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Rule 497(e)
File No. 33-90208
PROSPECTUS
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
ACACIA NATIONAL LIFE INSURANCE COMPANY
7315 Wisconsin Avenue, Bethesda, Maryland 20814 Telephone: (301) 280-1000
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
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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.
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 SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV)
THAT CONTAINS MATERIAL INCORPORATED BY REFERENCE, AND OTHER INFORMATION
REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE COMMISSION. 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>
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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.............................. 7
The Variable Account................................................ 8
The Portfolios................................................................9
The Alger American Fund............................................. 9
Calvert Variable Series, Inc........................................10
Dreyfus Stock Index Fund............................................11
Neuberger & Berman Advisers Management Trust........................11
Oppenheimer Variable Account Funds..................................12
Strong Variable Insurance Funds, Inc and Strong Discovery Fund II. .13
Van Eck Worldwide Hard Assets Fund..................................14
Investment Advisory Fees............................................15
Resolving Material Conflicts........................................16
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
Coverage Beyond the Maturity Date...................................30
Examination of the Policy Privilege (Free Look)..............................30
General Account..............................................................30
General Description.................................................30
The Policy..........................................................31
General Account Benefits............................................31
General Account Value...............................................31
</TABLE>
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<TABLE>
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General Policy Provisions....................................................31
Postponement of Payments............................................31
The Contract........................................................31
Suicide.............................................................32
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............................................34
Treatment of Policy Benefits .......................................35
Special Rules for Pension and Profit-Sharing Plans..................36
Possible Charge for ANLIC's Taxes...................................37
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 ................................................39
Administration...............................................................39
Preparations for the Year 2000...............................................39
Policy Reports...............................................................39
State Regulation.............................................................40
Experts......................................................................40
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.
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.
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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.
Policy Owner ("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, which does not necessarily relate to the
premium taxes paid for a particular Policy.
Service Office - The office where Policy administration is done, whether at
ANLIC or at the offices of a third party administrator, as designated by ANLIC
in writing. The Service Office address is Acacia National Life Insurance
Company, P.O. Box 79574, Baltimore, Maryland 21279-0574.
Sub-account -- A 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/SUB-ACCOUNT NAME
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Alger American Growth Portfolio Large Cap Sub-account
Alger American MidCap Growth Portfolio Mid Cap Sub-account
Alger American Small Capitalization Portfolio Small Cap Sub-account
Calvert Variable Series, Inc. Calvert Social Money Market Portfolio Social Money Market Sub-account
Calvert Variable Series, Inc. Calvert Social Small Cap Growth Portfolio Social Strategic Growth Sub-account
Calvert Variable Series, Inc. Calvert Social Mid Cap Growth Portfolio Social Managed Growth Sub-account
Calvert Variable Series, Inc. Calvert Social International Equity Portfolio Social Global Sub-account
Calvert Variable Series, Inc. Calvert Social Balanced Portfolio Social Balanced Sub-account
Dreyfus Stock Index Fund S & P 500 Index Sub-account
Neuberger & Berman Advisers Management Trust Limited Maturity Bond Portfolio Income Sub-account
Neuberger & Berman Advisers Management Trust Growth Portfolio Growth Sub-account
Oppenheimer Aggressive Growth Fund Aggressive Growth Sub-account
Oppenheimer Growth Fund Large Cap Growth Sub-account
Oppenheimer Growth & Income Fund Balanced Sub-account
Oppenheimer High Income Fund High Income Sub-account
Oppenheimer Strategic Bond Fund Managed Income Sub-account
Strong International Stock Fund II International Growth Sub-account
Strong Discovery Fund II Aggressive Growth Sub-account
Van Eck Worldwide Hard Assets Fund Hard Assets/Metals Sub-account
</TABLE>
THE 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).
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.
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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 Social
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).
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. The charge does not necessarily relate to the premium taxes paid for a
particular 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).
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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).
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
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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. 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 Life Insurance Company ("Acacia Life") owns all the outstanding
stock of ANLIC. The principal offices of both ANLIC and Acacia Life are at 7315
Wisconsin Avenue, Bethesda, Maryland 20814. Acacia Life, domiciled in the
District of Columbia, is a stock subsidiary of a Mutual Holding Corporation,
Acacia Mutual Holding Company. There is an intermediary holding company, Acacia
Financial Group, LTD. Acacia Life is licensed in 45 states and in the District
of Columbia and offers a complete line of life insurance products. While ANLIC
is a wholly-owned subsidiary of Acacia Life, the assets of Acacia Life do not
support the obligations of ANLIC under the Policy.
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A number of the directors and officers of ANLIC are also either
directors or officers or both of Acacia Life. Acacia Life's employees perform
certain administrative functions for ANLIC for which Acacia Life is reimbursed.
Acacia Life also owns all of the outstanding stock of the Acacia
Financial Corporation, a holding company, which owns all of the stock of The
Advisors Group, Inc. and of the Calvert Group, Ltd. ("Calvert"), which in turn
owns Calvert Asset Management Company, Inc., is the investment adviser of
Calvert Variable Series, Inc., one of the Funds available under the Policies.
The Advisors Group, Inc. is the principal underwriter for the Policies described
in this Prospectus. The Advisors Group, Inc. sells shares of other mutual funds
and other securities, and may also sell variable annuity or variable life
policies of other issuers.
THE VARIABLE ACCOUNT
Acacia National Variable 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, as amended (the "1940 Act").
Registration with the Securities and Exchange Commission ("SEC") does not
involve supervision of the management or investment practices or policies of the
Variable Account or ANLIC by the SEC.
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<PAGE> 12
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 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.
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CALVERT VARIABLE SERIES, INC.
The Variable Account has five Sub-accounts that invest exclusively in
shares of Calvert Variable Series, Inc.. The Social Money Market Sub-account,
Social Strategic Growth, the Social Managed Growth, Social Global and the Social
Balanced Sub-account of the Variable Account invest in shares of the Calvert
Social Money Market Portfolio, the Calvert Social Small Cap Growth Portfolio,
Calvert Social Mid Cap Growth Portfolio, Calvert Social International Equity
Portfolio, and the Calvert Social Balanced Portfolio, respectively, of Calvert
Variable Series, Inc.. Calvert Variable Series, Inc. is one of eight registered
investment companies in the Calvert Group, Ltd. ("Calvert"). Calvert is a second
tier wholly-owned subsidiary of Acacia Life. ANLIC, which is offering the Policy
is also a wholly owned subsidiary of Acacia Life. The Fund has a number of
Portfolios or classes of shares, each of which represents an interest in a
Portfolio of the Fund. Calvert is the sponsor of the Fund.
These Portfolios seek to achieve competitive returns while encouraging
responsible corporate conduct. The Portfolios look for enterprises that make a
significant contribution to society through their products and the way they do
business. Each proposed portfolio investment that is deemed financially viable
is then screened according to the stated social criteria of the particular
Portfolio. Investments must, in the judgment of the investment adviser, be
consistent with these criteria. It should be noted that the Portfolios' social
criteria tend to limit the availability of investment opportunities more than is
customary with other investment portfolios. (See the individual Portfolio
Prospectuses for a complete description of each social screen).
The Calvert Social Money Market Portfolio ("CS Money Market") seeks to
provide the highest level of current income, consistent with liquidity, safety
and security of capital, by investing in money market instruments, including
repurchase agreements with recognized securities dealers and banks secured by
such instruments, selected in accordance with the Portfolios' investment and
social criteria. CS Money Market attempts to maintain a constant net asset value
of $1.00 per share. There can be no assurance that the Portfolio will maintain a
constant net asset value of $1.00 per share. An investment in the Portfolio is
neither insured nor guaranteed by the United States government.
Calvert Social Small Cap Growth Portfolio ("CS Small Cap") seeks, with
a concern for social impact, to achieve long-term capital appreciation by
investing primarily in the equity securities of small companies publicly traded
in the United States. In seeking capital appreciation, the Portfolio invests
primarily in equity securities of small capitalized growth companies that have
historically exhibited exceptional growth characteristics and that in the
investment advisor's opinion have strong earnings potential relative to the U.S.
market as a whole.
CS Small Cap may invest up to 35% of its assets in debt securities,
excluding money market instruments. These debt securities may consist of
investment-grade 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 Social Mid Cap Growth Portfolio ("CS Mid Cap")seeks to provide
long-term capital appreciation by investing primarily in a nondiversified
portfolio of the equity securities of small-to mid-sized companies that are
undervalued but demonstrate a potential for growth.
CS Mid Cap 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 Social International Equity Portfolio ("CS International")
seeks to provide a high return consistent with reasonable risk by investing
primarily in a globally diversified portfolio of equity securities. The
Portfolio seeks total return through a globally diversified investment
portfolio.
Under normal circumstances, CS International will invest at least 65%
of its assets in the securities of issuers in no less than three countries,
other than the United States. As an operating policy, the Portfolio will limit
its investment in securities of U.S. issuers to 5% of its net assets. CS
International may also purchase unrated debt securities and may invest up to 5%
of its assets in non-investment grade bonds. 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.
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Calvert Social Balanced Growth Portfolio ("CS Balanced") seeks to
achieve a total return above the rate of inflation through an actively managed
portfolio of stocks, bonds and money market instruments (including repurchase
agreements secured by such instruments) selected with a concern for the
investment and social impact of each investment.
CS Balanced may invest up to 20% of its assets in non-investment grade
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 Portfolios of Calvert Variable Series, Inc. CAM is a wholly
owned subsidiary of Calvert which is in turn a second tier wholly owned
subsidiary of Acacia Life. Pursuant to its investment advisory agreement, CAM
manages the investment and reinvestment of the assets of each Portfolio and is
responsible for the overall business affairs of each Portfolio. Calvert
Administrative Services, an affiliate of CAM, has been retained 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 CS International, CAM has entered into a subadvisory
agreement with Murray Johnstone International, Ltd. ("Murray Johnstone") of
Glascow, Scotland, which has its principal U.S. office in Chicago, Illinois, and
is a wholly-owned subsidiary of United Asset Management Company. Murray
Johnstone manages the investment and reinvestment of assets of CS International,
although the Advisor may manage part of CS International's cash reserves
required for liquidity purposes.
On behalf of CS Balanced, CAM has entered into a subadvisory agreement
with United States Trust Company of Boston, a Massachusetts chartered commercial
bank with full trust powers. On behalf of CS Small Cap, CAM has entered into a
subadvisory agreement with Awad Associates of New York. The subadvisers manage
the investment and reinvestment of the assets of the Portfolio, although CAM may
screen potential investments for compatibility with the Portfolio's social
criteria. CAM continuously monitors and evaluates the performance of the
subadvisers.
DREYFUS STOCK INDEX FUND
The S&P 500 Index Sub-account of the Variable Account invests
exclusively in shares of the Dreyfus Stock Index Fund.
Dreyfus Stock Index Fund has as an investment objective to provide
investment results that correspond to the price and yield performance of
publicly traded common stocks in the aggregate, as represented by the Standard &
Poor's 500 composite Price Index which is composed of 100 selected common
stocks, most of which are listed on the New York Stock Exchange. Standard &
Poor's Corporation chooses the stocks to be included in the Index solely on a
statistical basis. The Portfolio attempts to be fully invested at all times in
the stocks that comprise the Index and stock index futures as described below
and, in any event, at least 80% of the Portfolio's net assets will be so
invested. Inclusion of a stock in the Index in no way implies an opinion by
Standard & Poor's Corporation as to its attractiveness as an investment. The
Portfolio uses the Index as the standard performance comparison because it
represents approximately 70% of the total market value of all common stocks and
is well known to investors. An investment in the Portfolio involves risks
similar to those of investing in common stocks.
The investment manager of Dreyfus Stock Index Fund is Dreyfus
Corporation ("Dreyfus"), a wholly-owned subsidiary of Mellon Bank, N.A., which
is a wholly-owned subsidiary of Mellon Bank Corporation, a publicly owned
multibank holding company.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has two Sub-Accounts that invest exclusively in
shares of Portfolios of the Neuberger & Berman Advisers Management Trust
("AMT").
The Income and Growth Sub-accounts of the Variable Account invest in
shares of the Limited Maturity Bond Portfolio and Growth Portfolio,
respectively, of AMT.
The Neuberger & Berman Limited Maturity Bond Portfolio. The investment
objective of the Limited Maturity Bond Portfolio is to provide the highest
current income consistent with low risk to principal and liquidity; and
secondarily, total
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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 &
Berman Limited Maturity Bond Portfolio may invest up to 5% of its net assets in
municipal securities when the portfolio manager believes such securities may
outperform other available issues. The Portfolio may purchase and sell covered
call and put options, interest-rate futures contracts, and options on those
futures contracts and may engage in lending portfolio securities. The
Portfolio's dollar-weighted average portfolio maturity may range up to five
years.
The Neuberger & Berman Growth Portfolio seeks capital appreciation,
without regard to income. Neuberger & Berman Growth Portfolio invests in
securities believed to have the maximum potential for long-term capital
appreciation. It does not seek to invest in securities that pay dividends or
interest, and any such income is incidental. The Portfolio expects to be almost
fully invested in common stocks, often of companies that may be temporarily out
of favor in the market. The Portfolios' aggressive growth investment program
involves greater risks and share price volatility than programs that invest in
more conservative securities. Moreover, the Portfolio does not follow a policy
of active trading for short-term profits. Accordingly, the Portfolio may be more
appropriate for investors with a longer-range perspective. While the Portfolio
uses the AMT value-oriented investment approach, when the portfolio manager
believes that particular securities have greater potential for long-term capital
appreciation, the Portfolio may purchase such securities at prices with higher
multiples to measures of economic value (such as earnings). In addition, the
Portfolio focuses on companies with strong balance sheets and reasonable
valuations relative to their growth rates. It also diversifies its investments
into many companies and industries.
The investment adviser for the Limited Maturity Bond and Growth
Portfolios of AMT is Neuberger & Berman Management Incorporated ("N&B
Management"). N&B Management retains Neuberger & Berman, L.P., without cost to
AMT, as 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 Aggressive Growth, Large Cap Growth, Balanced, High
Income, and Strategic Bond Sub-accounts of the Variable Account invest in shares
of the Aggressive Growth Fund, Growth Fund, Growth & Income Fund, High Income
Fund and Managed Income Fund respectively, of the Oppenheimer Funds. The
Oppenheimer Funds are managed by OppenheimerFunds, Inc. ("the Manager"), which
is responsible for selecting the Oppenheimer Funds' investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Board of Trustees, under investment advisory agreements for
each Oppenheimer Fund which state the Manager's responsibilities.
Oppenheimer Aggressive Growth Fund ("Aggressive Growth Fund") seeks to
achieve capital appreciation by investing in "growth-type" companies. Such
companies are believed to have relatively favorable long-term prospects for
increasing demand for their goods or services, or to be developing new products,
services or markets, and normally retain a relatively larger portion of their
earnings for research, development and investment in capital assets.
Oppenheimer Growth Fund ("Growth Fund") seeks to achieve capital
appreciation by investing in "growth-type" companies. Growth Fund will emphasize
investments in securities of well-known and established companies. Such
securities generally have a history of earnings and dividends and are issued by
seasoned companies.
Oppenheimer Growth & Income Fund ("Growth & Income Fund") seeks a high
total return (which includes growth in the value of its shares as well as
current income) from equity and debt securities. Its equity investments will
include common stocks, preferred stocks, convertible securities and warrants.
Its debt securities will include bonds, participation interests, asset-backed
securities, private-label mortgage-backed securities and collateralized mortgage
obligations, zero
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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.
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 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.
Strong International Stock Fund II seeks capital growth. The Portfolio
invests primarily in the equity securities of issuers located outside the United
States. The Portfolio will invest at least 65% of its total assets in foreign
equity securities, including common stocks, preferred stocks, and securities
that are convertible into common or preferred stocks, such as warrants and
convertible bonds, that are issued by companies whose principal headquarters are
located outside the United States.
Under normal conditions, the Portfolio expects to invest at least 90%
of its total assets in foreign equity securities. The Portfolio may, however,
invest up to 35% of its total assets in equity securities of U.S. issuers or
debt obligations, including intermediate to long-term debt obligations of U.S.
issuers or foreign-government entities. When the investment advisor determines
that market conditions warrant a temporary defensive position, the Portfolio may
invest without limitation in cash (U.S. dollars, foreign currencies, or multi
currency units) and short-term fixed income securities. Although the debt
obligations in which it invests will be primarily investment-grade, the
Portfolio may invest up to 5% of its total assets in non- investment-grade debt
obligations. Investments in such securities involve special risks and Policy
Owners should consider the risks associated with foreign securities and junk
bonds before investing in the Sub-account. These risks are described in the
Prospectus of the Portfolio.
The Portfolio will normally invest in securities of issuers located in
at least three different countries. The investment advisor expects that the
majority of the Portfolio's investments will be in issuers in the following
markets: Argentina, Australia, Brazil, Chile, Cambodia, the Czech Republic,
France, Germany, Hong Kong, Hungary, India, Indonesia, Italy, Japan, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland,
Russia, Singapore, South Africa, South
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Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and Vietnam. The
Portfolio will also invest in other European, Pacific Rim, and Latin American
markets.
Strong Discovery Fund II seeks capital growth. The Portfolio invests in
securities that the investment advisor believes represent growth opportunities.
The Portfolio normally emphasizes equity securities, although it has the
flexibility to invest in any type of security that the Advisor believes has the
potential for capital appreciation. The Portfolio may invest up to 100% of its
total assets in equity securities, including common stocks, preferred stocks,
and securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds. The Portfolio may also invest up to 100% of its
total assets in debt obligations, including intermediate to long-term corporate
or U.S. government debt securities. When the Advisor determines that market
conditions warrant a temporary defensive position, the Portfolio may invest,
without limitation, in cash and short-term fixed income securities. Although the
debt obligations in which it invests will be primarily investment-grade, the
Portfolio may invest up to 5% of its total assets in non-investment-grade debt
obligations. Investments in which securities involve special risks in addition
to the risks associated with investments in higher rated debt securities and
Owners should consider the risks associated with junk bonds before investing in
the Sub-account. These risks are described in the Prospectus of the Portfolio.
The Portfolio may invest up to 15% of its total assets directly in the
securities of foreign issuers. It may also invest without limitation in foreign
securities in domestic markets through depositary receipts. However, as a matter
of policy, the Advisor intends to limit total foreign exposure, including both
direct investments and depositary receipts, to no more than 25% of the Fund's
total assets. Owners should consider the risks associated with foreign
securities before investing in the Sub-account. These risks are described in the
Prospectus of the Portfolio.
The investment advisor seeks to uncover emerging investment trends and
attractive growth opportunities. In its search for potential investments, the
investment advisor attempts to identify companies that are poised for
accelerated earnings growth due to innovative products or services, new
management, or favorable economic or market cycles. These companies may be
small, unseasoned firms in the early stages of development, or they may be
mature organizations. Whatever their size, history, or industry, the Advisor
believes their potential earnings growth is not yet reflected in their market
value and that, over time, the market prices of these securities will move
higher.
Strong Capital Management, Inc. is the investment advisor for the
Strong Variable Insurance Funds, Inc. and the Strong Discovery Fund II and,
pursuant to its investment advisory agreements, manages the investment and
reinvestment of the assets of both Portfolios, and is responsible for their
overall business affairs.
VAN ECK WORLDWIDE HARD ASSETS FUND
The Hard Assets/Metals Sub-account of the Variable Account invests
exclusively in shares of the Van Eck Worldwide Hard Assets Fund.
Van Eck Worldwide Hard Assets Fund seeks long-term capital appreciation
by investing globally, primarily in "Hard Assets" securities. Income is a
secondary consideration. The fund must invest at least 25% of its assets in
companies that are directly or indirectly (whether through supplier
relationships, servicing agreements or otherwise) engaged to a significant
extent in the exploration, development, production or distribution of one or
more of the following sectors: (I) precious metals, (ii) ferrous and non-ferrous
metals, (iii) oil and gas, (iv) forest products, (v) real estate, and (vi) other
basic non-agricultural commodities (together referred to as "Hard Assets"). This
policy is a fundamental policy, which can not be changed without the vote of
shareholders. As an additional but non-fundamental policy, the Portfolio would
be able to invest up to 50% of its assets in any one of the above sectors.
The production and marketing of Hard Assets may be affected by actions
and changes in government. In addition, Hard Assets and securities of Hard
Assets companies may be cyclical in nature. During periods of economic or
financial instability, the securities of some Hard Assets companies may be
subject to broad price fluctuations, reflecting volatility of energy and basic
materials prices and possible instability of supply of various Hard Assets. In
addition, some Hard Assets companies may also be subject to the risks generally
associated with extraction of natural resources, such as the risks of mining and
oil drilling, and the risks of hazards associated with natural resources, such
as fire, drought, increased regulatory and environmental costs, and others.
Securities of Hard Assets companies may also experience greater price
fluctuations than the relevant Hard Assets. In periods of rising Hard Assets
prices, such securities may rise at a faster rate, and conversely, in times of
falling Hard Assets prices, such securities may suffer a greater price decline.
Policy Owners should
14
<PAGE> 18
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.
CALVERT. For its services, CAM is entitled to receive a fee based on a
percentage of the average daily net assets of each of the Portfolios. CAM is
currently entitled to receive a maximum fee of .50% of net assets from CS Money
Market Portfolio, 80% CS Mid Cap, 1.00% the CS International .70% of net assets
of CS Balanced and .90% of net assets of CS Small Cap Growth Portfolio.
DREYFUS. Pursuant to the terms of an investment management agreement,
the Dreyfus Stock Index Fund pays Dreyfus a monthly fee at the annual rate of
.245 of 1.00% of the value of the Portfolio's average daily net assets.
NEUBERGER & BERMAN. For combined administrative and investment
management services, N&B Management is paid fees as a percentage of the average
daily net assets based upon the following schedules:
<TABLE>
<CAPTION>
LIMITED MATURITY BOND PORTFOLIO: GROWTH PORTFOLIO:
<S> <C> <C> <C>
AVERAGE DAILY NET ASSETS FEE AVERAGE DAILY NET ASSETS FEE
- ------------------------ --- ------------------------ ---
First $500 million .65% First $250 million .85%
Next $500 million .615% Next $250 million .825%
Next $500 million .60% Next $500 million .75%
Next $500 million .575% Thereafter .725%
Thereafter .55%
</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 Aggressive Growth Fund, Growth Fund, Growth & Income Fund: 0.75% of the
first $200 million of net assets, 0.72% of the next $200 million, 0.69% of the
next $200 million, 0.66% of the next $200 million and 0.60% of 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.
15
<PAGE> 19
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 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 SEC, to the extent
required by the 1940 Act 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
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
16
<PAGE> 20
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 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.
17
<PAGE> 21
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 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).
18
<PAGE> 22
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.
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.
19
<PAGE> 23
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.
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.
20
<PAGE> 24
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.
For all Policies sold in the State of Maryland, all references to the
phrases "the Gauranteed Death Benefit" and the "Guaranteed Death Benefit
Premium" are replaced with the phrases "Extended No Lapse Guarantee" and
"Extended No Lapse Guarantee Premium". For all Policies sold in the
Commonwealth of Massachusetts, The Guaranteed Death Benefit Premium does not
apply.
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.
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.
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<PAGE> 25
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 Social Money Market
Sub-account to designated Sub-accounts on either a monthly, quarterly,
semi-annual, or annual basis. The specific dollar amount is subject to a $50
minimum transfer amount pursuant to the Owner's election with a minimum 5%
designated percentage proportion per Sub-account. If the periodic transfer would
reduce the value in the Social 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
Social 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 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
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<PAGE> 26
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.
To the extent permitted under state law, 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.
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
23
<PAGE> 27
for the basis of Surrender Charges and commission payments. Target Premiums do
not exceed the 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. The
deduction represents an amount ANLIC considers necessary to pay all premium
taxes imposed by the states and any subdivisions thereof and does not
necessarily relate to the premium taxes paid for a particular Policy. 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.
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<PAGE> 28
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 classes of each of the Insureds (and in the case of
certain Policies issued in group or sponsored arrangements providing for
reduction in cost of insurance charges (See, "Reduction of Charges"). 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 (unless unisex rates are
required by law or are requested), 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 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.
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<PAGE> 29
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.
26
<PAGE> 30
PORTFOLIO ANNUAL EXPENSES
(EXPRESSED AS A PERCENTAGE OF NET ASSETS OF EACH PORTFOLIO)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
OTHER ANNUAL
PORTFOLIO MANAGEMENT FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.04% 0.89%
Calvert Social Money Market Portfolio 0.50% 0.20% 0.70%(1)
Calvert Social Small Cap Growth Portfolio 1.00% 0.20% 1.20%(1)
Calvert Social Mid Cap Growth Portfolio 0.90% 0.15% 1.05%(1)
Calvert Social International Equity Portfolio 1.10% 0.47% 1.57%(1)
Calvert Social Balanced Portfolio 0.69% 0.12% 0.81%(1)
Dreyfus Stock Index Fund 0.25% 0.03% 0.28%
Neuberger & Berman Advisers Management Trust Limited
Maturity Bond Portfolio 0.65% 0.12% 0.77%
Neuberger & Berman Advisers Management Trust Growth Portfolio 0.83% 0.07% 0.90%
Oppenheimer Aggressive Growth Fund 0.71% 0.02% 0.73%(2)
Oppenheimer Growth Fund 0.73% 0.02% 0.75%
Oppenheimer Growth & Income Fund 0.75% 0.08% 0.83%
Oppenheimer High Income Fund 0.75% 0.07% 0.82%
Oppenheimer Strategic Bond Fund 0.75% 0.08% 0.83%
Strong International Stock Fund II 1.00% 0.51% 1.51%
Strong Discovery Fund II 1.00% 0.18% 1.18%
Van Eck Worldwide Hard Assets Fund 1.00% 0.17% 1.17%(3)
</TABLE>
- ---------------
(1) The figures above are based on expenses for fiscal year 1997, and
have been restated to reflect an increase in transfer agency expenses of 0.01%
for each Portfolio expected to be incurred in 1998. Management Fees includes for
CS Balanced and CS Mid Cap, a performance adjustment, which depending on
performance, could cause the fee to be as high as 0.85% or as low as 0.55% for
CS Balanced, and as high as 0.95% or as low as 0.85% for CS Mid Cap. The CS
Small Cap expenses have been restated to reflect the lower advisory fee and
administrative services fee. Other Expenses reflect an indirect fee. Net fund
operating expenses after reductions for fees paid indirectly (again, restated)
would be 0.78% for CS Balanced, 0.97% for CS Mid Cap, 0.60% for CS Money Market,
1.18% for CS International Equity and 0.89% for CS Small Cap. Management Fees
for CS Mid Cap, CS Small Cap, and CS International Equity includes an
administrative service fee of 0.10% paid to the advisor's affiliate.
(2) The Oppenheimer Aggressive Growth Fund was formerly named
Oppenheimer Capital Appreciation Fund.
(3) Prior to April 30, 1997, Worldwide Hard Assets Fund was named Gold
and Natural Resources Fund. Other Expenses are net of soft dollar credits.
Without such credits, Other Expenses would have been 0.18% and Total Portfolio
Annual Expenses would have been 1.18%.
27
<PAGE> 31
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 Life, or sales to employees or clients of members of The
Acacia Group. Group arrangements include those in which a trustee or an
employer, for example, purchases contracts covering a group of individuals on a
group basis. Sponsored arrangements include those in which an employer allows us
to sell contracts to its employees on an individual basis. 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 than once each
Policy Month. Upon repayment of indebtedness, the portion of the repayment
allocated to a Sub-account in
28
<PAGE> 32
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:
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.
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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).
COVERAGE BEYOND THE MATURITY DATE
Unless prohibited under state law, You may elect to continue coverage
beyond the Maturity Date provided the Policy is in force on the Maturity Date.
If elected, on the Maturity Date the Value of the Policy in the Variable Account
will be transferred to the General Account where it will continue to earn
interest as described in the Policy. Monthly deduction amounts will continue to
be deducted, with the Cost of Insurance Rate equal to zero. Only payments
required to keep the Policy in force will be accepted beyond the Maturity Date.
All other rights and benefits as described in the Policy will be available.
The Policy may be subject to certain adverse tax consequences when
continued beyond the Maturity Date.
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, as amended (the "1933 Act") and the General Account has not been
registered as an investment company under the 1940 Act. 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 SEC 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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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 SEC; (2) the SEC by order permits postponement
for the protection of Owners; or (3) an emergency exists, as determined by the
SEC, 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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SUICIDE
In most states, 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 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.
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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 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.
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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 ss. 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 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.
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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 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
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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 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.
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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.
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
37
<PAGE> 41
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 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 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.
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 Life Insurance Company.
Investment Officer,
and Director
Haluk Ariturk Senior Vice President, Operations and Chief Actuary
Senior Vice President, since June 1989, Acacia 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, 7315 Wisconsin Avenue, Bethesda, Maryland 20814.
38
<PAGE> 42
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 7315 Wisconsin Avenue, Bethesda,
Maryland 20814, is a registered broker/dealer under the Securities Exchange Act
of 1934 ("1934 Act") and a member of the National Association of Securities
Dealers, Inc. ("NASD"). TAG is a second tier wholly-owned subsidiary of Acacia
Life Insurance Company of Washington, D.C. TAG acts as the principal
underwriter, as defined in the 1940 Act, of the Policies (as well as other
variable life policies) pursuant to an Underwriting Agreement with ANLIC. The
Policies are offered and sold only in those states where their sale is lawful.
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. Agents may also receive
expense allowances or bonuses. 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 1290 Silas Deane Highway,
Wethersfield, 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.
PREPARATIONS FOR THE YEAR 2000
ANLIC is currently evaluating on an ongoing basis, its computer systems
and the systems of other companies on which ANLIC's operations rely to determine
if they will function properly with respect to dates in the year 2000 and
beyond. These activities are designed to ensure that there is no adverse effect
on ANLIC's core business operations. While ANLIC believes its planning efforts
are adequate to address its year 2000 concerns, there can be no guarantee that
the systems of other companies on which ANLIC's operations rely will be
converted on a timely basis and will not have a material effect on ANLIC.
POLICY REPORTS
At least once each Policy year a statement will be sent to 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.
39
<PAGE> 43
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,
1997, and for each of the periods indicated therein, and the statutory basis
financial statements of ANLIC as of and for the years ended December 31,1997 and
1996, 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 Boros Cicchetti Berenson & Johnson LLP of Washington, D.C.
has provided advice on legal matters relating to certain aspects of federal
securities laws applicable to the issue and sale of the Policies. Matters of the
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 SEC, under the 1933
Act 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.
40
<PAGE> 44
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 .95% 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 -1.85%, 6.15% and 10.15%
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> 45
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> 46
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> 47
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> 48
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 1,025 474 251,025 474 251,025
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> 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
- ------------------------------------------------------------------------------------------------------------------------
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> 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
- ------------------------------------------------------------------------------------------------------------------------
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> 51
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 Social 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.
