Value on the transfer date.
Conversion Transfer Right
During the first two years following the Policy Date, the Owner may
request one transfer of the entire Policy Account Value in the Sub-accounts to
the General Account. For any increase in face amount, the Owner may request a
conversion of the amount of the increase to a Fixed Benefit Policy for the
amount of the increase or the minimum amount ANLIC currently issues, whichever
is greater. No evidence of insurability will be required. The new Policy will
have the same rate class, face amount and issue date as the rate class, amount
and effective date of the increase.
The Flexible Premium Fixed Benefit Policy's net premiums will be
allocated to ANLIC's General Account. ANLIC guarantees that value in the
General Account will accrue interest at an effective rate of at least 4.5%,
independent of the actual investment experience of the General Account.
Transfers from Sub-accounts
The Owner may ask ANLIC to transfer all or part of the amount in one
of the Sub-accounts to another Sub-account or to the General Account. The
minimum amount for such transfer is $50. The transfer will be made as of the
date ANLIC receives the written request.
Automatic Rebalancing and Dollar Cost Averaging Programs
The Owner may also elect from either the Automatic Rebalancing Program
or the Dollar Cost Averaging Program by filing a written authorization with
ANLIC. ANLIC reserves the right to alter, including the right to assess a
charge, or terminate these administrative programs upon 30 days advance written
notice.
Under the Automatic Rebalancing Program, the Owner may have automatic
transfers on either a monthly, quarterly, semi-annual or annual basis, to adjust
the values among the Sub-accounts and the General Account to meet the Owner's
designated percentage account value proportions the Owner has on file with
ANLIC. The allocations are subject to a minimum 5% designated percentage
proportion per account.
Under the Dollar Cost Averaging Program, the Owner may elect to have a
specific dollar amount automatically transferred from the Money Market
Sub-account to designated Sub-accounts on either a monthly, quarterly,
semi-annual basis or annual basis. The specific dollar amount is subject to
a $50 minimum transfer amount pursuant to the Owner's election. If the
periodic transfer would reduce the value in the Money Market Sub-account below
the specific dollar amount,
ANLIC reserves the right to include the entire remaining value to
meet the transfer election. ANLIC also reserves the right to establish a
minimum Money Market Sub-account balance before we allow you to elect the
program.
Transfers and adjustments pursuant to these Programs will occur on the
Policy's Monthly Anniversary date in the month in which the transaction is to
take place or the next succeeding business day if the Monthly Anniversary date
falls on a day other than a Valuation Date.
Telephone Requests
At the time an application for a Policy is completed, or at any
subsequent time, an Owner may request a telephone transfer authorization form.
If the form is properly completed and on file with ANLIC, transfers may be made
pursuant to
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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 ANLIC. Transfer requests made by telephone are processed upon the
date of receipt, if received prior to 4:00 p.m. Eastern time. ANLIC may, at
any time, revoke or modify the transfer privilege.
POLICY LAPSE AND REINSTATEMENT
Lapse. Unlike conventional life insurance policies, the failure to
make a planned periodic premium payment will not itself cause the Policy to
lapse. Lapse will only occur where indebtedness exceeds the Policy Account
Value, or the Cash Surrender Value is insufficient to cover the monthly
deduction, and a grace period expires without a sufficient payment. If the
Policy Account Value less indebtedness is insufficient to cover the monthly
deduction, the Owner must pay during the grace period a premium, equal to the
sum of the monthly deductions for the first three Policy Months after
commencement of the grace period, and any premium expense charges to avoid
lapse (See, Charges and Deductions). ANLIC may, in its sole discretion, permit
the payment of a lesser amount. If indebtedness exceeds the Policy Account
Value, the Owner must pay all excess indebtedness during the grace period to
avoid lapse. The grace period will not begin if the Owner makes no loans or
partial surrenders and elects to pay premiums equal to or greater than the
GDBP. Also, the Policy provides that during the first sixty months, if the
Owner pays premiums equal to or greater than the scheduled Benchmark Premiums,
then the grace period will not begin.
At the start of the grace period, ANLIC will notify the Owner of the
shortfall. The Owner will then have a grace period of 62 days, measured from
the date the notice is sent to the Owner, to make sufficient payments. ANLIC
may, in its sole discretion, extend the grace period beyond 62 days. Failure
to make a sufficient payment within the grace period will result in lapse of
the Policy. If a sufficient payment is made during the grace period, any net
premium paid will be allocated among the General Account and the Sub-accounts
of the Variable Account in accordance with the Owner's current instructions
(See, Allocation of Premiums), and any monthly deductions due will be charged
ratably to the General Account and the Sub-accounts (See, Policy Account Value
Charges--Monthly Deductions). If the Insured dies during the grace period, the
death benefit will equal the amount of the death benefit immediately prior to
the commencement of the grace period. These proceeds will be reduced by any
due and unpaid charges and any indebtedness.
ANLIC provides a special guarantee if the Owner elects to pay an
amount equal to or greater than the scheduled Benchmark Premiums as stated in
the Policy. The Owner may elect to pay the Benchmark Premiums as stated in the
Policy and the Policy is guaranteed not to lapse during the first sixty months
that the Policy is in force. The Owner may also pay GDBP for the Policy or
any increase in coverage. The GDBP is stated in the Policy and is calculated
based on the Insured's age, sex and rate class at the time coverage is applied
for. Provided the GDBP is paid, the Policy is guaranteed not to lapse before
the Insured reaches age 65 or for ten years from the effective date of
coverage, whichever is later. The GDBP does not apply if the Owner elects to
make a Policy loan or partial surrender.
Reinstatement. A lapsed Policy may be reinstated any time within 5
years after the date of lapse and before the maturity date by submitting the
following items to ANLIC:
1. A written application for reinstatement;
2. Evidence of insurability satisfactory to ANLIC; and
3. A premium that, after the deduction of premium expense
charges, is large enough to cover the monthly deductions for
at least three Policy Months commencing with the effective
date of reinstatement for the Policy and any rider benefits.
Any indebtedness on the date of lapse must be paid at the time
of reinstatement.
Upon approval of the application for reinstatement, the effective date
of reinstatement will be the monthly anniversary on or prior to the date of
approval.
ANLIC may contest the reinstatement of the Policy, and any rider
attached, for any statements made in the application for reinstatement, until
it has been in force during the lifetime of the Insured for two years from the
effective date of reinstatement.
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CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate
ANLIC for: (1) providing the insurance benefits set forth in the Policy and
any optional insurance benefits added by rider; (2) administering the Policy;
(3) assuming certain risks in connection with the Policy; and (4) incurring
expenses in distributing the Policy and any optional insurance benefit added by
rider. The nature and amount of these charges are described more fully below.
SURRENDER CHARGE
Surrender Charges are designed partially to compensate ANLIC for the
cost of administering, issuing and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications, underwriting
decisions, processing and establishing the Policy records. ANLIC does not
anticipate that the surrender charge will cover all of these costs. ANLIC will
cover the short-fall from the general assets, which may include profits from
the mortality and expense risk charge.
Surrender Charges will not exceed the maximum charges as specified in
the Policy. The surrender charge for the original face amount is determined by
multiplying a surrender charge factor by the actual premiums paid up to Target
Premium. Target Premium is an annual premium amount based on the Insured's
age, sex and risk class and is used solely for the basis of Surrender Charges
and commission payments. Target Premiums do not exceed the Securities and
Exchange Commission ("SEC") guideline annual premium. The surrender charge
factor depends on the number of years the Policy has been in force, as follows:
<TABLE>
<CAPTION>
Policy Year Surrender Factor
<S> <C>
1-7 30%
8 20%
9 10%
10 + 0%
</TABLE>
Paying less premium may reduce the surrender charge but will increase
the cost of insurance for the Policy and may cause the Policy to lapse.
Surrender Charges for an increase in face amount will be based solely
on the Target Premium associated with the increase as stated in the Policy.
The maximum surrender charge for an increase in face amount is 30% of the
Target Premium for the increase during the seven years following the increase,
and then declines by 10% per year until it reaches 0% in the tenth year.
Surrender Charges are computed separately for the original face amount and each
increase in face amount, and then combined. With respect to the first increase
in the face amount, the increase is the amount which the face amount, after the
increase, exceeds the original face amount. With respect to other increases,
the increase is the amount which the face amount, after the increase, exceeds
the highest face amount in effect at any time prior to the increase.
PARTIAL SURRENDER CHARGE
During the surrender charge period for the Policy and any increase,
there will be a charge for a partial surrender equal to 8% of the amount
withdrawn or $25, whichever is greater. Partial Surrender Charges will reduce
the surrender charge for the Policy and any increase.
PREMIUM EXPENSE CHARGES
Prior to allocation of net premiums among the General Account and the
Sub-accounts of the Variable Account, premiums paid will be reduced by a
premium expense charge consisting of a charge for premium taxes.
Premium Taxes. Various states and subdivisions impose a tax on
premiums received by insurance companies. Premium taxes vary from state to
state. A deduction of 2.25% of the premium will be made from each premium
payment.
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The deduction represents an amount ANLIC considers necessary to pay all premium
taxes imposed by the states and any subdivisions thereof. Currently no charge
is assessed for federal taxes associated with the Policy. ANLIC reserves the
right to assess a charge based on changes to the federal tax treatment of the
Policy.
POLICY ACCOUNT VALUE CHARGES
Monthly Deduction. Charges will be deducted monthly from the Policy
Account Value ("monthly deduction") to compensate ANLIC for underwriting and
start-up expenses in connection with issuing a Policy, for certain
administrative costs, for the cost of insurance and for optional benefits added
by rider. The monthly deduction will be deducted on each Monthly Anniversary.
It will be allocated among the General Account and each Sub-account of the
Variable Account in the same proportion that the value in each Sub-account
bears to the total Policy Account Value of the Policy less indebtedness. For
purposes of allocating the deduction among Sub-accounts, values will be
determined at the end of the prior Policy month. Because portions of the
monthly deduction, such as the cost of insurance, can vary from month to month,
the monthly deduction itself will vary in amount from month to month.
Cost of Insurance. Because the cost of insurance depends upon a
number of variables, the cost for each Policy month can vary from month to
month. ANLIC will determine the monthly cost of insurance charge by
multiplying the applicable cost of insurance rate or rates by the net amount at
risk for each Policy Month. The net amount at risk for a Policy Month is (a)
the death benefit at the beginning of the Policy Month divided by 1.00367481
(which reduces the net amount at risk, solely for purposes of computing the
cost of insurance, by taking into account assumed monthly earnings at an annual
rate of 4.5%), less (b) the Policy Account Value at the beginning of the Policy
Month.
The net amount at risk may be affected by changes in the Policy
Account Value or in the face amount of the Policy. In addition, if there is an
increase in the face amount and the rate class applicable to the increase is
different from that for the initial face amount, the net amount at risk will be
calculated separately for each rate class. If Option B is in effect, the net
amount at risk for each rate class will be determined by the relationship of
the initial face amount and the face amount increases for each rate class
compared to the total face amount. If Option A is in effect, for purposes of
determining the net amounts at risk for each rate class, value will first be
considered a part of the initial face amount. If the value is greater than the
initial face amount, it will then be considered a part of each increase in
order, starting with the first increase.
Because the method of calculating the net amount at risk is different
under Option A and Option B when more than one rate class is in effect, a
change in the death benefit option may result in a different net amount at risk
for each rate class than would have occurred had the death benefit option not
been changed. Since the cost of insurance is calculated separately for each
rate class, any change in the net amount at risk resulting from a change in the
death benefit option may affect the total cost of insurance paid by the Owner.
Cost of Insurance Rate. Cost of insurance rates will be based on the
sex, attained age and rate class of the Insured. The actual monthly cost of
insurance rates will be based on ANLIC's expectations as to future experience.
They will not, however, be greater than the guaranteed cost of insurance rates
set forth in the Policy. For standard risks, these guaranteed rates are based
on the 1980 Commissioners Standard Ordinary Mortality Table with smoker and
non-smoker distinction and the Insured's sex, plus attained age at the last
birthday. ANLIC also may guarantee that actual cost of insurance rates will
not be changed for a specified period of time (e.g., one year). Any change in
the cost of insurance rates will apply to all persons of the same insuring age,
sex, and rate class whose Policies have been in force for the same length of
time.
Rate Class. The rate class of an Insured may affect the cost of
insurance rate. ANLIC currently places Insureds into a standard and preferred
rate class or rate classes involving a higher mortality risk. In an otherwise
identical Policy, an Insured in the standard rate class will have a lower cost
of insurance rate than those in the rate class with the higher mortality risk.
The standard rate class is divided into two categories: smokers and
non-smokers. Non-smoking Insureds will generally incur a lower cost of
insurance than similarly situated Insureds who smoke.
The cost of insurance charge for each rate class will also depend on
the face amount of the Policy. At ANLIC's discretion, a Policy with a face
amount in excess of $100,000 may incur a lower cost for each thousand dollars
of net amount at risk than an otherwise identical Policy with a face amount
less than that amount. Similar discounts in the cost of insurance charge occur
when the face amount exceeds $500,000. ANLIC may, at its sole discretion,
reduce the cost of insurance for other face amounts. Because the cost of
insurance rate varies with the face amount, any increase or
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decrease in face amount, including those resulting from a change in the death
benefit option and those resulting from partial surrenders, may affect the cost
of insurance. The cost of insurance charge will not exceed the maximum rates
based on the 1980 Commissioners Standard Ordinary Mortality Table ALB (Age Last
Birthday) with smoker and non-smoker distinction unless the Owner is in a
sub-standard risk class.
Monthly Administration Charge. ANLIC has primary responsibility for
the administration of the Policy and the Variable Account. Annual
administrative expenses include premium billing and collection, recordkeeping,
processing death benefit claims, cash surrenders and Policy changes, reporting
and overhead costs. As reimbursement for administrative expenses related to
the maintenance of each Policy and the Variable Account, ANLIC assesses a
monthly administration charge from each Policy. This charge is $27 per Policy
Month during the first Policy Year and $8 per Policy Month thereafter. ANLIC
does not anticipate that it will make any profit on this charge.
ANLIC may, in its sole discretion, purchase certain administrative
services from such sources as may be available. Such services will be acquired
on a basis which, in ANLIC's sole discretion, is the best able to perform such
services in a satisfactory manner even though the costs for such services may
be higher than would prevail elsewhere.
Optional Insurance Benefits Charges. The monthly deduction will
include charges for any optional insurance benefits added to the Policy by
rider (See, Optional Insurance Benefits).
Mortality and Expense Risk Charge. ANLIC will deduct a charge from
the Variable Account not to exceed an annual rate of 0.90% of the average daily
net assets of the Variable Account. This charge will be reduced by 0.05% each
year beginning in the 16th Policy year until it reaches and remains at 0.45% of
the average daily net assets of the Variable Account at and after the 25th
Policy year. This deduction is guaranteed not to increase for the duration of
the Policy. Under ANLIC's current procedures, these amounts are paid to ANLIC
monthly. ANLIC may profit from this charge.
The mortality risk assumed by ANLIC is that Insureds may live for a
shorter time than projected because of inaccuracies in the projecting process,
and that an aggregate amount of death benefits greater than that projected
accordingly will be payable. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will exceed the limits on
administrative charges set in the Policies, which are in excess of the amount
necessary to meet expenses currently. If the expenses do not increase to an
amount in excess of the limits, ANLIC may profit from this charge. Any
shortfall in meeting the distribution expenses will be met from ANLIC's general
corporate funds which may include profit from the mortality and expense risk
charge. ANLIC also assumes risks with respect to other contingencies,
including the pattern of transfers between the Variable Account and the General
Account which may cause ANLIC to incur greater costs than anticipated when
designing the Policies.
Taxes. Currently no charge is made to the Variable Account for
federal income taxes that may be attributable to the Variable Account. ANLIC
may, however, make such a charge in the future. Charges for other taxes, if
any, attributable to the Variable Account may also be made (See, Federal Tax
Considerations).
INVESTMENT ADVISORY FEE
Because the Variable Account purchases shares of the Portfolios, the
net assets of the Variable Account will reflect the investment advisory fees
incurred by the Portfolios. The specific charges associated with each Fund are
described in the table on the next page. The amount of this charge will depend
on the Portfolio or Portfolios selected by the Owner for premium allocation.
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<PAGE> 34
PORTFOLIO ANNUAL EXPENSES
(EXPRESSED AS A PERCENTAGE OF NET ASSETS OF EACH PORTFOLIO)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
PORTFOLIO MANAGEMENT FEE OTHER EXPENSES ANNUAL EXPENSES
==================================================================================================================================
<S> <C> <C> <C>
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.03% 0.88%
Calvert Responsibly Invested Money Market Portfolio 0.50% 0.12% 0.62%(1)
Calvert Responsibly Invested Strategic Growth Portfolio 1.50% 0.31% 1.81%(1)
Calvert Responsibly Invested Capital Accumulation Portfolio 0.80% 0.20% 1.00%(1)
Calvert Responsibly Invested Global Equity Portfolio 1.00% 0.18% 1.18%(1)
Calvert Responsibly Invested Balanced Portfolio 0.70% 0.08% 0.78%(1)
Dreyfus Stock Index Fund 0.245% 0.155% 0.40%(2)
Neuberger & Berman Advisers Management Trust Limited
Maturity Bond Portfolio(3) 0.65% 0.13% 0.78%
Neuberger & Berman Advisers Management Trust Growth
Portfolio(3) 0.83% 0.09% 0.92%
Oppenheimer Capital Appreciation Fund 0.72% 0.03% 0.75%
Oppenheimer Growth Fund 0.75% 0.04% 0.79%(4)
Oppenheimer Growth & Income Fund 0.75% 0.25% 1.00%
Oppenheimer High Income Fund 0.75% 0.06% 0.81%
Oppenheimer Strategic Bond Fund 0.75% 0.10% 0.85%
Strong International Stock Fund II 1.00% 0.90% 1.90%
Strong Discovery Fund II 1.00% 0.20% 1.20%
Van Eck Worldwide Hard Assets Fund 1.00% 0.23% 1.23%
</TABLE>
- --------------------
(1) The expense figures shown are net of fees paid indirectly
and reimbursements. Without such reductions, the total fees and
expenses would have totaled: 0.75% for Money Market; 2.27% for
Strategic Growth; 1.33% for Capital Accumulation; 1.59% for Global
Equity; and 0.81% for Balanced.
(2) Mellon Equity Associates, the index manager of the Dreyfus
Stock Index Fund, and the Dreyfus Corporation have voluntarily agreed
to reimburse all or a portion of its advisory fee to the extent that
the total expenses of the Fund are in excess of 0.40% of the average
annual net assets. In the absence of expense reimbursement, the total
fees and expenses in 1996 would have totaled .449%
(3) Neuberger & Berman Advisers Management Trust is divided
into portfolios ("Portfolios"), each of which invests all of its net
investable assets in a corresponding series ("Series") of Advisers
Managers Trust. The figures reported under Investment Management and
Administration Fees" include the aggregate of the administration fees
paid by the Portfolio and the management fees paid by its
corresponding Series. Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding Series.
(4) Total operating expense would have been 0.81% in the
absence of a voluntary one-time fee reimbursement.
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<PAGE> 35
REDUCTION OF CHARGES
ANLIC may reduce monthly administration charges, other charges, and
the minimum initial face amount in special circumstances that result in lower
sales, administrative or mortality expenses. For example, special
circumstances may exist in connection with group or sponsored arrangements,
sales to Policyholders of ANLIC or Acacia Mutual, or sales to employees or
clients of members of The Acacia Group. The amounts of any reductions will
reflect the reduced sales effort and administrative costs resulting from, or
the different mortality experience expected as a result of, the special
circumstances. Reductions will not be unfairly discriminatory against any
person, including the affected Owners and Owners of all other policies funded
by the Variable Account.
POLICY RIGHTS
LOAN PRIVILEGES
Policy Loan. The Owner may borrow money from ANLIC using the Policy
as the only security for the loan. The maximum amount that may be borrowed at
any time is the loan value. The loan value equals 90% of the Policy's Cash
Surrender Value. Loans have priority over the claims of any assignee or other
person. The loan may be repaid all or in part at any time while the Insured is
living. Loans from certain Policies may be taxed as Distributions (See,
Federal Tax Considerations).
Payments made by the Owner will be treated first as payment of premium
and not any outstanding Policy debt unless the Owner indicates that the payment
should be treated otherwise.
Allocation of Policy Loan. An Owner may allocate a Policy loan among
the General Account and the Sub-accounts of the Variable Account which have
Policy Account Value. If no such allocation is made, ANLIC will allocate the
loan first to the General Account and then among the accounts in the same
proportion that the value in each Sub-account bears to the Policy Account Value
less indebtedness at the end of the valuation period during which the request
is received.
The portion of the loan allocated to the Sub-accounts of the Variable
Account will normally be paid within seven days after receipt of a written
request. Postponement of loans may take place under certain circumstances
(See, Postponement of Payments). ANLIC will not defer a loan used to pay
premiums.
Interest. The interest rate charged on Policy loans accrues daily at
a rate equivalent to the annual rate of 6.45% a year. After the first five
years that the Policy is in force, the interest rate will equal 4.5% for any
new loan amount that is equal to or less than the Policy Account Value minus
cumulative premiums paid and 6.45% for all other loan amounts. Interest
payments are due at the end of each Policy Year. If unpaid when due, interest
will be added to the amount of the loan but security for this capitalized
interest will have already accrued in the General Account under the following
procedure.
Effect of Policy Loans. Value equal to the portion of the Policy loan
plus projected interest allocated to each Sub-account will be transferred from
the Sub-account to the General Account, reducing the value in that Sub-account.
The amount of projected interest transferred will equal the amount of interest
projected to accrue until the following Policy Anniversary, discounted for the
guaranteed interest to be credited on the total amount transferred. If the
total indebtedness under the Policy exceeds the value in the General Account,
value in an amount equal to the excess indebtedness will be transferred from
the Sub-accounts of the Variable Account to the General Account as security for
the excess indebtedness. Under ANLIC's current procedures, it will transfer
value from the Sub-accounts of the Variable Account to secure indebtedness on
the Monthly Anniversary on or after the date indebtedness exceeds value in the
General Account. ANLIC will allocate the amount transferred to secure the
excess indebtedness among the Sub-accounts of the Variable Account in the same
proportion that the value in each Sub-account bears to the Policy Account Value
in all Sub-accounts. No charge will be imposed for these transfers.
On each Policy anniversary, the amount of interest projected to accrue
over the following Policy Year, discounted for projected earnings on the total
amount allocated to the General Account as security for the loan, will be
allocated among and transferred from the Sub-accounts in accordance with the
foregoing procedures.
Value in the General Account equal to indebtedness will be credited
with interest at 4.5% per year. NO ADDITIONAL INTEREST WILL BE CREDITED TO
THIS VALUE. The interest earned will be credited no less frequently
35
<PAGE> 36
than once each Policy Month. Upon repayment of indebtedness, the portion of
the repayment allocated to a Sub-account in accordance with the repayment of
indebtedness provision will be transferred to the Sub-account and increase the
value in that Sub-account.
Indebtedness. Indebtedness equals the total of all Policy loans and
accrued interest on Policy loans plus any due and unpaid monthly deductions.
If indebtedness exceeds Policy Account Value less Surrender Charges, ANLIC
will notify the Owner and any assignee of record. If a sufficient payment
equal to excess indebtedness is not made to ANLIC within 62 days from the date
notice is sent, the Policy will lapse and terminate without value. The Policy,
however, may later be reinstated (See, Policy Lapse and Reinstatement).
Repayment of Indebtedness. Indebtedness may be repaid any time before
the Maturity Date of the Policy (See, Payment of Policy Benefits). If not
repaid, ANLIC may deduct indebtedness from any amount payable under the Policy.
As indebtedness is repaid, the value in the General Account securing the
indebtedness repaid may be allocated by the Owner among the General Account and
the Sub-accounts of the Variable Account. Any excess projected interest
resulting from the repayment will also be allocated to the General Account and
the Sub-accounts. If no allocation is made, ANLIC will allocate principal
repayments and interest payments among those accounts for transfer to the
General Account. The amount allocated to an account may not exceed the amount
originally transferred from such account, however, ANLIC will allocate the
repayment of indebtedness at the end of the Valuation Period during which the
repayment is received.
SURRENDER PRIVILEGES
The Owner may surrender the Policy for its Cash Surrender Value on any
Valuation Date during the lifetime of the Insured by sending a written request
to ANLIC. The amount available for surrender is the Cash Surrender Value at the
end of the Valuation Period during which the surrender request is received at
ANLIC's principal office. The Cash Surrender Value equals the Policy Account
Value less the surrender charge and indebtedness. Surrenders from the Variable
Account will generally be paid within seven days of receipt of the written
request. Postponement of payments may, however, occur in certain circumstances
(See, Postponement of Payments). Surrenders may have adverse tax consequences
(See, Federal Tax Considerations).
A SURRENDER CHARGE IS IMPOSED IF THE POLICY IS SURRENDERED EITHER
PARTIALLY OR TOTALLY. For partial surrenders, the charge is 8% of the amount
withdrawn or $25, whichever is greater. Decreases do not affect Surrender
Charges, since Surrender Charges for coverage associated with the decrease will
be taken at the time of Policy lapse or surrender.
The Policy surrender charge is a product of a surrender charge factor
multiplied by the actual premium paid up to the Target Premium from the Policy
Date or the Increase Date of any increase in face amount, as applicable. The
factor varies by the year of surrender measured from the Policy Date or
increase date, as applicable. (The surrender charge will never exceed the
Policy Account Value.) Partial Surrender Charges reduce the surrender charge
for the Policy.
PARTIAL SURRENDER
After the first Policy year, you may partially surrender the Policy on
any Valuation Date during the lifetime of the Insured by sending us a written
request. The amount of the partial surrender must not exceed the Cash
Surrender Value. You may place on file with us a written request for
systematic partial surrenders. The partial surrenders may be monthly,
quarterly or annually in amounts of no less than $100.
Unless you request otherwise, the partial surrender will be allocated
among the General Account and each Sub-account of the Variable Account in the
same proportion that the Policy's value in the General Account, less
indebtedness, and the Policy's value in each Sub-account, bears to the total
Policy Account Value of the Policy, less indebtedness, on the Valuation Date we
receive the request.
Any partial surrender will reduce the Policy Account Value and the
face amount of a Policy with Death Benefit Option Type A . The amount of
reduction in the Policy Account Value will be equal to the amount of the
partial surrender. The amount of reduction in the face amount will be:
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<PAGE> 37
1. For Death Benefit Option Type A, 100% of the amount of the
partial surrender.
2. No amount for Death Benefit Option Type B.
The face amount remaining in force after a partial surrender may not
be less than the minimum face amount ANLIC allows.
Each partial surrender will reduce the face amount in the following
order:
1. Each increase in order, starting with the last increase; and
2. The face amount when the Policy was issued.
For a partial surrender, the amount paid will be deducted from the
Policy Account Value at the end of the Valuation Period during which the
request is received.
When Death Benefit Option Type A is in effect, the face amount will be
reduced by 100% of the amount paid upon partial surrender. When Death Benefit
Option Type B is in effect, there will be no reduction in face amount. Where
increases in the face amount occurred previously, a partial surrender will
reduce the face amount by each increase in order, starting with the first
increase and then the face amount. Thus, partial surrenders may affect the way
in which the cost of insurance charge is calculated and the amount of pure
insurance protection under the Policy (See, Policy Account Value Charges--Cost
of Insurance; Death Benefits).
EXAMINATION OF POLICY PRIVILEGE ("FREE LOOK")
The Owner may cancel the Policy within 20 days after the owner
receives it or within 45 days of completing Part I of the application,
whichever is later. The Owner should mail or deliver the Policy to either our
Service Office (See, Glossary of Defined Terms - Service Office) or the
registered representative who sold the Policy. If the Policy is canceled
within the Free Look Period, ANLIC will refund the total premium paid. A
refund of premium paid by check may be delayed until the check has cleared the
Owner's bank. This privilege also applies to an increase for coverage under the
Policy (See, Postponement of Payments).
GENERAL ACCOUNT
Owners may allocate net premiums and transfer value to the General
Account of ANLIC. Because of exemptive and 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. Accordingly,
neither the General Account nor any interests therein are subject to the
provisions of these Acts and, as a result, the staff of the Securities and
Exchange Commission has not reviewed the disclosures in this Prospectus
relating to the General 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.
An Owner may elect to allocate net premiums to the General Account,
the Variable Account, or both. The Owner may also transfer value from the
Sub-accounts of the Variable Account to the General Account, or from the
General Account to the Sub-accounts of the Variable Account. The allocation or
transfer of funds to the General Account does not entitle an Owner to share in
the investment experience of the General Account. Instead, ANLIC guarantees
that value in the General Account will accrue interest at an effective annual
rate of at least 4.5%, independent of the actual investment experience of the
General Account. Any excess interest rate when declared will remain in effect
at least one year.
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<PAGE> 38
THE POLICY
This Prospectus describes a Flexible Premium Variable Life Insurance
Policy. This Prospectus is generally intended to serve as a disclosure
document for the aspects of the Policy involving the Variable Account. For
complete details regarding the General Account, see the Policy itself.
GENERAL ACCOUNT BENEFITS
If the Owner pays the same premiums as scheduled, allocates all net
premiums only to the General Account and makes no transfers, partial surrenders
or Policy loans, the minimum amount and duration of the death benefit will be
fixed and guaranteed. The Owner may select either Death Benefit Option Type A
or B under the Policy and may change the Policy's face amount subject to
satisfactory evidence of insurability.
GENERAL ACCOUNT VALUE
Net premiums allocated to the General Account are credited to the
Policy. ANLIC bears the full investment risk for these amounts. ANLIC
guarantees that interest credited to each Owner's value in the General Account
will not be less than an annual rate of at least 4.5% per year. ANLIC may, AT
ITS SOLE DISCRETION, credit a higher rate of interest, although it is not
obligated to credit interest in excess of 4.5% per year, and might not do so.
ANY INTEREST CREDITED ON THE POLICY'S VALUE IN THE GENERAL ACCOUNT IN EXCESS OF
THE GUARANTEED RATE OF 4.5% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION
OF ANLIC. THE OWNER ASSUMES THE RISK THAT INTEREST CREDITED MAY NOT EXCEED THE
GUARANTEED MINIMUM RATE OF 4.5% PER YEAR. The value in the General Account
will be calculated on each Monthly Anniversary.
ANLIC guarantees that, at any time prior to the Maturity Date, the
value in the General Account will not be less than the amount of the net
premiums allocated or value transferred to the General Account, plus interest
at the rate of 4.5% per year, plus any excess interest which ANLIC credits and
any amounts transferred into the General Account, less the sum of all charges
allocable to the General Account and any amounts deducted from the General
Account in connection with partial surrenders or transfers to the Variable
Account.
GENERAL POLICY PROVISIONS
POSTPONEMENT OF PAYMENTS
General. Payment of any amount upon complete or partial surrender,
Policy loan, or benefits payable at death or Maturity may be postponed
whenever: (1) Acacia National or the New York Stock Exchange is closed such as
customary weekend and holiday closings, or trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission;
(2) the Commission by order permits postponement for the protection of Owners;
or (3) an emergency exists, as determined by the Commission, as a result of
which disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the Variable Account's net
assets. Transfers may also be postponed under these circumstances.
Payment by Check. Payments under the Policy of any amounts derived
from premiums paid by check may be delayed until such time as the check has
cleared the Owner's bank.
THE CONTRACT
The Policy, riders and attached copy of the application and any
supplemental applications are the entire contract. Only statements in the
application and any supplemental applications can be used to void the Policy or
defend a claim. The statements are considered representations and not
warranties. Only Officers of ANLIC can agree to change or waive any provisions
of the Policy. The change or waiver must be in writing and signed by an
officer of ANLIC.
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<PAGE> 39
SUICIDE
If the Insured, while sane or insane, commits suicide within two years
after the Policy Date, ANLIC will pay only the premium received, less any
partial surrenders and outstanding indebtedness. If the Insured, while sane or
insane, commits suicide within two years after the effective date of any
increase in face amount requiring evidence of insurability, ANLIC will not pay
the increase but will pay only an amount equal to the monthly deductions
previously made for the increase.
INCONTESTABILITY
ANLIC cannot contest this Policy or any attached rider after it has
been in force for two years from its effective date. It cannot contest an
increase in face amount or in rider face amount after it has been in force for
two years from its effective date. Reinstatement of a Policy, and any rider
attached to the Policy, may be contested by ANLIC for any statements made in
the application for reinstatement any time within two years of the effective
date of reinstatement.
CHANGE OF OWNER OR BENEFICIARY
Generally, as long as the Policy is in force, the Owner or Beneficiary
may be changed by written request in a form acceptable to ANLIC. The Policy
need not be returned unless requested by ANLIC. The change will take effect as
of the date the request is signed, whether or not the Insured is living when
the request is received by ANLIC. ANLIC will not, however, be liable for any
payment made or action taken before acknowledgment of the request. A change of
Owner or Beneficiary may have tax consequences (See, Federal Tax
Considerations).
COLLATERAL ASSIGNMENT
The Policy may be assigned as collateral. ANLIC will not be bound by
the assignment until a copy has been received by ANLIC and it assumes no
responsibility for determining whether an assignment is valid or the extent of
the assignee's interest. An Assignment may have tax consequences (See, Federal
Tax Considerations).
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the benefits will
be those which the monthly deductions would have provided for the correct age
and sex. In the case of policies issued with unisex rates, if the age of the
Insured has been misstated, the benefits will be those which the monthly
deductions would have provided for the correct age.
REPORTS AND RECORDS
ANLIC will maintain all records relating to the Variable Account.
ANLIC will mail to Owners, at their last known address of record, any reports
required by applicable law or regulation. Each Owner will also be sent an
annual and semi-annual report for Portfolios of the Funds that hold or have
held Policy value during the reporting period and a list of the portfolio
securities held in each Portfolio of the Funds, as required by the 1940 Act.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the following optional
insurance benefits may be added to a Policy by rider. The cost of any optional
insurance benefits will be deducted as part of the monthly deduction (See,
Charges and Deductions--Monthly Administration Charge).
Accelerated Death Benefit Rider. Subject to certain terms and
conditions, a reduced death benefit will be paid in advance to the Owner of the
Policy if the Insured suffers from a terminal illness or injury. There is no
charge for this rider but it will be subject to ANLIC's underwriting
requirements. If certain requirements are satisfied, however, accelerated
39
<PAGE> 40
death benefits paid under the Accelerated Death Benefit Rider to a terminally
or chronically ill insured individual as defined in the Code, may not be
subject to tax. A qualified tax advisor should be consulted before adding such
a Rider to a Policy.
Other Insured Rider. Provides for level renewable term insurance on
the life of any family member. Under the terms of this rider, ANLIC will pay
the face amount of the rider to the Beneficiary upon receipt of proof of the
other Insured's death. Subject to certain restrictions, the face amount of the
rider may be increased or decreased. This rider may also be converted to a new
Policy on the family member within 31 days after the Insured's death.
Generally, the new Policy must meet the minimum face amount requirement, but
ANLIC, in its sole discretion, may waive this provision. Additional evidence
of insurability will not be required for conversion.
Children's Insurance Rider. Provides for level term insurance on the
Insured's children, as defined in the rider. Under the terms of the rider, the
death benefit will be payable to the named Beneficiary upon the death of any
Insured child. Upon receipt of proof of the Insured's death, the rider will
continue in force without additional monthly charges.
Guaranteed Insurability Rider. Provides that the Owner can purchase
additional insurance at certain future dates without evidence of insurability.
Under the terms of the rider the Owner may only increase the face amount of the
Policy on an option date. An option date falls on the Policy Anniversary
following certain birthdates and the Monthly Anniversary following the
occurrence of certain events such as marriage of the Insured. Each increase in
face amount will be subject to the maximum stated in the Policy. No evidence
of insurability is required for any increase made under this rider. Increases
may have tax consequences (See, Federal Tax Considerations).
Accidental Death Benefit Rider. Provides additional insurance if the
Insured's death results from accidental bodily injury, as defined in the rider.
Under the terms of the rider, the additional benefits provided in a Policy will
be paid upon receipt of proof by ANLIC that death resulted directly and
independently of all other causes from accidental bodily injury; occurred while
the rider was in force; and occurred on or after the rider anniversary
following the Insured's 5th birthday. The rider will terminate on the earliest
of either the date of lapse, the rider anniversary following the Insured's 70th
birthday or the Maturity Date of the Policy.
Level Renewable Term Rider. Provides for level renewable term
insurance coverage to increase the face amount of the Policy. The Owner may
purchase additional insurance on a renewable term basis without evidence of
insurability up to Insured's age 70. The rider will terminate on the earliest
of either the date lapse, the rider anniversary following the Insured's 70th
birthday or the Maturity Date of the Policy.
Total Disability Rider. Provides for the payment of the total
disability amount by ANLIC as premiums while the Owner is disabled. Under the
terms of the rider, the total disability amount will be paid as a premium upon
receipt of proof adequate to ANLIC that: (1) the Insured is totally disabled as
defined in the rider; (2) the disability commenced while the rider was in
force; (3) the disability began on or after the rider anniversary following the
Insured's 15th birthday; and (4) total disability continued without
interruption for four months. The total disability amount is set forth in the
Policy. The amount may, under certain circumstances, be increased. Evidence
of insurability will generally be required for any increase. Because the total
disability amount is a fixed dollar amount while the monthly deduction varies
from month to month, the fixed dollar amount may be more or less than the
amount necessary to keep the Policy in force.
Upon approval of the claim, ANLIC will begin crediting total
disability amounts, less premium expense charges, on the Monthly Anniversary
after the date disability began. No amount will be credited for a period of
more than 12 months before notice of disability is received by ANLIC unless it
is shown that notice was given as soon as reasonably possible. ANLIC will
continue to credit the net total disability amount while the Insured is totally
disabled and the Policy is in force. However, if the disability begins on or
after the rider Anniversary after the Insured's 60th birthday, payment will be
credited only for the later of two years or until the rider Anniversary after
the Insured's 65th birthday.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the federal
income tax considerations associated with the Policy and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel
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<PAGE> 41
or other competent tax advisors should be consulted for more complete
information. 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 ("Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws or of the
current interpretations by the Internal Revenue Service.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended
("Code"), sets forth a definition of a life insurance contract for federal tax
purposes. Although the Secretary of the Treasury ("Treasury") is authorized to
prescribe regulations implementing Section 7702, and while proposed regulations
and other interim guidance have been issued, final regulations have not been
adopted. Guidance as to how Section 7702 is to be applied is limited. If a
Policy was determined not to be a life insurance contract for purposes of
Section 7702, such Policy would not provide the tax advantages normally
provided by a life insurance Policy.
With respect to a Policy issued on the basis of a standard rate class,
ANLIC believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract, as long as the Owner does not pay the full amount of premiums
permitted under the Policy.
With respect to a Policy that is issued on a substandard basis (i.e.,
a premium class involving a higher than standard mortality risk), there is less
guidance, in particular as to how the mortality and other expense requirements
of Section 7702 are to be applied in determining whether such a Policy meets
the Section 7702 definition of a life insurance contract. Thus, it is not
clear whether or not such a Policy would satisfy Section 7702, particularly if
the Owner pays the full amount of premiums permitted under the Policy. An
Owner of a Policy issued on a substandard basis may, however, adopt certain
self-imposed limitations on the amount of premiums paid for such a Policy which
should cause the Policy to meet the Section 7702 definition of a life insurance
contract. An Owner contemplating the adoption of such limitations should do so
only after consulting a tax adviser.
If it is subsequently determined that the Policy does not satisfy
Section 7702, ANLIC may take whatever steps are appropriate and necessary to
attempt to cause such a Policy to comply with Section 7702. For these reasons,
ANLIC reserves the right to restrict Policy transactions as necessary to
attempt to qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of each of
the Sub-accounts must be "adequately diversified" in accordance with Treasury
regulations in order for the Policy to qualify as a life insurance contract
under Section 7702 of the Code (discussed above). The Sub-accounts, through the
Fund, intend to comply with the diversification requirements prescribed in
Treasury Regulation Section 1.817-5, which affect how the Fund's assets are to
be invested. ANLIC believes that the Sub-accounts will, thus, meet the
diversification requirement.
In certain circumstances, Owners of variable life insurance contracts
may be considered the Owners, for federal income tax purposes, of the assets of
the Sub-accounts used to support their contracts. In those circumstances,
income and gains from the Sub-account assets would be includable in the Owner's
gross income. The IRS has stated in published rulings that a variable contract
Owner will be considered the Owner of Sub-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 has 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 Owner), 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 Sub-accounts 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 Sub-account assets. For
example, the Owner has additional flexibility in allocating premium payments
and Policy values and the investment objective of certain Portfolios may be
narrower. These differences could result in an Owner being treated as the
Owner of a pro rata portion of
41
<PAGE> 42
the assets of the Sub-accounts. In addition, ANLIC does 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. ANLIC therefore reserves
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
Sub-accounts.
The following discussion assumes that the Policy will qualify as a
life insurance contract for federal income tax purposes.
TREATMENT OF POLICY BENEFITS
In General. ANLIC believes that the proceeds and Policy Account Value
increases of a Policy should be treated in a manner consistent with a
fixed-benefit life insurance Policy for federal income tax purposes. Thus, the
Death Benefit under the Policy should be excluded from the gross income of the
Beneficiary under Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in
the Policy's Death Benefit Option (i.e., a change from Death Benefit Option A
to Death Benefit Option B or vice versa), a Policy loan, a partial surrender, a
surrender, the addition of an Accelerated Death Benefit Rider, the receipt of
an Accelerated Death Benefit, a change in ownership, or an assignment of the
Policy may have federal income tax consequences. In addition, federal, state
and local taxes upon transfer, and other tax consequences of ownership or
receipt of Policy proceeds depend on the circumstances of each Owner or
Beneficiary.
A Policy may also be used in various arrangements, including
non-qualified deferred compensation or salary continuation plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore,
if you are contemplating the use of a Policy in any arrangement the value of
which depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
Generally, the Owner will not be deemed to be in constructive receipt
of the Policy Account Value, including increments thereof, until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by a Policy depend on whether the Policy is classified as a
"Modified Endowment Contract." Whether a Policy is or is not a Modified
Endowment Contract, upon a complete surrender or lapse of a Policy or when
benefits are paid at a Policy's maturity date, if the amount received plus the
amount of indebtedness exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.
Modified Endowment Contracts. Section 7702A establishes a class of
life insurance contracts designated as "Modified Endowment Contracts," which
applies to Policies entered into or materially changed after June 20, 1988.
Due to the Policy's flexibility, classification as a Modified
Endowment Contract will depend on the individual circumstances of each Policy.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven Policy Years exceed the sum of
the net level premiums which would have been paid on or before such time if the
Policy provided for paid-up future benefits after the payment of seven level
annual premiums. The determination of whether a Policy will be a Modified
Endowment Contract after a material change generally depends upon the
relationship of the Death Benefit and Policy Account Value at the time of such
change and the additional premiums paid in the seven years following the
material change. At the time a premium is credited, which would cause the
Policy to become a Modified Endowment Contract, ANLIC will notify the Owner
that unless a refund of the excess premium is requested by the Owner, the
Policy will become a Modified Endowment Contract. The Owner will have 30 days
after receiving such notification to request the refund. The excess premium
paid (with either the 4.5% required interest or positive Sub-account earnings,
if any) will be returned to the Owner upon receipt by ANLIC of the refund
request. The amount to be refunded will be deducted from the Policy Account
Value in the Sub-accounts and in the General Account in the same proportion as
the premium payment was allocated to such accounts. In the event that earnings
on such excess premium are not at least 4.5%, the premium plus an amount equal
to interest at an annual rate of 4.5% will be returned.
The rules relating to whether a Policy will be treated as a Modified
Endowment Contract are extremely complex and cannot be fully described in the
limited confines of this summary. Therefore, a current or prospective Owner
should consult with a competent advisor to determine whether a Policy
transaction will cause the Policy to be treated as a Modified
42
<PAGE> 43
Endowment Contract.
Distribution from Policies Classified as Modified Endowment Contracts.
Policies classified as Modified Endowment Contracts will be subject to the
following tax rules: First, all distributions, including distributions upon
surrender and partial surrenders from such a Policy, are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Account Value immediately before the distribution over the investment in
the Policy (described below) at such time. Second, loans taken from or secured
by such a Policy are treated as distributions from such a Policy and taxed
accordingly. Past due loan interest that is added to the loan amount will be
treated as a loan. Third, a 10 percent additional income tax is imposed on the
portion of any distribution from, or loan taken from or secured by, such a
Policy that is included in income except where the distribution or loan is made
on or after the Owner attains age 59 1/2, is attributable to the Owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Owner or the joint lives (or
joint life expectancies) of the Owner and the Owner's Beneficiary. If a Policy
becomes a modified endowment contract after it is issued, distributions made
during the Policy Year in which it becomes a modified endowment contract,
distributions in any subsequent Policy Year and distributions within two years
before the Policy becomes a modified endowment contract will be subject to the
tax treatment described above. This means that a distribution from a Policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment contract.
Distributions From Policies Not Classified as Modified Endowment
Contracts. Distributions from a Policy that is not a Modified Endowment
Contract are generally treated as first recovering the investment in the Policy
(described below) and then, only after the return of all such investments in
the Policy, as distributing taxable income. An exception to this general rule
occurs in the case of a decrease in the Policy's Death Benefit or any other
change that reduces benefits under the Policy in the first 15 years after the
Policy is issued and that results in a cash distribution to the Owner in order
for the Policy to continue complying with the Section 7702 definition limits.
Such a cash distribution will be taxed in whole or in part as ordinary income
(to the extent of any gain in the Policy) under rules prescribed in Section
7702.
Loans from, or secured by a Policy that is not a Modified Endowment
Contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.
Finally, neither distributions (including distributions upon
surrender) nor loans from, or secured by a Policy that is not a Modified
Endowment Contract are subject to the 10 percent additional tax.
Policy Loan Interest. Interest paid on any loan under a Policy may
not be deductible. A qualified tax advisor should be consulted before
deducting any such interest.
Investment in the Policy. Investment in the Policy generally means:
(1) the aggregate amount of any premiums or other consideration paid for a
Policy, minus (2) the aggregate amount received under the Policy which is
excluded from gross income of the Owner (except that the amount of any loan
from, or secured by a Policy that is a Modified Endowment Contract, to the
extent such amount is excluded from gross income, will be disregarded), plus
(3) the amount of any loan from, or secured by a Policy that is a Modified
Endowment Contract to the extent that such amount is included in the gross
income of the Owner.
Multiple Policies. All Modified Endowment Contracts that are issued
by ANLIC (or its affiliates) to the same Owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includable in the gross income under Section 72(e) of the Code.
SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If Policies are purchased by a trust forming part of a pension or
profit-sharing plan meeting the qualification requirements of Section 401(a) of
the Code, various special tax rules will apply. Because these rules are
extensive and complicated, it is not possible to describe all of them here.
Accordingly, counsel or other competent tax advisors familiar with qualified
plan matters should be consulted in connection with any such purchase.
Generally, a Plan Participant on whose behalf a Policy is purchased
will be treated as having annual imputed income based on a cost of insurance
factor multiplied by the Net Amount at Risk under the Policy. This imputed
income is reported by the employer to the employee and the Service annually and
included in the employee's gross income. In the
43
<PAGE> 44
event of the death of a Plan Participant while covered by the plan, Insurance
Proceeds paid to the participant's Beneficiary generally will not be completely
excludable from the Beneficiary's gross income under Section 101(a) of the
Code. Any Death Benefit in excess of the Policy Account Value will be
excludable. The portion of the Death Benefit equal to the Policy Account
Value, however, generally will be subject to federal income tax to the extent
it exceeds the Participant's "investment in the contract" as defined in the
Code, which will include the imputed income noted above. Special rules may
apply in certain circumstances (e.g., to Owner-employees or Participants who
have borrowed from the plan).
The Service has interpreted the plan qualification provisions of the
Code to require that non-retirement benefits, including death benefits, payable
under a qualified plan be "incidental to" retirement benefits provided by the
plan. These interpretations, which are primarily set forth in a series of
Revenue Rulings issued by the Service, should be considered in connection with
any purchase of life insurance policies to provide benefits under a qualified
plan.
POSSIBLE CHARGE FOR ANLIC'S TAXES
At the present time, ANLIC makes no charge for any federal, state or
local taxes (other than the charge for state premium taxes) that the Company
incurs that may be attributable to the Sub-accounts or to the Policies. ANLIC,
however, reserves the right in the future to make additional charges for any
such tax or other economic burden resulting from the application of the tax
laws that it determines to be properly attributable to the Sub-accounts or to
the Policies. The imposition of such additional charges will be made in
compliance with applicable laws and SEC regulations. If any tax charges are
made in the future, they will be accumulated daily and transferred from the
applicable Sub-account to ANLIC's General Account. Any investment earnings on
tax charges accumulated in a Sub-account will be retained by ANLIC.
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans
("EBS Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code.
For EBS Policies, the maximum mortality rates used to determine the
monthly Cost of Insurance Charge are based on the Commissioner's 1980 Standard
Ordinary Mortality Tables. Under these Tables, mortality rates are the same
for male and female Insureds of a particular attained age and rate class (See,
Cost of Insurance).
Illustrations reflecting the premiums and charges for EBS Policies
will be provided upon request to purchasers of such Policies.
There is no provision for misstatement of sex in the EBS Policies.
(See, Misstatement of Age or Sex). Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds (See, Settlement Options).
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act
of 1964, vary between men and women on the basis of sex. In that case, the
Court applied its decision only to benefits derived from contributions made on
or after August 1, 1983. Subsequent decisions of lower federal courts indicate
that in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory,
or decisional authority of some states may prohibit use of sex-distinct
mortality tables under certain circumstances. The Policies offered by this
Prospectus (other than Policies issued in states which require "unisex"
policies (currently Montana) and EBS Policies (See, Policies Issued in
Conjunction with Employee Benefit Plans) are based upon actuarial tables which
distinguish between men and women and, thus, the Policy provides different
benefits to men and women of the same age. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact
of these authorities on any employment-related insurance or benefits program
before purchasing the Policy and in determining whether an EBS Policy is
appropriate.
44
<PAGE> 45
VOTING RIGHTS
All of the assets held in the Sub-accounts of the Variable Account
will be invested in shares of corresponding Portfolios of the Funds. The Funds
do not hold routine annual shareholders' meetings. Shareholders' meetings will
be called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. ANLIC is the legal owner of Fund shares and as such has the right
to vote upon any matter that may be voted upon at a shareholders' meeting.
However, in accordance with its view of present applicable law, ANLIC will vote
the shares of the Funds at meetings of the shareholders of the appropriate Fund
or Owner in accordance with instructions received from Owners. Fund shares
held in each Sub-account for which no timely instructions from Owners are
received will be voted by ANLIC in the same proportion as those shares in that
Subaccount for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a
form for giving voting instructions. Owners may vote, by proxy or in person,
only as to the Portfolios that correspond to the Sub-accounts in which their
Policy values are allocated. The number of shares held in each Sub-account
attributable to a Policy for which the Owner may provide voting instructions
will be determined by dividing the Policy's value in that account by the net
asset value of one share of the corresponding Owner as of the record date for
the shareholder meeting. Fractional shares will be counted. For each share of
an Owner for which Owners have no interest, ANLIC will cast votes, for or
against any matter, in the same proportion as Owners vote.
If required by state insurance officials, ANLIC may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Owners, or to approve or disapprove an investment Policy or investment advice
of one or more of the Owners. In addition, ANLIC may disregard voting
instructions in favor of changes initiated by an Owner or a Fund's Board of
Directors provided that ANLIC's disapproval of the change is reasonable and is
based on a good faith determination that the change would be contrary to state
law or otherwise inappropriate, considering the Portfolio's objectives and
purposes, and the effect the change would have on ANLIC. If ANLIC does
disregard voting instructions, it will advise Owners of that action and its
reasons for such action in the next semi-annual report to Owners.
Shares of the Portfolios may be offered to variable life insurance and
variable annuity separate accounts of life insurance companies other than ANLIC
that are not affiliated with ANLIC. ANLIC understands that shares of these
Portfolios also will be voted by such other life insurance companies in
accordance with instructions from their Owners invested in such separate
accounts. This will dilute the effect of voting instructions of Owners of the
Policies.
OFFICERS AND DIRECTORS OF ANLIC
<TABLE>
<CAPTION>
Name and Position(s) Principal Occupation
- -------------------- --------------------
With Acacia National Last Five Years
- -------------------- ---------------
<S> <C>
Charles T. Nason President and Chief Executive Officer since June 1988;
Chairman of the Board, Acacia Mutual Life Insurance Company
President, and Chief
Executive Officer
and Director
Robert-John H. Sands Senior Vice President and General Counsel
Senior Vice President, since 1991 Acacia Mutual Life Insurance Company.
General Counsel and Director
Robert W. Clyde Executive Vice President, Marketing and
Executive Vice President, Sales since September 1994; Vice
Marketing and Sales President, Retail Long-Term Care
and Director September 1993 until August 1994, Vice President,
General Agency July 1991 until August 1993,
John Hancock Mutual Life.
</TABLE>
45
<PAGE> 46
<TABLE>
<S> <C>
Paul L. Schneider Senior Vice President, Chief Financial Officer since
Senior Vice President, March 1989 and Chief Investment Officer since April 1997;
Chief Financial Officer, Chief Acacia Mutual Life Insurance Company.
Investment Officer,
and Director
Haluk Ariturk Senior Vice President, Operations and Chief Actuary
Senior Vice President, since June 1989, Acacia Mutual Life Insurance Company.
Operations and Chief
Actuary and Director
</TABLE>
(1) The principal business address of each person listed is Acacia National
Life Insurance Company, 51 Louisiana Avenue, N.W., Washington, D.C. 20001.
DISTRIBUTION OF THE POLICIES
Applications for the Policies are solicited by agents who are licensed
by state insurance authorities to sell ANLIC's variable life insurance
policies, and who are also registered representatives of The Advisors Group,
Inc. ("TAG") or registered representatives of broker/dealers who have Selling
Agreements with TAG or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. TAG, whose address is 51
Louisiana Avenue, N.W., Washington, D.C. 20001, is a registered broker/dealer
under the Securities Exchange Act of 1934 ("1934 Act") and a member of the
National Association of Securities Dealers, Inc. ("NASD"). TAG is a second
tier wholly-owned subsidiary of Acacia Mutual Life Insurance Company of
Washington, D.C. TAG acts as the principal underwriter, as defined in the 1940
Act, of the Policies (as well as other variable life policies) pursuant to an
Underwriting Agreement with ANLIC. The Policies are offered and sold only in
those states where their sale is lawful.
The insurance underwriting and the determination of a proposed
Insured's Rate Class and whether to accept or reject an application for a
Policy is done by ANLIC. ANLIC will refund any premiums paid if a Policy
ultimately is not issued or will refund the applicable amount if the Policy is
returned under the Free Look provision.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. The agent may be
required to return the commissions if a Policy is not continued.
ADMINISTRATION
ANLIC has contracted with Financial Administrative Services, Inc.
("FAS"), having its principal place of business at 95 Bridge Street, Haddam,
Connecticut for it to provide ANLIC with certain administrative services for
the Flexible Premium Variable Life Policies. Pursuant to the terms of a
Service Agreement, FAS will act as Recordkeeping Service Agent for the policies
and riders for an initial term of three years and any subsequent renewals
thereof. FAS under the guidance and direction of ANLIC will perform
Administration functions including: issuance of policies for reinstatement,
term conversion, plan changes and guaranteed insurability options, 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 ANLIC.
46
<PAGE> 47
POLICY REPORTS
At least once each Policy year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the General Account Value, indebtedness, the value in
each Sub-account, premiums paid since the last report, charges deducted since
the last report, any partial surrenders since the last report, and the current
Cash Surrender Value. At the present time, ANLIC plans to send these Policy
Statements on a quarterly basis. In addition, a statement will be sent to the
Owner showing the status of the Policy following the transfer of amounts from
one Sub-account to another, the taking out of a loan, a repayment of a loan, a
partial surrender and the payment of any premiums (excluding those paid by bank
draft which has not cleared). An Owner may request that a similar report be
prepared at other times. ANLIC may charge a reasonable fee for such requested
reports and may limit the scope and frequency of such requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of the Funds as required by the 1940 Act.
STATE REGULATION
ANLIC is subject to regulation and supervision by the Insurance
Department of the Commonwealth of Virginia which periodically examines its
affairs. It is also subject to the insurance laws and regulations of all
jurisdictions where it is 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. ANLIC is required to submit
annual statements of its operations, including financial statements, to the
insurance departments of the various jurisdictions in which it does business
for the purposes of determining solvency and compliance with local insurance
laws and regulations.
EXPERTS
The financial statements of the Variable Account as of December 31,
1996, and for each of the periods indicated therein, and the statutory basis
financial statements of ANLIC as of and for the years ended December 31,1996
and 1995, as found in this Prospectus have been included herein in reliance
upon the reports of Coopers & Lybrand L.L.P., independent accountants,
appearing elsewhere herein, given on the authority of that firm as experts in
accounting and auditing.
Actuarial matters included in the Prospectus have been examined by
Philip Barlow, FSA, an actuary of ANLIC, as stated in his opinion filed as an
exhibit to the Registration Statement.
LEGAL MATTERS
Jorden Burt Berenson & Johnson LLP of Washington, D.C. has provided
advice on legal matters relating to certain aspects of federal securities laws
applicable to the issue and sale of the Policies. Matters of the State 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, Legal Officer
of ANLIC.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and
Exchange Commission, under the Securities Act of 1933, as amended, with respect
to the Policy offered hereby. This Prospectus does not contain all the
information set forth in the registration statement and the amendments and
exhibits to the registration statement, to all of which reference is made for
further information concerning the Variable Account, ANLIC and the Policy
offered hereby. Statements contained in this prospectus as to the contents of
the Policy and other legal instruments are summaries. For a complete statement
of the terms thereof, reference is made to such instruments as filed.
47
<PAGE> 48
APPENDIX A - ILLUSTRATIONS
The following tables indicate how the account values and death
benefits vary with the investment experience of the Funds and differences
between the guaranteed and current costs of the Policy. The tables show how
the account values and death benefits of a Policy, issued to an Insured of a
certain age with regular annual premiums, differ over time if the investment
return on the assets of each Portfolio were a uniform, after-tax annual rate of
0%, 8% and 12%. The tables beginning on page A-2 illustrate a Policy issued
to a male, age 35, under a standard non-smoker rate class. The account values
and death benefits would be different from those shown if the gross annual
investment rates of return averaged 0%, 8% and 12% over a period of years but
fluctuated above and below those averages for individual Policy years. The
values also assume that no loans or partial surrenders are made by the Owner.
The second column of tables shows the accumulated value of premiums
paid at the stated 4.5% interest rate compounded annually after taxes. The
columns headed Guaranteed reflect that throughout the life of the Policy the
monthly charge for the cost of insurance is based on the maximum level
permitted under the Policy, a Premium expense charge of 2.25%, a monthly
administrative charge of $27 for the first Policy year and $8 each month
thereafter, and a daily charge for mortality and expense risks equal to an
annual rate of .90%. The columns headed Current assume that, throughout the
life of the Policy, the monthly cost of insurance is based on the current cost
of insurance rate, a Premium expense charge of 2.25%, a monthly administrative
charge of $27 for the first Policy year and $8 each month thereafter and a
daily charge for mortality and expense risks equal to an annual rate of .90%
for the first fifteen years. This charge is then reduced by .05% each year
until it reaches .45% in the 25th year and thereafter.
The amounts shown in the tables for account values and death benefits
reflect that the net investment return of the Portfolios is lower than the
gross return listed due to investment advisory and other fees of the Funds.
The Policy values reflect a daily maximum investment advisory fee and expenses
at an annual rate of .90% which represents an average charge for all the
Portfolios. After a deduction of these amounts, the illustrated gross
investment rates of 0%, 8%, and 12% correspond to approximate net annual rates
of -1.80%, 6.20% and 10.20% respectively.
The hypothetical values shown in the tables do not reflect any charges
for federal income taxes against the Variable Account, since ANLIC is not
currently making such charges. However, such charges may be made in the future
and, in that event, the gross annual investment rate of return would have to
exceed 0%, 8% and 12% by an amount to cover the tax charges to produce the
death benefits and account values illustrated (See, Federal Tax
Considerations).
The tables illustrate the Policy values that would result based upon
hypothetical investment rates and premium payment schedules, if all net
premiums are allocated to the Variable Account and if no Policy loans, partial
surrenders or changes in benefits are applied for. Upon request, ANLIC will
provide a comparable illustration based upon the Insured's age, sex, rate
class, face amount or premium schedule requested, and additional benefits. For
unisex policies, ANLIC will supply such illustrations without regard to the
Insured's sex. ANLIC reserves the right to charge a fee not to exceed $25 for
this service.
<PAGE> 49
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
<TABLE>
<CAPTION>
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option A Face amount: $ 250,000
------------------------------------------------------------------------------------------------------------
0.00 % Hypothetical Gross Annual Rate of Return
============================================================================================================
Current Charges Guaranteed Charges
============================================================================================================
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 36 1,838 1,028 477 250,000 477 250,000
------------------------------------------------------------------------------------------------------------
2 37 1,838 2,245 1,693 250,000 1,681 250,000
------------------------------------------------------------------------------------------------------------
3 38 1,838 3,412 2,861 250,000 2,837 250,000
------------------------------------------------------------------------------------------------------------
4 39 1,838 4.528 3.977 250,000 3,941 250,000
------------------------------------------------------------------------------------------------------------
5 40 1,838 5,595 5,044 250,000 4,994 250,000
------------------------------------------------------------------------------------------------------------
6 41 1,838 6,604 6,052 250,000 5,989 250,000
------------------------------------------------------------------------------------------------------------
7 42 1,838 7,553 7,001 250,000 6,925 250,000
------------------------------------------------------------------------------------------------------------
8 43 1,838 8,444 8,076 250,000 7,984 250,000
------------------------------------------------------------------------------------------------------------
9 44 1,838 9,271 9,087 250,000 8,980 250,000
------------------------------------------------------------------------------------------------------------
10 45 1,838 10,033 10,033 250,000 9,908 250,000
------------------------------------------------------------------------------------------------------------
11 46 1,838 10,724 10,724 250,000 10,580 250,000
------------------------------------------------------------------------------------------------------------
12 47 1,838 11,339 11,339 250,000 11,176 250,000
------------------------------------------------------------------------------------------------------------
13 48 1,838 11,877 11,877 250,000 11,693 250,000
------------------------------------------------------------------------------------------------------------
14 49 1,838 12,332 12,332 250,000 12,125 250,000
------------------------------------------------------------------------------------------------------------
15 50 1,838 12,699 12,699 250,000 12,467 250,000
------------------------------------------------------------------------------------------------------------
16 51 1,838 12,974 12,974 250,000 12,715 250,000
------------------------------------------------------------------------------------------------------------
17 52 1,838 13,146 13,146 250,000 12,856 250,000
------------------------------------------------------------------------------------------------------------
18 53 1,838 13,198 13,198 250,000 12,877 250,000
------------------------------------------------------------------------------------------------------------
19 54 1,838 13,117 13,117 250,000 12,760 250,000
------------------------------------------------------------------------------------------------------------
20 55 1,838 12,888 12,888 250,000 12,489 250,000
------------------------------------------------------------------------------------------------------------
25 60 1,838 8,895 8,895 250,000 8,209 250,000
------------------------------------------------------------------------------------------------------------
30 65 1,838 0 0 250,000 0 250,000
------------------------------------------------------------------------------------------------------------
31 66 1,838 0 0 0 0 0
------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER AND THE DIFFERENT INVESTMENT
RATE OF RETURN FOR THE FUND PORTFOLIOS. THE DEATH BENEFIT AND ACCOUNT VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE
OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY
ANLIC OR THE FUNDS THAT THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR OVER A PERIOD OF TIME.
<PAGE> 50
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
<TABLE>
<CAPTION>
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option A Face amount: $ 250,000
------------------------------------------------------------------------------------------------------------
8.00 % Hypothetical Gross Annual Rate of Return
============================================================================================================
Current Charges Guaranteed Charges
============================================================================================================
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 36 1,838 1,140 588 250,000 588 250,000
------------------------------------------------------------------------------------------------------------
2 37 1,838 2,567 2,016 250,000 2,003 250,000
------------------------------------------------------------------------------------------------------------
3 38 1,838 4,054 3,503 250,000 3,477 250,000
------------------------------------------------------------------------------------------------------------
4 39 1,838 5,603 5,052 250,000 5,011 250,000
------------------------------------------------------------------------------------------------------------
5 40 1,838 7,218 6,667 250,000 6,609 250,000
------------------------------------------------------------------------------------------------------------
6 41 1,838 8,894 8,343 250,000 8,266 250,000
------------------------------------------------------------------------------------------------------------
7 42 1,838 10,633 10,081 250,000 9,985 250,000
------------------------------------------------------------------------------------------------------------
8 43 1,838 12,439 12,071 250,000 11,952 250,000
------------------------------------------------------------------------------------------------------------
9 44 1,838 14,310 14,310 250,000 13,982 250,000
------------------------------------------------------------------------------------------------------------
10 45 1,838 16,249 16,249 250,000 16,076 250,000
------------------------------------------------------------------------------------------------------------
11 46 1,838 18,255 18,255 250,000 18,049 250,000
------------------------------------------------------------------------------------------------------------
12 47 1,838 20,324 20,324 250,000 20,083 250,000
------------------------------------------------------------------------------------------------------------
13 48 1,838 22,460 22,460 250,000 22,180 250,000
------------------------------------------------------------------------------------------------------------
14 49 1,838 24,663 24,663 250,000 24,339 250,000
------------------------------------------------------------------------------------------------------------
15 50 1,838 26,930 26,930 250,000 26,557 250,000
------------------------------------------------------------------------------------------------------------
16 51 1,838 29,271 29,271 250,000 28,843 250,000
------------------------------------------------------------------------------------------------------------
17 52 1,838 31,681 31,681 250,000 31,192 250,000
------------------------------------------------------------------------------------------------------------
18 53 1,838 34,153 34,153 250,000 33,597 250,000
------------------------------------------------------------------------------------------------------------
19 54 1,838 36,683 36,683 250,000 36,049 250,000
------------------------------------------------------------------------------------------------------------
20 55 1,838 39,264 39,264 250,000 38,543 250,000
------------------------------------------------------------------------------------------------------------
25 60 1,838 52,698 52,698 250,000 51,353 250,000
------------------------------------------------------------------------------------------------------------
30 65 1,838 65,220 65,220 250,000 62,736 250,000
------------------------------------------------------------------------------------------------------------
35 70 1,838 77,180 77,180 250,000 67,621 250,000
------------------------------------------------------------------------------------------------------------
40 75 1,838 90,660 90,660 250,000 54,408 250,000
------------------------------------------------------------------------------------------------------------
45 80 1,838 101,345 101,345 250,000 0 0
------------------------------------------------------------------------------------------------------------
50 85 1,838 100,048 100,048 250,000 0 0
------------------------------------------------------------------------------------------------------------
55 90 1,838 51,717 51,717 250,000 0 0
------------------------------------------------------------------------------------------------------------
58 93 1,838 0 0 0 0 0
------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER AND THE DIFFERENT INVESTMENT
RATE OF RETURN FOR THE FUND PORTFOLIOS. THE DEATH BENEFIT AND ACCOUNT VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE
OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY
ANLIC OR THE FUNDS THAT THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR OVER A PERIOD OF TIME.
<PAGE> 51
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
<TABLE>
<CAPTION>
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option A Face amount: $ 250,000
------------------------------------------------------------------------------------------------------------
12.00 % Hypothetical Gross Annual Rate of Return
============================================================================================================
Current Charges Guaranteed Charges
============================================================================================================
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 36 1,838 1,196 645 250,000 645 250,000
------------------------------------------------------------------------------------------------------------
2 37 1,838 2,735 2,184 250,000 2,171 250,000
------------------------------------------------------------------------------------------------------------
3 38 1,838 4,403 3,851 250,000 3,824 250,000
------------------------------------------------------------------------------------------------------------
4 39 1,838 6,209 5,658 250,000 5,615 250,000
------------------------------------------------------------------------------------------------------------
5 40 1,838 8,171 7,620 250,000 7,557 250,000
------------------------------------------------------------------------------------------------------------
6 41 1,838 10,293 9,742 250,000 9,657 250,000
------------------------------------------------------------------------------------------------------------
7 42 1,838 12,591 12,040 250,000 11,932 250,000
------------------------------------------------------------------------------------------------------------
8 43 1,838 15,084 14,716 250,000 14,580 250,000
------------------------------------------------------------------------------------------------------------
9 44 1,838 17,786 17,602 250,000 17,434 250,000
------------------------------------------------------------------------------------------------------------
10 45 1,838 20,718 20,718 250,000 20,513 250,000
------------------------------------------------------------------------------------------------------------
11 46 1,838 23,897 23,897 250,000 23,649 250,000
------------------------------------------------------------------------------------------------------------
12 47 1,838 27,346 27,346 250,000 27,050 250,000
------------------------------------------------------------------------------------------------------------
13 48 1,838 31,091 31,091 250,000 30,741 250,000
------------------------------------------------------------------------------------------------------------
14 49 1,838 35,160 35,160 250,000 34,748 250,000
------------------------------------------------------------------------------------------------------------
15 50 1,838 39,583 39,583 250,000 39,100 250,000
------------------------------------------------------------------------------------------------------------
16 51 1,838 44,411 44,411 250,000 43,847 250,000
------------------------------------------------------------------------------------------------------------
17 52 1,838 49,682 49,682 250,000 49,028 250,000
------------------------------------------------------------------------------------------------------------
18 53 1,838 55,442 55,442 250,000 54,684 250,000
------------------------------------------------------------------------------------------------------------
19 54 1,838 61,740 61,740 250,000 60,865 250,000
------------------------------------------------------------------------------------------------------------
20 55 1,838 68,638 68,638 250,000 67,627 250,000
------------------------------------------------------------------------------------------------------------
25 60 1,838 114,972 114,972 250,000 112,954 250,000
------------------------------------------------------------------------------------------------------------
30 65 1,838 191,773 191,773 250,000 187,874 250,000
------------------------------------------------------------------------------------------------------------
35 70 1,838 322,567 322,567 374,178 314,643 364,986
------------------------------------------------------------------------------------------------------------
40 75 1,838 537,955 537,955 575,612 520,271 556,691
------------------------------------------------------------------------------------------------------------
45 80 1,838 894,036 894,036 938,738 857,683 900,567
------------------------------------------------------------------------------------------------------------
50 85 1,838 1,471,234 1,471,234 1,544,796 1,392,389 1,462,008
------------------------------------------------------------------------------------------------------------
55 90 1,838 2,391,212 2,391,212 2,510,773 2,220,081 2,331,085
------------------------------------------------------------------------------------------------------------
60 95 1,838 3,902,562 3,902,562 3,941,587 3,567,421 3,603,095
------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER AND THE DIFFERENT INVESTMENT
RATE OF RETURN FOR THE FUND PORTFOLIOS. THE DEATH BENEFIT AND ACCOUNT VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE
OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY
ANLIC OR THE FUNDS THAT THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR OVER A PERIOD OF TIME.
<PAGE> 52
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
<TABLE>
<CAPTION>
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option B Face amount: $ 250,000
------------------------------------------------------------------------------------------------------------
0.00 % Hypothetical Gross Annual Rate of Return
============================================================================================================
Current Charges Guaranteed Charges
============================================================================================================
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 36 1,838 1,025 474 251,025 474 251,025
------------------------------------------------------------------------------------------------------------
2 37 1,838 2,238 1,687 252,238 1,674 252,226
------------------------------------------------------------------------------------------------------------
3 38 1,838 3,398 2,847 253,398 2,823 253,374
------------------------------------------------------------------------------------------------------------
4 39 1,838 4,505 3,954 254,505 3,918 254,469
------------------------------------------------------------------------------------------------------------
5 40 1,838 5,560 5,008 255,560 4,958 255,509
------------------------------------------------------------------------------------------------------------
6 41 1,838 6,553 6,001 256,553 5,937 256,488
------------------------------------------------------------------------------------------------------------
7 42 1,838 7,483 6,932 257,483 6,854 257,405
------------------------------------------------------------------------------------------------------------
8 43 1,838 8,352 7,984 258,352 7,890 258,258
------------------------------------------------------------------------------------------------------------
9 44 1,838 9,152 8,969 259,152 8,859 259,043
------------------------------------------------------------------------------------------------------------
10 45 1,838 9,884 9,884 259,884 9,757 259,757
------------------------------------------------------------------------------------------------------------
11 46 1,838 10,541 10,541 260,541 10,394 260,394
------------------------------------------------------------------------------------------------------------
12 47 1,838 11,116 11,116 261,116 10,950 260,950
------------------------------------------------------------------------------------------------------------
13 48 1,838 11,609 11,609 261,609 11,421 261,421
------------------------------------------------------------------------------------------------------------
14 49 1,838 12,014 12,014 262,014 11,803 261,803
------------------------------------------------------------------------------------------------------------
15 50 1,838 12,326 12,326 262,326 12,088 262,088
------------------------------------------------------------------------------------------------------------
16 51 1,838 12,539 12,539 262,539 12,274 262,274
------------------------------------------------------------------------------------------------------------
17 52 1,838 12,642 12,642 262,642 12,347 262,347
------------------------------------------------------------------------------------------------------------
18 53 1,838 12,620 12,620 262,620 12,293 262,293
------------------------------------------------------------------------------------------------------------
19 54 1,838 12,456 12,456 262,456 12,093 262,093
------------------------------------------------------------------------------------------------------------
20 55 1,838 12,136 12,136 262,136 11,732 261,732
------------------------------------------------------------------------------------------------------------
25 60 1,838 7,622 7,622 257,622 6,943 256,943
------------------------------------------------------------------------------------------------------------
30 65 1,838 0 0 250,000 0 250,000
------------------------------------------------------------------------------------------------------------
31 66 1,838 0 0 0 0 0
------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER AND THE DIFFERENT INVESTMENT
RATE OF RETURN FOR THE FUND PORTFOLIOS. THE DEATH BENEFIT AND ACCOUNT VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE
OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY
ANLIC OR THE FUNDS THAT THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR OVER A PERIOD OF TIME.
<PAGE> 53
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
<TABLE>
<CAPTION>
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option B Face amount: $ 250,000
------------------------------------------------------------------------------------------------------------
8.00 % Hypothetical Gross Annual Rate of Return
============================================================================================================
Current Charges Guaranteed Charges
============================================================================================================
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 36 1,838 1,137 586 251,137 586 251,137
------------------------------------------------------------------------------------------------------------
2 37 1,838 2,559 2,008 252,559 1,995 252,546
------------------------------------------------------------------------------------------------------------
3 38 1,838 4,038 3,486 254,038 3,460 254,011
------------------------------------------------------------------------------------------------------------
4 39 1,838 5,574 5,022 255,574 4,981 255,533
------------------------------------------------------------------------------------------------------------
5 40 1,838 7,171 6,619 257,171 6,560 257,112
------------------------------------------------------------------------------------------------------------
6 41 1,838 8,822 8,271 258,822 8,193 258,744
------------------------------------------------------------------------------------------------------------
7 42 1,838 10,529 9,978 260,529 9,879 260,430
------------------------------------------------------------------------------------------------------------
8 43 1,838 12,294 11,927 262,294 11,804 262,172
------------------------------------------------------------------------------------------------------------
9 44 1,838 14,114 13,930 264,114 13,782 263,966
------------------------------------------------------------------------------------------------------------
10 45 1,838 15,989 15,989 265,989 15,812 265,812
------------------------------------------------------------------------------------------------------------
11 46 1,838 17,916 17,916 267,916 17,704 267,704
------------------------------------------------------------------------------------------------------------
12 47 1,838 19,888 19,888 269,888 19,640 269,640
------------------------------------------------------------------------------------------------------------
13 48 1,838 21,908 21,908 271,908 21,619 271,619
------------------------------------------------------------------------------------------------------------
14 49 1,838 23,969 23,969 273,969 23,634 273,634
------------------------------------------------------------------------------------------------------------
15 50 1,838 26,067 26,067 276,067 25,680 275,680
------------------------------------------------------------------------------------------------------------
16 51 1,838 28,204 28,204 278,204 27,761 277,761
------------------------------------------------------------------------------------------------------------
17 52 1,838 30,371 30,371 280,371 29,863 279,863
------------------------------------------------------------------------------------------------------------
18 53 1,838 32,552 32,552 282,552 31,973 281,973
------------------------------------------------------------------------------------------------------------
19 54 1,838 34,732 34,732 284,732 34,073 284,074
------------------------------------------------------------------------------------------------------------
20 55 1,838 36,896 36,896 286,896 36,147 286,147
------------------------------------------------------------------------------------------------------------
25 60 1,838 46,768 46,768 296,768 45,373 295,373
------------------------------------------------------------------------------------------------------------
30 65 1,838 51,420 51,420 301,420 48,900 298,900
------------------------------------------------------------------------------------------------------------
35 70 1,838 48,880 48,880 298,880 37,876 287,876
------------------------------------------------------------------------------------------------------------
40 75 1,838 38,392 38,392 288,392 0 0
------------------------------------------------------------------------------------------------------------
45 80 1,838 7,636 7,636 257,636 0 0
------------------------------------------------------------------------------------------------------------
46 81 1,838 0 0 0 0 0
------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER AND THE DIFFERENT INVESTMENT
RATE OF RETURN FOR THE FUND PORTFOLIOS. THE DEATH BENEFIT AND ACCOUNT VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE
OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY
ANLIC OR THE FUNDS THAT THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR OVER A PERIOD OF TIME.
<PAGE> 54
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
<TABLE>
<CAPTION>
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option B Face amount: $ 250,000
------------------------------------------------------------------------------------------------------------
12.00 % Hypothetical Gross Annual Rate of Return
============================================================================================================
Current Charges Guaranteed Charges
============================================================================================================
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 36 1,838 1,193 642 251,193 642 251,193
------------------------------------------------------------------------------------------------------------
2 37 1,838 2,727 2,176 252,727 2,162 252,714
------------------------------------------------------------------------------------------------------------
3 38 1,838 4,385 3,833 254,385 3,806 254,357
------------------------------------------------------------------------------------------------------------
4 39 1,838 6,176 5,625 256,176 5,582 256,133
------------------------------------------------------------------------------------------------------------
5 40 1,838 8,116 7,565 258,116 7,501 258,052
------------------------------------------------------------------------------------------------------------
6 41 1,838 10,208 9,657 260,208 9,571 260,122
------------------------------------------------------------------------------------------------------------
7 42 1,838 12,465 11,914 262,465 11,803 262,354
------------------------------------------------------------------------------------------------------------
8 43 1,838 14,904 14,536 264,904 14,396 264,764
------------------------------------------------------------------------------------------------------------
9 44 1,838 17,535 17,351 267,535 17,178 267,362
------------------------------------------------------------------------------------------------------------
10 45 1,838 20,375 20,375 270,375 20,164 270,164
------------------------------------------------------------------------------------------------------------
11 46 1,838 23,438 23,438 273,438 23,182 273,182
------------------------------------------------------------------------------------------------------------
12 47 1,838 26,739 26,739 276,739 26,433 276,433
------------------------------------------------------------------------------------------------------------
13 48 1,838 30,298 30,298 280,298 29,935 279,935
------------------------------------------------------------------------------------------------------------
14 49 1,838 34,135 34,135 284,135 33,706 283,706
------------------------------------------------------------------------------------------------------------
15 50 1,838 38,269 38,269 288,269 37,765 287,765
------------------------------------------------------------------------------------------------------------
16 51 1,838 42,737 42,737 292,737 42,148 292,148
------------------------------------------------------------------------------------------------------------
17 52 1,838 47,562 47,562 297,562 46,876 296,876
------------------------------------------------------------------------------------------------------------
18 53 1,838 52,767 52,767 302,767 51,970 301,970
------------------------------------------------------------------------------------------------------------
19 54 1,838 58,377 58,377 308,377 57,453 307,453
------------------------------------------------------------------------------------------------------------
20 55 1,838 64,421 64,421 314,421 63,351 313,351
------------------------------------------------------------------------------------------------------------
25 60 1,838 102,349 102,349 352,349 100,181 350,181
------------------------------------------------------------------------------------------------------------
30 65 1,838 155,456 155,456 405,456 151,212 401,212
------------------------------------------------------------------------------------------------------------
35 70 1,838 233,370 233,370 483,370 218,233 468,233
------------------------------------------------------------------------------------------------------------
40 75 1,838 354,604 354,604 604,604 300,340 550,340
------------------------------------------------------------------------------------------------------------
45 80 1,838 537,471 537,471 787,471 388,506 638,506
------------------------------------------------------------------------------------------------------------
50 85 1,838 807,684 804,684 1,057,685 464,815 714,815
------------------------------------------------------------------------------------------------------------
55 90 1,838 1,189,654 1,189,654 1,439,654 487,271 737,271
------------------------------------------------------------------------------------------------------------
60 95 1,838 1,762,950 1,762,950 2,012,950 394,553 644,553
------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER AND THE DIFFERENT INVESTMENT
RATE OF RETURN FOR THE FUND PORTFOLIOS. THE DEATH BENEFIT AND ACCOUNT VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE
OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY
ANLIC OR THE FUNDS THAT THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR OVER A PERIOD OF TIME.
<PAGE> 55
APPENDIX B --
AUTOMATIC REBALANCING AND DOLLAR COST AVERAGING PROGRAMS
To assist the Owner in making a premium allocation decision among
Sub-accounts, ANLIC offers automatic transfer programs. These programs are
designed to meet individual needs of the Owner and are not guaranteed to
improve performance of the Policy.
The Owner may elect the Automatic Rebalancing Program which will
adjust values in the Sub-accounts to align with a specific percentage of total
value in the Variable Account. By placing a written allocation election form
on file with ANLIC, the Owner may have amounts automatically transferred from
the Sub-accounts on either a quarterly, semi-annual or annual basis.
The Owner chooses the percentages to be used under the Automatic
Rebalancing Program. To assist the Owner, TAG representatives offer a service
created by Ibbotson Associates to match the Owner's risk tolerance and
investment objectives with a model Sub-account percentage allocation formula.
To use this service, the Owner first completes a questionnaire about risk
tolerance and Policy performance objectives. The TAG representative uses the
completed responses to match the Owner's needs to one of ten different model
percentage allocation formulas designed by Ibbotson. The Owner may then elect
to follow the recommended percentage allocation formula, or select a different
formula.
Ibbotson Associates provides a valuable service to an Owner who
seeks to follow the science of asset allocation. Some research studies have
shown that the asset allocation decision is the single largest determinant of
Portfolio performance. Asset allocation combines the concepts of
asset-liability management, mean-variance optimization, simulation and economic
forecasting. Its objectives are to match asset classes and strategies to
achieve better returns, to reduce volatility and to attain specific goals such
as avoidance of interest rate or market risk.
As an alternative, ANLIC also offers the Owner the option to elect
the Dollar Cost Averaging Program. Dollar cost averaging is a long term
investment method that uses periodic premium allocations from the CRI Money
Market Sub-account to other Sub-accounts. Under the theory of dollar cost
averaging, the Owner may pursue a strategy of regular and systematic purchases
to take advantage of market value fluctuations. More Sub-account accumulation
units will be purchased when Sub-account unit values are low and fewer units
will be purchased when unit values are high. There is no guarantee that the
Dollar Cost Averaging Program will protect against market loss or improve
performance of the Policy.
The Dollar Cost Averaging Program provides a valuable service to an
Owner who is able to sustain a long term transfer schedule and who seeks to
avoid the volatility often associated with equity investments.
<PAGE> 56
FINANCIAL STATEMENTS
<PAGE> 57
AUDITED FINANCIAL STATEMENTS (STATUTORY BASIS)
ACACIA NATIONAL LIFE INSURANCE COMPANY
DECEMBER 31, 1996 AND 1995
Report of Independent Accountants....................................1-2
Statements of Financial Condition......................................3
Statements of Operations and Changes
in Capital and Surplus..............................................4
Statements of Cash Flows...............................................5
Notes to Financial Statements.......................................6-15
Supplemental Schedule of Assets and Liabilities....................16-18
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Acacia National Life Insurance Company
We have audited the accompanying statutory statements of financial condition of
Acacia National Life Insurance Company as of December 31, 1996 and 1995, and the
related statutory statements of operations and changes in capital and surplus,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our report dated February 14, 1996, we expressed our opinion that the 1995
financial statements, prepared using accounting practices prescribed or
permitted by the Bureau of Insurance, State Corporation Commission of the
Commonwealth of Virginia ("SAP") presented fairly, in all material respects, the
financial position of Acacia National Life Insurance Company as of December 31,
1995, and the results of its operations, and its cash flows for the year then
ended in conformity with generally accepted accounting principles ("GAAP"). As
described in Note 1 to the financial statements, financial statements of mutual
life insurance enterprises and their stock life insurance subsidiaries issued or
reissued after 1996, and prepared in accordance with SAP, are no longer
considered to be presentations in conformity with GAAP. Accordingly, our present
opinion on the 1995 financial statements as presented herein is different from
that expressed in our previous report.
As described more fully in Note 1 to the financial statements, these financial
statements were prepared in conformity with accounting practices prescribed or
permitted by the Bureau of Insurance, State Corporation of Commission,
Commonwealth of Virginia, which practices differ from generally accepted
accounting principles. The effects on the financial statements of the variances
between the statutory basis of accounting and generally accepted accounting
principles, although not reasonably determinable, are presumed to be material.
<PAGE> 59
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Acacia National Life Insurance Company as of December 31, 1996 and 1995 or
the results of its operations or its cash flows for the years then ended.
In our opinion, however, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities, and surplus
of Acacia National Life Insurance Company as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended, on
the basis of accounting described in Note 1.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Assets and
Liabilities is presented for purposes of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by the National Association of Insurance Commissioners.
Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and in our opinion is fairly stated, in
all material respects, in relation to the basic financial statements taken as a
whole.
Washington, D.C.
February 18, 1997
2
<PAGE> 60
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL CONDITION (STATUTORY BASIS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Debt securities $ 596,394 $ 484,895
Equity securities 2,405 2,272
Policy loans 8,091 6,701
Cash and cash equivalents 16,246 19,987
Accrued investment income 10,520 8,558
Separate account assets 6,433 3
Other assets 2,718 1,146
------------------- ---------------------
TOTAL ASSETS $ 642,807 $ 523,562
=================== =====================
LIABILITIES
Insurance and annuity reserves $ 539,065 $ 447,081
Deposit administration contracts and other
deposit reserves 25,659 24,683
Other policyowner funds 19,633 14,405
Policy claims 2,821 880
Interest maintenance reserve 2,230 2,213
Asset valuation reserve 5,712 4,645
Separate account liabilities 6,433 3
Other liabilities 11,613 2,877
------------------- ---------------------
TOTAL LIABILITIES 613,166 496,787
STOCKHOLDER'S EQUITY
Preferred stock, 8% non-voting, non-cumulative, $1,000 par value,
10,000 shares authorized; 6,000 shares issued and outstanding 6,000 ---
Common stock, $170 par value; 15,000 shares authorized
issued and oustanding 2,550 2,550
Additional paid-in capital 13,450 7,450
Surplus 7,641 16,775
------------------- ---------------------
TOTAL STOCKHOLDER'S EQUITY 29,641 26,775
------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 642,807 $ 523,562
=================== =====================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 61
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN CAPITAL AND SURPLUS (STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1996 1995
------------------ -------------------
(IN THOUSANDS)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 42,444 $ 41,281
Net investment income 45,701 40,888
Supplementary contracts 12,589 9,388
Other fund deposits 3,845 4,172
------------------ ------------------
104,579 95,729
BENEFITS AND EXPENSES
Benefits for policyholders and beneficiaries:
Benefit payments, surrenders, and withdrawals 114,085 53,831
Increase (decrease) in insurance and annuity reserves (24,741) 31,851
Increase (decrease) in deposit administration funds 977 (2,977)
------------------ ------------------
90,321 82,705
Commissions to managing directors
and account managers 3,146 2,045
Operating expenses allocated
from Acacia Mutual 13,539 7,736
Other operating expenses and taxes 162 402
------------------ ------------------
107,168 92,888
------------------ ------------------
NET (LOSS) GAIN FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES AND REALIZED CAPITAL LOSSES (2,589) 2,841
Federal income tax (expense) benefit (642) 53
------------------ ------------------
NET (LOSS) GAIN FROM OPERATIONS BEFORE
REALIZED CAPITAL LOSSES (3,231) 2,894
REALIZED CAPITAL LOSSES
Net realized capital gains (losses) 339 (418)
Capital gains taxes (335) (228)
Transferred to interest maintenance reserve (224) (433)
------------------ ------------------
NET REALIZED CAPITAL LOSSES (220) (1,079)
------------------ ------------------
NET (LOSS) INCOME (3,451) 1,815
Capital and surplus, beginning of year 26,775 25,043
Contribution of additional paid-in capital 6,000 ---
Issuance of preferred stock 6,000 ---
Increase in asset valuation reserve (1,068) (647)
Increase in net unrealized capital gains 323 564
Increase in non-admitted assets (4,938) ---
------------------ ------------------
CAPITAL AND SURPLUS, END OF YEAR $ 29,641 $ 26,775
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 62
ACACIA NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1996 1995
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations $ 42,453 $ 41,430
Other premiums, considerations and deposits 12,589 9,388
Net investment income received 43,220 40,648
Cash and short-term investments received from
execution of assumption reinsurance agreement 52,671 ---
Annuity and other fund deposits 4,069 4,161
Benefits paid to policyholders (10,092) (50,714)
Commissions and other expenses paid (16,601) (10,953)
Surrender benefits and other fund withdrawals paid (103,994) (1,551)
Federal and state income tax paid (41) (361)
--------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,274 32,048
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 52,368 42,530
Equities 191 1,561
Mortgage loans --- 60
Cost of investments acquired:
Bonds (92,269) (71,544)
Equities --- (228)
Partnership and other interests (435) ---
Net change in policy loans and premium notes 210 ---
--------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (39,935) (27,621)
FINANCING ACTIVITIES
Cash provided:
Issuance of preferred stock 6,000 ---
Capital contribution 6,000 ---
Cash applied:
Other applications (80) (9,769)
--------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,920 (9,769)
DECREASE IN CASH AND CASH EQUIVALENTS (3,741) (5,342)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 19,987 25,329
--------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 16,246 $ 19,987
=============== ==============
NON-CASH TRANSACTIONS:
Non-cash items received from execution of assumption
reinsurance agreement:
Investment in bonds $68,429 ---
Policy loans $1,600 ---
Annuity reserve liabilities $127,851 ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 63
ACACIA NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Acacia National Life Insurance Company (the Company), a wholly-owned subsidiary
of Acacia Mutual Life Insurance Company (Acacia Mutual), underwrites and markets
deferred and immediate annuities and life insurance products within the United
States. On December 1, 1995 and September 9, 1996, respectively, operations
began for the Acacia National Variable Life Insurance Separate Account I and
Acacia National Variable Annuity Separate Account II which are separate
investment accounts within the Company. Acacia Mutual and its wholly-owned
subsidiaries are collectively known as The Acacia Group (the Group). Other
members of the Group include Acacia Financial Corporation and its subsidiaries,
Acacia Federal Savings Bank, Calvert Group, Ltd. and The Advisors Group, Inc.
The Company, domiciled in Virginia, prepares its statutory financial statements
in accordance with accounting practices prescribed or permitted by the Bureau of
Insurance, State Corporation Commission of the Commonwealth of Virginia.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners (NAIC), as well as state
laws, regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
The preparation of the financial statements in conformity with statutory
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial statements prepared in accordance with SAP were also considered to be
in conformity with generally accepted accounting principles ("GAAP") prior to
the issuance of the pronouncements described below. In April 1993, the Financial
Accounting Standards Board (FASB) issued Interpretation 40, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises," indicating that the financial statements of mutual life insurance
companies and their stock life insurance company subsidiaries prepared on the
basis of statutory accounting principles will no longer be considered to be in
conformity with GAAP. In January 1995, the FASB issued Statement No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long - Duration Participating Contracts" which defers
the effective date of Interpretation No. 40 to fiscal years beginning after
December 15, 1995 and extends the requirements of Statements No. 60, 97 and 113
to mutual life enterprises. In addition, Statement No. 120 requires that the
accounting for certain participating life insurance contracts described in
Statement of Position 95-1, "Accounting for Certain Insurance
6
<PAGE> 64
Activities of Mutual Life Enterprises," be applied to contracts that meet the
conditions set forth in this Statement. As required by generally accepted
auditing standards, the opinion currently expressed by our independent
accountants on the 1995 financial statements is different from that expressed in
their previous report. The effects of the changes from existing statutory
practices required upon adoption of GAAP have not been determined at this time.
Management is in the process of preparing financial statements in conformity
with GAAP. In general, the SAP basis of accounting varies in certain respects
from GAAP in that:
- - Acquisition costs incurred at policy issuance, such as commissions and
other costs in connection with acquiring new business, are charged to
expense in the year in which they are incurred, rather than being
deferred and amortized over the periods benefited.
- - Certain assets designated as "non-admitted' are excluded from the
balance sheets by a direct charge to unassigned surplus.
- - The asset valuation reserve and interest maintenance reserve are not
recorded for GAAP purposes.
- - Federal income taxes are computed in accordance with those sections of
the Internal Revenue Code applicable to life insurance companies and
are based solely on currently taxable income. Under GAAP, the
recognition of deferred tax liabilities and assets is required for the
expected future tax consequences of temporary differences between the
carrying amounts for financial statements purposes and the tax basis of
other assets and liabilities.
- - The liability for policy reserves is based on statutory assumptions for
interest and mortality without considerations of withdrawals, rather
than assumptions for interest, mortality and withdrawals based on
actual experience.
- - Premiums for universal life, single premium non-life contingent
immediate annuity and single premium deferred annuity contracts are
reported as premium income or fund deposits rather than additions to
liabilities.
- - Reinsurance ceded to other companies is reported on a net basis for
premium revenue, benefits and underwriting, acquisition and insurance
expenses, and policy reserves and accruals. Under GAAP, claims are
reported separately in the balance sheet as a reinsurance recoverable
asset.
- - Debt securities are generally carried at amortized costs, whereas,
under GAAP, investments in debt securities are stated at amortized
cost or current market values depending on the classification pursuant
to FASB Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Any difference between cost and
7
<PAGE> 65
current market values of debt securities classified as
available-for-sale, net of deferred income taxes or benefit and related
deferred acquisition cost effects, is reported as a separate component
in GAAP policyowner surplus and does not affect net income.
VALUATION OF ASSETS
Debt and equity securities are valued in accordance with rules prescribed by the
NAIC. Debt securities are generally stated at amortized cost, preferred stocks
at cost and common stocks at market value. Mortgage loans and policy loans are
recorded at their unpaid balance. Discount or premium on debt securities is
amortized using the interest method. Unrealized capital gains and losses are
reflected directly in surplus and are not included in net income. Realized gains
and losses are determined on a first-in, first-out basis and are presented in
the statements of operations, net of taxes and excluding amounts transferred to
the Interest Maintenance Reserve.
As prescribed by the NAIC, the Company maintains an Asset Valuation Reserve
(AVR). The purpose of the AVR is to stabilize surplus against fluctuations in
the value of stocks and declines in the value of bonds, mortgage loans and other
invested assets. Changes to the AVR are charged or credited directly to surplus.
As also prescribed by the NAIC, the Company maintains an Interest Maintenance
Reserve, which represents the net accumulated unamortized realized capital gains
and losses attributable to changes in the general level of interest rates on
sales of fixed income investments, principally bonds and mortgage loans. Such
gains or losses are amortized into income using schedules prescribed by the NAIC
over the remaining period to expected maturity of the individual securities
sold.
CASH EQUIVALENTS
The Company considers overnight repurchase agreements, money market funds and
short-term investments with original maturities of less than three months at the
time of acquisition to be cash equivalents. Cash equivalents are carried at
cost.
POLICY RESERVES
Life policy reserves are computed by using the Commissioners Reserve Valuation
Method and the Commissioners Standard Ordinary Mortality table. Annuity reserves
are calculated using the Commissioners Annuity Reserve Valuation Method and the
maximum valuation interest rate; for annuities with life contingencies, the
prescribed valuation mortality table is used. Policy claims in process of
settlement include provision for reported claims and claims incurred but not
reported. The valuation rates for fixed immediate and deferred annuities range
between 6.0% and 11.5% as of December 31, 1996.
8
<PAGE> 66
PREMIUMS AND RELATED EXPENSE
Premiums are recognized as income over the premium paying period of the
policies. Annuity considerations and fund deposits are included in revenue as
received. Commissions and other policy acquisition costs are expensed as
incurred.
REINSURANCE
The Company cedes reinsurance to provide for greater diversification of
business, additional capacity for growth as well as a way for management to
control exposure to potential losses arising from large risks. A significant
portion of reinsurance is ceded to Acacia Mutual.
The excess of the amount of liabilities assumed over the amount of assets
received upon execution of an assumption reinsurance agreement is recorded as
goodwill, a non-admitted asset, and charged directly to surplus. Goodwill is
being amortized over a period of ten years using the interest method.
FEDERAL INCOME TAXES
The Company files a consolidated tax return with the Group. Under statutory
accounting practices, no provision is made for deferred federal income taxes
related to temporary differences between financial reporting and taxable income.
Such temporary differences arise primarily from Internal Revenue Code
requirements regarding the capitalization and amortization of deferred policy
acquisition costs, calculation of life insurance reserves and recognition of
realized gains or losses on bond sales.
SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain life
insurance and annuity contracts, for which the investment risk lies solely with
the holder of the contract rather than the Company. Consequently, the insurer's
liability for these accounts equals the value of the account assets. Investment
income, realized gains (losses), and policyholder account deposits and
withdrawals related to Separate Accounts are excluded from the statements of
operations and cash flows. Assets held in Separate Accounts are primarily shares
in mutual funds, which are carried at fair value, based on the quoted net asset
value per share.
RECLASSIFICATIONS
Certain reclassifications of 1995 amounts were made to conform with the 1996
financial statement presentation.
9
<PAGE> 67
2. INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
($ IN THOUSANDS)
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Debt securities $596,394 $620,368 $484,895 $525,694
Equity securities 2,405 2,773 2,272 2,573
Mortgage loans 47 50 47 45
Cash and cash equivalents 16,246 16,246 19,987 19,987
FINANCIAL LIABILITIES:
Investment-type insurance
contracts $440,645 $512,452 $351,833 $408,583
</TABLE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks and mortgage backed securities) are based on quoted
market prices, where available. For fixed maturity securities not actively
traded and for private placements, fair values are estimated using values
obtained from independent pricing services. The fair values for equity
securities are based on quoted market prices.
CASH AND CASH EQUIVALENTS: The statement values reported in the Statements of
Financial Condition for these instruments approximate their fair values.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. The statement values for the deposit administration contact and
supplementary contracts without life contingencies approximate their fair
values.
10
<PAGE> 68
INVESTMENTS
The statement values and estimated fair values of the Company's investments in
debt securities are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
----- ----- ------ -----
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996
U.S. government and agencies $117,448 $ 7,161 $ (28) $124,581
Other government 3,300 23 --- 3,323
Mortgaged backed securities 153,001 2,641 (1,627) 154,015
Corporate 322,645 17,503 (1,699) 338,449
-------- ------- -------- --------
$596,394 $27,328 $(3,354) $620,368
======== ======= ========= ========
AT DECEMBER 31, 1995
U.S. government and agencies $ 78,649 $10,904 $ --- $ 89,553
Other government 3,300 20 --- 3,320
Mortgaged backed securities 129,879 4,857 (312) 134,424
Corporate 273,067 26,113 ( 783) 298,397
-------- ------- --------- --------
$484,895 $41,894 $ (1,095) $525,694
======== ======= ========= ========
</TABLE>
The amortized cost and estimated fair value of debt securities, by contractual
maturity at December 31, 1996 are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
($ IN THOUSANDS)
STATEMENT FAIR
VALUE VALUE
-------- --------
<S> <C> <C>
Maturities in 1997 $ 14,248 $ 14,343
In 1998 to 2001 156,080 166,240
In 2002 to 2006 155,234 160,275
After 2006 117,831 125,495
Mortgaged-backed securities 153,001 154,015
-------- --------
$596,394 $620,368
======== ========
</TABLE>
Proceeds from dispositions of investments in debt securities during 1996 were
$52.4 million; gross gains of $355 thousand and gross losses of $16 thousand
were realized on those sales. Proceeds from dispositions of investments in debt
securities during 1995 were $44.2 million; gross gains
11
<PAGE> 69
of $770 thousand and gross losses of $1.2 million were realized on those sales.
Investment income is net of expenses of $1.4 million in 1996 and $969 thousand
in 1995.
INVESTMENT PORTFOLIO CREDIT RISK
The Company's bond investment portfolio is predominately comprised of investment
grade securities. At December 31, 1996 and 1995, approximately $2.7 million and
$5.7 million, respectively, in debt security investments (.5% and 1.2%,
respectively, of the total debt security portfolio) are considered "below
investment grade." Securities are classified as "below investment grade" by
utilizing rating criteria established by the NAIC.
4. REINSURANCE
The Company reinsures all life insurance risks over its retention limit of $10
thousand per policy under yearly renewable term insurance agreements with Acacia
Mutual and several other non-affiliated companies. The Company remains obligated
for amounts ceded in the event that reinsurers do not meet their obligations.
Reinsurance premiums are recorded as a reduction of premium income. Commission
and expense allowances are recorded as an increase in income.
Benefits are reported net of amounts received from reinsurers.
Premiums and benefits have been reduced by amounts reinsured as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
1996 1995
------- ------
<S> <C> <C>
Premiums ceded:
Acacia Mutual $3,559 $3,488
Others 540 535
------ ------
Total premium ceded $4,099 $4,023
====== ======
Death benefits reimbursed:
Acacia Mutual $3,380 $2,018
Other 1,841 2,213
------ ------
Total benefits reimbursed $5,221 $4,231
====== ======
Amounts recoverable on paid and unpaid losses:
Acacia Mutual $424 $358
Other 24 377
----- ----
Total amounts recoverable on paid
and unpaid losses $448 $735
==== ====
Policy reserves $3,617 $3,486
====== ======
</TABLE>
12
<PAGE> 70
ASSUMPTION REINSURANCE AGREEMENT
Effective May 31, 1996 under an assumption reinsurance agreement, the Company
assumed certain assets and liabilities relating to annuities previously
underwritten by the National American Life Insurance Company (NALICO), which had
been in rehabilitation. Under the agreement, the Company assumed fixed annuity
policies with statutory liabilities of $127.9 million. The Company received from
NALICO assets with a fair value of approximately $122.7 in assets, consisting
principally of investment grade bonds and short-term investments. The difference
between assets acquired and liabilities assumed of $5.2 million was capitalized
as goodwill and treated as a non-admitted asset.
5. ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposit liabilities withdrawal characteristics as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
PERCENT
AMOUNT OF TOTAL
-------- --------
<S> <C> <C>
Subject to discretionary withdrawal with adjust-
ment, at book value less surrender charge $362,603 72%
Subject to discretionary withdrawal without adjust-
ment, at book value (minimal or no charge) 107,453 21
Not subject to discretionary withdrawal provision 32,205 7
-------- ---
Total annuity actuarial reserves and deposit
fund liabilities $502,261 100%
======== ===
</TABLE>
6. FEDERAL INCOME TAXES
Under a tax sharing agreement between the Company and other members of the
Group, Acacia Mutual reimburses or receives from the Company an amount
representing the taxes that would have been paid or refunded had the Company
filed a separate income tax return.
Under the statutes in effect before the Deficit Reduction Act of 1984, a portion
of "net income" was not subject to current income taxation for stock life
insurance companies, but was accumulated for tax purposes in a memorandum tax
account. The 1984 Act prohibited any additions to the memorandum tax account
after 1983. The balance in this account for the Company was $6.6 million at
December 31, 1996 and 1995. In the event that either cash distributions from the
Company to Acacia Mutual or the balance in the memorandum tax account exceeds
certain stated minimums, such amounts distributed would become subject to
federal income taxes at rates then
13
<PAGE> 71
in effect.
The statute of limitations has closed with respect to all tax years prior to
1992. The Company is currently under examination by the Internal Revenue Service
for the tax years 1992 through 1994. In the opinion of management, adequate
provision has been made for any additional taxes which may become due with
respect to open years.
7. OTHER RELATED PARTY TRANSACTIONS
The Company has entered into an agreement whereby Acacia Mutual provides such
services and facilities as are necessary for the operation of the Company. Net
amounts payable to Acacia Mutual at December 31, 1996 and 1995 are $5.5 million
and $647 thousand, respectively, and are included in other liabilities.
8. CONTINGENCIES
LITIGATION AND UNASSERTED CLAIMS
The Company is involved in various lawsuits that have arisen in the ordinary
course of business. Management believes that its defenses are meritorious and
the eventual outcome of these lawsuits will not have a material effect on the
Company's financial position.
The Company is also subject to insurance guaranty laws in the states in which it
does business. Periodically, the Company is assessed by various state guaranty
funds as part of those funds' activities to collect funds from solvent insurance
companies to cover certain losses to policyholders that resulted from the
insolvency or rehabilitation of other insurance companies. The Company has
established an estimated liability for guaranty fund assessments for those
insolvencies or rehabilitations that have actually occurred prior to that date.
Because of the many uncertainties regarding the amounts that will be assessed
against the Company, the ultimate assessments may vary from the estimated
liability included in the accompanying financial statements.
Assessments accrued, net of expected premium tax offsets, at December 31, 1996
and 1995 were $736 thousand and $805 thousand, respectively.
DIVIDEND RESTRICTIONS
Statutory requirements place limitations on the maximum amount of annual
dividends and other distributions which can be remitted by the Company to its
shareholder without prior approval of the appropriate state insurance
commissione, which is currently the lesser of 10% of capital and surplus or
prior year net gain from operations.
14
<PAGE> 72
9. STOCKHOLDER'S EQUITY
The Board of Directors amended the Articles of Incorporation of the Company
during 1995 to increase the par value of each share of the Company's common
stock from $100 to $105 and then from $105 to $170. The impact of this change
increased total common stock $1.05 million with a corresponding decrease to
additional paid-in capital for 1995.
During 1996, the Company received a $6 million capital contribution from Mutual
and also issued to Mutual $6 million of 8% non-voting, non-cumulative preferred
stock at par.
15
<PAGE> 73
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTMENT INCOME EARNED
<S> <C>
Government bonds $7,163
Other bonds (unaffiliated) 37,769
Bonds of Affiliates ---
Preferred stocks (unaffiliated) 81
Preferred stocks of affiliates ---
Common stocks (unaffiliated) 54
Common stocks of affiliates ---
Mortgage loans 4
Real estate ---
Premium notes, policy loans and liens 436
Collateral loans ---
Cash on hand and on deposit ---
Short-term investments 1,431
Other invested assets ---
Derivative instruments ---
Aggregate write-ins for investment income 113
---------------
Gross investment income $47,051
===============
REAL ESTATE OWNED - BOOK VALUE LESS ENCUMBRANCES ---
===============
MORTGAGE LOANS - BOOK VALUE:
Farm mortgages ---
Residential mortgages $47
Commercial mortgages ---
---------------
Total mortgage loans $47
===============
MORTGAGE LOANS BY STANDING - BOOK VALUE:
Good standing $47
===============
Good standing with restructured terms ---
===============
Interest overdue more than three months, not in foreclosure ---
===============
Foreclosure in process ---
===============
OTHER LONG TERM ASSETS - STATEMENT VALUE $412
===============
COLLATERAL LOANS ---
===============
BONDS AND STOCKS OF PARENTS, SUBSIDIARIES AND AFFILIATES - BOOK VALUE:
Bonds ---
===============
Preferred stocks ---
===============
Common stocks ---
===============
</TABLE>
16
<PAGE> 74
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
BONDS AND SHORT-TERM INVESTMENTS BY CLASS AND MATURITY:
<S> <C>
BONDS AND SHORT-TERM INVESTMENTS BY MATURITY - STATEMENT VALUE
Due within one year $42,171
Over 1 year through 5 years 143,404
Over 5 years through 10 years 242,631
Over 10 years through 20 years 108,786
Over 20 years 74,521
---------------
Total by Maturity $611,513
===============
BONDS AND SHORT-TERM INVESTMENTS BY CLASS - STATEMENT VALUE
Class 1 $367,154
Class 2 226,294
Class 3 15,374
Class 4 2,691
Class 5 ---
Class 6 ---
---------------
Total by Class $611,513
===============
TOTAL BONDS AND SHORT-TERM INVESTMENTS PUBLICLY TRADED $586,504
===============
TOTAL BONDS AND SHORT-TERM INVESTMENTS PRIVATELY PLACED $25,009
===============
PREFERRED STOCKS - STATEMENT VALUE $805
===============
COMMON STOCKS - MARKET VALUE $1,600
===============
SHORT-TERM INVESTMENTS - BOOK VALUE $15,119
===============
FINANCIAL OPTIONS OWNED - STATEMENT VALUE ---
===============
FINANCIAL OPTIONS WRITTEN AND IN-FORCE - STATEMENT VALUE ---
===============
FINANCIAL FUTURES CONTRACTS OPEN - CURRENT PRICE ---
===============
CASH ON DEPOSIT $1,127
===============
LIFE INSURANCE IN FORCE:
Industrial ----
===============
Ordinary $1,174,417
===============
Credit Life ----
===============
Group Life ----
===============
AMOUNT OF ACCIDENTAL DEATH INSURANCE IN FORCE UNDER ORDINARY POLICIES $109,161
===============
LIFE INSURANCE POLICIES WITH DISABILITY PROVISIONS IN FORCE
Industrial ----
===============
Ordinary $637
===============
Credit Life ----
===============
Group Life ----
===============
</TABLE>
17
<PAGE> 75
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
SUPPLEMENTARY CONTRACTS IN FORCE:
Ordinary - Not Involving Life Contingencies
<S> <C>
Amount on Deposit $3,348
===============
Income Payable $16,284
===============
Ordinary - Involving Life Contingencies
Income Payable $9,893
===============
Group - Not Involving Life Contingencies
Amount on Deposit ----
Income Payable ----
===============
Group - Involving Life Contingencies
Income Payable ----
===============
ANNUITIES -- ORDINARY
Immediate - Amount of Income Payable $719
===============
Deferred - Fully Paid - Account Balance $404,117
===============
Deferred - Not Fully Paid - Account Balance $50,666
===============
ANNUITIES -- GROUP
Amount of Income Payable $21
===============
Fully Paid - Account Balance ----
===============
Not Fully Paid - Account Balance $311
===============
ACCIDENT AND HEALTH INSURANCE - PREMIUM IN FORCE:
Ordinary ----
===============
Group ----
===============
Credit ----
===============
DEPOSIT FUNDS AND DIVIDEND ACCUMULATIONS:
Deposits Funds - Account Balance $25,659
===============
Dividend Accumulations - Account Balance ----
===============
CLAIM PAYMENTS - YEAR ENDED DECEMBER 31, 1996:
Group Accident and Health
1996 ----
===============
1995 ----
===============
1994 ----
===============
Other Accident and Health
1996 ----
===============
1995 ----
===============
1994 ----
===============
Other Coverage that use developmental methods to calculate claims reserves
1996 ----
===============
1995 ----
===============
1994 ----
===============
</TABLE>
18
<PAGE> 76
AUDITED FINANCIAL STATEMENTS
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
DECEMBER 31, 1996 AND 1995
Report of Independent Accountants.......................................1
Statement of Assets and Liabilities.....................................2
Statement of Operations and Changes in Net Assets.................... 3-4
Notes to the Financial Statements.....................................5-8
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
Contract Owners and Board of Directors
Acacia National Life Insurance Company
We have audited the accompanying statements of assets and liabilities of the
following subaccounts of the Acacia National Variable Life Insurance Separate
Account I: The Acacia Capital Corporation Calvert Responsibly Invested Money
Market Portfolio (Calvert Money Market Portfolio), Acacia Capital Corporation
Calvert Responsibly Invested Balanced Growth Portfolio (Calvert Balanced
Portfolio), Acacia Capital Corporation Calvert Responsibly Invested Strategic
Growth Portfolio (Calvert Strategic Growth Portfolio), The Alger American Growth
Portfolio, The Alger American Mid Cap Growth Portfolio, The Alger American Small
Capitalization Portfolio, Dreyfus Stock Index Fund, Neuberger & Berman Advisors
Management Trust Limited Maturity Bond Portfolio, Neuberger & Berman Advisors
Management Trust Growth Portfolio, Strong Advantage Fund II, Strong Asset
Allocation Fund II, Strong International Stock Fund II, Strong Discovery Fund II
and Van Eck Worldwide Hard Assets Fund as of December 31, 1996, and the related
statements of operations and changes in net assets for the year ended December
31,1996 and the period December 1, 1995 (inception) to December 31, 1995. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence with
the custodians. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the following subaccounts of
the Acacia National Variable Life Insurance Separate Account I: The Calvert
Money Market Portfolio, Calvert Balanced Portfolio, Calvert Strategic Growth
Portfolio, The Alger American Growth Portfolio, The Alger American Mid Cap
Growth Portfolio, The Alger American Small Capitalization Portfolio, Dreyfus
Stock Index Fund, Neuberger & Berman Advisors Management Trust Limited Maturity
Bond Portfolio, Neuberger & Berman Advisors Management Trust Growth Portfolio,
Strong Advantage Fund II, Strong Asset Allocation Fund II, Strong International
Stock Fund II, Strong Discovery Fund II and Van Eck Worldwide Hard Assets Fund
as of December 31, 1996, and results of their operations and changes in net
assets for the year ended December 31, 1996 and the period December 1, 1995
(inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
Washington, D.C.
March 14, 1997
<PAGE> 78
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------------------
CALVERT CALVERT CALVERT
MONEY BALANCED STRATEGIC ALGER ALGER
MARKET PORTFOLIO GROWTH GROWTH MID CAP
-------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, identified costs $146,226 $2,970 $20,335 $306,295 $87,058
============== ============= ============= ============== =============
Investments, at market $146,226 $2,832 $20,496 $321,154 $90,539
============== ============= ============= ============== =============
Number of shares 146,226 1,596 1,399 9,355 4,241
============== ============= ============= ============== =============
Net Assets $146,226 $2,832 $20,496 $321,154 $90,539
============== ============= ============= ============== =============
ACCUMULATION UNITS
NUMBER OF UNITS 138,906 251 1,482 28,351 8,066
============== ============= ============= ============== =============
NET ASSET VALUE PER
ACCUMULATION UNIT
DECEMBER 31, 1996 $1.05 $11.28 $13.83 $11.33 $11.22
============== ============= ============= ============== =============
DECEMBER 31, 1995 --- --- $10.29 --- $10.03
============== ============= ============= ============== =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
DREYFUS
ALGER STOCK
SMALL CAP INDEX
---------------- --------------
<S> <C> <C>
ASSETS
Investments, identified costs $400,063 $522,059
================ ==============
Investments, at market $403,594 $551,426
================ ==============
Number of shares 9,865 27,094
================ ==============
Net Assets $403,594 $551,426
================ ==============
ACCUMULATION UNITS
NUMBER OF UNITS 38,887 45,236
================ ==============
NET ASSET VALUE PER
ACCUMULATION UNIT
DECEMBER 31, 1996 $10.38 $12.19
================ ==============
DECEMBER 31, 1995 --- $9.95
================ ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 79
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------------
NEUBERGER NEUBERGER STRONG STRONG STRONG
& BERMAN & BERMAN ADVANTAGE ASSET INT'L
BOND GROWTH FUND ALLOCATION STOCK
----------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, identified costs $200,965 $172,113 $9,995 $89,388 $441,085
================= =============== =============== =============== ==============
Investments, at market $205,492 $181,110 $9,910 $87,080 $443,363
================= =============== =============== =============== ==============
Number of shares 14,626 7,025 988 8,446 39,463
================= =============== =============== =============== ==============
Net Assets $205,492 $181,110 $9,910 $87,080 $443,363
================= =============== =============== =============== ==============
ACCUMULATION UNITS
NUMBER OF UNITS 19,571 16,990 984 7,816 39,763
================= =============== =============== =============== ==============
NET ASSET VALUE PER
ACCUMULATION UNIT
DECEMBER 31, 1996 $10.50 $10.66 $10.07 $11.14 $11.15
================= =============== =============== =============== ==============
DECEMBER 31, 1995 --- $9.77 --- --- $10.10
================= =============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
VAN ECK
STRONG HARD
DISCOVERY ASSETS
------------- -------------
<S> <C> <C>
ASSETS
Investments, identified costs $75,099 $83,495
============ =============
Investments, at market $76,961 $87,997
============ =============
Number of shares 7,126 5,262
============ =============
Net Assets $76,961 $87,997
============ =============
ACCUMULATION UNITS
NUMBER OF UNITS 7,708 7,560
============ =============
NET ASSET VALUE PER
ACCUMULATION UNIT
DECEMBER 31, 1996 $9.98 $11.64
============ =============
DECEMBER 31, 1995 $9.90 $9.86
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 80
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
CALVERT CALVERT CALVERT
MONEY BALANCED STRATEGIC ALGER ALGER
MARKET PORTFOLIO GROWTH GROWTH MID CAP
------------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Investment Income
Dividends $1,630 $213 $64 $934 $146
Mortality and expense charge (2,525) (6) (13) (842) (255)
------------- ---------- ----------- ------------- -----------
NET INVESTMENT INCOME (LOSS) (895) 207 51 92 (109)
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares --- 1 430 (104) (1,307)
Unrealized appreciation (depreciation)
of investments --- (138) 160 14,859 3,481
------------- ---------- ----------- ------------- -----------
NET GAIN (LOSS) ON INVESTMENTS --- (137) 590 14,755 2,174
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS (895) 70 641 14,847 2,065
CAPITAL TRANSACTIONS:
Transfer of premium 816,161 286 3,334 278,552 83,500
Contract terminations (3,610) --- --- --- ---
Policy account value charges (58,360) (67) (1,740) (53,632) (12,263)
Sub-account transfers (607,070) 2,543 18,243 81,387 17,220
------------- ---------- ----------- ------------- -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 147,121 2,762 19,837 306,307 88,457
------------- ---------- ----------- ------------- -----------
TOTAL INCREASE IN NET ASSETS 146,226 2,832 20,478 321,154 90,522
NET ASSETS, BEGINNING OF THE YEAR --- --- 18 --- 17
------------- ---------- ----------- ------------- -----------
NET ASSETS, AT END OF THE YEAR $146,226 $2,832 $20,496 $321,154 $90,539
============= ========== =========== ============= ===========
UNITS ISSUED AND REDEEMED
Beginning balance --- --- 2 --- 2
Units issued 977,173 257 1,962 38,131 11,514
Units redeemed 838,267 6 482 9,780 3,450
------------- ---------- ----------- ------------- -----------
Ending balance 138,906 251 1,482 28,351 8,066
============= ========== =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
DREYFUS
ALGER STOCK
SMALL CAP INDEX
------------- --------------
<S> <C> <C>
OPERATIONS:
Investment Income
Dividends $160 $11,429
Mortality and expense charge (1,053) (1,417)
------------- --------------
NET INVESTMENT INCOME (LOSS) (893) 10,012
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares (1,177) 2,674
Unrealized appreciation (depreciation)
of investments 3,531 29,363
------------- --------------
NET GAIN (LOSS) ON INVESTMENTS 2,354 32,037
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 1,461 42,049
CAPITAL TRANSACTIONS:
Transfer of premium 347,283 467,059
Contract terminations --- ---
Policy account value charges (61,314) (74,883)
Sub-account transfers 116,164 115,387
------------- --------------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 402,133 507,563
------------- --------------
TOTAL INCREASE IN NET ASSETS 403,594 549,612
NET ASSETS, BEGINNING OF THE YEAR --- 1,814
------------- --------------
NET ASSETS, AT END OF THE YEAR $403,594 $551,426
============= ==============
UNITS ISSUED AND REDEEMED
Beginning balance --- 182
Units issued 50,998 58,200
Units redeemed 12,111 13,146
------------- --------------
Ending balance 38,887 45,236
============= ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 81
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------
NEUBERGER NEUBERGER STRONG STRONG STRONG
& BERMAN & BERMAN ADVANTAGE ASSET INT'L STRONG
BOND GROWTH FUND ALLOCATION STOCK DISCOVERY
------------ ------------ --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Investment Income
Dividends --- --- $74 $5,750 $883 $1,846
Mortality and expense charge ($561) ($488) (32) (241) (1,189) (174)
------------ ------------ ----------- ---------- ------------ -----------
NET INVESTMENT INCOME (LOSS) (561) (488) 42 5,509 (306) 1,672
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares 205 (830) 1 238 878 (1,036)
Unrealized appreciation (depreciation)
of investments 4,527 8,997 (85) (2,308) 2,278 1,862
------------ ------------ ----------- ---------- ------------ -----------
NET GAIN (LOSS) ON INVESTMENTS 4,732 8,167 (84) (2,070) 3,156 826
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 4,171 7,679 (42) 3,439 2,850 2,498
CAPITAL TRANSACTIONS:
Transfer of premium 185,490 161,291 10,632 79,588 393,723 58,715
Contract terminations --- --- --- --- --- ---
Policy account value charges (27,407) (27,362) (808) (8,635) (63,486) (13,702)
Sub-account transfers 43,238 39,485 128 12,688 110,253 29,439
------------ ------------ ----------- ---------- ------------ -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 201,321 173,414 9,952 83,641 440,490 74,452
------------ ------------ ----------- ---------- ------------ -----------
TOTAL INCREASE IN NET ASSETS 205,492 181,093 9,910 87,080 443,340 76,950
NET ASSETS, BEGINNING OF THE YEAR --- 17 --- --- 23 11
------------ ------------ ----------- ---------- ------------ -----------
NET ASSETS, AT END OF THE YEAR $205,492 $181,110 $9,910 $87,080 $443,363 $76,961
============ ============ =========== ========== ============ ===========
UNITS ISSUED AND REDEEMED
Beginning balance --- 2 --- --- 2 1
Units issued 23,977 21,957 1,081 9,163 50,321 10,758
Units redeemed 4,406 4,969 97 1,347 10,560 3,051
------------ ------------ ----------- ---------- ------------ -----------
ENDING BALANCE 19,571 16,990 984 7,816 39,763 7,708
============ ============ =========== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
VAN ECK
HARD
ASSETS
-----------
<S> <C>
OPERATIONS:
Investment Income
Dividends ---
Mortality and expense charge ($244)
-----------
NET INVESTMENT INCOME (LOSS) (244)
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares (1,312)
Unrealized appreciation (depreciation)
of investments 4,499
-----------
NET GAIN (LOSS) ON INVESTMENTS 3,187
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 2,943
CAPITAL TRANSACTIONS:
Transfer of premium 77,901
Contract terminations ---
Policy account value charges (12,527)
Sub-account transfers 18,762
-----------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 84,136
-----------
TOTAL INCREASE IN NET ASSETS 87,079
NET ASSETS, BEGINNING OF THE YEAR 918
-----------
NET ASSETS, AT END OF THE YEAR $87,997
===========
UNITS ISSUED AND REDEEMED
Beginning balance 93
Units issued 10,494
Units redeemed 3,027
-----------
ENDING BALANCE 7,560
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 82
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) TO DECEMBER 31, 1995
------------------------------------------------------------------
CALVERT CALVERT CALVERT
MONEY BALANCED STRATEGIC ALGER ALGER
MARKET PORTFOLIO GROWTH GROWTH MID CAP
------------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Investment Income
Dividends $3 --- --- --- ---
Mortality and expense charge --- --- --- --- ---
------------- ------------ ------------ ----------- -------------
NET INVESTMENT INCOME (LOSS) 3 --- --- --- ---
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares --- --- --- --- ---
Net unrealized appreciation (depreciation)
of investments --- --- 1 --- ---
------------- ------------ ------------ ----------- -------------
NET GAIN (LOSS) ON INVESTMENTS --- --- 1 --- ---
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 3 0 1 0 0
CAPITAL TRANSACTIONS:
Transfer of premium 2,744 --- 29 --- 29
Policy account value charges (74) --- (12) --- (12)
Sub-account transfers (2,673) --- --- --- ---
------------- ------------ ------------ ----------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS (3) --- 17 --- 17
------------- ------------ ------------ ----------- -------------
TOTAL INCREASE IN NET ASSETS --- --- 18 --- 17
NET ASSETS, AT INCEPTION --- --- --- --- ---
------------- ------------ ------------ ----------- -------------
NET ASSETS, AT END OF THE YEAR --- --- $18 --- $17
============= ============ ============ =========== =============
UNITS ISSUED AND REDEEMED
Beginning balance --- --- --- --- ---
Units issued --- --- 2 --- 2
Units redeemed --- --- --- --- ---
------------- ------------ ------------ ----------- -------------
ENDING BALANCE --- --- 2 --- 2
============= ============ ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 1, 1995
(INCEPTION) TO DECEMBER 31, 1995
--------------------------------
DREYFUS
ALGER STOCK
SMALL CAP INDEX
-------------- ----------
<S> <C> <C>
OPERATIONS:
Investment Income
Dividends --- $23
Mortality and expense charge --- (1)
-------------- ----------
NET INVESTMENT INCOME (LOSS) --- 22
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares --- ---
Net unrealized appreciation (depreciation)
of investments --- 4
-------------- ----------
NET GAIN (LOSS) ON INVESTMENTS --- 4
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 0 26
CAPITAL TRANSACTIONS:
Transfer of premium --- 39
Policy account value charges --- (15)
Sub-account transfers --- 1,764
-------------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS --- 1,788
-------------- ----------
TOTAL INCREASE IN NET ASSETS --- 1,814
NET ASSETS, AT INCEPTION --- ---
-------------- ----------
NET ASSETS, AT END OF THE YEAR --- $1,814
============== ==========
UNITS ISSUED AND REDEEMED
Beginning balance --- ---
Units issued --- 182
Units redeemed --- ---
-------------- ----------
ENDING BALANCE --- 182
============== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 83
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) TO DECEMBER 31, 1995
--------------------------------------------------------------------
NEUBERGER NEUBERGER STRONG STRONG STRONG
& BERMAN & BERMAN ADVANTAGE ASSET INT'L
OPERATIONS: BOND GROWTH FUND ALLOCATION STOCK
-------------- -------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Investment Income
Dividends --- --- --- --- ---
Mortality and expense charge --- --- --- --- ---
-------------- -------------- ------------- ------------- ---------
NET INVESTMENT INCOME (LOSS) --- --- --- --- ---
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares --- --- --- --- ---
Net unrealized appreciation (depreciation)
of investments --- --- --- --- ---
-------------- -------------- ------------- ------------- ---------
NET GAIN (LOSS) ON INVESTMENTS --- --- --- --- ---
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 0 0 0 0 0
CAPITAL TRANSACTIONS:
Transfer of premium --- 29 --- --- 39
Policy account value charges --- (12) --- --- (16)
Sub-account transfers --- --- --- --- ---
-------------- -------------- ------------- ------------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS --- 17 --- --- 23
-------------- -------------- ------------- ------------- ---------
TOTAL INCREASE IN NET ASSETS --- 17 --- --- 23
NET ASSETS, AT INCEPTION --- --- --- --- ---
-------------- -------------- ------------- ------------- ---------
NET ASSETS, AT END OF THE YEAR --- $17 --- --- $23
============== ============== ============= ============= =========
UNITS ISSUED AND REDEEMED
Beginning balance --- --- --- --- ---
Units Issued --- 2 --- --- 2
Units redeemed --- --- --- --- ---
-------------- -------------- ------------- ------------- ---------
ENDING BALANCE --- 2 --- --- 2
============== ============== ============= ============= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) TO DECEMBER 31, 1995
----------------------------------------------------------------
VAN ECK
STRONG HARD
OPERATIONS: DISCOVERY ASSETS
-------------- ------------
<S> <C> <C>
Investment Income
Dividends --- ---
Mortality and expense charge --- (1)
-------------- ------------
NET INVESTMENT INCOME (LOSS) --- (1)
Realized and Unrealized Gains (Losses) on
Investments:
Realized gains (losses) from redemption of
fund shares --- ---
Net unrealized appreciation (depreciation)
of investments --- 3
-------------- ------------
NET GAIN (LOSS) ON INVESTMENTS --- 3
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 0 2
CAPITAL TRANSACTIONS:
Transfer of premium 19 10
Policy account value charges (8) (3)
Sub-account transfers --- 909
-------------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 11 916
-------------- ------------
TOTAL INCREASE IN NET ASSETS 11 918
NET ASSETS, AT INCEPTION --- ---
-------------- ------------
NET ASSETS, AT END OF THE YEAR $11 $918
============== ============
UNITS ISSUED AND REDEEMED
Beginning balance --- ---
Units Issued 1 93
Units redeemed --- ---
-------------- ------------
ENDING BALANCE 1 93
============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 84
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF OPERATIONS
The Acacia National Variable Life Insurance Separate Account I (the Account)
began operations on December 1, 1995 as a separate investment account within
Acacia National Life Insurance Company (the Company) to receive and invest net
premiums paid under a flexible premium variable life insurance policy (the
Policy). The Policy allows for flexible premium deposits, as payments may be
made with varying amounts and frequency within stated limitations. The primary
purpose of the policy is to provide life insurance protection in the event of
the insured's death.
The Company is a member of the Acacia Group which includes Acacia Mutual Life
Insurance Company and its other wholly-owned subsidiaries: Acacia Financial
Corporation and its subsidiaries, Acacia Federal Savings Bank F.S.B., Calvert
Group, Ltd. and The Advisors Group, Inc.
Assets of the Account are the property of the Company. However, those assets
attributable to the policies are not chargeable with liabilities arising out of
any other business which the Company may conduct. The Account operates and is
registered as a unit investment trust under the Investment Company Act of 1940.
The net assets maintained in the Account attributable to the policies provide
the base for the periodic determination of the increased or decreased benefits
under the policies.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SEPARATE ACCOUNT ASSETS
The Account has fourteen separate sub-accounts which are invested as directed by
the contract owner. The fourteen sub-accounts of the Account are: Calvert Money
Market Portfolio, Calvert Strategic Growth Portfolio, Calvert Balanced
Portfolio, The Alger American Growth Portfolio, The Alger American Mid Cap
Growth Portfolio, The Alger American Small Capitalization Portfolio, Dreyfus
Stock Index Fund, The Neuberger & Berman Advisors Management Trust Limited
Maturity Bond Portfolio, The Neuberger & Berman Advisors Management Trust Growth
Portfolio, Strong Advantage Fund II, Strong Asset Allocation Fund II, Strong
International Stock Fund II, Strong Discovery Fund II and Van Eck Worldwide Hard
Assets Fund (formerly Van Eck Gold and Natural Resources Portfolio). The Account
purchases shares of each of the sub-accounts subject to the terms of the
Participation Agreements between the Company and the sub-accounts. Shares of
each sub-account are offered at a price equal to their respective net asset
values per share, without sales charge, which
5
<PAGE> 85
represents their fair value. Calvert Asset Management Company, Inc., an
indirectly wholly-owned subsidiary of Acacia Financial Corporation, serves as an
investment advisor to The Calvert Money Market Portfolio, Calvert Balanced
Portfolio and Calvert Strategic Growth Portfolio.
In addition to the fourteen separate sub-accounts, a contract owner may also
allocate net premiums to the General Account, which is part of the Company.
Because of exclusionary provisions, interests in the General Account have not
been registered as securities under the Securities Act of 1933 and the General
Account has not been registered as an investment company under the Investment
Company Act of 1940.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Account in the preparation of the financial statements in
conformity with generally accepted accounting principles.
INVESTMENTS VALUATION
Investments are stated at market value which is the net asset value of each of
the respective 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. Average cost is the basis followed in
determining the cost of investments sold for financial statement purposes.
FEDERAL INCOME TAXES
The Company is taxed under federal law as a life insurance company under the
provisions of the 1986 Internal Revenue Code, as amended. The Account is a part
of the Company's total operations and is not taxed separately. Under existing
law, no taxes are payable on investment income or realized capital gains of the
Account credited to the policies. Accordingly, the Company does not intend to
make any charge to the Account for company income taxes. If such taxes are
incurred by the Company in the future, a charge to the Account may be assessed.
4. POLICY CHARGES
The following charges are deducted by the Company from the Account's net assets
attributed to each policy:
Premium Expense Charge: Premiums are reduced by a charge equal to 2.25%
of each premium to compensate the Company for expenses associated with
state premium taxes of the policy.
Policy Account Value Charges: The policy account value will be reduced
by a monthly deduction equal to the sum of the cost of insurance
charge, the cost of any optional insurance benefits added by a rider
and a monthly administrative charge equal to $27
6
<PAGE> 86
per month for the first policy year and $8 each month thereafter. The
cost of insurance will vary based upon a number of factors including
the face amount of the policy, issue age, attained age and rate class
of the insured. The net investment income includes charges for
investment management fees and other expenses incurred by the
Portfolios.
Surrender Charges: A surrender charge will be assessed at 30% of
premiums received up to target premium, as defined in the prospectus,
for years 1-7 decreasing to 10% per year until reaching zero in year
10.
Partial Surrender Charges: During the surrender charge period for the
policy, there will be a charge for a partial surrender equal to 8% of
the amount withdrawn or $25, whichever is greater.
Mortality and Expense Charge: A charge not to exceed an annual rate of
.90% for years 1-15, decreasing .05% per year for years 16 and
thereafter until the annual rate reaches .45%, of the average daily net
asset value of the Account applicable to policies issued when each rate
was in effect. These charges are deducted by the Company in return for
its assumption of expenses arising from adverse mortality experience
and excess administrative expenses in connection with the policies
issued.
5. PURCHASES AND SALES
The following table shows the cost of purchases and proceeds from sales for the
year ended December 31,1996 and the period December 1, 1995 (inception) to
December 31, 1995 for the sub-accounts.
<TABLE>
<CAPTION>
1996
----
PROCEEDS FROM
REINVESTMENT COST OF PROCEEDS
IN DIVIDENDS PURCHASES FROM SALES
------------ --------- ----------
<S> <C> <C> <C>
Calvert Money Market Portfolio $1,630 $1,013,825 $865,453
Calvert Balanced Portfolio 213 2,830 67
Calvert Strategic Growth Portfolio 64 26,228 6,168
Alger American Growth Portfolio 934 410,477 105,948
Alger American MidCap Growth Portfolio 146 124,495 36,438
Alger American Small Capitalization Portfolio 160 528,077 127,156
Dreyfus Stock Index 11,429 653,737 147,891
Neuberger & Berman Limited Maturity Bond Portfolio --- 245,923 45,196
Neuberger & Berman Growth Portfolio --- 223,540 50,730
Strong Advantage Fund II 74 10,867 981
Strong Asset Allocation Fund II 5,750 97,733 14,369
Strong International Stock Fund II 883 556,109 117,229
Strong Discovery Fund II 1,846 102,744 29,585
Van Eck Worldwide Hard Assets Fund --- 119,090 33,537
</TABLE>
7
<PAGE> 87
<TABLE>
<CAPTION>
1995
----
PROCEEDS FROM
REINVESTMENT COST OF PROCEEDS
IN DIVIDENDS PURCHASES FROM SALES
------------ --------- ----------
<S> <C> <C> <C>
Calvert Money Market Portfolio $3 $2,673 $2,673
Calvert Balanced Portfolio --- --- ---
Calvert Strategic Growth Portfolio --- 17 ---
Alger American Growth Portfolio --- --- ---
Alger American MidCap Growth Portfolio --- 17 ---
Alger American Small Capitalization Portfolio --- --- ---
Dreyfus Stock Index 23 1,810 ---
Neuberger & Berman Limited Maturity Bond Portfolio --- --- ---
Neuberger & Berman Growth Portfolio --- 17 ---
Strong Advantage Fund II --- --- ---
Strong Asset Allocation Fund II --- --- ---
Strong International Stock Fund II --- 23 ---
Strong Discovery Fund II --- 11 ---
Van Eck Hard Assets Fund --- 915 ---
</TABLE>
8
