As filed with the Securities and Exchange Commission on April 30, 1999
Registration # 33-90208; 811-8998
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE AMENDMENT NO. 6
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
(Exact Name of Trust)
ACACIA NATIONAL LIFE INSURANCE COMPANY
(Exact Name of Depositor)
7315 Wisconsin Avenue
Bethesda, Maryland 20814
(Complete Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (301) 280-1000
Ellen Jane Abromson, Esq.
7315 Wisconsin Avenue
Bethesda, Maryland 20814
(Name and complete address of agent for service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[x] on May 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(I)
[ ] on pursuant to paragraph (a)(I)
[ ] 75 days after filing pursuant to paragraph (a) (ii)
[ ] on Pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective
date for a previously filed Post-Effective Amendment.
Title and Amount of Securities being registered:
Individual Flexible Premium Variable Life Insurance Policies
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PART I - PROSPECTUS
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PROSPECTUS
THE
ACACIA
GROUP
The Date of This Prospectus is May 1, 1999.
Acacia National Life
Insurance Company
Allocator 2000 -- 7315 Wisconsin Avenue
A Flexible Premium Variable Universal Life Bethesda, MD 20814
Insurance Policy issued by
Acacia National Life Insurance Company
Allocator 2000 is a flexible premium variable universal life insurance Policy
("Policy"), issued by Acacia National Life Insurance Company ("ANLIC"). Like
traditional life insurance policies, an Allocator 2000 Policy provides Death
Benefits to Beneficiaries and gives you, the Policyowner, the opportunity to
increase the Policy's cash value. Unlike traditional policies, Allocator 2000
lets you vary the frequency and amount of premium payments, rather than follow a
fixed premium payment schedule. It also lets you choose one of two Death Benefit
options: (1) a level amount, which generally equals the Face Amount of the
Policy; or (2) a variable amount which generally equals the Face Amount plus the
Policy Account Value. While the Policy remains in force, the Death Benefit will
not be less than the maximum of the current Face Amount of the Policy or the
Policy Account Value mutliplied by the applicable corridor percentage specified
in the Policy. The minimum face amount is $ 25,000.
An Allocator 2000 Policy is different from traditional life insurance policies
in another important way: you select how Policy premiums will be invested.
Although each Policyowner is guaranteed a minimum death benefit, the cash value
of the Policy, as well as the actual Death Benefit, will vary with the
performance of investments you select.
The Investment Options available through Allocator 2000 include investment
portfolios from The Alger American Fund, Calvert Variable Series, Inc., Dreyfus
Stock Index Fund, Neuberger Berman Advisers Management Trust, Oppenheimer
Variable Account Funds, Strong Variable Insurance Funds, Inc., and Van Eck
Worldwide Insurance Trust. Each of these portfolios has its own investment
objective and policies. These are described in the prospectuses for each
investment portfolio which must accompany this Allocator 2000 prospectus. You
may also choose to allocate premium payments to the Fixed Account managed by
ANLIC.
An Allocator 2000 Policy will be issued after ANLIC accepts a prospective
Policyowner's application. Allocator 2000 Policies are available to cover
individuals between the ages of 20 and 80 at the time of purchase. An Allocator
2000 Policy, once purchased, may generally be canceled until 20 days after the
Owner receives the Policy or 45 days after completion of Part I of the
application, if later.
This Allocator 2000 prospectus is designed to assist you in understanding the
opportunity and risks associated with the purchase of an Allocator 2000 Policy.
Prospective Policyowners are urged to read the prospectus carefully and retain
it for future reference.
This prospectus includes a summary of the most important features of the
Allocator 2000 Policy, information about ANLIC, a list of the investment
portfolios to which you may allocate premium payments, and a detailed
description of the Allocator 2000 Policy. The appendix to the prospectus
includes tables designed to illustrate how cash values and death benefits may
change with the investment experience of the Investment Options.
This prospectus must be accompanied by a prospectus for each of the investment
portfolios available through Allocator 2000.
Although the Allocator 2000 Policy is designed to provide life insurance, an
Allocator 2000 Policy is considered to be a security. The purchase of an
Allocator 2000 Policy involves investment risk, including the possible loss of
principal. For this reason, Allocator 2000 may not be suitable for all
individuals. It may not be advantageous to purchase an Allocator 2000 Policy as
a replacement for another type of life insurance or as a way to obtain
additional insurance protection if the purchaser already owns another flexible
premium variable universal life insurance policy. This Policy may not be
available in all states.
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains other information regarding registrants that file electronically
with the Securities and Exchange Commission.
Neither the Securities and Exchange Commission nor any state securities
regulatory authority has approved these securities, or determined that this
prospectus is accurate complete. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
Glossary of Defined Terms ..................................................1
Questions and Answers About Your Policy.................................... 5
Acacia National and the Variable Account........................... 8
Acacia National Life Insurance Company............................. 8
The Variable Account............................................... 8
The Portfolios..............................................................9
The Alger American Fund............................................ 9
Calvert Variable Series, Inc.......................................10
Dreyfus Stock Index Fund...........................................12
Neuberger Berman Advisers Management Trust.........................13
Oppenheimer Variable Account Funds.................................14
Strong Variable Insurance Funds, Inc and Strong Discovery Fund II. 15
Van Eck Worldwide Hard Assets Fund.................................16
Investment Advisory Fees...........................................17
Resolving Material Conflicts.......................................17
Addition, Deletion, or Substitution of Investments.................18
Policy Benefits............................................................19
Death Benefits.....................................................19
Applicable Percentage Table........................................19
Payment of Policy Benefits.........................................23
Payment and Allocation of Premiums.........................................24
Policy Issue.......................................................24
Premiums...........................................................25
Allocation of Premiums and Policy Account Value....................26
Transfers..........................................................27
Policy Lapse and Reinstatement.....................................28
Charges and Deductions.....................................................28
Surrender Charge...................................................29
Partial Surrender Charge ..........................................29
Premium Expense Charges ...........................................29
Policy Account Value Charges.......................................29
Daily Charges Against the Variable Account.........................30
Investment Advisory Fee............................................31
Portfolio Annual Expenses..........................................32
Reduction of Charges ..............................................33
Policy Rights .............................................................33
Loan Privileges....................................................33
Surrender Privileges...............................................34
Partial Surrender..................................................34
Coverage Beyond the Maturity Date..................................35
Examination of the Policy Privilege (Free Look)............................35
General Account....................................................36
General Description................................................36
The Policy.........................................................36
General Account Value..............................................36
General Policy Provisions..................................................37
Postponement of Payments...........................................37
The Contract.......................................................37
Suicide............................................................37
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Incontestability...................................................38
Change of Owner or Beneficiary.....................................38
Collateral Assignment..............................................38
Misstatement of Age or Sex.........................................38
Reports and Records ...............................................38
Optional Insurance Benefits........................................39
Federal Tax Considerations ................................................40
Introduction ......................................................40
Tax Status of the Policy...........................................40
Treatment of Policy Benefits ......................................42
Special Rules for Pension and Profit-Sharing Plans.................44
Possible Charge for ANLIC's Taxes..................................45
Policies Issued in Conjunction with Employee Benefit Plans.................45
Legal Developments Regarding Unisex Actuarial Tables ......................45
Voting Rights..............................................................46
Officers and Directors of ANLIC............................................47
Distribution of the Policies ..............................................48
Administration.............................................................48
Preparations for the Year 2000.............................................49
Policy Reports.............................................................49
State Regulation...........................................................49
Experts....................................................................50
Legal Matters..............................................................50
Additional Information.....................................................50
Appendix A - Illustrations
Appendix B - Automatic Rebalancing and Dollar Cost Averaging Programs
Financial Statements
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GLOSSARY OF DEFINED TERMS
ATTAINED AGE The age of the Insured on the last Policy Anniversary.
BENCHMARK PREMIUM A monthly premium based on 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.
BENEFICIARY The Beneficiary is designated by the Owner to receive the
Death Benefit proceeds. 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 The Policy Account Value minus any applicable surrender
VALUE charges, minus any outstanding indebtedness and due charges.
DEATH BENEFIT The amount of insurance coverage provided under the selected
Death Benefit option of the Policy.
DEATH BENEFIT The proceeds payable to the Beneficiary upon receipt by
PROCEEDS ANLIC of Satisfactory Proof of Death of the Insured while
the Policy is in force. It is equal to: (l) the Death
Benefit; (2) plus additional life insurance proceeds
provided by any riders; (3) minus any Outstanding Policy
Debt; (4) minus any Accrued Expense Charges, including the
Monthly Deduction for the month of the Death of the Insured.
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 ACCOUNT The portion of the Policy
Account Value allocated to our General Account.
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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 An annual premium listed in the Policy, based on the
BENEFIT PREMIUM Insured's age, ("GDBP") 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.
ISSUE AGE The Insured's age on the Policy Date.
INSURED The person upon whose life the Policy is issued.
INVESTMENT OPTIONS The Fixed Account and the Sub-accounts which invest in
portfolios described in the Fund prospectuses.
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 Policy Anniversary following the Insured's 95th
birthday.
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.
NET PREMIUM Premium paid less the Premium Expense Charge.
OWNER The Policy Owner as defined below.
PLANNED PERIODIC A scheduled premium of a level amount at a fixed interval
PREMIUM over a specified period of time.
POLICY The Flexible Premium Variable Life Insurance Policy offered
by ANLIC and described in this Prospectus.
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POLICY ACCOUNT The sum of the Policy's values in the Sub-accounts and the
VALUE 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 The person so designated in the Application or as
("OWNER") 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 A charge to cover all premium taxes imposed by the
CHARGE 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.
TARGET PREMIUM An annual premium amount based upon the Face Amount and 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.
3
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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.
4
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QUESTIONS AND ANSWERS ABOUT YOUR POLICY
The following summary is intended to highlight the most important features of an
Allocator 2000 Policy that you should consider. You will find more detailed
information in the main portion of the prospectus; cross-references are provided
for your convenience. As you review this Summary, take note of the terms that
appear in italics. Each italicized term is defined in the Definitions Section
that begins on page 1 of this prospectus. This summary and all other parts of
this prospectus are qualified in their entirety by the terms of the Allocator
2000 Policy, which is available upon request from ANLIC.
Who is the issuer of an Allocator 2000 Policy?
ANLIC is the issuer of each Allocator 2000 Policy. ANLIC enjoys a rating of A
(Excellent) from A.M. Best Company, a firm that analyzes insurance carriers. A
stock life insurance company organized in Virginia, ANLIC is a wholly owned
subsidiary of Acacia Life Insurance Company which is, in turn, a second tier
subsidiary of Ameritas Acacia Mutual Holding Company (page 8).
Why should I consider purchasing an Allocator 2000 Policy?
The primary purpose of an Allocator 2000 Policy is to provide life insurance
protection on the Insured named in the Policy. This means that, so long as the
Policy is in force, it will provide for:
o payment of a Death Benefit, which will never be less than the current face
amount at the time of the Death of the Insured (page 19)
o Policy loan (page 32), Partial Surrender, and Surrender features (page 34)
An Allocator 2000 Policy also includes an investment component. This means that,
so long as the Policy is in force, you will be responsible for selecting the
manner in which Net Premiums will be invested. Thus, the value of an Allocator
2000 Policy will reflect your investment choices over the life of the Policy.
How does the investment component of my Allocator 2000 Policy work?
ANLIC has established the Variable Account, which is separate from all other
assets of ANLIC, as a vehicle to receive and invest premiums received from
Allocator 2000 Policyowners. The Variable Account is divided into separate
Sub-accounts. Each Sub-account invests exclusively in shares of one of the
investment portfolios available through Allocator 2000. Each Policyowner may
allocate Net Premiums to one or more Sub-accounts, or to the Fixed Account
(which invests in ANLIC's General Account, see page36) in the initial
application. These allocations may be changed, without charge, by notifying
ANLIC's Service Office. The aggregate value of your interests in the
Sub-accounts, the Fixed Account and any amount held in the General Account to
secure Policy debt will represent the Policy Account Value of your Allocator
2000 Policy (page 36).
What investment options are available through the Allocator 2000 Policy?
The Investment Options available through Allocator 2000 include 19 investment
Portfolios, each of which is a separate series of a mutual fund from: The Alger
American Fund; Calvert Variable Series, Inc.; Dreyfus Stock Index Fund;
Neuberger Berman Advisers Management Trust; Oppenheimer Variable Account Funds;
Strong Variable Insurance Funds, Inc.; and Van Eck Worldwide Insurance Trust.
These Portfolios are:
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
Calvert Social Money Market Portfolio
Calvert Social Small Cap Growth Portfolio
Calvert Social Mid Cap Growth
Portfolio Calvert Social International Equity Portfolio
Calvert Social Balanced Portfolio
Dreyfus Stock Index Fund
Neuberger Berman Advisers Management Trust Limited Maturity Bond Portfolio
Neuberger Berman Advisers Management Trust Growth Portfolio
Oppenheimer Aggressive Growth Fund/VA
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer High Income Fund/VA
Oppenheimer Strategic Bond Fund Strong/VA
International Stock Fund II Strong Discovery Fund II
Van Eck Worldwide Hard Assets Fund
Details about the investment objectives and policies of each of the available
investment Portfolios, including management fees and expenses, appear beginning
on page 9 of this prospectus. Each Portfolio holds its assets separately from
the assets of the other Portfolios. In addition to the listed Portfolios,
Policyowners may also elect to allocate Net Premiums to the Fixed Account which
is available in most states.
(page 36).
5
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How does the life insurance component of an Allocator 2000 Policy work?
An Allocator 2000 Policy provides for the payment of a minimum Death Benefit
upon the death of the Insured. The amount of the minimum Death Benefit is chosen
by you at the time your Allocator 2000 Policy is established. However, Death
Benefit Proceeds -- the actual amount that will be paid after ANLIC receives Due
Proof of Death -- may vary over the life of your Allocator 2000 Policy,
depending on which of the two available coverage options you select.
If you choose Option A, the Death Benefit payable under your Allocator 2000
Policy will be the current face amount of your Allocator 2000 Policy or the
applicable percentage of Policy Account Value, whichever is greater. (See,
Applicable Percentage Table, page 19). If you choose Option B, the Death Benefit
payable under your Allocator 2000 Policy will be the current face amount of your
Allocator 2000 Policy plus the Policy Account Value of your Allocator 2000
Policy, or if it is higher, the applicable percentage of the Policy Account
Value on the date of death. In either case, the applicable percentage is
established based on the Attained Age at the death of the Insured.
Are there any risks involved in owning an Allocator 2000 Policy?
Yes. Over the life of your Allocator 2000 Policy, the Sub-accounts to which you
allocate your premiums will fluctuate with changes in the stock market and
overall economic factors. These fluctuations will be reflected in the Policy
Account Value of your Allocator 2000 Policy and may result in loss of principal.
For this reason, the purchase of an Allocator 2000 Policy may not be suitable
for all individuals. It may not be advantageous to purchase an Allocator 2000
Policy to replace or augment your existing insurance arrangements. Appendix A
includes tables illustrating the impact that hypothetical market returns would
have on Policy Account Values under an Allocator 2000 Policy.
What is the premium that must be paid to keep an Allocator 2000 Policy in force?
Like a traditional life insurance policy, an Allocator 2000 Policy requires the
payment of premiums in order to keep the Policy in force. You will be asked to
establish a payment schedule before your Allocator 2000 Policy becomes
effective.
The distinction between a traditional life policy and an Allocator 2000 Policy
is an Allocator 2000 Policy will not lapse simply because premium payments are
not made according to that payment schedule. However, an Allocator 2000 Policy
will lapse, even if scheduled premium payments are made, if the Cash Surrender
Value of your Allocator 2000 Policy falls below zero or premiums paid do not, in
the aggregate, equal the premium necessary to satisfy the Benchmark Premium
(page 25) or the Guaranteed Death Benefit requirements (page 25).
How are premiums paid, processed and credited to me?
Your Allocator 2000 Policy will be issued after a completed application is
accepted, and the initial premium payment is received, by ANLIC at its
Administrative Office. 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.
On the Policy Date or when the initial premium is received whichever is later,
your initial Net Premium will be allocated to the Money Market Sub-account.
After a fifteen day period, the Policy Account Value of the Policy will be
allocated among the Investment Options according to the instructions in your
application. You have the right to examine your Allocator 2000 Policy and return
it for a refund for a limited time, even after the Policy Date. (See, Free Look
Period, page 35).
ANLIC will send premium payment notices to you according to any schedule you
select. You may make subsequent premium payments according to the Premium
schedule you select, although you are not required to do so. When ANLIC receives
your Premium Payment at its Service Office, the Net Premium will be allocated to
the Investment Options according to your selections (page 26).
As already noted, Allocator 2000 provides you considerable flexibility in
determining the frequency and amount of premium payments. This flexibility is
not, however, unlimited. You should keep certain factors in mind in determining
the payment schedule that is best suited to your needs. These include the amount
of the Benchmark Premium and/or Guaranteed Death Benefit Premium requirement
needed to keep your Allocator 2000 Policy in force (page 25 ); maximum premium
limitations established under the Federal tax laws (page 40); and the impact
that reduced Premium Payments may have on the Cash Surrender Value of your
Allocator 2000 Policy (page 34).
Is the Policy Account Value of my Allocator 2000 Policy available without
Surrender Charges? Yes, you may obtain a loan, secured by the Policy Account
Value of your Allocator 2000 Policy equal to 90% of the Cash Surrender Value.
The Owner may obtain Policy loans at any time the Policy has Loan Value. The
minimum loan request ANLIC allows is $1,000. 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 (page 33).
What are the charges associated with ownership of an Allocator 2000 Policy?
6
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Surrender Charge - Because ANLIC incurs expenses immediately upon the issuance
of an Allocator 2000 Policy that are recovered over a period of years, an
Allocator 2000 Policy that is Surrendered or lapses on or before its 9th Policy
Anniversary is subject to a Surrender Charge. Additional Surrender Charges may
apply if you increase the Face Amount of your Allocator 2000 Policy. Because the
Surrender Charge may be significant upon early surrender, you should purchase an
Allocator 2000 Policy only if you intend to maintain your Allocator 2000 Policy
for a substantial period. (See, Surrender Charge, page 29). Partial Surrender
Charge - During the Surrender Charge period for the Policy and any increase in
Face Amount, there will be a charge for a partial surrender equal to 8% of the
amount withdrawn or $25, whichever is greater.
Premium Expense Charge - Certain states impose premium and other taxes in
connection with insurance policies such as Allocator 2000. ANLIC deducts 2.25%
of each premium to cover these charges.
Cost of Insurance - Charges will be deducted monthly against the Policy Account
Value to cover the Cost of Insurance under the Policy. Cost of insurance rates
are based on the Insured's sex, Issue Age, policy duration, Face Amount, and
rate class. (See, Policy Account Value Charges, page 29).
Administrative Expense Charge - Charges are deducted to compensate ANLIC for
administering each individual Allocator 2000 Policy. These charges equal $27 per
month for the first Policy year and $8 each month thereafter.
Mortality and Expense Risk Charge - As compensation for mortality and expense
risks assumed in connection with the Policy, ANLIC will deduct a daily Mortality
and Expense Risk Charge from the value of the net assets of the Variable
Account. For the first 15 years of your Policy, this charge is at the rate of
0.90% annually. Beginning in the 16th Policy year, this charge is reduced by
0.05% annually until it reaches 0.45% annually in Policy year 24; the rate
remains level thereafter. No mortality and expense risk charges will be deducted
from the amounts in the Fixed Account. (See, Daily Charges Against the Variable
Account, page 30).
Investment Advisory Fee - Policyowners who choose to allocate Net Premiums to
one or more of the Sub-accounts will also bear a pro rata share of the
investment advisory fee paid by each of the investment portfolios in which the
various Sub-accounts invest. No such fees are assessed against Net
Premiums allocated to the Fixed Account (page 30).
When does my Allocator 2000 Policy terminate?
You may terminate your Allocator 2000 Policy by surrendering the Policy while
the Insured is alive for its Cash Surrender Value (page 34). As noted above,
your Allocator 2000 Policy will terminate if you fail to pay required premiums
or maintain sufficient Policy Account Value to cover Policy Lapse charges (page
28).
Who can I contact for more information concerning the Allocator 2000 Policy?
You can contact your Registered Representative or you can write to us at our
Service Office, Acacia National Life Insurance Company, P.O. Box 79574,
Baltimore, MD 21279-0574 or telephone 1-800-369-9407.
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ACACIA NATIONAL LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT
ACACIA NATIONAL LIFE INSURANCE COMPANY
ANLIC is a stock life insurance company incorporated in the Commonwealth of
Virginia on December 9, 1974. ANLIC is principally engaged in offering life
insurance policies and annuity contracts. ANLIC is admitted to do business in 46
states and the District of Columbia. ANLIC is a wholly owned subsidiary of
Acacia Life Insurance Company ("Acacia Life"), a District of Columbia stock
company. The principal offices of both ANLIC and Acacia Life are at 7315
Wisconsin Avenue, Bethesda, Maryland 20814. While ANLIC is a wholly-owned
subsidiary of Acacia Life, the assets of Acacia Life do not support the
obligations of ANLIC under the Policy. A number of the directors and officers of
ANLIC are also either directors or officers or both of Acacia Life. Acacia
Life's employees perform certain administrative functions for ANLIC for which
Acacia Life is reimbursed. Acacia Life is in turn a second tier subsidiary of
Ameritas Acacia Mutual Holding Corporation ("Ameritas/Acacia"), a Nebraska
mutual holding corporation.
On January 1, 1999, Ameritas Mutual Holding Corporation ("Ameritas Mutual"), a
Nebraska mutual holding corporation and Acacia Mutual Holding Corporation
("Acacia Mutual"), a District of Columbia mutual holding corporation merged and
became Ameritas Acacia Mutual Holding Company ("Ameritas Acacia") a Nebraska
mutual holding corporation. Both Ameritas Acacia and Ameritas Holding Company,
an intermediate holding company are organized under the Nebraska Mutual
Insurance Holding Company Act. Acacia Life Insurance Company, a subsidiary of
Ameritas Holding Company, is regulated by the District of Columbia Insurance
Department. Ameritas Mutual and its subsidiaries had total assets at December
31, 1998 of over $4.1 billion and Acacia Life and its subsidiaries had total
assets as of December 31, 1998 of over $2.4 billion. The combined group has
total assets of over $6.5 billion.
Acacia Life also owns all of the outstanding stock of the Acacia Financial
Corporation, a holding company, which owns all of the stock of the Calvert
Group, Ltd. ("Calvert"), which in turn owns The Advisors Group, Inc. and Calvert
Asset Management Company, Inc., the investment adviser of Calvert Variable
Series, Inc., a series of Funds available under the Policies. The Advisors
Group, Inc. is the principal underwriter for the Policies described in this
Prospectus. The Advisors Group, Inc. sells shares of other mutual funds and
other securities, and may also sell variable annuity or variable life policies
of other issuers.
The Variable Account
Acacia National Variable 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
creditors, Owners have preferential rights to the ANLIC Variable Account assets.
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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.
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.
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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.
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.
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These Portfolios seek to achieve competitive returns while encouraging
responsible corporate conduct. The Portfolios look for enterprises that make a
significant contribution to society through their products and the way they do
business. Each proposed portfolio investment that is deemed financially viable
is then screened according to the stated social criteria of the particular
Portfolio. Investments must, in the judgment of the investment adviser, be
consistent with these criteria. It should be noted that the Portfolios' social
criteria tend to limit the availability of investment opportunities more than is
customary with other investment portfolios. (See the individual Portfolio
Prospectuses for a complete description of each social screen).
The Calvert 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 Glasgow,
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.
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The investment manager of Dreyfus Stock Index Fund is Dreyfus Corporation
("Dreyfus"), a wholly-owned subsidiary of Mellon Bank, N.A., which is a
wholly-owned subsidiary of Mellon Bank Corporation, a publicly owned multibank
holding company.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has two Sub-Accounts that invest exclusively in shares of
Portfolios of the Neuberger Berman Advisers Management Trust ("AMT").
The Income and Growth Sub-accounts of the Variable Account invest in shares of
the Limited Maturity Bond Portfolio and Growth Portfolio, respectively, of AMT.
The Neuberger Berman Limited Maturity Bond Portfolio. The investment objective
of the Limited Maturity Bond Portfolio is to provide the highest current income
consistent with low risk to principal and liquidity; and secondarily, total
return. Neuberger Berman Limited Maturity Bond invests in a diversified
portfolio of fixed and variable rate debt securities and seeks to increase
income and preserve or enhance total return by actively managing average
portfolio maturity in light of market conditions and trends.
The Neuberger Berman Limited Maturity Bond Portfolio invests in a diversified
portfolio of short-to-intermediate-term U.S. Government and Agency securities
and debt securities issued by financial institutions, corporations, and others,
of at least investment grade. These securities include mortgage-backed and
asset-backed securities, repurchase agreements with respect to U.S. Government
and Agency securities, and foreign investments. 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.
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The investment adviser for the Limited Maturity Bond and Growth Portfolios of
AMT is Neuberger Berman Management Incorporated ("NB Management"). NB Management
retains Neuberger Berman, L.P., without cost to AMT, as subadviser to furnish it
with investment recommendations and research information. NB Management provides
investment management services to each Portfolio that include, among other
things, making and implementing investment decisions and providing facilities
and personnel necessary to operate the Portfolio. NB Management provides
administrative services to each Portfolio that include furnishing similar
facilities and personnel for the Portfolio. With the Portfolio's consent, NB
Management is authorized to subcontract some of its responsibilities under its
administration agreement with the Portfolio to third parties.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Variable Account has five Sub-accounts that invest exclusively in shares of
Portfolios of the Oppenheimer Variable Account Funds ( the "Oppenheimer Funds").
The Aggressive Growth, Large Cap Growth, Balanced, High Income, and Strategic
Bond Sub-accounts of the Variable Account invest in shares of the Aggressive
Growth Fund/VA, Capital Appreciation Fund/VA, Main Street Growth & Income
Fund/VA, High Income Fund/VA and Managed Income Fund/VA respectively, of the
Oppenheimer Funds. The Oppenheimer Funds are managed by Oppenheimer Funds, Inc.
("the Manager"), which is responsible for selecting the Oppenheimer Funds'
investments and handles its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees, under
investment advisory agreements for each Oppenheimer Fund which state the
Manager's responsibilities.
Oppenheimer Aggressive Growth Fund/VA ("Aggressive Growth Fund") seeks to
achieve capital appreciation by investing in "growth-type companies. Such
companies are believed to have relatively favorable long-term prospects for
increasing demand for their goods or services, or to be developing new products,
services or markets, and normally retain a relatively larger portion of their
earnings for research, development and investment in capital assets.
Oppenheimer Capital Appreciation Fund/VA ("Capital Appreciation Fund") seeks to
achieve capital appreciation by investing in securities of well-known
established companies. Such securities generally have a history of earnings and
dividends and are issued by seasoned companies.
Oppenheimer Main Street Growth & Income Fund/VA ("Growth & Income Fund") seeks a
high total return (which includes growth in the value of its shares as well as
current income) from equity and debt securities. Its equity investments will
include common stocks, preferred stocks, convertible securities and warrants.
Its debt securities will include bonds, participation interests, asset-backed
securities, private-label mortgage-backed securities and collateralized mortgage
obligations, zero coupon securities and U.S. obligations. From time to time 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.
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Oppenheimer High Income Fund/VA ("High Income Fund") seeks a high level of
current income from investment in high yield fixed-income securities (including
long-term debt and preferred stock issues, including convertible securities).
High Income Fund's investment policy is to assume certain risks in seeking high
yield including securities in the lower rating categories, commonly known as
"junk bonds", which are subject to a greater risk of loss of principal and
nonpayment of interest than higher rated securities. These securities may be
considered to be speculative. 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/VA ("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.
The Variable Account has two Sub-account that invests exclusively in shares of
Portfolios of the Strong Variable Insurance Funds, Inc. The International Growth
Sub-account of the Variable Account invests in shares of the Strong
International Stock Fund II, and the Aggressive Growth Sub-account of the
Variable Account invests exclusively in shares of the Strong Discovery Fund II
of Strong Variable Insurance Funds, Inc. ("Strong Funds").
Strong International Stock Fund II seeks capital growth. The Portfolio invests
primarily in the equity securities of issuers located outside the United States.
The Portfolio will invest at least 65% of its total assets in foreign equity
securities, including common stocks, preferred stocks, and securities that are
convertible into common or preferred stocks, such as warrants and convertible
bonds, that are issued by companies whose principal headquarters are located
outside the United States.
Under normal conditions, the Portfolio expects to invest at least 90% of its
total assets in foreign equity securities. The Portfolio may, however, invest up
to 35% of its total assets in equity securities of U.S. issuers or debt
obligations, including intermediate to long-term debt obligations of U.S.
issuers or foreign-government entities. When the investment advisor determines
that market conditions warrant a temporary defensive position, the Portfolio may
invest without limitation in cash (U.S. dollars, foreign currencies, or multi
currency units) and short-term fixed income securities. Although the debt
obligations in which it invests will be primarily investment-grade, the
Portfolio may invest up to 5% of its total assets in non-investment-grade debt
obligations. Investments in such securities involve special risks and Policy
Owners should consider the risks associated with foreign securities and junk
bonds before investing in the Sub-account. These risks are described in the
Prospectus of the Portfolio.
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The Portfolio will normally invest in securities of issuers located in at least
three different countries. The investment advisor expects that the majority of
the Portfolio's investments will be in issuers in the following markets:
Argentina, Australia, Brazil, Chile, Cambodia, the Czech Republic, France,
Germany, Hong Kong, Hungary, India, Indonesia, Italy, Japan, Malaysia, Mexico,
the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Russia,
Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, the
United Kingdom, and Vietnam. The Portfolio will also invest in other European,
Pacific Rim, and Latin American markets.
Strong Discovery Fund II seeks capital growth. The Portfolio invests in
securities that the investment advisor believes represent growth opportunities.
The Portfolio normally emphasizes equity securities, although it has the
flexibility to invest in any type of security that the Advisor believes has the
potential for capital appreciation. The Portfolio may invest up to 100% of its
total assets in equity securities, including common stocks, preferred stocks,
and securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds. The Portfolio may also invest up to 100% of its
total assets in debt obligations, including intermediate to long-term corporate
or U.S. government debt securities. When the Advisor determines that market
conditions warrant a temporary defensive position, the Portfolio may invest,
without limitation, in cash and short-term fixed income securities. Although the
debt obligations in which it invests will be primarily investment-grade, the
Portfolio may invest up to 5% of its total assets in non-investment-grade debt
obligations. Investments in which securities involve special risks in addition
to the risks associated with investments in higher rated debt securities and
Owners should consider the risks associated with junk bonds before investing in
the Sub-account. These risks are described in the Prospectus of the Portfolio.
The Portfolio may invest up to 15% of its total assets directly in the
securities of foreign issuers. It may also invest without limitation in foreign
securities in domestic markets through depositary receipts. However, as a matter
of policy, the Advisor intends to limit total foreign exposure, including both
direct investments and depositary receipts, to no more than 25% of the Fund's
total assets. Owners should consider the risks associated with foreign
securities before investing in the Sub-account. These risks are described in the
Prospectus of the Portfolio.
The investment advisor seeks to uncover emerging investment trends and
attractive growth opportunities. In its search for potential investments, the
investment advisor attempts to identify companies that are poised for
accelerated earnings growth due to innovative products or services, new
management, or favorable economic or market cycles. These companies may be
small, unseasoned firms in the early stages of development, or they may be
mature organizations. Whatever their size, history, or industry, the Advisor
believes their potential earnings growth is not yet reflected in their market
value and that, over time, the market prices of these securities will move
higher.
Strong Capital Management, Inc. is the investment advisor for the Strong
Variable Insurance Funds, Inc. and, pursuant to its investment advisory
agreements, manages the investment and reinvestment of the assets of both
Portfolios, and is responsible for their overall business affairs.
VAN ECK WORLDWIDE HARD ASSETS FUND
The Hard Assets/Metals Sub-account of the Variable Account invests exclusively
in shares of the Van Eck Worldwide Hard Assets Fund.
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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 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 .30% of net assets from CS Money
Market Portfolio, .65% of net assets CS Mid Cap, .75% of net assets the CS
International .43% of net assets of CS Balanced and .75% 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 .25 of
1.00% of the value of the Portfolio's average daily net assets.
Neuberger Berman. For combined administrative and investment management
services, N B Management is paid fees as a percentage of the average daily net
assets based upon the following schedules:
Limited Maturity Bond Portfolio: Growth Portfolio:
Average Daily Net Assets Fee Average Daily Net Assets Fee
----------------------- ---- -------------------------- ----
First $500 million .65% First $250 million .85%
Next $500 million .615% Next $250 million .825%
Next $500 million .60% Next $500 million .75%
Next $500 million .575% Thereafter .725%
Thereafter .55%
OPPENHEIMER. Oppenheimer Funds, Inc. serves as manager to the Oppenheimer
Funds. The management fees computed on an annualized basis as a percentage of
net assets as of the close of business each day are as follows:
(i) For Aggressive Growth Fund/VA, Capital Appreciation Fund/VA, Main
StreetGrowth & Income Fund/VA: 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/VA and Strategic Bond Fund/VA: 0.75% of the first $200 million of
net assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, 0.60% of the next $200 million and 0.50% of net
assets over $1 billion.
STRONG. For its services, Strong Capital Management, Inc. is entitled to
receive a fee based on a percentage of the average daily net assets of each of
the Portfolios that it manages. For its services to Strong International Stock
Fund II, it is entitled to receive an annual fee of 1.00% of the average daily
net asset value of the Portfolio. For its services to Strong Discovery Fund II,
it is entitled to receive an annual fee of 1.00% of the average daily net asset
value of the Portfolio.
VAN ECK. The investment adviser for Van Eck Worldwide Hard Assets Fund
is Van Eck Associates Corporation ("Van Eck Associates"). As compensation for
its services, Van Eck Associates receives a monthly fee at an annual rate of
1.00% of the first $500 million of the average daily net assets of the
Portfolio, .90% of the next $250 million of the daily net assets of the
Portfolio, and .70% of the average daily net assets of the Portfolio in excess
of $750 million.
Resolving Material Conflicts
The Funds are used as the investment vehicle for variable life insurance
policies issued by ANLIC. In addition, the Funds are also available to
registered separate accounts of insurance companies other than ANLIC. As a
result, there is a possibility that a material conflict may arise between the
interest of Owners whose policies are allocated to the Variable Account and the
Owners of life insurance policies and variable annuities issued by such other
companies whose values are allocated to one or more other separate accounts
investing in any one of the Funds. In addition, one or more of the Funds may
sell shares to certain retirement plans qualifying under Section 401 of the Code
(including cash or deferred arrangements under Section 401(k) of the Code). As a
result, there is a possibility that a 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.
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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.
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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 Death Benefit payable will be
determined as of the end of the Valuation Period on the date of death, and will
not reflect subsequent Variable Account investment performance. The proceeds may
be paid in a lump sum or under one or more of the settlement options set forth
in the Policy. The death benefit proceeds will be reduced by any outstanding
indebtedness and any due and unpaid charges. These proceeds will be increased by
any additional insurance provided by rider and by the monthly deduction for the
month in which death occurred.
The Policy provides two death benefit options: Death Benefit Option A
("Option A") and Death Benefit Option B ("Option B"). The Owner designates the
death benefit option in the application. ANLIC guarantees that as long as the
Policy remains in force (See, Policy Lapse and Reinstatement -- Lapse), under
either option the death benefit will never be less than the current face amount
of the Policy. These proceeds will be reduced by any outstanding indebtedness
and any due and unpaid charges.
Option A. The death benefit is the greater of the current face amount of
the Policy or the applicable percentage of Policy Account Value on the date of
death. The applicable percentage is 250% for an Insured age 40 or below on the
Policy 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 Benefit Proceeds. 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
Attained Age Applicable Percentage Attained Age Applicable Percentage
- -------------- -------------------- ------------ ---------------------
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
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.
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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.
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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.
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(See, Charges and Deductions--Cost of Insurance)
Increases. Increases in the Face Amount will be allowed after the first
Policy year. For an increase in the Face Amount, you must submit a written
supplemental application. ANLIC may also require additional evidence of
insurability. Although an increase need not necessarily be accompanied by an
additional premium, in certain cases an additional premium will be required to
put the requested increase in effect. The minimum amount of any increase is
$25,000. An increase in the Face Amount will also increase Surrender Charges. An
increase in the Face Amount during the time either the Benchmark Premium or the
Guaranteed Death Benefit Premiums in effect will increase the respective premium
requirements. (See, Charges and Deductions).
Change in Death Benefit Option. Generally, the death benefit option in
effect may be changed at any time by sending ANLIC a written request for change.
If the death benefit option is changed from Option B to Option A, the face
amount will be increased by an amount equal to the Policy Account Value on the
effective date of change. Changing from Option B to Option A does not require
evidence of insurability. The effective date of such a change will be the
monthly anniversary on or following receipt of the request. A change in the
death benefit option may affect whether the Policy will be treated as a
"modified endowment contract" for federal tax purposes (See, Federal Tax
Considerations).
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<PAGE>
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 Benefit Proceeds 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 Benefit
Proceeds 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 Benefit Proceeds are payable in a lump sum, the beneficiary
may select one or more of the settlement options. If Death Benefit Proceeds
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.
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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.
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 Premium 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 to issue a Policy is $100,000, 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).
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<PAGE>
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. You must pay the first Planned Periodic
Premium for coverage to take effect. 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.
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 may 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 Face Amount and 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.
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<PAGE>
For all Policies sold in the State of Maryland, all references to the
phrases "the Guaranteed 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 may
allocate net premiums or portions thereof to the Investment Options. The portion
of the net premium allocated to Sub-accounts will be allocated initially to the
Money Market Portfolio on the Policy Date or the date the first premium is
received by ANLIC, whichever is later. After 15 days, the Policy Account Value
will be allocated among the Investment Options according to the instructions in
your 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 Fixed Account or any
Sub-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 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
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<PAGE>
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.
Transfers from Sub-accounts
The Owner may ask ANLIC to transfer all or part of the amount in one of
the Sub-accounts to another Sub-account or to the General Account. The minimum
amount for such transfer is $50. The transfer will be made as of the date ANLIC
receives the written request.
Automatic Rebalancing and Dollar Cost Averaging Programs
The Owner may also elect from either the Automatic Rebalancing Program
or the Dollar Cost Averaging Program by filing a written authorization with
ANLIC. ANLIC reserves the right to alter, including the right to assess a
charge, or terminate these administrative programs upon 30 days advance written
notice.
Under the Automatic Rebalancing Program, the Owner may have automatic
transfers on either a monthly, quarterly, semi-annual or annual basis, to adjust
the values among the Sub-accounts and the General Account to meet the Owner's
designated percentage account value proportions the Owner has on file with
ANLIC. The allocations are subject to a minimum 5% designated percentage
proportion per account.
Under the Dollar Cost Averaging Program, the Owner may elect to have a
specific dollar amount automatically transferred from the Money Market
Sub-account to designated Sub-accounts on either a monthly, quarterly,
semi-annual, 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 Money Market Sub-account below the specific dollar
amount, ANLIC reserves the right to include the entire remaining value to meet
the transfer election. ANLIC also reserves the right to establish a minimum
Money Market Sub-account balance before we allow you to elect the program.
Transfers and adjustments pursuant to these Programs will occur on the
Policy's Monthly Anniversary date in the month in which the transaction is to
take place or the next succeeding business day if the Monthly Anniversary date
falls on a day other than a Valuation Date.
Telephone Requests
At the time an application for a Policy is completed, or at any
subsequent time, an Owner may request a telephone transfer authorization form.
If the form is properly completed and on file with ANLIC, transfers may be made
pursuant to 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.
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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 occur when the Cash Surrender Value is insufficient to cover the
monthly deduction and a Grace Period expires without a sufficient payment,
unless the Benchmark Premium or Guaranteed Death Benefit provision is in effect.
The Grace Period is 62 days from the date ANLIC mails you a notice that the
Grace Period has begun. ANLIC will notify you at the beginning of the Grace
Period by mail addressed to your last known address on file with ANLIC. The
notice will specify the premium required to keep the Policy in force. The
required premium will equal the lesser of 1) monthly deductions plus Premium
Expense Charges for the three Policy Months after commencement of the Grace
Period, plus projected loan interest that would accrue over that period, or 2)
the premium required under the Benchmark Premium or Guaranteed Death Benefit
provisions, if applicable, to keep the Policy in effect for three months from
the commencement of the Grace Period. Failure to pay the required premium within
the Grace Period will result in lapse of the Policy. If the Insured dies during
the Grace Period, any indebtedness and past due charges will be deducted from
the Death Benefit Proceeds.
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 and any optional
insurance benefits added by rider to compensate ANLIC for: (1) providing the
insurance benefits set forth in the Policy and any riders; (2) administering the
Policy; (3) assuming certain risks in connection with the Policy; and (4)
incurring expenses in distributing the Policy and any riders. The nature and
amount of these charges are described more fully below.
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Surrender 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. The Surrender Charge factor depends on the number of years the
Policy has been in force, as follows:
Policy Year Surrender Charge Factor
1-7 30%
8 20%
9 10%
10 + 0%
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 any 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 following the
increase. Surrender Charges are computed separately for the original face amount
and each increase in face amount, and then combined.
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 remaining
Surrender Charge.
Premium Expense Charge
ANLIC will deduct 2.25% from each premium before allocation to the
Investment Options. 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 equal the premium taxes paid by ANLIC for a particular
Policy.
Policy Account Value Charges
Monthly Deduction. On each Monthly Anniversary, a charge will be
deducted from the Policy Account Value to compensate ANLIC for administrative
expenses and insurance provided. The monthly deduction consists of the cost of
insurance, the administrative expense charge, and charges for any optional
insurance benefits added by riders. The monthly deduction will be allocated
pro-rata among the Investment Options.
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<PAGE>
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 based on the
difference between the Death Benefit and the Policy Account Value on the Monthly
Anniversary.
Cost of Insurance Rate. Cost of insurance rates will be based on the
Face Amount and the Insured's sex, Issue Age, Policy duration, and rate class.
The rates reflect ANLIC's expectations of future experience with regard to
mortality, interest, persistency, and expenses, but will not exceed the Schedule
of Guaranteed Annual Cost of Insurance Rates shown 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). Any change in the cost
of insurance rates will apply to all Insureds of the same Issue Age, sex, rate
class, and whose Policies have been in force for the same length of time.
The cost of insurance rate will also depend on the face amount of the
Policy. At ANLIC's discretion, a Policy with a face amount in excess of $500,000
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. 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.
Rate Class. The rate class of an Insured will affect the cost of
insurance rate. ANLIC currently places Insureds into standard rate classes or
substandard rate classes involving higher mortality risk. In an otherwise
identical Policy, an Insured in the standard rate class will have a lower cost
of insurance rate than an Insured in a substandard rate class.
Administrative Expense Charge. As reimbursement for administrative
expenses related to the maintenance of each Policy and the Variable Account,
ANLIC assesses a charge of $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.
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).
Daily Charges Against The Variable Account
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Mortality and Expense Risk Charge. ANLIC has developed a new method of
calculating mortality and expense charges which it believes is more favorable to
Policy Owners. As compensation for mortality and expense risks assumed in
connection with the Policy, ANLIC will deduct a daily mortality and expense risk
charge from the value of the net assets of the Variable Account. For the first
15 years of your Policy, this charge is at the rate of 0.90% annually
(0.0024590% daily). Beginning in the 16th Policy year, this charge is reduced by
0.05% annually until it reaches 0.45% annually (0.0012295% daily) in Policy year
24; the rate remains level thereafter. The daily charge will be deducted from
the net asset value of the Variable Account, and therefore the Sub-accounts, on
each Valuation Date. Where the previous day or days was not a Valuation Date,
the deduction on the Valuation Date will be the applicable daily rate multiplied
by the number of days since the last Valuation Date. No mortality and expense
risk charges will be deducted from the amounts in the Fixed Account.
The mortality risk assumed by ANLIC is that Insureds may live for a
shorter time than projected, and that an aggregate amount of Death Benefit
Proceeds greater than that projected 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.
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.
These charges are set by the fund managers and are subject to change.
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<TABLE>
<CAPTION>
Portfolio Annual Expenses
(Expressed as a Percentage of Net Assets of each Portfolio)
TOTAL PORTFOLIO
PORTFOLIO MANAGEMENT FEES OTHER EXPENSES ANNUAL EXPENSES
- ------------------------------------------------------ ----------------- ---------------- -----------------
<S> <C> <C> <C>
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.04% 0.89%
Calvert Social Money Market Portfolio 0.50% 0.16% 0.66%/1
Calvert Social Small Cap Growth Portfolio 0.90% 0.33% 1.33%/1
Calvert Social Mid Cap Growth Portfolio 0.80% 0.16% 1.06%/1
Calvert Social International Equity Portfolio 1.10% 0.70% 1.80%/1
Calvert Social Balanced Portfolio 0.70% 0.18% 0.88%/1
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
Neuberger & Berman Advisers Management Trust Limited
Maturity Bond Portfolio 0.65% 0.11% 0.76%
Neuberger & Berman Advisers Management Trust Growth 0.83% 0.09% 0.92%
Portfolio
Oppenheimer Aggressive Growth Fund/VA 0.69% 0.02% 0.71%/2
Oppenheimer Capital Appreciation Fund/VA 0.72% 0.03% 0.75%
Oppenheimer Main Street Growth & Income Fund/VA 0.74% 0.05% 0.79%
Oppenheimer High Income Fund/VA 0.74% 0.04% 0.78%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.06% 0.80%
Strong International Stock Fund II 1.00% 0.20% 1.20%
Strong Discovery Fund II 1.00% 0.23% 1.23%
Van Eck Worldwide Hard Assets Fund 1.00% 0.20% 1.20%/3
</TABLE>
1/The figures are based on expenses for fiscal year 1998, and have been
restated to reflect the elimination of the performance adjustment in CVS
Balanced and Mid Cap Portfolios. The restatement includes the addition of 0.01%
to both portfolios.
2/Total expenses are presented net of expenses waivers and reimbursements.
For the CVS International Equity Portfolio, total expenses are 1.65% and
expenses reimbursed 0.15%, therefore gross expenses are 1.80%. There were no
expenses waivers or reimbursements in any other CVS Portfolios.
"Other Expenses" reflect an indirect fee. Net fund operating expenses after
reductions for fees paid indirectly (again restated for CVS Balanced and Mid
Cap) would be 0.86% for CVS Balanced, 1.01% for CVS Mid Cap, ).63% for CVS Money
Market, 1.53% for CVS International Equity and 1.12% for CVS Small Cap.
3/Expense is reduced to 1.16% by the directed brokerage and custodian fee
arrangement.
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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 Policyowners
of ANLIC or its affiliates, or sales to employees or clients of subsidiaries and
affiliates of Ameritas Acacia Mutual Holding Corporation. 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 Cash Surrender Value.
Loans usually are paid within seven days after ANLIC receives a written request.
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).
Interest. ANLIC charges interest on Policy loans at regular and reduced
rates. Regular loans will accrue interest at the daily equivalent of 6.45% per
year. After the fifth Policy year, you may borrow a limited amount of the Cash
Surrender Value at a reduced rate. Reduced rate loans will accrue interest at
the daily equivalent of 4.50% per year. The amount available at the reduced loan
rate is (1) the Policy Account Value, minus (2) total premiums paid minus any
partial surrenders previously taken, and minus (3) any indebtedness held at a
reduced rate. However, this amount may not exceed the maximum loan amount
described above. If unpaid when due, interest will be added to the amount of the
loan and bear interest at the same rate.
Effect of Policy Loans. When a loan is made, Policy Account Value equal
to the amount of the loan will be transferred from the Investment Options to the
General Account as security for the loan. The Policy Account Value transferred
will be allocated from the Investment Options according to the instructions you
give when you request the loan. If no instructions are given, the amounts will
be transferred first from the Fixed Account. Any excess amount will be
transferred from the sub-accounts in the same proportion that the Policy Account
Value in each Sub-account bears to the Variable Account Value.
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<PAGE>
Value in the General Account held as security for the loan 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 once each Policy Month. Upon
partial repayment of indebtedness, value in the General Account equal to the
amount of repayment will be released as security for the loan, and may be
reallocated by the owner among the Investment Options. Upon full repayment of
indebtedness, all collateral in the General Account may be reallocated by the
Owner to the Investment Options.
Interest earned on amounts held in the General Account will be allocated
to the Investment Options on each Policy anniversary in the same proportion that
Net Premiums are being allocated to the Investment Options at the time.
Indebtedness. Indebtedness equals the total of all Policy Loans and
accrued interest on Policy loans. 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 (See, Payment of Policy Benefits). ANLIC will deduct
indebtedness from any amount payable under the Policy. Payments made by the
Owner will be treated first as payment of premium and not as repayment of any
outstanding Policy debt unless the Owner indicates that the payment should be
treated otherwise. Loan repayments are not subject to the Premium Expense
Charge.
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
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<PAGE>
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 Investment Options in the same proportion that the Policy's value in
each Investment Option bears to the total Policy Account Value in the Investment
Options on the Valuation Date we receive the request.
Any partial surrender will reduce the Policy Account Value by the amount
of the partial surrender. The amount of reduction in the face amount will be:
1. For Death Benefit Option A, 100% of the amount of the partial
surrender.
2. For Death Benefit Option B, no reduction.
The face amount remaining in force after a partial surrender may not be
less than the minimum face amount ANLIC allows.
Each partial surrender will reduce the face amount in the following
order:
1. Each increase in order, starting with the last increase; and
2. The face amount when the Policy was issued.
For a partial surrender, the amount paid will be deducted from the
Policy Account Value at the end of the Valuation Period during which the request
is received.
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 you so elect, on the Maturity Date the Variable Account Value 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")
You may cancel the Policy within 20 days after you receive it or within
45 days of completing Part I of the application, whichever is later. You 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).
35
<PAGE>
GENERAL ACCOUNT
You may allocate net premiums and transfer value to the General Account
of ANLIC via an allocation to the Fixed Account. 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.
You may elect to allocate net premiums to the Fixed Account, the
Variable Account, or both. You may also transfer value from the Sub-accounts to
the Fixed Account, or from the Fixed Account to the Sub-accounts. The allocation
or transfer of funds to the Fixed Account does not entitle an Owner to share in
the investment experience of the General Account. Instead, ANLIC guarantees that
value in the Fixed Account will accrue interest at an effective annual rate of
at least 4.5%, independent of the actual investment experience of the General
Account. Any excess interest rate when declared will remain in effect at least
one year.
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 Value
Net premiums allocated to the General Account via the Fixed Account are
credited to the Policy. ANLIC bears the full investment risk for these amounts.
ANLIC guarantees that interest credited to the Fixed Account will not be less
than 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 TO THE FIXED 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 Fixed
Account will be calculated on each Monthly Anniversary.
36
<PAGE>
ANLIC guarantees that, at any time prior to the Maturity Date, the value
in the Fixed Account will not be less than the amount of the net premiums
allocated or value transferred to the Fixed Account, plus interest at the rate
of 4.5% per year, plus any excess interest which ANLIC credits and any amounts
transferred into the Fixed Account, less the sum of all charges allocable to the
Fixed Account and any amounts deducted from the Fixed 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) ANLIC 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.
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.
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<PAGE>
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.
38
<PAGE>
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
Benefit Proceeds paid under the Accelerated Death Benefit Rider to a terminally
or chronically ill insured individual as defined in the Code, may not be subject
to tax. A qualified tax advisor should be consulted before adding such a rider
to a Policy.
Other Insured Rider. Provides for level renewable term insurance on the
life of any family member. Under the terms of this rider, ANLIC will pay the
face amount of the rider to the Beneficiary upon receipt of proof of the other
Insured's death. Subject to certain restrictions, the face amount of the rider
may be increased or decreased. This rider may also be converted to a new Policy
on the family member within 31 days after the Insured's death. Generally, the
new Policy must meet the minimum face amount requirement, but ANLIC, in its sole
discretion, may waive this provision. Additional evidence of insurability will
not be required for conversion.
Children's Insurance Rider. Provides for level term insurance on the
Insured's children, as defined in the rider. Under the terms of the rider, the
death benefit will be payable to the named Beneficiary upon the death of any
Insured child. Upon receipt of proof of the Insured's death, the rider will
continue in force without additional monthly charges.
Guaranteed Insurability Rider. Provides that the Owner can purchase
additional insurance at certain future dates without evidence of insurability.
Under the terms of the rider the Owner may only increase the face amount of the
Policy on an option date. An option date falls on the Policy Anniversary
following certain birthdates and the Monthly Anniversary following the
occurrence of certain events such as marriage of the Insured. Each increase in
face amount will be subject to the maximum stated in the Policy. No evidence of
insurability is required for any increase made under this rider. Increases may
have tax consequences (See, Federal Tax Considerations).
Accidental Death Benefit Rider. Provides additional insurance if the
Insured's death results from accidental bodily injury, as defined in the rider.
Under the terms of the rider, the additional benefits provided in a Policy will
be paid upon receipt of proof by ANLIC that death resulted directly and
independently of all other causes from accidental bodily injury; occurred while
the rider was in force; and occurred on or after the rider anniversary following
the Insured's 5th birthday. The rider will terminate on the earliest of either
the date of lapse, the rider anniversary following the Insured's 70th birthday
or the Maturity Date of the Policy.
Level Renewable Term Rider. Provides for level renewable term insurance
coverage to increase the face amount of the Policy. The Owner may purchase
additional insurance on a renewable term basis without evidence of insurability
up to Insured's age 70. The rider will terminate on the earliest of either the
date lapse, the rider anniversary following the Insured's 70th birthday or the
Maturity Date of the Policy.
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<PAGE>
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.
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 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.
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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). ANLIC does not have control
over the Funds or their investments. However, ANLIC believes that the Funds will
be operated in compliance with the diversification requirements prescribed in
Treasury Regulation ss. 1.817-5, which affect how the Fund's assets are to be
invested. Thus, ANLIC believes that the Policy will be treated as a life
insurance contract for federal tax purposes.
In connection with the issuance of regulations relating to the
diversification requirements, the Treasury announced that such regulations do
not provide guidance concerning the extent to which Policyowners may direct
their investments to particular divisions of a separate account. Regulations in
this regard may be issued in the future. It is not clear what these regulations
will provide nor whether they will be prospective only. It is possible that when
regulations are issued, the Policy may need to be modified to comply with such
regulations. For these reasons, ANLIC reserves the right to modify the Policy as
necessary to prevent the Policyowner from being considered the owner of the
assets of the Separate Account or otherwise to qualify the Policy for favorable
tax treatment. 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."
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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.
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.
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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 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.
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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).
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The Service has interpreted the plan qualification provisions of the
Code to require that non-retirement benefits, including Death Benefit Proceeds,
payable under a qualified plan be "incidental to" retirement benefits provided
by the plan. These interpretations, which are primarily set forth in a series of
Revenue Rulings issued by the Service, should be considered in connection with
any purchase of life insurance policies to provide benefits under a qualified
plan.
Possible Charge for ANLIC's Taxes
At the present time, ANLIC makes no charge for any federal, state or
local taxes (other than the charge for state premium taxes) that the Company
incurs that may be attributable to the Sub-accounts or to the Policies. ANLIC,
however, reserves the right in the future to make additional charges for any
such tax or other economic burden resulting from the application of the tax laws
that it determines to be properly attributable to the Sub-accounts or to the
Policies. The imposition of such additional charges will be made in compliance
with applicable laws and SEC regulations. If any tax charges are made in the
future, they will be accumulated daily and transferred from the applicable
Sub-account to ANLIC's General Account. Any investment earnings on tax charges
accumulated in a Sub-account will be retained by ANLIC.
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans
("EBS Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code.
For EBS Policies, the maximum mortality rates used to determine the
monthly Cost of Insurance Charge are based on the Commissioner's 1980 Standard
Ordinary Mortality Tables. Under these Tables, mortality rates are the same for
male and female Insureds of a particular Attained Age and rate class (See, Cost
of Insurance).
Illustrations reflecting the premiums and charges for EBS Policies will
be provided upon request to purchasers of such Policies.
There is no provision for misstatement of sex in the EBS Policies. (See,
Misstatement of Age or Sex). Also, the rates used to determine the amount
payable under a particular Settlement Option will be the same for male and
female Insureds (See, Settlement Options).
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
(other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies (See, Policies Issued in Conjunction with Employee
Benefit Plans) are based upon actuarial tables which distinguish between men and
women and, thus, the Policy provides different benefits to men and women of the
same age. Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of these authorities on any
employment-related insurance or benefits program before purchasing the Policy
and in determining whether an EBS Policy is appropriate.
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VOTING RIGHTS
All of the assets held in the Sub-accounts of the Variable Account will
be invested in shares of corresponding Portfolios of the Funds. The Funds do not
hold routine annual shareholders' meetings. Shareholders' meetings will be
called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. ANLIC is the legal owner of Fund shares and as such has the right
to vote upon any matter that may be voted upon at a shareholders' meeting.
However, in accordance with its view of present applicable law, ANLIC will vote
the shares of the Funds at meetings of the shareholders of the appropriate Fund
or Owner in accordance with instructions received from Owners. Fund shares held
in each Sub-account for which no timely instructions from Owners are received
will be voted by ANLIC in the same proportion as those shares in that Subaccount
for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a
form for giving voting instructions. Owners may vote, by proxy or in person,
only as to the Portfolios that correspond to the Sub-accounts in which their
Policy values are allocated. The number of shares held in each Sub-account
attributable to a Policy for which the Owner may provide voting instructions
will be determined by dividing the Policy's value in that account by the net
asset value of one share of the corresponding Owner as of the record date for
the shareholder meeting. Fractional shares will be counted. For each share of an
Owner for which Owners have no interest, ANLIC will cast votes, for or against
any matter, in the same proportion as Owners vote.
If required by state insurance officials, ANLIC may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Owners, or to approve or disapprove an investment Policy or investment advice of
one or more of the Owners. In addition, ANLIC may disregard voting instructions
in favor of changes initiated by an Owner or a Fund's Board of Directors
provided that ANLIC's disapproval of the change is reasonable and is based on a
good faith determination that the change would be contrary to state law or
otherwise inappropriate, considering the Portfolio's objectives and purposes,
and the effect the change would have on ANLIC. If ANLIC does disregard voting
instructions, it will advise Owners of that action and its reasons for such
action in the next semi-annual report to Owners.
Shares of the Portfolios may be offered to variable life insurance and
variable annuity separate accounts of life insurance companies other than ANLIC
that are not affiliated with ANLIC. ANLIC understands that shares of these
Portfolios also will be voted by such other life insurance companies in
accordance with instructions from their Owners invested in such separate
accounts. This will dilute the effect of voting instructions of Owners of the
Policies.
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OFFICERS AND DIRECTORS OF ANLIC
Name and Position(s) Principal Occupation
With Acacia National Last Five Years
- --------------------- ----------------------
Charles T. Nason President and Chief Executive Officer since June
Chairman of the Board, 1988; Acacia Life Insurance Company
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 & Director
Robert W. Clyde President and Chief Operating Officer since
President & Chief November 1998; Executive Vice President, Marketing
Operating Officer and Sales from September 1994 until November 1998;
and Director Vice President, Retail Long-Term Care
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
Senior Vice President, since March 1989 and Chief Investment Officer since
Chief Financial Officer, April 1997; Acacia Life Insurance Company.
Chief 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
Janet L. Schmidt Senior Vice President
Senior Vice President Human Resources since 1994, Acacia
Human Resources Life Insurance Company
Brian J. Owens Vice President
Senior Vice President Acacia Financial Centers
Career Distribution since February 1994, Acacia Life
Insurance Company
R. Larry Mauzy Senior Vice President since 1998 and
Senior Vice President Chief Information Officer since 1997,
and Chief Information Acacia Life Insurance Company
Officer
(1) The principal business address of each person listed is Acacia National Life
Insurance Company, 7315 Wisconsin Avenue, Bethesda, Maryland 20814.
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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.
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PREPARATIONS FOR THE YEAR 2000
Like other insurance companies and their separate accounts, ANLIC and
the Separate Account could be adversely affected if the computer systems they
rely upon do not properly process date-related information and data involving
the years 2000 and after. This issue arose because both mainframe and PC-based
computer hardware and software have traditionally used two digits to identify
the year. For example, the year 1999 is input, stored and calculated as "99."
Similarly, the year 2000 would be input, stored and calculated as "00." If
computers assume this means 1900, it could cause errors in calculations,
comparisons, and other computing functions.
Like all insurance companies, ANLIC makes extensive use of dates and date
calculations. We began a corporate-wide Year 2000 (Y2K) project in mid-1997. Our
goal is to ensure that our computer systems continue to operate smoothly with no
service disruptions before, during or after the year 2000.
As of December 31, 1998, ANLIC continues to make progress on the plan to make
its computer applications and operating systems Y2K compliant. Continuous
testing and monitoring throughout 1999 will help ANLIC continue to meet our
contractual and service obligations to our customers. In addition to our
internal efforts, ANLIC is working closely with vendors and other business
partners to confirm that they too are addressing Y2K issues on a timely basis.
We except to be fully compliant by July 31, 1999; however, in the event we or
our service providers, vendors, financial institutions or others with which we
conduct business, fail to be Y2K - compliant, there would be a materially
adverse effect on us.
POLICY REPORTS
At least once each Policy year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the General Account Value, indebtedness, the value in each
Sub-account, premiums paid since the last report, charges deducted since the
last report, any partial surrenders since the last report, and the current Cash
Surrender Value. At the present time, ANLIC plans to send these Policy
Statements on a quarterly basis. In addition, a statement will be sent to the
Owner showing the status of the Policy following the transfer of amounts from
one Sub-account to another, the taking out of a loan, a repayment of a loan, a
partial surrender and the payment of any premiums (excluding those paid by bank
draft which has not cleared). An Owner may request that a similar report be
prepared at other times. ANLIC may charge a reasonable fee for such requested
reports and may limit the scope and frequency of such requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of the Funds as required by the 1940 Act.
STATE REGULATION
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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,
1998, 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, 1998
and 1997, as found in this prospectus have been included herein in reliance upon
the reports of PricewaterhouseCoopers LLP, 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
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.
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APPENDIX A - ILLUSTRATIONS
The following tables indicate how the account values and Death Benefit
Proceeds 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 Benefit Proceeds 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 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 Benefit
Proceeds 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 columns headed Guaranteed Charges 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% 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
columns headed Current Charges 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 Benefit
Proceeds 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 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
Benefit Proceeds 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>
<TABLE>
<CAPTION>
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
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> <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>
<TABLE>
<CAPTION>
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
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> <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>
<TABLE>
<CAPTION>
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
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> <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>
<TABLE>
<CAPTION>
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option B Face amount: $250,000
- ------------------------------------------------------------------------------------------
0.00 % Hypothetical Gross Annual Rate of Return
- ------------------------------------------------------------------------------------------
Current Charges Guaranteed Charges
- ------------------------------ ------------------------------------ ----------------------
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
- --------- -------- ----------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <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>
<TABLE>
<CAPTION>
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option B Face amount: $250,000
- ------------------------------------------------------------------------------------------
8.00 % Hypothetical Gross Annual Rate of Return
- ------------------------------------------------------------------------------------------
Current Charges Guaranteed Charges
- ------------------------------ ------------------------------------ ----------------------
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
- --------- -------- ----------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <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>
<TABLE>
<CAPTION>
ACACIA NATIONAL LIFE INSURANCE COMPANY
ALLOCATOR 2000 FLEXIBLE PREMIUM VARIABLE LIFE
Prepared for: John Doe ANNUAL Premium: $ 1,838
MALE Age 35 NON-SMOKER Riders: NONE Option B Face amount: $250,000
- ------------------------------------------------------------------------------------------
12.00 % Hypothetical Gross Annual Rate of Return
- ------------------------------------------------------------------------------------------
Current Charges Guaranteed Charges
- ------------------------------ ------------------------------------ ----------------------
End of Age Net Annual Account Surrender Death Surrender Death
Year Outlay Value Value Benefit Value Benefit
- --------- -------- ----------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <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>
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 Money Market Sub-account
to other Sub-accounts. Under the theory of dollar cost averaging, the Owner may
pursue a strategy of regular and systematic purchases to take advantage of
market value fluctuations. More Sub-account accumulation units will be purchased
when Sub-account unit values are low and fewer units will be purchased when unit
values are high. There is no guarantee that the Dollar Cost Averaging Program
will protect against market loss or improve performance of the Policy.
The Dollar Cost Averaging Program provides a valuable service to an
Owner who is able to sustain a long term transfer schedule and who seeks to
avoid the volatility often associated with equity investments.
<PAGE>
Audited Financial Statements
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
As of December 31, 1998 and the Years Ended
December 31, 1998 and 1997
Report of Independent Accountants..............................................1
Statement of Assets and Liabilities............................................2
Statements of Operations and Changes in Net Assets.......................... 3-4
Notes to the Financial Statements............................................5-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Acacia National Life Insurance Company and
Contract Owners of Acacia National Variable Life Insurance Separate Account I
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and changes in net assets present fairly, in
all material respects, the financial position of each of the following
sub-accounts comprising the Acacia National Variable Life Insurance Separate
Account I (the Account): the Social Money Market; Social Balanced; Social
Strategic Growth; Social Managed Growth; Social Global; Large Cap Growth; Mid
Cap Growth; Small Cap Growth; S&P 500 Index; Income; Growth; International
Growth; Aggressive Growth; Hard Assets/Metals; High Income; Aggressive Growth;
Large Cap Growth; Balanced; and Managed Income sub-accounts at December 31,
1998, and the results of their operations and the changes in their net assets
for each of the periods presented, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
mutual funds, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers
Washington, D.C.
April 30, 1999
<PAGE>
<TABLE>
<CAPTION>
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
Calvert Alger Dreyfus
----------------------------------------------------- ------------------------------- --------
Social Social Social S & P
Money Social Strategic Managed Social Large Cap Mid Cap Small Cap 500
Market Balanced Growth Growth Global Growth Growth Growth Index
-------- -------- -------- -------- -------- -------- -------- -------- --------
ASSETS
Investments,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
identified costs $693,215 $45,901 $91,089 $125,494 $212,991 $1,993,317 $733,899 $1,909,027 $5,762,900
======== ======== ======== ======== ======== ======== ======== ======== ========
Investments, at market $696,215 $47,148 $87,407 $123,866 $205,166 $2,401,762 $851,023 $2,045,681 $6,667,859
======== ======== ======== ======== ======== ======== ======== ======== ========
Number of shares 696,215 22,061 7,860 4,071 9,859 45,129 29,478 46,524 205,039
======== ======== ======== ======== ======== ======== ======== ======== ========
Total and net assets $696,215 $47,148 $87,407 $123,866 $205,166 $2,401,762 $851,023 $2,045,681 $6,667,859
======== ======== ======== ======== ======== ======== ======== ======== ========
ACCUMULATION UNITS
Number of units 598,035 2,990 7,476 7,670 15,712 113,872 50,595 153,159 320,865
======== ======== ======== ======== ======== ======== ======== ======== ========
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1998 $1.16 $15.77 $11.69 $16.15 $13.06 $21.09 $16.82 $13.36 $20.78
======== ======== ======== ======== ======== ======== ======== ======== ========
Neuberger & Berman Strong Van Eck Oppenheimer
------------------- ---------------------------------- ---------------------------------------------
International Aggressive Hard Hi Aggressive Large Cap Managed
Income Growth Growth Growth Assets/Metal Income Growth Growth Balanced Income
-------- ------- -------- -------- -------- -------- -------- -------- -------- ------
ASSETS
Investments,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
identified costs $2,015,570 $1,456,684 $2,581,573 $313,390 $736,929 $381,742 $1,227,608 $2,008,040 $639,056 $276,229
======== ======= ======== ======== ======== ======== ======== ======== ======== ========
Investments, at market$2,032,827 $1,548,079 $2,412,905 $336,358 $582,277 $371,401 $1,347,548 $2,253,827 $637,896 $275,293
======== ======= ======== ======== ======== ======== ======== ======== ======== ========
Number of shares 147,093 58,885 274,818 26,443 63,291 33,702 30,059 61,462 31,147 53,768
======== ======= ======== ======== ======== ======== ======== ======== ======== ========
Total and net assets $2,032,827 $1,548,079 $2,412,905 $336,358 $582,277 $371,401 $1,347,548 $2,253,827 $637,896 $275,293
======== ======= ======== ======== ======== ======== ======== ======== ======== ========
ACCUMULATION UNITS
Number of units 173,713 97,419 262,868 28,197 73,721 33,313 95,687 150,216 47,458 24,847
======== ======= ======== ======== ======== ======== ======== ======== ======== ========
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1998 $11.70 $15.89 $9.18 $11.93 $7.90 $11.15 $14.08 $15.00 $13.44 $11.08
======== ======= ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1998
Calvert Alger Dreyfus
---------------------------------------------------- ----------------------------- -------
Social Social Social S & P
------ Social Strategic Managed Social Large Cap Mid Cap Small Cap 500
Money
Market Balanced Growth Growth Global Growth Growth Growth Index
------- ------- ------- -------- -------- ------- -------- -------- -------
OPERATIONS:
Investment Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $21,621 $3,409 $1,105 $13,549 $15,115 $232,531 $40,068 $173,190 $130,875
Mortality and expense charge (4,679) (308) (588) (594) (990) (14,481) (5,140) (12,562) (38,276)
------- ------- ------- -------- -------- ------- -------- -------- -------
Net Investment Income (Loss) 16,942 3,101 517 12,955 14,125 218,050 34,928 160,628 92,599
Realized and Unrealized Gains
(Losses) on Investments:
Realized gains (losses)
from redemption of
fund shares 99 611 (2,513) 2,455 1,263 98,690 13,059 4,107 184,713
Unrealized appreciation
(depreciation)
of investments 3,000 1,900 (1,616) (1,025) (5,285) 297,960 98,503 62,991 729,209
------- ------- ------- -------- -------- ------- -------- -------- -------
Net Gain (Loss) on Investments 3,099 2,511 (4,129) 1,430 (4,022) 396,650 111,562 67,098 913,922
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 20,041 5,612 (3,612) 14,385 10,103 614,700 146,490 227,726 1,006,521
CAPITAL TRANSACTIONS:
Transfer of premium 2,435,827 21,378 40,406 61,132 135,824 1,142,994 399,907 1,136,190 3,962,541
Contract terminations (5,692) (514) (1,233) (726) (748) (44,181) (5,973) (32,025) (70,756)
Policy account value charges (178,288) (7,551) (11,924) (9,570) (15,917) (253,488) (81,605) (229,321) (728,295)
Sub-account transfers (1,942,516) 5,464 17,624 47,443 56,197 53,346 75,357 134,680 469,451
------- ------- ------- -------- -------- ------- -------- -------- -------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 309,331 18,777 44,873 98,279 175,356 898,671 387,686 1,009,524 3,632,941
------- ------- ------- -------- -------- ------- -------- -------- -------
TOTAL INCREASE IN NET ASSETS 329,372 24,389 41,261 112,664 185,459 1,513,371 534,176 1,237,250 4,639,462
NET ASSETS, beginning
of the year 366,843 22,759 46,146 11,202 19,707 888,391 316,847 808,431 2,028,397
------- ------- ------- -------- -------- ------- -------- -------- -------
NET ASSETS, at end of the year $696,215 $47,148 $87,407 $123,866 $205,166 $2,401,762$851,023 $2,045,681 $6,667,8597
======= ======= ======= ======== ======== ======= ======== ======== =======
UNITS ISSUED AND REDEEMED
Beginning balance 330,489 1,678 3,703 900 1,788 62,387 24,543 69,933 125,133
Units issued 2,498,903 2,971 5,008 7,984 17,004 78,302 32,437 103,745 230,164
Units redeemed 2,231,357 1,659 1,235 1,214 3,080 26,817 6,385 20,519 34,432
------- ------- ------- -------- -------- ------- -------- -------- -------
Ending balance 598,035 2,990 7,476 7,670 15,712 113,872 50,595 153,159 320,865
======= ======= ======= ======== ======== ======= ======== ======== =======
Neuberger & Berman Strong Van Eck Oppenheimer
------------------- ------------------------------ ------------------------------------------
Internationl Aggressive Hard High Aggressive Large Cap Managed
Income Growth Growth Growth Assets/MetalsIncome Growth Growth Balanced Income
-------- -------- ------- ------- ------- ------- -------- ------- -------- ------
OPERATIONS:
Investment Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $58,873 $188,569 $61,955 $3,760 $41,873 $6,494 $13,351 $82,136 $10,963 $14,163
Mortality and expense
charge (12,750) (9,585) (16,284) (2,398) (3,681) (1,942) (7,499) (12,581) (3,138) (1,297)
-------- -------- ------- ------- ------- ------- -------- ------- -------- -------
46,123 178,984 45,671 1,362 38,192 4,552 5,852 69,555 7,825 12,866
Realized and Unrealized Gains
(Losses) on Investments:
Realized gains (losses)
from redemption of
fund shares 1,107 (18,723) (206,240) 5,905 (41,446) (1,436) 10,354 24,932 1,441 (5,635)
Unrealized appreciation
(depreciation)
of investments (2,543) 22,943 59,071 8,186 (148,313) (10,716) 118,634 224,336 (4,187) (740)
-------- -------- ------- ------- ------- ------- -------- ------- -------- -------
(1,436) 4,220 (147,169) 14,091 (189,759) (12,152) 128,988 249,268 (2,746) (6,375)
44,687 183,204 (101,498) 15,453 (151,567) (7,600) 134,840 318,823 5,079 6,491
CAPITAL TRANSACTIONS:
Transfer of premium 1,329,369 871,047 1,486,174 165,896 420,900 259,644 882,616 1,523,932 521,119 611,261
Contract terminations (25,171) (37,647) (59,984) (20,002) (9,964) (4,239) (18,523) (31,751) (7,456) (1,730)
Policy account value charges(242,262) (168,569) (300,970) (33,574) (80,244) (36,935) (147,580) (263,176) (75,651) (34,114)
Sub-account transfers 62,371 70,373 102,465 171 149,208 90,767 140,063 101,389 119,867 325,973)
-------- -------- ------- ------- ------- ------- -------- ------- -------- -------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 1,124,307 735,204 1,227,685 112,491 479,900 309,237 856,576 1,330,394 557,879 249,444
-------- -------- ------- ------- ------- ------- -------- ------- -------- -------
TOTAL INCREASE IN NET ASSETS 1,168,994 918,408 1,126,187 127,944 328,333 301,637 991,416 1,649,217 562,958 255,935
NET ASSETS, beginning
of the year 863,833 629,671 1,286,718 208,414 253,944 $69,764 $356,132 $604,610 $74,938 $19,358
-------- -------- ------- ------- ------- ------- -------- ------- -------- -------
NET ASSETS, at end of the year$2,032,827 $1,548,079 $2,412,905 $336,358 $582,277 $371,401 $1,347,548$2,253,827 $637,896 $275,293
======== ======== ======= ======= ======= ======= ======== ======= ======== =======
UNITS ISSUED AND REDEEMED
Beginning balance 77,059 45,761 137,912 18,742 22,198 6,274 28,422 49,967 5,836 1,797
Units issued 136,118 65,880 201,600 14,670 59,926 33,123 77,765 119,856 48,498 77,960
Units redeemed 39,464 14,222 76,644 5,215 8,403 6,084 10,500 19,607 6,876 54,910
-------- -------- ------- ------- ------- ------- -------- ------- -------- ------
Ending balance 173,713 97,419 262,868 28,197 73,721 33,313 95,687 150,216 47,458 24,847
======== ======== ======= ======= ======= ======= ======== ======= ======== ======
</TABLE>
See Notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1997
Calvert Alger Dreyfus
------------------------------------------------ ---------------------------- ---------
Social Social Social S & P
Money Social Strategic Managed Social Large Cap Mid Cap Small Cap 500
Market Balanced Growth Growth * Global * Growth Growth Growth Index
------- ------- ------- ------- ------- ------- ------ ------- ------
OPERATIONS:
Investment Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $7,942 $1,565 $4,107 $1,160 $1,968 $5,840 $2,687 $27,461 $43,942
Mortality and expense
charge (4,111) (72) (355) (28) (50) (5,914) (1,692) (6,075) (11,588)
------- ------- ------- ------- ------- ------- ------ ------- ------
Net Investment Income (Loss) 3,831 1,493 3,752 1,132 1,918 (74) 995 21,386 32,354
Realized and Unrealized
Gains (Losses) on
Investments:
Realized gains (losses)
from redemption of
fund shares --- 204 (1,773) 100 4 39,995 11,425 9,397 112,714
Unrealized appreciation
(depreciation)
of investments 440 (515) (2,228) (603) (2,540) 95,625 15,140 70,132 146,383
------- ------- ------- ------- ------- ------- ------ ------- ------
Net Gain (Loss) on Investments 440 (311) (4,001) (503) (2,536) 135,620 26,565 79,529 259,097
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 4,271 1,182 (249) 629 (618) 135,546 27,560 100,915 291,451
CAPITAL TRANSACTIONS:
Transfer of premium 1,288,575 8,418 31,319 7,751 11,238 658,928 209,184 639,497 1,457,795
Contract terminations (30,731) (2) (754) --- (15) (6,652) (1,677) (5,444) (9,634)
Policy account value
charge (107,268) (1,871) (9,269) (723) (1,311) (154,294) (44,137) (158,511) (302,335)
Sub-account transfers (934,230) 12,200 4,603 3,545 10,413 (66,291) 35,378 (171,620) 39,694
------- ------- ------- ------- ------- ------- ------ ------- ------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 216,346 18,745 25,899 10,573 20,325 431,691 198,748 303,922 1,185,520
------- ------- ------- ------- ------- ------- ------ ------- ------
TOTAL INCREASE IN NET ASSETS 220,617 19,927 25,650 11,202 19,707 567,237 226,308 404,837 1,476,971
NET ASSETS,
beginning of year 146,226 2,832 20,496 --- --- 321,154 90,539 403,594 551,426
------- ------- ------- ------- ------- ------- ------ ------- ------
NET ASSETS, at end
of the year $366,843 $22,759 $46,146 $11,202 $19,707 $888,391 $316,847 $808,431 $2,028,397
======= ======= ======= ======= ======= ======= ====== ======= ======
UNITS ISSUED AND REDEEMED
Beginning balance 138,906 251 1,482 --- --- 28,351 8,066 38,887 45,236
Units issued 1,439,931 1,655 4,603 994 1,939 64,768 26,097 83,058 141,619
Units redeemed 1,248,348 228 2,382 94 151 30,732 9,620 52,012 61,722
------- ------- ------- ------- ------- ------- ------ ------- ------
------------- 330,489 1,678 3,703 900 1,788 62,387 24,543 69,933 125,133
Ending balance
======= ======= ======= ======= ======= ======= ====== ======= ======
Neuberger & Berman Strong Van Eck
----------------- --------------------------------------------------
Internationl Aggressive Hard
Income Growth Income ** Balance ** Growth Growth Assets/Metal
------- ------- ------- ------- ------- ------ -------
OPERATIONS:
Investment Income
<S> <C> <C> <C> <C> <C> <C>
Dividends $20,653 $23,873 $359 $6,377 $8,037 --- $5,120
Mortality and expense
charge (4,295) (3,395) (49) (516) (8,011) ($1,084) (1,655)
-------- ------- ------- ------- ------- ------ -------
Net Investment Income (Loss) 16,358 20,478 310 5,861 26 (1,084) 3,465
Realized and Unrealized Gains
(Losses) on Investments:
Realized gains (losses)
from redemption of
fund shares 1,905 16,065 (38) 11,629 (3,230) 5,524 2,494
Unrealized appreciation
(depreciation)
of investments 15,273 59,454 52 2,621 (230,017) 12,920 (10,841)
-------- ------- ------- ------- ------- ------ ------- -
Net Gain (Loss) on
Investments 17,178 75,519 14 14,250 (233,247) 18,444 (8,347)
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS 33,536 95,997 324 20,111 (233,221) 17,360 (4,882)
CAPITAL TRANSACTIONS:
Transfer of premium 573,088 436,222 3,119 57,796 999,117 133,826 187,675
Contract terminations (6,482) (4,506) (75) (70) (9,908) (1,071) (2,030)
Policy account value charges (112,059) (88,567) (1,282) (13,450) (209,009) (28,281) (43,175)
Sub-account transfers 170,258 9,415 (11,996) (151,467) 296,376 9,619 28,359
------- ------- ------- ------- ------- ------ -------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 624,805 352,564 (10,234) (107,191) 1,076,576 114,093 170,829
---------- ------- ------- ------- ------- ------ -------
TOTAL INCREASE IN
NET ASSETS 658,341 448,561 (9,910) (87,080) 843,355 131,453 165,947
NET ASSETS,
beginning of year 205,492 181,110 9,910 87,080 443,363 76,961 87,997
--------- ------- ------- ------- ------- ------ -------
NET ASSETS, at end
of the year $863,833 $629,671 $0 $0 $1,286,718 $208,414 $253,944
======= ======= ======= ======= ======= ====== =======
UNITS ISSUED AND REDEEMED
Beginning balance 19,571 16,990 984 7,816 39,763 7,708 7,560
Units issued 84,591 46,395 677 11,884 132,459 17,417 22,271
Units redeemed 27,103 17,624 1,661 19,700 34,310 6,383 7,633
------- ------- ------- ------- ------- ------ -------
Ending balance 77,059 45,761 0 0 137,912 18,742 22,198
Oppenheimer
------------------------------------------------------
High Aggressive Large Cap Managed
Income * Growth * Growth * Balanced * Income *
------- ------- ------- ------- -------
OPERATIONS:
Investment Income
<S> <C> <C> <C>
Dividends $2,165 --- --- $267 $765
Mortality and expense
charge (248) ($1,370) ($2,354) (272) ($45)
------- ------- ------- ------- -------
Net Investment Income (Loss 1,917 (1,370) (2,354) (5) 720
Realized and Unrealized Gain
(Losses) on Investments:
Realized gains (losses)
from redemption of
fund shares 270 4,036 2,729 1,288 4
Unrealized appreciation
(depreciation)
of investments 375 1,306 21,451 3,027 (196)
------- ------ ------- ------- -------
Net Gain (Loss) on
Investments 645 5,342 24,180 4,315 (192)
NET INCREASE (DECREASE) I
NET ASSETS RESULTING FROM
OPERATIONS 2,562 3,972 21,826 4,310 528
CAPITAL TRANSACTIONS:
Transfer of premium 33,885 173,578 292,342 44,808 15,617
Contract terminations (49) (2,392) (4,210) (10) (5)
Policy account value charges(6,479) (35,746) (61,426) (7,100) (1,165)
Sub-account transfers 39,845 216,720 356,078 32,930 4,383
------- ------- ------- ------- -------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL TRANSACTIONS 67,202 352,160 582,784 70,628 18,830
- ------- ------- ------- ------- -------
TOTAL INCREASE IN
NET ASSETS 69,764 356,132 604,610 74,938 19,358
NET ASSETS,
beginning of year --- --- --- --- ---
------- ------- ------- ------- -------
NET ASSETS, at end
of the year $69,764 $356,132 $604,610 $74,938 $19,358
======= ======= ======= ======= =======
UNITS ISSUED AND REDEEMED
Beginning balance --- --- --- --- ---
Units issued 7,955 36,728 59,904 7,354 2,265
Units redeemed 1,681 8,306 9,937 1,518 468
------- ------- ------- ------- -------
Ending balance 6,274 28,422 49,967 5,836 1,797
* From Sub-account inception, May, 1997.
** Sub-account closed November, 1997.
See Notes to financial statements.
</TABLE>
<PAGE>
ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF OPERATIONS
The Acacia National Variable Life Insurance Separate Account I (the Account)
began operations on December 1, 1995 as a separate investment account within
Acacia National Life Insurance Company (the Company) to receive and invest net
premiums paid under a flexible premium variable life insurance policy (the
Policy). The Policy allows for flexible premium deposits, as payments may be
made with varying amounts and frequency within stated limitations. The primary
purpose of the policy is to provide life insurance protection in the event of
the insured's death.
The Company is a member of the Acacia Group which includes Acacia Life Insurance
Company (known prior to June 30, 1997 as Acacia Mutual Life Insurance Company)
and its other wholly-owned subsidiaries: Acacia Financial Corporation (AFCO) and
its subsidiaries, Acacia Federal Savings Bank F.S.B., Calvert Group, Ltd. and
The Advisors Group, Inc. Effective January 1, 1999, the Company's ultimate
parent, Acacia Mutual Holding Corporation, merged with Ameritas Mutual Holding
Company to create Ameritas Acacia Mutual Holding Company.
Assets of the Account are the property of the Company. However, those assets
attributable to the policies are not chargeable with liabilities arising out of
any other business which the Company may conduct. The Account operates and is
registered as a unit investment trust under the Investment Company Act of 1940.
The net assets maintained in the Account attributable to the policies provide
the base for the periodic determination of the increased or decreased benefits
under the policies.
NOTE 2 - SEPARATE ACCOUNT ASSETS
As of December 31, 1998, the Account has nineteen separate sub-accounts which
are invested as directed by the contract owner. The Account purchases shares of
each of the sub-accounts subject to the terms of the Participation Agreements
between the Company and the sub-accounts. Shares of each sub-account are offered
at a price equal to their respective net asset values per share, without sales
charge, which represents their fair value. Calvert Asset Management Company,
Inc., an indirectly wholly-owned subsidiary of AFCO, serves as an investment
advisor to the Calvert Variable Series Inc. Calvert Social Money Market, Calvert
Social Small Cap, Calvert Social Mid Cap and Calvert Social International Equity
Portfolios. The Advisors Group, Inc. acts as a principal underwriter of the
policies pursuant to an underwriting agreement with the Company.
In addition to the nineteen separate sub-accounts, a contract owner may also
allocate net premiums to the General Account, which is part of the Company.
Because of exclusionary provisions, interests in the General Account have not
been registered as securities under the Securities Act of 1933 and the General
Account has not been registered as an investment company under the Investment
Company Act of 1940.
5
<PAGE>
The sub-accounts and the respective portfolios in effect during 1998 and 1997
were as follows:
Sub-Account Portfolio Invested
Calvert Variable Series, Inc.:
Social Money Market - Calvert Social Money Market
Social Balanced - Calvert Social Balanced
Social Strategic Growth - Calvert Small Cap Growth
Social Managed Growth - Calvert Mid Cap Growth
Social Global - Calvert Social International Equity
Alger American:
Large Cap Growth - Growth
Mid Cap Growth - Mid Cap Growth
Small Cap Growth - Small Capitalization
S & P 500 Index Dreyfus Stock Index
The Neuberger & Berman Advisers
Management Trust:
Income - Limited Maturity Bond
Growth - Growth
Strong:
Income (closed November, 1997) - Advantage Fund II
Balance (closed November 1997) - Asset Allocation Fund II
International Growth - International Stock Fund II
Aggressive Growth - Discovery Fund II
Hard Assets / Metals Van Eck Worldwide Hard Assets Fund
Oppenheimer Variable Account Funds:
High Income - High Income Fund
Aggressive Growth - Aggressive Growth Fund
Large Cap Growth - Growth Fund
Balanced - Growth & Income Fund
Managed Income - Strategic Bond Fund
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Account in the preparation of the financial statements in
conformity with generally accepted accounting principles.
6
<PAGE>
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments Valuation
Investments are stated at market value based on the net asset value of the
underlying investment in each of the respective funds. Net asset values are
based upon market quotations of the securities held in each of the corresponding
portfolios of the sub-accounts.
Accounting for Investments
Investment transactions are accounted for on the trade date. Dividend income is
recorded on the ex-dividend date. However, dividends of $30,157 for the S&P 500
Index sub-account and $21,938 for the International Growth sub-account were
received in 1997 and recorded in 1998. All affected policyholder accounts were
adjusted. Identified cost is the basis followed in determining the cost of
investments sold for financial statement purposes.
Federal Income Taxes
The operations of the Account are taxed as part of the total operations of the
Company. The Company is taxed as a life insurance company under the Internal
Revenue Code. Under existing law, no taxes are payable on investment income or
realized capital gains of the Account.
NOTE 4 - RELATED PARTY TRANSACTIONS
The following charges are deducted by the Company from the Account's net assets
attributed to each policy:
Premium Expense Charge: Premiums are reduced by a charge equal to 2.25%
of each premium to compensate the Company for expenses associated with
state premium taxes of the policy.
Policy Account Value Charges: The policy account value will be reduced
by a monthly deduction equal to the sum of the cost of insurance charge,
the cost of any optional insurance benefits added by a rider and a
monthly administrative charge equal to $27 per month for the first
policy year and $8 each month thereafter. The cost of insurance will
vary based upon a number of factors including the face amount of the
policy, issue age, attained age and rate class of the insured.
7
<PAGE>
Surrender Charges: A surrender charge will be assessed at 30% of
premiums received up to target premium, as defined in the prospectus,
for years 1-7 decreasing to 10% per year until reaching zero in year 10.
Partial Surrender Charges: During the surrender charge period for the
policy, there will be a charge for a partial surrender equal to 8% of
the amount withdrawn or $25, whichever is greater.
Mortality and Expense Charge: A charge not to exceed an annual rate of
0.90% for years 1-15, decreasing 0.05% per year for years 16 and
thereafter until the annual rate reaches 0.45%, of the average daily net
asset value of the Account applicable to policies issued when each rate
was in effect. These charges are deducted by the Company in return for
its assumption of expenses arising from adverse mortality experience and
excess administrative expenses in connection with the policies issued.
In addition, contract owners bear the investment management fees and
other expense incurred by the Portfolios.
NOTE 5 - PURCHASES AND SALES
The cost of purchases and proceeds from sales for the two years ended December
31,1998 and 1997 for the sub-accounts are as follows:
<TABLE>
<CAPTION>
1998 1997
Cost of Proceeds Cost of Proceeds
Portfolio Purchases from Sales Purchases from Sales
<S> <C> <C> <C> <C>
Social Money Market $4,185,204 $3,896,304 $1,576,665 $1,356,488
Social Balanced 51,740 33,038 23,228 2,786
Social Strategic Growth 78,508 33,784 56,820 28,943
Social Managed Growth 127,123 29,458 12,865 1,060
Social Global 240,225 65,864 1,653
23,900
Large Cap Growth 1,864,992 982,710 850,686 379,075
Mid Cap Growth 584,631 203,243 323,556 112,388
Small Cap Growth 1,631,408 627,108 903,714 569,009
S & P 500 Index 5,617,144 2,023,527 2,121,116 790,528
Income 2,037,878 924,304 938,144 295,076
Growth 1,234,849 508,941 600,065 210,959
Income (closed November, 1997) --- --- 7,191 17,186
Balance (closed November, 1997) --- --- 147,277 236,665
International Growth 2,493,460 1,278,861 1,446,217 372,845
Aggressive Growth 217,294 107,216 184,328 65,795
Hard Assets / Metals 697,333 220,301 267,866 91,078
High Income 438,229 130,891 87,229 17,840
Aggressive Growth 1,253,149 403,757 456,233 101,407
Large Cap Growth 2,059,836 741,995 700,305 117,146
Balanced 759,594 206,440 89,341 17,430
Managed Income 943,259 695,512 24,834 5,280
</TABLE>
8
<PAGE>
- ----------------------------------------
Audited Financial Statements (Statutory Basis)
ACACIA NATIONAL LIFE INSURANCE COMPANY
December 31, 1998 and 1997
Report of Independent Accountants...........................................1
Statements of Financial Condition...........................................2
Statements of Operations and Changes
in Capital and Surplus...................................................3
Statements of Cash Flow.....................................................4
Notes to Financial Statements............................................5-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Acacia National Life Insurance Company
We have audited the accompanying statutory statements of financial condition of
Acacia National Life Insurance Company (the Company) as of December 31, 1998 and
1997, and the related statutory statements of operations and changes in capital
and surplus, and cash flow, for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 2 to the financial statements, these financial
statements were prepared in conformity with accounting practices prescribed or
permitted by the Bureau of Insurance, State Corporation Commission of the
Commonwealth of Virginia, which practices differ from generally accepted
accounting principles. The effects on the financial statements of the variances
between the statutory basis of accounting and generally accepted accounting
principles are material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company as of December 31, 1998 and 1997 or the results of its operations
or its cash flow for the years then ended.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, and surplus of the
Company as of December 31, 1998 and 1997, and the results of its operations and
its cash flow for the years then ended, on the basis of accounting described in
Note 2.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
March 31, 1999
1
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
Statements of Financial Condition (Statutory Basis)
December 31,
1998 1997
--------- -------
---------------------------------
(In thousands)
ASSETS
Debt securities $ 556,127 $ 570,348
Equity securities 2,323 2,373
Mortgage loans --- 5,031
Policy loans 7,579 8,100
Cash and cash equivalents 13,678 6,737
Accrued investment income 9,775 9,992
Separate account assets 73,334 31,095
Other assets 3,252 2,820
-------------- --------------
Total Assets $ 666,068 $ 636,496
============== ==============
LIABILITIES
Insurance and annuity reserves $ 483,126 $ 508,884
Deposit administration contracts and other
deposit reserves 25,949 26,459
Other policyowner funds 36,116 28,666
Policy claims 2,113 3,143
Interest maintenance reserve 3,202 2,587
Asset valuation reserve 5,513 5,188
Separate account liabilities 73,334 31,095
Other liabilities 5,025 (2,032)
-------------- --------------
Total Liabilities 634,378 603,990
CAPITAL AND SURPLUS
Preferred stock, 8% non-voting,
non-cumulative, $1,000 par value,
10,000 shares authorized; 6,000
shares issued and outstanding 6,000 6,000
Common stock, $170 par value;
15,000 shares authorized
issued and oustanding 2,550 2,550
Gross paid-in surplus 13,450 13,450
Surplus 9,690 10,506
-------------- --------------
Total Capital and Surplus 31,690 32,506
-------------- --------------
Total Liabilities and
Capital and Surplus $ 666,068 $ 636,496
============== ==============
See notes to financial statements.
2
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
Statements of Operations and Changes in Capital and Surplus (Statutory Basis)
For the Years Ended
December 31,
1998 1997
--------- --------------
-----------------------------
(In thousands)
INCOME
Premiums and annuity considerations $ 63,318 $ 59,646
Net investment income 46,305 47,774
Supplementary contracts 6,221 16,809
Other income 1,412 1,042
------------- -----------
117,256 125,271
BENEFITS AND EXPENSES
Benefits for policyholders and beneficiaries:
Benefit payments, surrenders, and withdrawals 83,190 108,148
Decrease in insurance and annuity reserves (18,427) (21,269)
Change in deposit administration funds (510) 800
------------- -----------
64,253 87,679
Commissions to managing directors
and account managers 7,353 5,202
Net transfers to separate accounts 30,725 20,387
Operating expenses allocated from Acacia Life 16,343 12,724
Other operating expenses and taxes 1,201 1,247
------------- -----------
119,875 127,239
------------- -----------
Net (Loss) from Operations Before Federal
Income Taxes and Realized Capital Losses (2,619) (1,968)
Federal income tax benefit 1,822 2,511
------------- -----------
Net Gain (Loss) from Operations Before
Realized Capital Gains (Losses) (797) 543
Realized Capital Gains (Losses)
Net realized capital gains 1,516 1,183
Capital gains taxes (760) (521)
Transferred to interest maintenance reserve (965) (516)
------------- -----------
Net Realized Capital Gains (Losses) (209) 146
------------- -----------
Net Income (Loss) (1,006) 689
Capital and surplus, beginning of year 32,506 29,641
Change in valuation basis of reserves (120) (119)
Change in asset valuation reserve (325) 524
Change in net unrealized capital gains (49) 495
Change in non-admitted assets 684 1,276
========== ---------
Capital and Surplus, End of Year $ 31,690 $ 32,506
========== ==========
See notes to financial statements.
3
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
Statements of Cash Flow (Statutory Basis)
For the Years Ended
December 31,
1998 1997
----------- ----------
OPERATING ACTIVITIES (In thousands)
Premiums and annuity considerations $ 63,318 $ 59,646
Other premiums, considerations and deposits 8,176 18,976
Net investment income received 44,953 47,368
Benefits paid to policyholders (13,297) (10,980)
Commissions and other expenses paid (23,804) (20,698)
Surrender benefits and other fund withdrawals paid (71,062) (96,822)
Net transfers to separate accounts (34,192) (22,815)
Federal and state income taxes received (paid)
(excluding tax on capital gains) 2,596 (1,093)
--------- --------
Net Cash (Used In) Operating Activities (23,312) (26,418)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 178,064 68,392
Equities --- 756
Mortgage loans 5,031 16
Partnership and other interests 77 240
Tax payments on net capital gains (760) ---
Cost of investments acquired:
Bonds (161,139) (40,619)
Mortgage loans --- (5,000)
Partnership and other interests (30) (1,158)
Net change in policy loans and premium notes 522 (9)
--------- --------
Net Cash Provided By Investing Activities 21,765 22,618
FINANCING ACTIVITIES Cash provided (used):
Net other provisions (uses) 8,488 (1,862)
--------- --------
Net Cash Provided By (used in) Financing Activities 8,488 (1,862)
Increase (Decrease) in Cash and Cash Equivalents 6,941 (5,662)
Cash and Cash Equivalents, Beginning of Year 6,737 12,399
--------- --------
Cash and Cash Equivalents, End of Year $ 16,678 $ 6,737
========= ========
See notes to financial statements
4
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF OPERATIONS
Acacia National Life Insurance Company (the Company) is a wholly-owned
subsidiary of Acacia Life Insurance Company (Acacia Life), known prior to June
30, 1997 as Acacia Mutual Life Insurance Company. Acacia Life is a wholly-owned
subsidiary of Acacia Financial Group, Ltd (AFG) which is wholly owned by Acacia
Mutual Holding Corporation (AMHC). AMHC and AFG were formed in 1997 pursuant to
a plan of reorganization whereby Acacia Life became a stock life insurance
company. AMHC and its wholly-owned subsidiaries are collectively known as The
Acacia Group (the Group). Other members of the Group include Acacia Financial
Corporation and its subsidiaries, Acacia Federal Savings Bank, Calvert Group,
Ltd. and The Advisors Group, Inc.
The Company underwrites and markets deferred and immediate annuities and life
insurance products within the United States and is licensed to operate in 46
states and the District of Columbia. On December 1, 1995 and September 9, 1996,
respectively, operations began for the Acacia National Variable Life Insurance
Separate Account I and Acacia National Variable Annuity Separate Account II
which are separate investment accounts within the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING PRACTICES
The Company, domiciled in Virginia, prepares its statutory financial statements
in accordance with statutory accounting practices (SAP) prescribed or permitted
by the Bureau of Insurance, State Corporation Commission of the Commonwealth of
Virginia. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners (NAIC), as
well as state laws, regulations, and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed. Such practices vary, in some respects, from generally accepted
accounting principles (GAAP). The significant statutory basis accounting
practices followed by the Company are described below.
The preparation of the financial statements in conformity with statutory
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
5
<PAGE>
ACACIA NATIONAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
In general, the SAP basis of accounting varies in certain respects from GAAP in
that:
X Acquisition costs incurred at policy issuance, such as commissions and
other costs incurred in connection with acquiring new business, are charged
to expense in the year in which they are incurred, rather than being
deferred and amortized over the periods benefited.
X Certain assets designated as "non-admitted" are excluded from the balance
sheets by a direct charge to unassigned surplus.
X The asset valuation reserve and interest maintenance reserve are not
recorded for GAAP purposes.
X Federal income taxes are computed in accordance with those sections of the
Internal Revenue Code applicable to life insurance companies and are based
solely on currently taxable income. Under GAAP, the recognition of deferred
tax liabilities and assets is required for the expected future tax
consequences of temporary differences between the carrying amounts for
financial statement purposes and the tax basis of other assets and
liabilities.
X The liability for policy reserves is based on statutory assumptions for
interest and mortality without considerations of withdrawals, rather than
assumptions for interest, mortality and withdrawals based on actual
experience.
X Premiums for universal life, single premium non-life contingent immediate
annuity and single premium deferred annuity contracts are reported as
premium income or fund deposits rather than additions to liabilities.
X Reinsurance ceded to other companies is reported on a net basis for premium
revenue, benefits and underwriting, acquisition and insurance expenses, and
policy reserves and accruals. Under GAAP, policy reserves and claim
liabilities ceded are reported separately in the balance sheet as a
reinsurance recoverable asset.
X Debt securities are generally carried at amortized cost, whereas, under
GAAP, investments in debt securities are stated at amortized cost or
current market values depending on the classification pursuant to FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Any difference between cost and current market values of debt
securities classified as available-for-sale, net of deferred income
6
<PAGE>
taxes or benefit and related deferred acquisition cost effects, is reported
as other comprehensive income. Trading securities consist of debt
securities purchased with the intent to resell in the near term and are
reported at fair value. Unrealized gains and losses on trading securities
are credited or charged to net investment income.
The impact of the differences between SAP and GAAP basis reporting on Net Income
and Capital and Surplus is as follows:
1998 1997
($ in thousands Net Capital Net Capital
Income And Surplus Income And Surplus
As reported under SAP $ (1,006) $ 31,690 $ 689 $ 32,506
Adjustments:
Deferred policy acquisition costs 2,874 58,017 (66) 53,937
AVR and IMR 615 8,715 357 7,775
Deferred Federal income tax (732) (20,077) (2,372) (19,561)
Net policyholder liabilities (1,601) (11,291) 731 (9,813)
Investments (59) 20,013 -- 22,521
Other (500) (946) 1,289 (456)
------- --------- ----- -------
Amounts under GAAP $ (409) $ 86,121 $ 628 $ 86,909
======= ========= ===== ========
Valuation of Assets
Debt and equity securities are valued in accordance with rules prescribed by the
NAIC. Debt securities are generally stated at amortized cost, preferred stocks
at cost and common stocks at market value. Collateralized mortgage obligations
are valued using the prospective method and currently anticipated prepayment
assumptions, based on data from current actual experience. Mortgage loans and
policy loans are recorded at their unpaid balance. Discount or premium on debt
securities is amortized using the interest method. Unrealized capital gains and
losses are reflected directly in surplus and are not included in net income.
Realized gains and losses are determined on a first-in, first-out basis and are
presented in the statements of operations, net of taxes and excluding amounts
transferred to the Interest Maintenance Reserve.
As prescribed by the NAIC, the Company maintains an Asset Valuation Reserve
(AVR). The AVR is computed in accordance with a prescribed formula. The purpose
of the AVR is to stabilize surplus against fluctuations in the value of stocks
and credit-related declines in the value of bonds, mortgage loans and other
invested assets. Changes to the AVR are charged or credited directly to surplus.
7
<PAGE>
As also prescribed by the NAIC, the Company maintains an Interest Maintenance
Reserve, which represents the net accumulated unamortized realized capital gains
and losses attributable to changes in the general level of interest rates on
sales of fixed income investments, principally bonds and mortgage loans. Such
gains or losses are amortized into income using schedules prescribed by the NAIC
over the remaining period to expected maturity of the individual securities
sold.
Cash Equivalents
The Company considers overnight reverse repurchase agreements, money market
funds and short-term investments with original maturities of less than three
months at the time of acquisition to be cash equivalents. Cash equivalents are
carried at cost.
Separate Accounts
Separate Accounts are assets and liabilities associated with certain life
insurance and annuity contracts, for which the investment risk lies solely with
the holder of the contract rather than the Company. Consequently, the insurer's
liability for these Separate Accounts equals the value of the Separate Account
assets. Investment income and realized gains (losses) related to Separate
Accounts are excluded from the statements of operations and cash flows. Assets
held in Separate Accounts are primarily shares in mutual funds, which are
carried at fair value, based on the quoted net asset value per share.
Non-Admitted Assets
Certain assets, primarily goodwill, are designated as "non-admitted" under SAP.
The cost of these assets is charged directly to surplus. Non-admitted balances
totaled $2,978,000 and $3,662,000 at December 31, 1998 and 1997, respectively.
Policy Reserves
Life policy reserves are computed by using the Commissioners Reserve Valuation
Method and the Commissioners Standard Ordinary Mortality table. Annuity reserves
are calculated using the Commissioners Annuity Reserve Valuation Method and the
maximum valuation interest rate; for annuities with life contingencies, the
prescribed valuation mortality table is used. Policy claims in process of
settlement include provision for reported claims and claims incurred but not
reported. The valuation rates for fixed immediate and deferred annuities range
between 6.0% and 11.25% as of December 31, 1998.
8
<PAGE>
Federal Income Taxes
The Company files a consolidated tax return with the Group. Under statutory
accounting practices, no provision is made for deferred federal income taxes
related to temporary differences between statutory and taxable income. Such
temporary differences arise primarily from Internal Revenue Code requirements
regarding the capitalization and amortization of deferred policy acquisition
costs, calculation of life insurance reserves and recognition of realized gains
or losses on sales of debt securities.
Premiums and Related Expense
Premiums are recognized as income over the premium paying period of the
policies. Annuity considerations and fund deposits are included in revenue as
received. Commissions and other policy acquisition costs are expensed as
incurred.
Reinsurance
The Company cedes reinsurance to provide for greater diversification of
business, additional capacity for growth as well as a way for management to
control exposure to potential losses arising from large risks. A significant
portion of reinsurance is ceded to Acacia Life.
The excess of the amount of liabilities assumed over the amount of assets
received upon execution of an assumption reinsurance agreement is recorded as
goodwill, a non-admitted asset, and charged directly to surplus. Goodwill is
being amortized over a period of ten years using the interest method.
Reclassifications
Certain reclassifications of 1997 amounts were made to conform with the 1998
financial statement presentation.
NOTE 3 - INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
December 31, 1998 December 31, 1997
----------------- -----------------
($ in thousands Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
Debt securities $556,127 $591,776 $570,348 $610,928
Equity securities 2,323 2,696 2,373 2,713
Mortgage loans --- --- 5,031 5,084
Cash and cash equivalents 13,678 13,678 6,767 6,767
Financial Liabilities:
Investment-type insurance contracts 376,589 376,589 $407,643 $407,643
9
<PAGE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks and mortgage backed securities) are based on quoted
market prices, where available. For fixed maturity securities not actively
traded and for private placements, fair values are estimated using values
obtained from independent pricing services. The fair values for equity
securities are based on quoted market prices.
Mortgage loans: The fair values for mortgage loans are estimated using
discounted cash flow analysis, based on interest rates currently being offered
for similar loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Cash and cash equivalents: The carrying amount approximates fair values because
of the short maturity of these instruments.
Policy loans: Policy loans are an integral component of insurance contracts and
have no maturity dates. Future cash flows are uncertain and difficult to
predict. Therefore, management has concluded that it is not practical to
estimate their fair value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. The carrying values for the deposit administration contracts and
supplementary contracts without life contingencies approximate their fair
values.
10
<PAGE>
Investments
Major categories of investment income for the years ended December 31 are
summarized as follows:
($ in thousands)
1998 1997
----- ----
Fixed maturity securities $ 45,499 $ 47,086
Common stock -- --
Preferred stock 56 60
Mortgage loans 334 110
Policy loans 447 502
Other 906 1,001
------- ------
Gross investment income 47,242 48,759
Investment expenses (1,287) (1,143)
Interest maintenance reserve amortization 350 158
------- ------
Net investment income $ 46,305 $ 47,774
======== ========
Realized gains (losses) on investments for the years ended December 31 are
summarized as follows:
($ in thousands)
1998 1997
----- ----
Fixed maturity securities
Gross realized gains $ 1,631 $ 963
Gross realized losses (145) (11)
Equity securities
Gross realized gains -- 230
Gross realized losses -- ---
Other invested assets 30 1
------- ------
$ 1,516 $ 1,183
======== =======
The statement values and estimated fair values of the Company's investments in
debt securities are as follows:
($ in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
At December 31, 1998
U.S. government and agencies $72,543 $9,705 $ -- $82,248
Other government 23,004 624 (728) 22,900
Mortgage backed securities 166,042 4,928 (708) 170,262
Corporate 294,538 24,557 (2,729) 316,366
----------- -------- ------- -------
$ 556,127 $ 39,814 $ (4,165) $ 591,776
=========== ========== ========= =========
11
<PAGE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
At December 31, 1997
U.S. government and agencies $87,514 $ 8,228 $ -- $ 95,742
Other government 30,943 856 (73) 31,726
Mortgage backed securities 150,831 5,592 (402) 156,021
Corporate 301,060 26,994 (615) 327,439
--------- ------- ----- -------
$ 570,348 $ 41,670 $ (1,090) $ 610,928
======= ======== ======== =========
The amortized cost and estimated fair value of debt securities, by contractual
maturity at December 31, 1998 are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
($ in thousands)
Statement Fair
Value Value
Maturities in 1999 $ 12,704 $ 12,601
In 2000 to 2003 140,232 148,163
In 2004 to 2008 130,680 138,730
After 2008 106,469 122,020
Mortgaged-backed securities 166,042 170,262
-------- --------
$ 556,127 $ 591,776
========= =========
Investment Portfolio Credit Risk
The Company's bond investment portfolio is predominately comprised of investment
grade securities. At December 31, 1998 and 1997, approximately $8.9 million and
$3.9 million, respectively, in debt security investments (1.6% and 0.7%,
respectively, of the total debt security portfolio) are considered "below
investment grade." Securities are classified as "below investment grade" by
utilizing rating criteria established by the NAIC.
NOTE 4 - REINSURANCE
The Company reinsures all life insurance risks over its retention limit of $10
thousand per policy under yearly renewable term insurance agreements with Acacia
Life and several other non-affiliated companies. The Company remains obligated
for amounts ceded in the event that reinsurers do not meet their obligations.
Since the reinsurance treaties are of such a nature as to pass economic risk to
the reinsurer, appropriate reductions are made from income, claims, expense and
liability items in accounting for the reinsurance ceded.
12
<PAGE>
Premiums and benefits have been reduced by amounts reinsured as follows (in
thousands):
1998 1997
----- ----
Premiums ceded:
Acacia Life $ 3,971 $ 3,384
Others 630 533
----- -----
Total premium ceded $ 4,601 $ 3,917
====== ======
Death benefits reimbursed:
Acacia Life $ 3,610 $ 2,989
Others 233 277
----- -----
Total benefits reimbursed $ 3,843 $ 3,236
====== =======
Amounts recoverable on paid and unpaid losses:
Acacia Life $ 543 $ 643
Others 139 --
----- -----
Total amounts recoverable on paid
and unpaid losses $ 682 $ 643
==== =====
Policy reserves ceded:
Acacia Life $ 2,108 $ 1,897
Others 392 350
----- -----
Total policy reserves ceded $ 2,500 $ 2,247
====== =======
Life insurance in force ceded:
Acacia Life $ 1,692,820 $ 1,206,052
Others 104,285 90,471
--------- -----------
Total life insurance in force ceded $ 1,797,105 $ 1,296,523
========= ==========
During 1997, the Company terminated a reinsurance agreement whereby disability
benefits were ceded to Acacia Life. Termination of the agreement resulted in net
expense to the Company of $372,000.
Assumption Reinsurance Agreement
Effective May 31, 1996 under an assumption reinsurance agreement, the Company
assumed certain assets and liabilities relating to annuities previously
underwritten by the National American Life Insurance Company (NALICO), which had
been in rehabilitation. Under the agreement, the Company assumed fixed annuity
13
<PAGE>
policies with statutory liabilities of $127.9 million. The Company received from
NALICO assets with a fair value of approximately $122.7, consisting principally
of investment grade bonds and short-term investments. The difference between
assets acquired and liabilities assumed of $5.2 million was capitalized as
goodwill and treated as a non-admitted asset. Based on adjustments in 1997,
additional assets of $0.4 million were received and reduced the goodwill.
Approximately $0.7 million and $1.1 million was amortized through operations
during 1998 and 1997, respectively, as an offset to miscellaneous income. At
December 31, 1998 and 1997, the balance of goodwill was $3.0 million and $3.7
million, respectively.
NOTE 5 - ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposit liabilities have the following withdrawal
characteristics:
($ in thousands)
December 31,
1998 1997
Subject to discretionary withdrawal with adjust- ------------ -------------
ment, at book value less surrender charge $219,324 43% $228,262 46%
Subject to discretionary withdrawal without adjust-
ment, at book value (minimal or no charge) 236,303 47 226,606 45
Not subject to discretionary withdrawal provision 51,618 10 46,550 9
-------- ---- ------- ---
Total annuity actuarial reserves and deposit
fund liabilities $507,245 100% $501,418 100%
======== === ======== ====
NOTE 6 - FEDERAL INCOME TAXES
Under a tax sharing agreement between the Company and other members of the
Group, Acacia Life reimburses or receives from the Company an amount
representing the taxes that would have been paid or refunded had the Company
filed a separate income tax return.
Under the statutes in effect before the Deficit Reduction Act of 1984, a portion
of "net income" was not subject to current income taxation for stock life
insurance companies, but was accumulated for tax purposes in a memorandum tax
account. The 1984 Act prohibited any additions to the memorandum tax account
after 1983. The balance in this account for the Company was $6.6 million at
December 31, 1998 and 1997. In the event that either cash distributions from the
Company to Acacia Life or the balance in the memorandum tax account exceeds
certain stated minimums, such amounts distributed would become subject to
federal income taxes at rates then in effect.
14
<PAGE>
NOTE 7 - OTHER RELATED PARTY TRANSACTIONS
The Company has entered into an agreement whereby Acacia Life provides such
services and facilities as are necessary for the operation of the Company.
Expenses allocated to the Company were based on a consistent method for 1998 and
1997. Net amounts payable to Acacia Life at December 31, 1998 and 1997 are $7.6
million and $1.5 million, respectively, and are included in other liabilities.
During 1997, the Company purchased participations of $5.0 million in two
commercial mortgage loans from Acacia Life. The participations were purchased at
the unpaid principal balance.
The assets of the defined contribution plan under Internal Revenue Code Section
401(k) for the employees of Acacia Life include an investment in a deposit
administration contract with Acacia National of $18.7 million and $18.1 million
at December 31, 1998 and 1997, respectively.
NOTE 8 - CONTINGENT LIABILITIES
The Company is involved in various lawsuits that have arisen in the ordinary
course of business. Management believes that its defenses are meritorious and
the eventual outcome of these lawsuits will not have a material effect on the
Company's financial position.
NOTE 9 - CAPITAL AND DIVIDEND RESTRICTIONS
The maximum amount of annual dividends and other distributions which may be
remitted by the Company to its shareholder without prior approval of the
appropriate state insurance commissioner is subject to restrictions relating to
statutory capital and surplus and statutory gains from operations. Due to a
statutory loss from operations in 1998, the Company may not pay any dividend in
1999 without prior approval.
Regulatory risk-based capital rules require a specified level of capital
depending on the types and quality of investments held, the types of business
written and the types of liabilities maintained. Depending on the ratio of an
insurer's adjusted surplus to its risk-based capital, the insurer could be
subject to various regulatory actions ranging from increased scrutiny to
conservatorship. The Company's risk-based capital ratios for 1998 and 1997 are
significantly above the regulatory action levels.
15
<PAGE>
NOTE 10 - CAPITAL AND SURPLUS
During 1997, the Company changed the valuation interest rates for certain
supplementary contracts, resulting in an increase in the liability of
approximately $700,000. Based on an agreement with the Bureau of Insurance, the
increase is being recognized evenly over three years, with $119,000 charged
directly against surplus and the remainder charged through operations.
NOTE 11 - SUBSEQUENT EVENT
Effective January 1, 1999, the Company's ultimate parent, Acacia Mutual Holding
Corporation merged with the Ameritas Mutual Insurance Holding Company to create
Ameritas Acacia Mutual Holding Company.
16
<PAGE>
PART II
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The prospectus consisting of 52 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
Representations pursuant to Rule 6e-3(T).
Exhibits:
1. Financial Statements
2. Consent PricewaterhouseCoopers
The signatures.
The Following Exhibits:
1. The Following exhibits correspond to those required by paragraph IX A of the
instructions as to exhibits in Form N-8B-2.
(A)(1) Board Resolution Establishing Separate Account I-Incorporated by
reference to the like numbered exhibit to the Pre-effective Amendment #3 filed
on October 11, 1995 to the Form S-6 Registration #33-90208.
(A)(2) Not applicable
(A)(3)(a) Underwriting Agreement between The Advisors Group, Inc. and Acacia
National Life Insurance Company - Incorporated by reference to the initial
Registration Statement for Acacia National Life Insurance Company Separate
Account II on Form N-4 ( File No 333 -03963), August 26, 1996.
(A)(3)(b) Representative Agent Agreement, Supplement and Schedule proposed form
of Selling Agreement Incorporated by reference to the initial Registration
Statement for Acacia National Life Insurance Company Separate Account II on Form
N-4 ( File No 333 -03963), Filed August 26, 1996.
(A)(3)(c) None
(A)(3)(d) Form of Selling Agreement between the Advisors Group, Inc. ('TAG")and
Broker Dealers - Incorporated by reference to the like numbered to the initial
Form S-6 Registration Statement #33-90208, filed March 10, 1995.
(A)(4) Not Applicable
(A)(5)(a) Individual Flexible Premium Variable Life Insurance Policy -
Incorporated by reference to the like numbered exhibit to the Pre-Effective
Amendment #3 filed on October 11, 1995 to the Form S-6 Registration Statement #
33-90208.
(A)(6) Restated Articles of Incorporation of Acacia National Life Insurance
Company - Incorporated by reference to the like numbered exhibit to the
Post-Effective Amendment #3 filed on May 1, 1997 to the Form S-6 Registration
Statement # 33-90208.
(A)(6) Bylaws of Acacia National Life Insurance Company - Incorporated by
reference to the like numbered exhibit to the Post-Effective Amendment #3 filed
on May 1, 1997 to the Form S-6 Registration Statement # 33-90208.
(A)(7) Not applicable
(A)(8)(a) Participation Agreement Alger American Fund
(A)(8)(b) Participation Agreement Calvert Variable Series, Inc.
(A)(8)(c) Participation Agreement Dreyfus Stock Index Fund
(A)(8)(d) Participation Agreement Neuberger Berman Advisers Management Trust
(A)(8)(e) Participation Agreement Strong Variable Insurance Funds, Inc.
(A)(8)(f) Participation Agreement Van Eck Worldwide Hard Assets Fund
All incorporated by reference to the like numbered exhibit to the Pre-Effective
Amendment #3 filed on October 11, 1995 to the Form S-6 Registration Statement #
33-90208.
(A)(8)(g) Participation Agreement Oppenheimer Variable Account Funds -
Incorporated by reference to the like numbered exhibit to the Post-Effective
Amendment #3 filed on May 1, 1997 to the Form S-6 Registration Statement #
33-90208.
(A)(9) Not Applicable
(A)(10) Application for Policy - Incorporated by reference to the like numbered
exhibit to the Pre-effective Amendment#2 filed on July 19,1995 to the Form S-6
Registration Statement #33-90208.
2. (A)(b) Opinion and Consent of Ellen Jane Abromson, 2nd Vice President and
Associate Counsel - Incorporated by reference Post-Effective Amendment #5 filed
on March 1, 1999 to the Form S-6 Registration Statement #33-90208.
3. No financial statements will be omitted from the final Prospectus pursuant to
Instruction 1(b) or (c) or Part I.
4. Not applicable.
5. Not applicable.
6. Consent of Philip Barlow - Incorporated by reference Post-Effective Amendment
#5 filed on March 1, 1999 to the Form S-6 Registration Statement #33-90208.
7. Consent of Independent Auditors
8. Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the depositor, certifies that it meets the requirements of
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this post-effective
amendment number 6 to its registration statement to be signed on its behalf by
the undersigned duly authorized in the City of Bethesda, State of Maryland, on
the 29th day of April, 1999.
ACACIA NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ Ellen Jane Abromson
Ellen Jane Abromson
2nd Vice President and Associate Counsel
Attest: /s/ Todd D. Green
Todd D. Green
Assistant Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment Number 6 to the registration statement has been signed
below by the following persons in the capacities with the depositor and on the
dates indicated.
Signatures Title Date
/s/ Charles T. Nason Chairman of the Board, April 29, 1999
Charles T. Nason and Chief Executive Officer
and Director
/s/ Robert W. Clyde President and Chief April 29, 1999
Robert W. Clyde Operating Officer and
Director
/s/ Robert John H. Sands Senior Vice President, April 29, 1999
Robert-John H. Sands General Counsel and
Director
/s/ Paul L. Schneider Senior Vice President, April 29, 1999
Paul L. Schneider Chief Financial Officer,
Chief Investment Officer
and Director
/s/ Haluk Ariturk Senior Vice President, April 29, 1999
Haluk Ariturk Operations, Chief Actuary and
Director
/s/ Janet L. Schmidt Senior Vice President April 29, 1999
Janet L. Schmidt Human Resources
/s/ Brian J. Owens Senior Vice President April 29, 1999
Brian J. Owens Career Distribution
/s/ R. Larry Mauzy Senior Vice President April 29, 1999
R. Larry Mauzy and Chief Information Officer
<PAGE>
Exhibit
(2)(7) Consent of PricewaterhouseCoopers
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 6 dated May 1,1999
on Form S-6 (file Nos. 33-90208, 811-08998) of our report dated April 30, 1999,
on our audit of the financial statements of Acacia National Life Insurance
Company as of and for the years ended December 31, 1998 and 1997 and our report
dated April 30,1999 on our audit of the financial statements of Acacia National
Variable Life Insurance Separate Account I as of December 31, 1998 and for the
years ended December 31, 1998 and 1997. We also consent to the reference to our
Firm under the caption "Experts".
/s/PricewaterhouseCoopers
Washington, D.C.
April 30, 1999
