<PAGE> 1
Registration No. 33-28455
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 9
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 14
NASL VARIABLE ACCOUNT
(Exact name of Registrant)
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(Name of Depositor)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of Depositor's Principal Executive Offices)
(617) 266-6008
(Depositor's Telephone Number Including Area Code)
James D. Gallagher, Esq.
Vice President, Secretary and General Counsel
North American Security Life Insurance Company
116 Huntington Avenue
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. The notice required pursuant to
Rule 24f-2 for the year ended December 31, 1995 was filed on February 28, 1996.
-----------------------
It is proposed that this filing will become effective 60 days after filing
pursuant to paragraph (a) of Rule 485
<PAGE> 2
* The Prospectus contained in this registration statement also relates to
variable annuity contracts no longer being sold but for which additional
purchase payments are accepted and which are covered by earlier registration
statements under File Nos. 33-9960 and 2-93435.
<PAGE> 3
NASL VARIABLE ACCOUNT
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-4
N-4 Item Caption in Prospectus
Part A
1. ................................................Cover Page
2. ................................................Special Terms
3. ................................................Summary
4. ................................................Table of Accumulation Unit
Values; Performance Data;
Financial Statements
5. ................................................General Information about
North American Security Life
Insurance Company, NASL
Variable Account and NASL
Series Trust
6. ................................................Charges and Deductions;
Withdrawal Charge; Reduction
or Elimination of Withdrawal
Charge; Administration Fees;
Reduction or Elimination of
Annual Administration Fee;
Mortality and Expense Risk
Charge; Taxes; Appendix A;
Appendix B
7. ................................................Accumulation Provisions;
Company Approval
Purchase Payments;
Accumulation Units;
Net Investment Factor;
Transfers Among
Investment Options;
Telephone Transactions
Special Transfer Services -
Dollar Cost Averaging;
Withdrawals; Special
Withdrawal Services
Systematic Withdrawal Plan;
Contract Owner Inquiries;
Other Contract Provisions;
Ownership; Beneficiary;
Modification;
8. ................................................Annuity Provisions; General;
<PAGE> 4
Annuity Options; Determination
of Amount of the First
Variable Annuity Payment;
Annuity Units and the Deter-
mination of Subsequent
Variable Annuity Payments;
Transfers After Maturity Date
9. ................................................Accumulation Provisions;
Death Benefit Before
Maturity Date; Annuity
Provisions; Death Benefit
on or After Maturity Date
10. ...............................................Accumulation Provisions;
Purchase Payments; Accumula-
tion Units; Value of Accumula-
tion Units; Net Investment
Factor; Distribution of
Contracts
11. ...............................................Withdrawals; Restrictions
under the Texas Optional
Retirement Program; Accumula-
tion Provisions; Purchase
Payments; Other Contract
Provisions; Ten Day Right to
Review
12. ...............................................Federal Tax Matters; Intro-
duction; The Company's Tax
Status; Taxation of Annuities
in General; Diversification
Requirements; Qualified
Retirement Plans
13. ...............................................Legal Proceedings
14. ...............................................Statement of Additional
Information - Table of Contents
Part B Caption in Statement of
Additional Information
15. ...............................................Cover Page
16. ...............................................Table of Contents
17. ...............................................General History and
Information.
18. ...............................................Services-Accountants;
Services-Servicing Agent
<PAGE> 5
19. ...............................................Not Applicable
20. ...............................................Principal Underwriter
21. ...............................................Performance Data
22. ...............................................Not Applicable
23. ...............................................Financial Statements
<PAGE> 6
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 7
Annuity Service Office Mailing Address
116 Huntington Avenue Post Office Box 9230
Boston, Massachusetts 02116 Boston, Massachusetts
(617) 266-6008 02205-9230
(800) 344-1029
- --------------------------------------------------------------------------------
NASL VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
This Prospectus describes a flexible purchase payment individual
deferred combination fixed and variable annuity contract (the "contract") issued
by North American Security Life Insurance Company ("the Company"), a stock life
insurance company the ultimate parent of which is The Manufacturers Life
Insurance Company ("Manulife"). The contract is designed for use in connection
with retirement plans which may or may not qualify for special federal income
tax treatment. Prior to October, 1993, the Company issued two classes of
variable annuity contracts which are no longer being issued but under which
purchase payments may continue to be made ("prior contracts") --"Ven 3"
contracts, which were sold during the period from November, 1986 until October,
1993, and "Ven 1" contracts, which were sold during the period from June 1985
until June 1987. This Prospectus principally describes the contract offered by
this Prospectus but also describes the Ven 3 and Ven 1 contracts. The principal
difference between the contract offered by this Prospectus and the Ven 3 and Ven
1 contracts relate to the investment options available under the contracts,
charges made by the Company and death benefit provisions. See "Appendix C -
Prior Contracts".
The contract provides for the accumulation of contract values and the
payment of annuity benefits on a variable and/or fixed basis. The contract
offers nineteen investment options: sixteen variable and three fixed. The
variable portion of the contract value and annuity payments, if selected on a
variable basis, will vary according to the investment performance of the
sub-accounts of NASL Variable Account (the "Variable Account"). The Variable
Account is a separate account established by the Company. Purchase payments and
earnings on those purchase payments may be allocated to and transferred among
one or more of sixteen sub-accounts of the Variable Account. The assets of each
sub-account are invested in shares of NASL Series Trust (the "Trust"), a mutual
fund having sixteen investment portfolios: the Small/Mid Cap Trust, the
International Small Cap Trust, the Global Equity Trust, Pasadena Growth Trust,
Equity Trust, Value Equity Trust, Growth and Income Trust, International Growth
and Income Trust, Strategic Bond Trust, Global Government Bond Trust, Investment
Quality Bond Trust, U.S. Government Securities Trust, Money Market Trust, and
three Automatic Asset Allocation Trusts (Aggressive, Moderate and Conservative)
(see the accompanying Prospectus of the Trust). Fixed contract values may be
accumulated under one, three and six year fixed account investment options.
Except as specifically noted herein and as set forth under the caption "FIXED
ACCOUNT INVESTMENT OPTIONS" below, this Prospectus describes only the variable
portion of the contract.
Additional information about the variable portion of the contract and
Variable Account is contained in a Statement of Additional Information, dated
the same date as this Prospectus, which has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available without charge upon request by writing the
Company at the above address or telephoning (617) 266-6008. The table of
contents for the Statement of Additional Information is included on page 37 of
this Prospectus.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE VARIABLE ACCOUNT AND THE VARIABLE PORTION OF THE
CONTRACT THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE INVESTING. IT SHOULD BE
ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1996
<PAGE> 8
V7.PRO596
2
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS ............................................ 3
SUMMARY .................................................. 5
TABLE OF ACCUMULATION UNIT VALUES......................... 9
GENERAL INFORMATION ABOUT NORTH
AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE ACCOUNT AND
NASL SERIES TRUST......................................... 11
North American Security Life Insurance Company....... 11
NASL Variable Account................................ 11
NASL Series Trust.................................... 11
DESCRIPTION OF THE CONTRACT .............................. 14
ACCUMULATION PROVISIONS ............................... 14
Purchase Payments ................................... 14
Accumulation Units .................................. 14
Value of Accumulation Units ......................... 15
Net Investment Factor ............................... 15
Transfers Among Investment Options .................. 15
Maximum Number of Investment Options................. 16
Telephone Transactions .............................. 16
Special Transfer Services - Dollar Cost Averaging.... 16
Asset Rebalancing Program............................ 16
Withdrawals.......................................... 16
Special Withdrawal Services - Systematic
Withdrawal Plan................................... 17
Loans................................................ 17
Death Benefit Before Maturity Date................... 18
ANNUITY PROVISIONS .................................... 20
General ............................................. 20
Annuity Options ..................................... 20
Determination of Amount of the First
Variable Annuity Payment.......................... 21
Annuity Units and the Determination of
Subsequent Variable Annuity Payments ............. 21
Transfers After Maturity Date ....................... 22
Death Benefit on or After Maturity Date.............. 22
OTHER CONTRACT PROVISIONS ............................. 22
Ten Day Right to Review ............................. 22
Ownership ........................................... 22
Beneficiary ......................................... 23
Modification ........................................ 23
Company Approval .................................... 23
Misstatement and Proof of Age, Sex or Survival....... 23
FIXED ACCOUNT INVESTMENT OPTIONS.......................... 23
CHARGES AND DEDUCTIONS ................................ 26
Withdrawal Charges................................... 26
Reduction or Elimination of Withdrawal Charge ....... 27
Administration Fees.................................. 27
Reduction or Elimination of Annual Administration Fee 28
Mortality and Expense Risk Charge ................... 28
Taxes ............................................... 28
FEDERAL TAX MATTERS ...................................... 29
INTRODUCTION .......................................... 29
THE COMPANY'S TAX STATUS .............................. 29
TAXATION OF ANNUITIES IN GENERAL ...................... 29
Tax Deferral During Accumulation Period.............. 29
Taxation of Partial and Full Withdrawals............. 30
Taxation of Annuity Payments......................... 31
Taxation of Death Benefit Proceeds................... 31
Penalty Tax on Premature Distributions............... 31
Aggregation of Contracts............................. 31
QUALIFIED RETIREMENT PLANS............................. 32
</TABLE>
2
<PAGE> 10
<TABLE>
<S> <C>
Qualified Plan Types................................. 32
Direct Rollovers..................................... 33
FEDERAL INCOME TAX WITHHOLDING......................... 33
GENERAL MATTERS........................................... 34
Tax Deferral......................................... 34
Performance Data..................................... 34
Financial Statements................................. 34
Asset Allocation and Timing Services................. 34
Restrictions Under the Texas Optional
Retirement Program ............................... 34
Distribution of Contracts ........................... 34
Contract Owner Inquiries............................. 35
Legal Proceedings ................................... 35
Other Information ................................... 35
EXCHANGE OFFER............................................ 35
ENHANCED DEATH BENEFIT OPTION............................. 37
STATEMENT OF ADDITIONAL INFORMATION-
TABLE OF CONTENTS...................................... 39
APPENDIX A: EXAMPLES OF CALCULATION OF
WITHDRAWAL CHARGE...................................... 40
APPENDIX B: STATE PREMIUM TAXES.......................... 41
APPENDIX C: PRIOR CONTRACTS (VEN 3 AND VEN 1)............ 42
</TABLE>
2
<PAGE> 11
SPECIAL TERMS
The following terms as used in this Prospectus have the indicated
meanings:
Accumulation Unit - A unit of measure that is used to calculate the
value of the variable portion of the contract before the maturity date.
Annuitant - Any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
contract owner names more than one person as an "Annuitant," the second person
named shall be referred to as "Co-Annuitant." All provisions based on the date
of the death of the "Annuitant" will be based on the date of death of the last
to survive of the "Annuitant" or "Co-Annuitant." The "Annuitant" and
"Co-Annuitant" will be referred to collectively as "Annuitant." The "Annuitant"
is as specified in the application, unless changed.
Annuity Option - The method selected by the contract owner for annuity
payments made by the Company. At the maturity date, the Company will provide a
fixed annuity with payments guaranteed for 10 years and for the lifetime of the
annuitant, if the annuitant lives more than 10 years. This will be the annuity
option under the contract unless changed.
Annuity Service Office - The service office of the Company is P.O. Box
9230, Boston, Massachusetts 02205-9230.
Annuity Unit - A unit of measure that is used after the maturity date
to calculate variable annuity payments.
Beneficiary - The person, persons or entity entitled to the death
benefit under the contract upon the death of the annuitant. The beneficiary is
as specified in the application, unless changed. (See also "Successor Owner").
Contingent Beneficiary - The person, persons or entity to become the
beneficiary if the beneficiary is not alive. The contingent beneficiary is as
specified in the application, unless changed.
Contract Anniversary - The anniversary of the contract date.
Contract Date - The date of issue of the contract.
Contract Value - The total of the investment account values and, if
applicable, any amount in the loan account attributable to the contract.
Contract Year - The period of twelve consecutive months beginning on
the contract date or any anniversary thereof.
Debt - Any amounts in the loan account attributable to the contract
plus any accrued loan interest. The loan provision is applicable to certain
qualified contracts only.
Due Proof of Death - Due Proof of Death is required upon the death of
the Annuitant or the Owner. One of the following must be received at the Annuity
Service Office within one year of the date of death:
(a) A certified copy of a death certificate;
(b) A certified copy of a decree of a court of competent
jurisdiction as to the finding of death; or
(c) Any other proof satisfactory to us.
Death benefits will be paid within 7 days of receipt of due proof of death and
all required claim forms by the Company's Annuity Service Office.
Fixed Annuity - An annuity option with payments which are predetermined
and guaranteed as to dollar amount.
General Account - All the assets of the Company other than assets in
separate accounts.
Investment Account - An account established by the Company which
represents a contract owner's interest in an investment option prior to the
maturity date.
3
<PAGE> 12
Investment Account Value - The value of a contract owner's investment
in an investment account.
Investment Options - The investment choices available to contract
owners. There are sixteen variable and three fixed investment options under the
contract.
Loan Account - The portion of the general account that is used for
collateral when a loan is taken.
Market Value Charge - A charge that may be assessed if amounts are
withdrawn or transferred from the three or six year investment options prior to
the end of the interest rate guarantee period.
Maturity Date - The date on which annuity benefits commence. The
maturity date is the date specified on the contract specifications page and is
generally the first day of the month following the annuitant's 85th birthday,
unless changed. See Appendix C for information on the Maturity Date for certain
contracts no longer being issued. (Ven 3 and Ven 1 contracts).
Net Purchase Payment - The purchase payment less the amount of premium
tax, if any.
Non-Qualified Contracts - Contracts which are not issued under
qualified plans.
Owner or Contract Owner - The person, persons (co-owner) or entity
entitled to all of the ownership rights under the contract. The owner has the
legal right to make all changes in contractual designations where specifically
permitted by the contract. The owner is as specified in the application, unless
changed.
Portfolio or Trust Portfolio - A separate investment portfolio of the
Trust, a mutual fund in which the Variable Account invests, or of any successor
mutual fund.
Purchase Payment - An amount paid by a contract owner to the Company as
consideration for the benefits provided by the contract.
Qualified Contracts - Contracts issued under qualified plans.
Qualified Plans - Retirement plans which receive favorable tax
treatment under Section 401, 403, 408 or 457 of the Internal Revenue Code of
1986, as amended.
Separate Account - A segregated account of the Company that is not
commingled with the Company's general assets and obligations.
Sub-Account(s) - One or more of the sub-accounts of the Variable
Account. Each sub-account is invested in shares of a different Trust portfolio.
Successor Owner - The person, persons or entity to become the owner if
the owner dies prior to the Maturity Date. The successor owner is as specified
in the application, unless changed. If no Successor Owner is designated or the
Successor Owner dies before the Owner, the Owner's estate is the Successor
Owner. (See also "Beneficiary").
Valuation Date - Any date on which the New York Stock Exchange is open
for business and the net asset value of a Trust portfolio is determined.
Valuation Period - Any period from one valuation date to the next,
measured from the time on each such date that the net asset value of each
portfolio is determined.
Variable Account - The Variable Account, which is a separate account of
the Company.
Variable Annuity - An annuity option with payments which: (1) are not
predetermined or guaranteed as to dollar amount, and (2) vary in relation to the
investment experience of one or more specified sub-accounts.
4
<PAGE> 13
SUMMARY
The Contract. The contract offered by this Prospectus is a flexible
purchase payment individual deferred combination fixed and variable annuity
contract. The contract provides for the accumulation of contract values and the
payment of annuity benefits on a variable and/or fixed basis. Except as
specifically noted herein and as set forth under the caption "FIXED ACCOUNT
INVESTMENT OPTIONS" below, this Prospectus describes only the variable portion
of the contract.
Retirement Plans. The contract may be issued pursuant to either
non-qualified retirement plans or plans qualifying for special income tax
treatment under the Internal Revenue Code, such as individual retirement
accounts and annuities, pension and profit-sharing plans for corporations and
sole proprietorships/partnerships ("H.R. 10" and "Keogh" plans), tax-sheltered
annuities, and state and local government deferred compensation plans. (See
"QUALIFIED RETIREMENT PLANS")
Purchase Payments. A contract may be issued upon the making of an
initial purchase payment of as little as $30. A minimum of $300 must be paid
during the first contract year. Purchase payments may be made at any time,
except that if a purchase payment would cause the contract value to exceed
$1,000,000, or the contract value already exceeds $1,000,000, additional
purchase payments will be accepted only with the prior approval of the Company.
(See "PURCHASE PAYMENTS")
Investment Options. Purchase payments may be allocated among the
nineteen investment options currently available under the contract: sixteen
variable account investment options and three fixed account investment options.
Due to current administrative capabilities, a contract owner is limited to a
maximum of 17 investment options (including all fixed account investment
options) during the period prior to the maturity date of the contract. The
sixteen variable account investment options are the sixteen sub-accounts of the
Variable Account, a separate account established by the Company. The
sub-accounts invest in corresponding portfolios of the Trust: the Small/Mid Cap
Trust, the International Small Cap Trust, the Global Equity Trust, Pasadena
Growth Trust, Equity Trust, Value Equity Trust, Growth and Income Trust,
International Growth and Income Trust, Strategic Bond Trust, Global Government
Bond Trust, Investment Quality Bond Trust, U.S. Government Securities Trust,
Money Market Trust, and three Automatic Asset Allocation Trusts (Aggressive,
Moderate and Conservative) (see the accompanying Prospectus of the Trust). The
portion of the contract value in the Variable Account and monthly annuity
payments, if selected on a variable basis, will reflect the investment
performance of the sub-accounts selected. (See "NASL VARIABLE ACCOUNT") Purchase
payments may also be allocated to the three fixed account investment options:
one, three and six year guaranteed investment accounts. Under the fixed account
investment options, the Company guarantees the principal value of purchase
payments and the rate of interest credited to the investment account for the
term of the guarantee period. The portion of the contract value in the fixed
account investment options and monthly annuity payments, if selected on a fixed
basis, will reflect such interest and principal guarantees. (See "FIXED ACCOUNT
INVESTMENT OPTIONS") Subject to certain regulatory limitations, the Company may
elect to add, subtract or substitute investment options.
Transfers. Prior to the maturity date, amounts may be transferred among
the variable account investment options and from the variable account investment
options to the fixed account investment options without charge. In addition,
amounts may be transferred prior to the maturity date among the fixed account
investment options and from the fixed account investment options to the variable
account investment options, subject to a one year holding period requirement
(with certain exceptions) and a market value charge which may apply to such a
transfer. (See "FIXED ACCOUNT INVESTMENT OPTIONS") After the maturity date,
transfers are not permitted from variable annuity options to fixed annuity
options or from fixed annuity options to variable annuity options. Transfers
from any investment account must be at least $300 or, if less, the entire
balance in the investment account. If, after the transfer the amount remaining
in the Investment Account of the contract from which the transfer is made is
less than $100, then the Company will transfer the entire amount instead of the
requested amount. The Company may impose certain additional limitations on
transfers. (See "TRANSFERS AMONG INVESTMENT OPTIONS" and "TRANSFERS AFTER
MATURITY DATE") Transfer privileges may also be used under a special service
offered by the Company to dollar cost average an investment in the contract.
(See "SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING")
Withdrawals. Prior to the earlier of the maturity date or the death of
the annuitant, the contract owner may withdraw all or a portion of the contract
value. The amount withdrawn from any investment account must be at least $300
or, if less, the entire balance of the investment account. If a partial
withdrawal plus any applicable withdrawal charge would reduce the contract value
to less than $300, the withdrawal request will be treated as a request to
withdraw the entire contract value. A withdrawal charge and an administration
fee may be imposed. (See "WITHDRAWALS") A withdrawal may be subject to a penalty
tax. (See "FEDERAL TAX MATTERS") Withdrawal privileges may also be exercised
pursuant to the Company's systematic withdrawal plan service. (See "SPECIAL
WITHDRAWAL SERVICES - SYSTEMATIC WITHDRAWAL PLAN")
5
<PAGE> 14
Loans. The Company offers a loan privilege to owners of contracts
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA. Owners of such contracts may obtain loans using the contract
as the only security for the loan. The effective cost of a contract loan is 2%
per year of the amount borrowed. (See "LOANS")
Death Benefit Before Maturity Date. Generally, if the annuitant dies
before the maturity date, the Company will pay to the beneficiary the minimum
death benefit less any debt. During the first six contract years, the minimum
death benefit is the greater of (a) the contract value on the date due proof of
death and all required claim forms are received at the Company's Annuity Service
Office, or (b) the sum of all purchase payments made, less any amount deducted
in connection with partial withdrawals. During any subsequent six contract year
period, the minimum death benefit will be the greater of (a) the contract value
on the date due proof of death and all required claim forms are received at the
Company's Annuity Service Office, or (b) the minimum death benefit determined in
accordance with these provisions as of the last day of the previous six contract
year period plus any purchase payments made and less any amount deducted in
connection with partial withdrawals since then. If the annuitant dies after the
first of the month following his or her 85th birthday, the minimum death benefit
will be the contract value on the date due proof of death, and all required
claim forms are received at the Company's Annuity Service Office. In certain
other cases, an amount equal to the owner's interest will be distributed when
the owner dies before the maturity date. An enhancement to the death benefit
described above may be available to your contract. (See "DEATH BENEFIT BEFORE
MATURITY DATE" and "ENHANCED DEATH BENEFIT OPTION") If the annuitant dies after
the maturity date and annuity payments have been selected based on an annuity
option providing for payments for a guaranteed period, the Company will make the
remaining guaranteed payments to the beneficiary. (See "DEATH BENEFIT ON OR
AFTER MATURITY DATE")
Annuity Payments. The Company offers a variety of fixed and variable
annuity options. Periodic annuity payments will begin on the maturity date. The
contract owner selects the maturity date, frequency of payment and annuity
option. (See "ANNUITY PROVISIONS")
Ten Day Review. Within 10 days of receipt of a contract, the contract
owner may cancel the contract by returning it to the Company. (See "TEN DAY
RIGHT TO REVIEW")
Charges and Deductions. The following table and Example are designed to
assist contract owners in understanding the various costs and expenses that
contract owners bear directly and indirectly. The table reflects expenses of the
separate account and the underlying portfolio company. In addition to the items
listed in the following table, premium taxes may be applicable to certain
contracts. The items listed under "Contract Owner Transaction Expenses" and
"Separate Account Annual Expenses" are more completely described in this
Prospectus (see "CHARGES AND DEDUCTIONS"). The items listed under "Trust Annual
Expenses" are described in detail in the accompanying Trust Prospectus to which
reference should be made.
CONTRACT OWNER TRANSACTION EXPENSES
Deferred sales load (as percentage of purchase payments)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN WITHDRAWAL CHARGE
CONTRACT PERCENTAGE
--------------------------------------------------
<S> <C>
0 6%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL CONTRACT FEE...................................................... $30
</TABLE>
6
<PAGE> 15
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and expense risk fees......................................... 1.25%
Administration fee - asset based....................................... 0.15%
Total Separate Account Annual Expenses.................................. 1.40%
</TABLE>
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small/Mid Cap Trust................. 1.00% 0.25%* 1.250%
International Small Cap Trust....... 1.100% 0.30%* 1.400%
Global Equity....................... 0.900% 0.150% 1.050%
Pasadena Growth..................... 0.975% 0.000% 0.975%
Equity.............................. 0.750% 0.050% 0.800%
Value Equity........................ 0.800% 0.050% 0.850%
Growth and Income................... 0.750% 0.050% 0.800%
International Growth and Income..... 0.950% 0.520% 1.470%
Strategic Bond...................... 0.775% 0.145% 0.920%
Global Government Bond.............. 0.800% 0.130% 0.930%
Investment Quality Bond............. 0.650% 0.090% 0.740%
U.S. Government Securities.......... 0.650% 0.060% 0.710%
Money Market ....................... 0.500% 0.040% 0.540%
Aggressive Asset Allocation......... 0.750% 0.160% 0.910%
Moderate Asset Allocation........... 0.750% 0.090% 0.840%
Conservative Asset Allocation....... 0.750% 0.120% 0.870%
<FN>
*Based on estimates of payments to be made during the current fiscal year.
</TABLE>
EXAMPLE
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner surrendered the
contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap....................... $83 $133
International Small Cap............. 84 138
Global Equity....................... 81 128 $165 $288
Pasadena Growth..................... 80 126 161 280
Equity.............................. 79 121 152 262
Value Equity........................ 79 122 155 268
Growth and Income................... 79 121 152 262
International Growth and Income..... 85 140 186 328
Strategic Bond...................... 80 124 158 275
Global Government Bond.............. 80 124 159 276
Investment Quality Bond............. 78 119 149 256
U.S. Government Securities.......... 78 118 148 253
Money Market........................ 76 113 139 236
Aggressive Asset Allocation......... 80 124 158 274
Moderate Asset Allocation........... 79 122 154 267
Conservative Asset Allocation....... 79 123 156 270
</TABLE>
7
<PAGE> 16
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner annuitized as
provided in the contract or did not surrender the contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap....................... $28 $85
International Small Cap............. 29 89
Global Equity....................... 26 79 $135 $288
Pasadena Growth..................... 25 77 131 280
Equity ............................. 23 71 122 262
Value Equity........................ 24 73 125 268
Growth and Income................... 23 71 122 262
International Growth and Income..... 30 91 156 328
Strategic Bond...................... 24 75 128 275
Global Government Bond.............. 24 75 129 276
Investment Quality Bond............. 23 70 119 256
U.S. Government Securities.......... 22 69 118 253
Money Market........................ 21 64 109 236
Aggressive Asset Allocation......... 24 75 128 274
Moderate Asset Allocation........... 24 73 124 267
Conservative Asset Allocation....... 24 74 126 270
</TABLE>
For purposes of presenting the foregoing Example, the Company has made
certain assumptions mandated by the Securities and Exchange Commission (the
"Commission"). The Company has assumed that, where applicable, the maximum sales
load is deducted, that there are no exchanges or other transactions and that the
"Other Expenses" line item under "Trust Annual Expenses" will remain the same.
Such assumptions, which are mandated by the Commission in an attempt to provide
prospective investors with standardized data with which to compare various
annuity contracts, do not take into account certain features of the contract and
prospective changes in the size of the Trust which may operate to change the
expenses borne by contract owners. Consequently, the amounts listed in the
Example above should not be considered a representation of past or future
expenses and actual expenses borne by contract owners may be greater or lesser
than those shown.
In addition, for purposes of calculating the values in the above
Example, the Company has translated the $30 annual administration charge listed
under "Annual Contract Fee" to a .086% annual asset charge based on the $35,000
approximate average size of contracts of the series offered hereby issued by the
Company in 1995. So translated, such charge would be higher for smaller
contracts and lower for larger contracts. See Appendix C for examples of
expenses applicable to certain contracts which are no longer being issued. (Ven
3 and Ven 1 contracts).
* * * * * * * *
The above summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and Statement of Additional
Information and the accompanying Prospectus and Statement of Additional
Information for the Trust, to which reference should be made. This Prospectus
generally describes only the variable aspects of the contract, except where
fixed aspects are specifically mentioned.
8
<PAGE> 17
TABLE OF ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
UNIT VALUE
AT START UNIT VALUE AT NUMBER OF UNITS
SUB-ACCOUNT OF YEAR* END OF YEAR AT END OF YEAR
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity
1989.............................. 10.038462 12.259530 1,599,855
1990.............................. 12.259530 10.827724 3,216,667
1991.............................. 10.827724 12.044260 4,968,734
1992.............................. 12.044260 11.790318 7,560,807
1993.............................. 11.790318 15.450341 18,493,192
1994.............................. 15.450341 15.500933 28,273,754
1995.............................. 15.500933 16.459655 25,947,632
Pasadena Growth
1992*............................. 10.000000 9.923524 2,614,367
1993.............................. 9.923524 9.413546 8,733,734
1994.............................. 9.413546 8.837480 12,682,151
1995.............................. 8.837480 11.026969 16,013,892
Equity
1989.............................. 9.695125 12.208846 1,443,222
1990.............................. 12.208846 10.618693 1,044,365
1991.............................. 10.618693 12.349952 3,238,479
1992.............................. 12.349952 13.143309 10,082,924
1993.............................. 13.143309 15.075040 18,691,511
1994.............................. 15.075040 14.786831 27,046,973
1995.............................. 14.786831 20.821819 31,264,936
Value Equity
1993**............................ 10.000000 11.175534 5,061,871
1994.............................. 11.175534 11.107620 13,006,071
1995.............................. 11.107620 13.548849 16,254,844
Growth and Income
1991***........................... 10.874875 10.973500 3,689,377
1992.............................. 10.973500 11.927411 8,573,365
1993.............................. 11.927411 12.893007 16,816,664
1994.............................. 12.893007 13.076664 22,827,949
1995.............................. 13.076640 16.660889 25,312,482
International Growth and Income
1995****.......................... 10.000000 10.554228 4,340,859
Strategic Bond
1993**............................ 10.000000 10.750617 3,628,986
1994.............................. 10.750617 9.965972 6,059,065
1995.............................. 9.965972 11.716972 6,153,987
Global Government Bond
1989.............................. 10.097842 10.404562 300,163
1990.............................. 10.404562 11.642912 503,123
1991.............................. 11.642912 13.302966 1,406,253
1992.............................. 13.302966 13.415849 3,990,936
1993.............................. 13.415849 15.741586 9,235,552
1994.............................. 15.741586 14.630721 10,820,359
1995.............................. 14.630721 17.772344 9,377,776
Investment Quality Bond (formerly called
Bond Sub-account)
1989.............................. 10.937890 12.008936 1,924,256
1990.............................. 12.008936 11.517610 226,591
1991.............................. 11.517610 13.183268 1,133,721
</TABLE>
9
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
1992.............................. 13.183268 13.936240 2,633,165
1993.............................. 13.936240 15.118716 4,666,274
1994.............................. 15.118716 14.216516 5,662,391
1995.............................. 14.216516 16.751499 5,445,294
U.S. Gov. Securities (formerly called U.S. Gov.
Bond Sub-account)
1990.............................. 10.826483 11.596537 515,572
1991.............................. 11.596537 13.037076 1,496,429
1992.............................. 13.037076 13.651495 7,034,773
1993.............................. 13.651495 14.49073 11,566,348
1994.............................. 14.490734 14.111357 9,903,906
1995.............................. 14.111357 16.083213 8,402,470
Money Market
1989.............................. 10.865066 11.634481 1,480,696
1990.............................. 11.634481 12.364687 2,465,280
1991.............................. 12.364687 12.890414 3,340,971
1992.............................. 12.890414 13.137257 4,636,753
1993.............................. 13.137257 13.303085 7,413,316
1994.............................. 13.303085 13.623292 12,741,277
1995.............................. 13.623292 14.190910 9,721,732
Aggressive Asset Allocation
1989.............................. 10.000000 9.824046 7,476,667
1990.............................. 9.824046 8.982210 3,434,253
1991.............................. 8.982210 10.891189 5,038,265
1992.............................. 10.891189 11.623893 6,990,120
1993.............................. 11.623893 12.642493 8,147,578
1994.............................. 12.642493 12.381395 9,915,078
1995.............................. 12.381395 14.990551 9,004,834
Moderate Asset Allocation
1989.............................. 10.000000 9.973206 2,137,590
1990.............................. 9.973206 9.221559 11,521,935
1991.............................. 9.221559 11.023964 15,739,307
1992 ............................. 11.023964 11.772128 21,949,044
1993.............................. 11.772128 12.775798 30,338,231
1994.............................. 12.775798 12.396295 31,579,176
1995.............................. 12.396295 14.752561 28,508,685
Conservative Asset Allocation
1989.............................. 10.000000 10.052759 11,861,277
1990.............................. 10.052759 9.531831 5,005,473
1991.............................. 9.531831 11.166459 6,075,773
1992.............................. 11.166459 11.821212 9,218,954
1993.............................. 11.821212 12.705196 12,271,114
1994.............................. 12.705196 12.298940 11,519,563
1995.............................. 12.298940 14.320582 10,207,673
<FN>
* This Sub-account commenced operations on December 11, 1992.
** This Sub-account commenced operations on February 19, 1993.
*** This Sub-account commenced operations on April 23, 1991.
**** This Sub-account commenced operations on January 9, 1995.
+ See Appendix C for the TABLE OF ACCUMULATION UNIT VALUES for certain
contracts which are no longer being issued. (Ven 3 and Ven 1
Contracts).
</TABLE>
10
<PAGE> 19
GENERAL INFORMATION ABOUT NORTH AMERICAN
SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE ACCOUNT AND NASL SERIES TRUST
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
North American Security Life Insurance Company ("the Company") is a
stock life insurance company organized under the laws of Delaware in 1979. The
Company's principal office is located at 116 Huntington Avenue, Boston,
Massachusetts 02116. The ultimate parent of the Company is The Manufacturers
Life Insurance Company ("Manulife"), a Canadian mutual life insurance company
based in Toronto, Canada. Prior to January 1, 1996, the Company was a wholly
owned subsidiary of North American Life Assurance Company ("NAL"), a Canadian
mutual life insurance company. On January 1, 1996 NAL and Manulife merged with
the combined company retaining the Manulife name.
NASL VARIABLE ACCOUNT
The Company established the Variable Account on August 24, 1984 as a
separate account under Delaware law. The income, gains and losses, whether or
not realized, from assets of the Variable Account are, in accordance with the
contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. Nevertheless, all obligations
arising under the contracts are general corporate obligations of the Company.
Assets of the Variable Account may not be charged with liabilities arising out
of any other business of the Company.
The Variable Account is registered with the Commission under the
Investment Company Act of 1940 ("1940 Act") as a unit investment trust. A unit
investment trust is a type of investment company which invests its assets in
specified securities, such as the shares of one or more investment companies.
Registration under the 1940 Act does not involve supervision by the Commission
of the management or investment policies or practices of the Variable Account.
There are currently sixteen sub-accounts within the Variable Account:
the Small/Mid Cap Sub-Account, the International Small Cap Sub-Account, the
Global Equity Sub-Account, the Pasadena Growth Sub-Account, the Equity
Sub-Account, the Value Equity Sub-Account, the Growth and Income Sub-Account,
the International Growth and Income Sub-Account, the Strategic Bond Sub-Account,
the Global Government Bond Sub-Account, the Investment Quality Bond Sub-Account,
the U.S. Government Securities Sub-Account, the Money Market Sub-Account and
three Automatic Asset Allocation Sub-Accounts (Aggressive, Moderate and
Conservative). The Company reserves the right to add other sub-accounts,
eliminate existing sub-accounts, combine sub-accounts or transfer assets in one
sub-account to another sub-account established by the Company or an affiliated
company. The Company will not eliminate existing sub-accounts or combine
sub-accounts without the prior approval of the appropriate state or federal
regulatory authorities. See Appendix C for information on sub-accounts available
to certain contracts which are no longer being issued (Ven 1 contracts).
NASL SERIES TRUST
The assets of each sub-account of the Variable Account are invested in
shares of a corresponding portfolio of the Trust: the Small/Mid Cap Trust, the
International Small Cap Trust, the Global Equity Trust, the Pasadena Growth
Trust, the Equity Trust, the Value Equity Trust, the Growth and Income Trust,
the International Growth and Income Trust, the Strategic Bond Trust, the Global
Government Bond Trust, the Investment Quality Bond Trust, the U.S. Government
Securities Trust, the Money Market Trust, and three Automatic Asset Allocation
Trusts (Aggressive, Moderate and Conservative). The Trust is registered under
the 1940 Act as an open-end management investment company. Each of the
portfolios is diversified for purposes of the 1940 Act, except for the Global
Government Bond Trust which is non-diversified so that it may invest more than
5% of its assets in securities issued by a foreign government. The Trust
receives investment advisory services from NASL Financial Services, Inc.
The Trust currently has nine subadvisers. Oechsle International
Advisors, L.P. provides investment subadvisory services to the Global Equity and
Global Government Bond Trusts. Roger Engemann Management Co, Inc., provides
investment subadvisory services to the Pasadena Growth Trust. Fidelity
Management Trust Company provides investment subadvisory services to the Equity,
Aggressive Asset Allocation, Moderate Asset Allocation and Conservative Asset
Allocation Trusts. Goldman Sachs Asset Management provides investment
subadvisory services to the Value Equity Trust. Wellington Management Company
provides investment subadvisory services to the Growth and Income, Investment
Quality Bond and Money Market Trusts. Salomon Brothers Asset Management Inc
provides investment subadvisory services to the Strategic Bond and U.S.
Government Securities Trusts. J.P. Morgan Investment Management Inc. provides
investment subadvisory services to the International Growth and Income Trust.
Fred Alger Management, Inc. provides
11
<PAGE> 20
investment subadvisory services to the Small/Mid Cap Trust and Founders Asset
Management, Inc. provides investment subadvisory services to the International
Small Cap Trust.
The following is a brief description of each portfolio:
THE SMALL/MID CAP TRUST seeks long term capital appreciation by
investing at least 65% of its total assets (except during temporary defensive
periods) in small/mid cap equity securities. As used herein small/mid cap equity
securities are equity securities of companies that, at the time of purchase,
have total market capitalization between $500 million and $5 billion.
THE INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by
investing primarily in securities issued by foreign companies which have total
market capitalization or annual revenues of $1 billion or less. These securities
may represent companies in both established and emerging economies throughout
the world.
THE GLOBAL EQUITY TRUST seeks long-term capital appreciation, by
investing primarily in a globally diversified portfolio of common stocks and
securities convertible into or exercisable for common stocks.
THE PASADENA GROWTH TRUST seeks to achieve long-term growth of capital
by emphasizing investments in companies with rapidly growing earnings per share,
some of which may be smaller emerging growth companies.
THE EQUITY TRUST seeks growth of capital, by investing primarily in
common stocks of United States issuers and securities convertible into or
carrying the right to buy common stocks.
THE VALUE EQUITY TRUST seeks long-term growth of capital by investing
primarily in common stocks and securities convertible into or carrying the right
to buy common stocks.
THE GROWTH AND INCOME TRUST seeks long-term growth of capital and
income, consistent with prudent investment risk, by investing primarily in a
diversified portfolio of common stocks of United States issuers which the
Subadviser believes are of high quality.
THE INTERNATIONAL GROWTH AND INCOME TRUST seeks long-term growth of
capital and income by investing, under normal circumstances, at least 65% of its
total assets in equity securities of foreign issuers. The Portfolio may also
invest in debt securities of corporate or sovereign issuers rated A or higher by
Moody's or S&P or, if unrated, of equivalent credit quality as determined by
J.P. Morgan. Under normal circumstances, the Portfolio will be invested
approximately 85% in equity securities and 15% in fixed income securities.
THE STRATEGIC BOND TRUST seeks a high level of total return consistent
with preservation of capital by giving its Subadviser broad discretion to deploy
the portfolio's assets among certain segments of the fixed-income market as the
Subadviser believes will best contribute to achievement of the portfolio's
investment objective.
THE GLOBAL GOVERNMENT BOND TRUST seeks a high level of total return by
placing primary emphasis on high current income and the preservation of capital,
by investing primarily in a global portfolio of high-quality, fixed-income
securities of foreign and United States governmental entities and supranational
issuers.
THE INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
THE U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current
income consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
THE MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity, by investing in high quality money
market instruments with maturities of 397 days or less issued primarily by
United States entities.
12
<PAGE> 21
THE AUTOMATIC ASSET ALLOCATION TRUSTS seek the highest potential total
return consistent with a specified level of risk tolerance -- conservative,
moderate or aggressive -- by investing primarily in the kinds of securities in
which the Equity, Investment Quality Bond, U.S. Government Securities and Money
Market Trusts may invest.
* THE AGGRESSIVE ASSET ALLOCATION TRUST seeks the highest total return
consistent with an aggressive level of risk tolerance. This Trust attempts to
limit the decline in portfolio value in very adverse market conditions to 15%
over any twelve month period.
* THE MODERATE ASSET ALLOCATION TRUST seeks the highest total return
consistent with a moderate level of risk tolerance. This Trust attempts to limit
the decline in portfolio value in very adverse market conditions to 10% over any
twelve month period.
* THE CONSERVATIVE ASSET ALLOCATION TRUST seeks the highest total
return consistent with a conservative level of risk tolerance. This Trust
attempts to limit the decline in portfolio value in very adverse market
conditions to 5% over any twelve month period.
In pursuing the Strategic Bond and Investment Quality Bond Trusts'
investment objective, each portfolio expects to invest a portion of its assets
in high yield securities, commonly known as "junk bonds" which also present a
high degree of risk. The risk of these securities include price volatility and
risk of default in the payment of interest and principal. See "Risk Factors
Relating to High Yield Securities" contained in the NASL Series Trust prospectus
before investing in either Trust.
In pursuing the International Small Cap, Global Equity, Strategic Bond,
International Growth and Income and Global Government Bond Trusts' investment
objective, each portfolio may invest up to 100% of its assets in foreign
securities which may present additional risks. See " Foreign Securities" in the
NASL Series Trust prospectus before investing in any of these Trusts.
If the shares of a Trust portfolio are no longer available for
investment or in the Company's judgment investment in a Trust portfolio becomes
inappropriate in view of the purposes of the Variable Account, the Company may
eliminate the shares of a portfolio and substitute shares of another portfolio
of the Trust or another open-end registered investment company. Substitution may
be made with respect to both existing investments and the investment of future
purchase payments. However, no such substitution will be made without notice to
the contract owner and prior approval of the Commission to the extent required
by the 1940 Act.
The Company will vote shares of the Trust portfolios held in the
Variable Account at meetings of shareholders of the Trust in accordance with
voting instructions received from the persons having the voting interest under
the contracts. The number of portfolio shares for which voting instructions may
be given will be determined by the Company in the manner described below, not
more than 90 days prior to the meeting of the Trust. Trust proxy material will
be distributed to each person having the voting interest under the contract
together with appropriate forms for giving voting instructions. Portfolio shares
held in the Variable Account that are attributable to contract owners and as to
which no timely instructions are received and portfolio shares held in the
Variable Account that are beneficially owned by the Company will be voted by the
Company in proportion to the instructions received.
Prior to the maturity date, the person having the voting interest under
a contract is the contract owner and the number of votes as to each portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the sub-account in which such
portfolio shares are held by the net asset value per share of that portfolio.
After the maturity date, the person having the voting interest under a contract
is the annuitant and the number of votes as to each portfolio for which voting
instructions may be given is determined by dividing the reserve for the contract
allocated to the sub-account in which such portfolio shares are held by the net
asset value per share of that portfolio. Generally, the number of votes tends to
decrease as annuity payments progress since the amount of reserves attributable
to a contract will usually decrease after commencement of annuity payments. The
Company reserves the right to make any changes in the voting rights described
above that may be permitted by the federal securities laws or regulations or
interpretations of these laws or regulations.
A full description of the Trust, including the investment objectives,
policies and restrictions of each of the portfolios is contained in the
Prospectus for the Trust which accompanies this Prospectus and should be read by
a prospective purchaser before investing.
13
<PAGE> 22
DESCRIPTION OF THE CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service
Office. The minimum purchase payment is $30; however, at least $300 must be paid
during the first contract year. Purchase payments may be made at any time. The
Company may provide by separate agreement for purchase payments to be
automatically withdrawn from a contract owner's bank account on a periodic
basis. If a purchase payment would cause the contract value to exceed $1,000,000
or the contract value already exceeds $1,000,000, additional purchase payments
will be accepted only with the prior approval of the Company.
The Company may, at its option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments have been made, if both
(i) the total purchase payments made over the life of the contract, less any
withdrawals, are less than $2,000; and (ii) the contract value at the end of
such two year period is less than $2,000. Upon cancellation the Company will pay
the contract owner the contract value computed as of the valuation period during
which the cancellation occurs less any debt and less the annual $30
administration fee. The amounts paid will be treated as withdrawals for federal
tax purposes and, thus, may be subject to income tax and to a 10% penalty tax.
(See "FEDERAL TAX MATTERS".)
Purchase payments are allocated among the investment options in
accordance with the percentages designated by the contract owner in the
application. In addition, contract owners have the option to participate in the
Guarantee Plus Program administered by the Company. Under the Guarantee Plus
Program the initial purchase payment is split between the fixed and variable
investment options. A percentage of the initial purchase payment is allocated to
the chosen fixed account, such that, at the end of the guaranteed period the
fixed account will have grown to an amount at least equal to the total initial
purchase payment. The percentage depends upon the current interest rate of the
fixed investment option. The balance of the initial purchase payment is
allocated among the variable investment options as indicated on the contract
application. Contract owners may elect to participate in the Guarantee Plus
Program on the contract application and may obtain full information concerning
the program and its restrictions from their securities dealers or the Annuity
Service Office. The contract owner may change the allocation of subsequent
purchase payments at any time upon written notice to the Company or by telephone
in accordance with the Company's telephone transfer procedures.
See Appendix C for information on purchase payments applicable to
certain contracts which are no longer being issued (Ven 3 and Ven 1 contracts).
ACCUMULATION UNITS
The Company will establish an investment account for the contract owner
for each variable account investment option to which such contract owner
allocates purchase payments. Purchase payments are credited to such investment
accounts in the form of accumulation units. The following discussion of
accumulation units, the value of accumulation units and the net investment
factor formula pertains only to the accumulations in the variable account
investment options. The parallel discussion regarding accumulations in the fixed
account investment options appears elsewhere in this Prospectus. (See "FIXED
ACCOUNT INVESTMENT OPTIONS")
The number of accumulation units to be credited to each investment
account is determined by dividing the net purchase payment allocated to that
investment account by the value of an accumulation unit for that investment
account for the valuation period during which the purchase payment is received
at the Company's Annuity Service Office complete with all necessary information
or, in the case of the first purchase payment, pursuant to the procedures
described below.
Initial purchase payments received by mail will usually be credited in
the valuation period during which received at the Annuity Service Office, and in
any event not later than two business days after receipt of a properly completed
application and all information necessary for processing of the application. The
applicant will be informed of any deficiencies in an application if it cannot be
processed and the purchase payment credited within two business days after
receipt. If the deficiencies are not remedied within five business days, the
purchase payment will be returned promptly to the applicant, unless the
applicant specifically consents to the Company's retaining the purchase payment
until all necessary information is received. Initial purchase payments received
by wire transfer from broker-dealers will be
14
<PAGE> 23
credited in the valuation period during which received where such broker-dealers
have made special arrangements with the Company for the collection and
forwarding of contract applications.
VALUE OF ACCUMULATION UNITS
The value of accumulation units will vary from one valuation period to
the next depending upon the investment results of the particular sub-accounts to
which purchase payments are allocated. The value of an accumulation unit for
each sub-account was arbitrarily set at $10 for the first valuation period. The
value of an accumulation unit for any subsequent valuation period is determined
by multiplying the value of an accumulation unit for the immediately preceding
valuation period by the net investment factor for such sub-account (described
below) for the valuation period for which the value is being determined.
NET INVESTMENT FACTOR
The net investment factor is an index used to measure the investment
performance of a sub-account from one valuation period to the next. The net
investment factor for each sub-account for any valuation period is determined by
dividing (a) by (b) and subtracting (c) from the result:
Where (a) is:
(1) the net asset value per share of a portfolio share held in the
sub-account determined at the end of the current valuation period, plus
(2) the per share amount of any dividend or capital gain distributions
made by the portfolio on shares held in the sub-account if the "ex-dividend"
date occurs during the current valuation period.
Where (b) is:
the net asset value per share of a portfolio share held in the
sub-account determined as of the end of the immediately preceding valuation
period.
Where (c) is:
a factor representing the charges deducted from the sub-account on a
daily basis for administrative expenses and mortality and expense risks. Such
factor is equal on an annual basis to 1.40%: (0.15% for administrative expenses
and 1.25% for mortality and expense risks).
The net investment factor may be greater or less than or equal to one;
therefore, the value of an accumulation unit may increase, decrease or remain
the same.
TRANSFERS AMONG INVESTMENT OPTIONS
Before the maturity date the contract owner may transfer amounts among
the variable account investment options and from such investment options to the
fixed account investment options at any time and without charge upon written
notice to the Company or by telephone if the contract owner authorizes the
Company in writing to accept telephone transfer requests. Accumulation units
will be canceled from the investment account from which amounts are transferred
and credited to the investment account to which amounts are transferred. The
Company will effect such transfers so that the contract value on the date of the
transfer will not be affected by the transfer. The contract owner must transfer
at least $300 or, if less, the entire value of the investment account. If after
the transfer the amount remaining in the investment account is less than $100,
then the Company will transfer the entire amount instead of the requested
amount. The Company reserves the right to limit, upon notice, the maximum number
of transfers a contract owner may make to one per month or six at any time
within a contract year. In addition, the Company reserves the right to defer the
transfer privilege at any time that the Company is unable to purchase or redeem
shares of the Trust portfolios. The Company also reserves the right to modify or
terminate the transfer privilege at any time in accordance with applicable law.
See Appendix C for information on Transfers Among Investment Options applicable
to certain contracts no longer being issued (Ven 3 and Ven 1 contracts).
15
<PAGE> 24
MAXIMUM NUMBER OF INVESTMENT OPTIONS
Due to current administrative capabilities, a contract owner is limited
to a maximum of 17 investment options (including all fixed account investment
options) during the period prior to the maturity date of the contract (the
"Contract Period"). In calculating this limit for each contract owner,
investment options to which the contract owner has allocated purchase payments
at any time during the Contract Period will be counted toward the 17 maximum
even if the Contract Owner no longer has contract value allocated to these
investment options.
TELEPHONE TRANSACTIONS
Contract owners are permitted to request transfers/redemptions by
telephone. The Company will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine. To be
permitted to request a transfer/redemption by telephone, a contract owner must
elect the option on the Application. (If a contract owner does not initially
elect an option in the Application form, they may request authorization by
executing an appropriate authorization form provided by the Company upon
request.) The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and may only be liable for
any losses due to unauthorized or fraudulent instructions where it fails to
employ its procedures properly. Such procedures include the following. Upon
telephoning a request, contract owners will be asked to provide their account
number, and if not available, their social security number. For the contract
owner's and Company's protection, all conversations with contract owners will be
tape recorded. All telephone transactions will be followed by a confirmation
statement of the transaction.
SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING
The Company administers a Dollar Cost Averaging ("DCA") program which
enables a contract owner to pre-authorize a periodic exercise of the contractual
transfer rights described above. Contract owners entering into a DCA agreement
instruct the Company to transfer monthly a predetermined dollar amount from any
sub-account or the one year fixed account investment option to other
sub-accounts until the amount in the sub-account from which the transfer is made
or one year fixed account investment option is exhausted. The DCA program is
generally suitable for contract owners making a substantial deposit to the
contract and who desire to control the risk of investing at the top of a market
cycle. The DCA program allows such investments to be made in equal installments
over time in an effort to reduce such risk. Contract owners interested in the
DCA program may elect to participate in the program on the contract application
or by separate application. Contract owners may obtain a separate application
and full information concerning the program and its restrictions from their
securities dealer or the Annuity Service Office. See Appendix C for information
on the DCA program applicable to certain contracts no longer being issued (Ven 3
and Ven 1 contracts).
ASSET REBALANCING PROGRAM
The Company administers an Asset Rebalancing Program which enables a
contract owner to indicate to the Company the percentage levels he or she would
like to maintain in particular portfolios. On the last business day of every
calendar quarter, the contract owner's contract value will be automatically
rebalanced to maintain the indicated percentages by transfers among the
portfolios. (Fixed Account Investment Options are not eligible for participation
in the Asset Rebalancing Program.) The entire value of the variable investment
accounts must be included in the Asset Rebalancing Program. Other investment
programs, such as the DCA program, or other transfers or withdrawals may not
work in concert with the Asset Rebalancing Program. Therefore, contract owners
should monitor their use of these other programs and any other transfers or
withdrawals while the Asset Rebalancing Program is being used. Contract owners
interested in the Asset Rebalancing Program may obtain a separate application
and full information concerning the program and its restrictions from their
securities dealer or the Annuity Service Office.
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the
annuitant, the contract owner may withdraw all or a portion of the contract
value upon written request, complete with all necessary information to the
Company's Annuity Service Office. For certain qualified contracts, exercise of
the withdrawal right may require the consent of the qualified plan participant's
spouse under the Internal Revenue Code and regulations promulgated by the
Treasury Department. In the case of a total withdrawal, the Company will pay the
contract value as of the date of receipt of the request at its Annuity Service
Office, less the annual $30 administration fee, any debt and any applicable
withdrawal charge, and the contract will be canceled. In the case of a partial
withdrawal, the Company will pay the amount requested and
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cancel that number of accumulation units credited to each investment account
necessary to equal the amount withdrawn from each investment account plus any
applicable withdrawal charge deducted from such investment account. (See
"CHARGES AND DEDUCTIONS")
When making a partial withdrawal, the contract owner should specify the
investment options from which the withdrawal is to be made. The amount requested
from an investment option may not exceed the value of that investment option
less any applicable withdrawal charge. If the contract owner does not specify
the investment options from which a partial withdrawal is to be taken, a partial
withdrawal will be taken from the variable account investment options until
exhausted and then from the fixed account investment options. If the partial
withdrawal is less than the total value in the variable account investment
options, the withdrawal will be taken pro rata from the variable account
investment options: taking from each such variable account investment option an
amount which bears the same relationship to the total amount withdrawn as the
value of such variable account investment option bears to the total value of all
the contract owner's investments in variable account investment options.
For the rules governing the order and manner of withdrawals from the
fixed account investment options, see "FIXED ACCOUNT INVESTMENT OPTIONS."
There is no limit on the frequency of partial withdrawals; however, the
amount withdrawn must be at least $300 or, if less, the entire balance in the
investment option. If after the withdrawal (and deduction of any withdrawal
charge) the amount remaining in the investment option is less than $100, the
Company will treat the partial withdrawal as a withdrawal of the entire amount
held in the investment option. If a partial withdrawal plus any applicable
withdrawal charge would reduce the contract value to less than $300, the Company
will treat the partial withdrawal as a total withdrawal of the contract value.
The amount of any withdrawal from the variable account investment
options will be paid promptly, and in any event within seven days of receipt of
the request, complete with all necessary information at the Company's Annuity
Service Office, except that the Company reserves the right to defer the right of
withdrawal or postpone payments for any period when: (1) the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (2)
trading on the New York Stock Exchange is restricted, (3) an emergency exists as
a result of which disposal of securities held in the Variable Account is not
reasonably practicable or it is not reasonably practicable to determine the
value of the Variable Account's net assets, or (4) the Commission, by order, so
permits for the protection of security holders; provided that applicable rules
and regulations of the Commission shall govern as to whether the conditions
described in (2) and (3) exist.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances. (See "FEDERAL
TAX MATTERS".)
Telephone Redemptions. The contract owner may request the option to
withdraw a portion of the contract value by telephone by completing the
application described under "Telephone Transactions" above. The Company reserves
the right to impose maximum withdrawal amounts and procedural requirements
regarding this privilege. For additional information on Telephone Redemptions
see "Telephone Transactions" above.
SPECIAL WITHDRAWAL SERVICES - SYSTEMATIC WITHDRAWAL PLAN
The Company administers a Systematic Withdrawal Plan ("SWP") which
enables a contract owner to pre-authorize a periodic exercise of the contractual
withdrawal rights described above. Contract owners entering into a SWP agreement
instruct the Company to withdraw a level dollar amount from specified investment
options on a periodic basis. The total of SWP withdrawals in a contract year is
limited to not more than 10% of the purchase payments made to ensure that no
withdrawal or market value charge will ever apply to a SWP withdrawal. If an
additional withdrawal is made from a contract participating in SWP, the SWP will
terminate automatically and may be reinstated only on or after the next contract
anniversary pursuant to a new application. SWP is not available to contracts
participating in the dollar cost averaging program or for which purchase
payments are being automatically deducted from a bank account on a periodic
basis. SWP withdrawals will be free of withdrawal and market value charges. SWP
withdrawals may, however, be subject to income tax and a 10% penalty tax. (See
"FEDERAL TAX MATTERS".) Contract owners interested in SWP may elect to
participate in this program on the contract application or by separate
application. Contract owners may obtain a separate application and full
information concerning the program and its restrictions from their securities
dealer or the Annuity Service Office.
LOANS
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The Company offers a loan privilege only to owners of contracts issued
in connection with Section 403(b) qualified plans that are not subject to Title
I of ERISA. Owners of such contracts may obtain loans using the contract as the
only security for the loan. Loans are subject to provisions of the Code and to
applicable retirement program rules (collectively, "loan rules"). Tax advisers
and retirement plan fiduciaries should be consulted prior to exercising loan
privileges.
Under the terms of the contract, the maximum loan value is equal to 80%
of the contract value, although loan rules may serve to reduce such maximum loan
value in some cases. The amount available for a loan at any given time is the
loan value less any outstanding debt. Debt equals the amount of any loans plus
accrued interest. Loans will be made only upon written request from the owner.
The Company will make loans within seven days of receiving a properly completed
loan application (applications are available from the Annuity Service Office),
subject to postponement under the same circumstances that payment of withdrawals
may be postponed. (See "WITHDRAWALS")
When an owner requests a loan, the Company will reduce the owner's
investment in the investment accounts and transfer the amount of the loan to the
loan account, a part of the Company's general account. The owner may designate
the investment accounts from which the loan is to be withdrawn. Absent such a
designation, the amount of the loan will be withdrawn from the investment
accounts in accordance with the rules for making partial withdrawals. (See
"WITHDRAWALS.") The contract provides that owners may repay contract debt at any
time. Under applicable loan rules, loans generally must be repaid within five
years, repayments must be made at least quarterly and repayments must be made in
substantially equal amounts. When a loan is repaid, the amount of the repayment
will be transferred from the loan account to the investment accounts. The owner
may designate the investment accounts to which a repayment is to be allocated.
Otherwise, the repayment will be allocated in the same manner as the owner's
most recent purchase payment. On each contract anniversary, the Company will
transfer from the investment accounts to the loan account the amount by which
the debt on the contract exceeds the balance in the loan account.
The Company charges interest of 6% per year on contract loans. Loan
interest is payable in arrears and, unless paid in cash, the accrued loan
interest is added to the amount of the debt and bears interest at 6% as well.
The Company credits interest with respect to amounts held in the loan account at
a rate of 4% per year. Consequently, the net cost of loans under the contract is
2%. If on any date debt under a contract exceeds the contract value, the
contract will be in default. In such case the owner will receive a notice
indicating the payment needed to bring the contract out of default and will have
a thirty-one day grace period within which to pay the default amount. If the
required payment is not made within the grace period, the contract may be
foreclosed (terminated without value).
The amount of any debt will be deducted from the minimum death benefit.
(See "DEATH BENEFIT BEFORE THE MATURITY DATE") In addition, debt, whether or not
repaid, will have a permanent effect on the contract value because the
investment results of the investment accounts will apply only to the unborrowed
portion of the contract value. The longer debt is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
investment results are greater than the rate being credited on amounts held in
the loan account while the debt is outstanding, the contract value will not
increase as rapidly as it would have if no debt were outstanding. If investment
results are below that rate, the contract value will be higher than it would
have been had no debt been outstanding.
See Appendix C for information on Loans applicable to certain contracts
no longer being issued (Ven 3 and Ven 1 contracts).
DEATH BENEFIT BEFORE MATURITY DATE
The following discussion applies principally to contracts that are not
issued in connection with qualified plans, i.e., a "non-qualified contract." The
requirements of the tax law applicable to qualified plans, and the tax treatment
of amounts held and distributed under such plans, are quite complex.
Accordingly, a prospective purchaser of the contract to be used in connection
with a qualified plan should seek competent legal and tax advice regarding the
suitability of the contract for the situation involved and the requirements
governing the distribution of benefits, including death benefits, from a
contract used in the plan. In particular, a prospective purchaser who intends to
use the contract in connection with a qualified plan should consider that the
contract provides a minimum death benefit (described below) that could be
characterized as an incidental death benefit. There are limits on the amount of
incidental benefits that may be provided under certain qualified plans and the
provision of such benefits may result in currently taxable income to plan
participants. (See "FEDERAL TAX MATTERS".)
Death of Annuitant who is not the Contract Owner. The Company will pay
the minimum death benefit, less any debt, to the beneficiary if the contract
owner is not the annuitant and the annuitant dies before the contract owner and
before the maturity date. If there is more than one such annuitant, the minimum
death benefit will be paid on the death of the last surviving co-annuitant. The
minimum death benefit will be paid either as a lump sum or in accordance with
any of the annuity options available under the contract. An election to receive
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the death benefit under an annuity option must be made within 60 days after the
date on which the death benefit first becomes payable. (See "ANNUITY OPTIONS")
Rather than receiving the minimum death benefit, the beneficiary may elect to
continue the contract as the new contract owner. (In general, a beneficiary who
makes such an election will nonetheless be treated for federal income tax
purposes as if he had received the minimum death benefit.)
Death of Annuitant who is the Contract Owner. The Company will pay the
minimum death benefit, less any debt, to the beneficiary if the contract owner
is the annuitant, dies before the maturity date and is not survived by a
co-annuitant. If the contract is a non-qualified contract, the contract owner is
the annuitant and the contract owner dies before the maturity date survived by a
co-annuitant, the Company, instead of paying the minimum death benefit to the
beneficiary, will pay to the successor owner an amount equal to the amount
payable on total withdrawal without reduction for any withdrawal charge. (See
"WITHDRAWALS") If the contract is a non-qualified contract, distribution of the
minimum death benefit to the beneficiary (or of the amount payable to the
successor owner) must be made within five years after the owner's death. If the
beneficiary or successor owner, as appropriate, is an individual, in lieu of
distribution within five years of the owner's death, distribution may be made as
an annuity which begins within one year of the owner's death and is payable over
the life of the beneficiary (or the successor owner) or over a period not in
excess of the life expectancy of the beneficiary (or the successor owner). If
the owner's spouse is the beneficiary (or the successor owner, as appropriate)
that spouse may elect to continue the contract as the new owner in lieu of
receiving the distribution. In such a case, the distribution rules applicable
when a contract owner dies generally will apply when that spouse, as the owner,
dies.
Death of Owner who is not the Annuitant. If the owner is not the
annuitant and dies before the maturity date and before the annuitant, the
successor owner will become the owner of the contract. If the contract is a
non-qualified contract, an amount equal to the amount payable on total
withdrawal, without reduction for any withdrawal charge, will be paid to the
successor owner. (See "WITHDRAWALS") Distribution of that amount to the
successor owner must be made within five years of the owner's death. If the
successor owner is an individual, in lieu of distribution within five years of
the owner's death, distribution may be made as an annuity which begins within
one year of the owner's death and is payable over the life of the successor
owner (or over a period not greater than the successor owner's life expectancy).
If the owner's spouse is the successor owner, that spouse may elect to continue
the contract as the new contract owner in lieu of receiving the distribution. In
such a case, the distribution rules applicable when a contract owner dies
generally will apply when that spouse, as the owner, dies. If there is more than
one owner, distribution will occur upon the death of any owner. If both owners
are individuals, distribution will be made to the remaining owner rather than to
the successor owner.
Entity as Owner. In the case of a non-qualified contract which is not
owned by an individual (for example, a non-qualified contract owned by a
corporation or a trust), the special rules stated in this paragraph apply. For
purposes of distributions of death benefits before the maturity date, any
annuitant will be treated as the owner of the contract, and a change in the
annuitant or any co-annuitant shall be treated as the death of the owner. In the
case of distributions which result from a change in an annuitant when the
annuitant does not actually die, the amount distributed will be reduced by
charges which would otherwise apply upon withdrawal. (See "WITHDRAWALS")
If the contract is a non-qualified contract and there is both an
individual and a non-individual contract owner, death benefits must be paid as
provided in the contract upon the death of any annuitant, a change in any
annuitant, or the death of any individual contract owner, whichever occurs
earlier.
The minimum death benefit during the first six contract years will be
equal to the greater of: (a) the contract value on the date due proof of death
and all required claim forms are received at the Company's Annuity Service
Office, or (b) the sum of all purchase payments made, less any amount deducted
in connection with partial withdrawals. During any subsequent six contract year
period, the minimum death benefit will be the greater of: (a) the contract value
on the date due proof of death and all required claim forms are received at the
Company's Annuity Service Office, or (b) the minimum death benefit on the last
day of the previous six contract year period plus any purchase payments made and
less any amount deducted in connection with partial withdrawals since then. If
the annuitant dies after the first of the month following his or her 85th
birthday, the minimum death benefit will be the contract value on the date due
proof of death and all required claim forms are received at the Company's
Annuity Service Office.
An Enhanced Death Benefit became available in Florida, Maryland and
Washington to contracts issued August 15, 1994 or later, in Idaho, New Jersey
and Oregon to contracts issued October 3, 1994 or later and in California to
contracts issued January 3, 1995 or later.
This Enhanced Death Benefit provides for a minimum death benefit as
described above, except that the death benefit is "stepped up" each contract
year instead of the six contract year period. In addition, if the annuitant dies
after the first of the month following his or her 85th birthday, the minimum
death benefit is the greater of the contract value or the excess of the sum of
all purchase payments less the sum of any amounts deducted in connection with
partial withdrawals.
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Contracts issued prior to the date the Enhanced Death Benefit first
became available in that state may obtain this Enhanced Death Benefit through
the "Enhanced Death Benefit Option" program described below under "Enhanced
Death Benefit Option." Contracts with a contract date prior to the date the
Enhanced Death Benefit first became available in that state may also be
exchanged for a new contract which provides for an alternative enhanced death
benefit. See "Exchange Offer" below.
Death benefits will be paid within seven days of receipt of due proof
of death and all required claim forms at the Company's Annuity Service Office,
subject to postponement under the same circumstances that payment of withdrawals
may be postponed. (See "WITHDRAWALS")
See Appendix C for information on the death benefit applicable to
certain contracts which are no longer being issued (Ven 3 and Ven 1 contracts).
ANNUITY PROVISIONS
GENERAL
The proceeds of the contract payable on death, withdrawal or the
contract maturity date may be applied to the annuity options described below,
subject to the distribution of death benefit provisions. (See "DEATH BENEFIT
BEFORE MATURITY DATE")
Generally, annuity benefits under the contract will begin on the
maturity date. The maturity date is the date specified on the contract
specifications page, unless changed. If no date is specified, the maturity date
is the maximum maturity date described below. The maturity date is the later of
the first day of the month following the 85th birthday of the annuitant or the
sixth contract anniversary. The contract owner may specify a different maturity
date at any time by written request at least one month before both the
previously specified and the new maturity date. The new maturity date must be
the first day of a month no later than the first day of the month following the
85th birthday of the annuitant. Distributions from qualified contracts may be
required before the maturity date. The Company may at its discretion permit an
extension of the maturity date. Maturity dates which occur at advanced ages,
e.g., past age 85, may in some circumstances have adverse income tax
consequences. See "FEDERAL TAX MATTERS."
The contract owner may select the frequency of annuity payments.
However, if the contract value at the maturity date is such that a monthly
payment would be less than $20, the Company may pay the contract value, less any
debt, in one lump sum to the annuitant on the maturity date.
ANNUITY OPTIONS
Annuity benefits are available under the contract on a fixed or
variable basis, or any combination of fixed and variable bases. Upon purchase of
the contract, and on or before the maturity date, the contract owner may select
one or more of the annuity options described below on a fixed and/or variable
basis (except Option 5 which is available on a fixed basis only) or choose an
alternate form of settlement acceptable to the Company. If an annuity option is
not selected, the Company will provide as a default option fixed annuity
payments for a period certain of 10 years and continuing thereafter during the
lifetime of the annuitant. In cases where the Company provides the default
option, the annuitant will have 90 days from the date of the first payment to
elect to have all or a portion of the future payments made on a variable basis.
Treasury Department regulations may preclude the availability of certain annuity
options in connection with certain qualified contracts.
The following annuity options are guaranteed in the contract.
Option 1(a): Non-Refund Life Annuity - An annuity with payments
during the lifetime of the annuitant. No payments are due
after the death of the annuitant. Since there is no guarantee
that any minimum number of payments will be made, an annuitant
may receive only one payment if the annuitant dies prior to
the date the second payment is due.
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years - An
annuity with payments guaranteed for 10 years and continuing
thereafter during the lifetime of the annuitant. Since
payments are guaranteed for 10 years, annuity payments will be
made to the end of such period if the annuitant dies prior to
the end of the tenth year.
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Option 2(a): Joint & Survivor Non-Refund Life Annuity - An annuity
with payments during the lifetimes of the annuitant and a
designated co-annuitant. No payments are due after the death
of the last survivor of the annuitant and co-annuitant. Since
there is no guarantee that any minimum number of payments will
be made, an annuitant or co-annuitant may receive only one
payment if the annuitant and co-annuitant die prior to the
date the second payment is due.
Option 2(b): Joint & Survivor Life Annuity with Payments Guaranteed
for 10 Years - An annuity with payments guaranteed for 10
years and continuing thereafter during the lifetimes of the
annuitant and a designated co-annuitant. Since payments are
guaranteed for 10 years, annuity payments will be made to the
end of such period if both the annuitant and the co-annuitant
die prior to the end of the tenth year.
In addition to the foregoing annuity options which the Company is
contractually obligated to offer at all times, the Company currently offers the
following annuity options. The Company may cease offering the following annuity
options at any time and may offer other annuity options in the future.
Option 3: Life annuity with Payments Guaranteed for 5, 15 or 20 Years
- An Annuity with payments guaranteed for 5, 15 or 20 years
and continuing thereafter during the lifetime of the
annuitant. Since payments are guaranteed for the specific
number of years, annuity payments will be made to the end of
the last year of the 5, 15 or 20 year period.
Option 4: Joint & Two-Thirds Survivor Non-Refund Life Annuity - An
annuity with full payments during the joint lifetime of the
annuitant and a designated co-annuitant and two-thirds
payments during the lifetime of the survivor. Since there is
no guarantee that any minimum number of payments will be made,
an annuitant or co-annuitant may receive only one payment if
the annuitant and co-annuitant die prior to the date the
second payment is due.
Option 5: Period Certain Only Annuity for 5, 10, 15 or 20 years - An
annuity with payments for a 5, 10, 15 or 20 year period and no
payments thereafter.
DETERMINATION OF AMOUNT OF THE FIRST VARIABLE ANNUITY PAYMENT
The first variable annuity payment is determined by applying that
portion of the contract value used to purchase a variable annuity, measured as
of a date not more than ten business days prior to the maturity date (minus any
applicable premium taxes), to the annuity tables contained in the contract. The
rates contained in such tables depend upon the annuitant's age, sex and annuity
option selected, except for contracts issued in certain states or in connection
with certain employer sponsored plans where sex-based tables may not be used.
Under such tables, the longer the life expectancy of the annuitant under any
life annuity option or the duration of any period for which payments are
guaranteed under the option, the smaller will be the amount of the first monthly
variable annuity payment. The tables are based on the 1983-a Individual
Annuitant Mortality Table projected at Scale G, and reflect an assumed interest
rate of 4% per year.
ANNUITY UNITS AND THE DETERMINATION OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS
Variable annuity payments subsequent to the first will be based on the
investment performance of the sub-accounts selected. The amount of such
subsequent payments is determined by dividing the amount of the first annuity
payment from each sub-account by the annuity unit value of such sub-account (as
of the same date the contract value to effect the annuity was determined) to
establish the number of annuity units which will thereafter be used to determine
payments. This number of annuity units for each sub-account is then multiplied
by the appropriate annuity unit value as of a uniformly applied date not more
than ten business days before the annuity payment is due, and the resulting
amounts for each sub-account are then totaled to arrive at the amount of the
payment to be made. The number of annuity units remains constant during the
annuity payment period. A pro-rata portion of the administration fee will be
deducted from each annuity payment.
The value of an annuity unit for each sub-account for any valuation
period is determined by multiplying the annuity unit value for the immediately
preceding valuation period by the net investment factor for that sub-account
(see "NET INVESTMENT FACTOR") for the valuation period for which the annuity
unit value is being calculated and by a factor to neutralize the assumed
interest rate.
A 4% assumed interest rate is built into the annuity tables in the
contract used to determine the first variable annuity payment. A higher
assumption would mean a larger first annuity payment, but more slowly rising
subsequent payments when actual investment performance exceeds the assumed rate,
and more rapidly falling subsequent payments when actual investment performance
is less than the
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assumed rate. A lower assumption would have the opposite effect. If the actual
net investment performance is 4% annually, annuity payments will be level.
TRANSFERS AFTER MATURITY DATE
Once variable annuity payments have begun, the contract owner may
transfer all or part of the investment upon which such payments are based from
one sub-account to another. Transfers will be made upon notice to the Company at
least 30 days before the due date of the first annuity payment to which the
change will apply. Transfers after the maturity date will be made by converting
the number of annuity units being transferred to the number of annuity units of
the sub-account to which the transfer is made, so that the next annuity payment
if it were made at that time would be the same amount that it would have been
without the transfer. Thereafter, annuity payments will reflect changes in the
value of the new annuity units. The Company reserves the right to limit, upon
notice, the maximum number of transfers a contract owner may make per contract
year to four. Once annuity payments have commenced, no transfers may be made
from a fixed annuity option to a variable annuity option or from a variable
annuity option to a fixed annuity option. In addition, the Company reserves the
right to defer the transfer privilege at any time that the Company is unable to
purchase or redeem shares of the Trust portfolios. The Company also reserves the
right to modify or terminate the transfer privilege at any time in accordance
with applicable law.
DEATH BENEFIT ON OR AFTER MATURITY DATE
If annuity payments have been selected based on an Annuity Option
providing for payments for a guaranteed period, and the Annuitant dies on or
after the Maturity Date, the Company will make the remaining guaranteed payments
to the Beneficiary. Any remaining payments will be made as rapidly as under the
method of distribution being used as of the date of the Annuitant's death. If no
Beneficiary is living, the Company will commute any unpaid guaranteed payments
to a single sum (on the basis of the interest rate used in determining the
payments) and pay that single sum to the estate of the last to die of the
Annuitant and the Beneficiary.
OTHER CONTRACT PROVISIONS
TEN DAY RIGHT TO REVIEW
The contract owner may cancel the contract by returning it to the
Company's Annuity Service Office or agent at any time within 10 days after
receipt of the contract. Within 7 days of receipt of the contract by the
Company, the Company will pay the contract value, less any debt, computed at the
end of the valuation period during which the contract is received by the
Company, to the contract owner.
No withdrawal charge is imposed upon return of the contract within the
ten day right to review period. The ten day right to review may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states. When the contract is issued as an individual
retirement annuity under Internal Revenue Code Section 408, during the first 7
days of the 10 day period, the Company will return all purchase payments if this
is greater than the amount otherwise payable.
OWNERSHIP
The contract owner is the person entitled to exercise all rights under
the contract. Prior to the maturity date, the contract owner is the person
designated in the application or as subsequently named. On and after the
maturity date, the annuitant is the contract owner and after the death of the
annuitant, the beneficiary is the contract owner.
In the case of non-qualified contracts, ownership of the contract may
be changed or the contract collaterally assigned at any time during the lifetime
of the annuitant prior to the maturity date, subject to the rights of any
irrevocable beneficiary. Assigning a contract, or changing the ownership of a
contract, may be treated as a distribution of the contract value for Federal tax
purposes. (See "FEDERAL TAX MATTERS".) Any change of ownership or assignment
must be made in writing. Any change must be approved by the Company. Any
assignment and any change, if approved, will be effective as of the date on
which written. The Company assumes no liability for any payments made or actions
taken before a change is approved or assignment is accepted or responsibility
for the validity or sufficiency of any assignment.
In the case of qualified contracts, ownership of the contract generally
may not be transferred except by the trustee of an exempt employees' trust which
is part of a retirement plan qualified under Section 401 of the Internal Revenue
Code. Subject to the foregoing, a
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qualified contract may not be sold, assigned, transferred, discounted or pledged
as collateral for a loan or as security for the performance of an obligation or
for any other purpose to any person other than the Company.
BENEFICIARY
The beneficiary is the person, persons or entity designated in the
application or as subsequently named. The beneficiary may be changed during the
lifetime of the annuitant subject to the rights of any irrevocable beneficiary.
Any change must be made in writing, approved by the Company and if approved,
will be effective as of the date on which written. The Company assumes no
liability for any payments made or actions taken before the change is approved.
Prior to the maturity date, if no beneficiary survives the annuitant, the
contract owner or the contract owner's estate will be the beneficiary. The
interest of any beneficiary is subject to that of any assignee. In the case of
certain qualified contracts, regulations promulgated by the Treasury Department
prescribe certain limitations on the designation of a beneficiary.
MODIFICATION
The contract may not be modified by the Company without the consent of
the contract owner, except as may be required to make it conform to any law or
regulation or ruling issued by a governmental agency or to improve the rights
and/or benefits under the contract.
COMPANY APPROVAL
The Company reserves the right to accept or reject any contract
application at its sole discretion.
MISSTATEMENT AND PROOF OF AGE, SEX OR SURVIVAL
The Company may require proof of age, sex or survival of any person
upon whose age, sex or survival any payment depends. If the age or sex of the
annuitant has been misstated, the benefits will be those that would have been
provided for the annuitant's correct age and sex. If the Company has made
incorrect annuity payments, the amount of any underpayment will be paid
immediately and the amount of any overpayment will be deducted from future
annuity payments.
FIXED ACCOUNT INVESTMENT OPTIONS
Due to certain exemptive and exclusionary provisions, interests in the
fixed account investment options are not registered under the Securities Act of
1933 ("1933 Act") and the Company's general account is not registered as an
investment company under the Investment Company Act of 1940 ("1940 Act").
Accordingly, neither interests in the fixed account investment options nor the
general account are subject to the provisions or restrictions of the 1933 Act or
the 1940 Act and the staff of the Commission has not reviewed the disclosures in
this Prospectus relating thereto. Disclosures relating to interests in the fixed
account investment options and the general account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy of statements made in a registration statement.
Pursuant to a Guarantee Agreement dated November 7, 1993 (originally
entered into by NAL and assumed by Manulife in the merger), Manulife, the
ultimate parent of the Company, unconditionally guarantees to the Company on
behalf of and for the benefit of the Company and owners of fixed annuity
contracts issued by the Company that it will, on demand, make funds available to
the Company for the timely payment of contractual claims under fixed annuity
contracts. This Guarantee covers the fixed portion of the contracts described by
this Prospectus. This Guarantee may be terminated by Manulife on notice to the
Company. Termination will not affect Manulife's continuing liability with
respect to all fixed annuity contracts issued prior to the termination of the
Guarantee.
Effective June 30, 1995, the Company entered into a Reinsurance
Agreement with Peoples Security Life Insurance Company ("Peoples") pursuant to
which Peoples reinsures certain amounts with respect to the fixed account
portion of the contract described in this Prospectus. Under this Reinsurance
Agreement, the Company remains liable for the contractual obligations of the
contracts' fixed account and Peoples agrees to reimburse the Company for certain
amounts and obligations in connection with the fixed account. Peoples
contractual liability runs solely to the Company, and no contract owner shall
have any right of action against Peoples. Peoples is a wholly-owned subsidiary
of Louisville, Kentucky based Providian
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Corporation, a diversified financial services corporation. Peoples is rated A+
(Superior) by A.M. Best for operation performance and financial stability and
AAA by Standard & Poor's Corporation for claims paying ability.
Investment Options. There are three fixed account investment options
under the contract: one, three and six year investment accounts. Fixed
investment accounts provide for the accumulation of interest on purchase
payments at guaranteed rates for the duration of the one, three or six year
guarantee period. The guaranteed interest rates on new amounts allocated or
transferred to a fixed investment account are determined from time-to-time by
the Company in accordance with market conditions. In no event will the
guaranteed rate of interest be less than 4%. Once an interest rate is guaranteed
for a fixed investment account, it is guaranteed for the duration of the
guarantee period and may not be changed by the Company. Notwithstanding the
foregoing, with respect to contracts issued in the State of Oregon, no purchase
payments may be invested, transferred or reinvested into the 3-year and 6-year
fixed investment options within 15 years of the maturity date. Further, with
respect to contracts issued in Oregon, no purchase payments may be invested in
the 1-year fixed investment option within six years of the maturity date. See
Appendix C for information on investment options applicable to certain contracts
which are no longer being issued (Ven 3 and Ven 1 contracts).
Investment Accounts. Contract owners may allocate purchase payments, or
make transfers from the variable investment options, to the fixed account
investment options at any time prior to the maturity date. The Company
establishes a separate investment account each time the contract owner allocates
or transfers amounts to a fixed account investment option, except that amounts
allocated or transferred to the same fixed account investment option on the same
day will establish a single investment account. Amounts may not be allocated to
a fixed account investment option that would extend the guarantee period beyond
the maturity date.
Renewals. At the end of a guarantee period, the contract owner may
establish a new investment account with the same guarantee period at the then
current interest rate, select a different fixed account investment option or
transfer the amounts to a variable account investment option, all without the
imposition of any charge. The contract owner may not select a guarantee period
that would extend beyond the maturity date. In the case of renewals within one
year of the maturity date, the only fixed account investment option available is
to have interest accrued up to the maturity date at the then current interest
rate for one year guarantee periods.
If the contract owner does not specify the renewal option desired, the
Company will select the same guarantee period as has just expired, so long as
such period does not extend beyond the maturity date. In the event a renewal
would extend beyond the maturity date, the Company will select the longest
period that will not extend beyond such date, except in the case of a renewal
within one year of the maturity date in which case the Company will credit
interest up to the maturity date at the then current interest rate for one year
guarantee periods.
Market Value Charge. Any amount withdrawn, transferred or borrowed from
a three or six year investment account prior to the end of the guarantee period
may be subject to a market value charge. A market value charge will be
calculated separately for each investment account affected by a transaction to
which a market value charge may apply. The market value charge for an investment
account will be calculated by multiplying the amount withdrawn or transferred
from the investment account by the adjustment factor described below.
The adjustment factor is determined by the following formula:
0.75x(B-A)xC/12 where:
A - The guaranteed interest rate on the investment account.
B - The guaranteed interest rate available, on the date the request is
processed, for amounts allocated to a new investment account with
the same length of guarantee period as the investment account from
which the amounts are being withdrawn.
C - The number of complete months remaining to the end of the guarantee
period.
For purposes of applying this calculation, the maximum difference
between "B" and "A" will be 3%. The adjustment factor will never be greater than
2x(A-4%) and never less than zero.
The total market value charge will be the sum of the market value
charges for each investment account being withdrawn. Where the guaranteed rate
available on the date of the request is less than the rate guaranteed on the
investment account from which the amounts are being withdrawn (B-A in the
adjustment factor is negative), there is no market value charge. There is only a
market value charge when interest rates have increased (B-A in the adjustment
factor is positive).
There will be no market value charge on withdrawals from the fixed
account investment options in the following situations: (a) death of the
annuitant; (b) amounts withdrawn to pay fees or charges; (c) amounts applied at
the maturity date to purchase an annuity as
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<PAGE> 33
provided in the contract; (d) amounts withdrawn from three and six year
investment accounts within one month prior to the end of the guarantee period;
and (e) amounts withdrawn in any year that do not exceed 10% of total purchase
payments less any prior partial withdrawals in that year.
Notwithstanding application of the foregoing formula, in no event will
the market value charge (i) exceed the earnings attributable to the amount
withdrawn from an investment account, (ii) together with any withdrawal charges
for an investment account be greater than 10% of the amount transferred or
withdrawn, or (iii) reduce the amount payable on withdrawal or transfer below
the amount required under the non-forfeiture laws of the state with jurisdiction
over the contract. The cumulative effect of the market value and withdrawal
charges could, however, result in a contract owner receiving total withdrawal
proceeds of less than the contract owner's investment in the contract.
Transfers. Prior to the maturity date, the contract owner may transfer
amounts among the fixed account investment options and from the fixed account
investment options to the variable account investment options, subject to the
following conditions. An amount in a fixed investment account may not be
transferred until held in such account for at least one year, except (i)
transfers may be made pursuant to the Dollar Cost Averaging program and (ii)
transfers may be made from a one year fixed investment account to the variable
account investment options if, at the time of the transfer, the guaranteed
interest rate for the funds to be transferred is equal to or greater than the
then current guaranteed rate for funds being transferred into a one year fixed
investment option. The Company may withdraw its permission to make the transfers
described in (ii) above at any time after April 30, 1996. Consequently, except
as noted above, amounts in one year investment accounts effectively may not be
transferred prior to the end of the guarantee period. Amounts in three and six
year investment accounts may be transferred, after the one year holding period
has been satisfied, but the market value charge described above may apply to
such a transfer. The market value charge, if applicable, will be deducted from
the amount transferred.
The contract owner must specify the fixed account investment option
from or to which a transfer is to be made. Where there are multiple investment
accounts within a fixed account investment option, the contract owner may
designate the particular investment accounts from which a transfer is to be
taken. Absent such a designation, amounts will be withdrawn from the fixed
account investment options on a first-in-first-out basis.
Withdrawals. Prior to the earlier of the maturity date or the death of
the annuitant, the contract owner may make total and partial withdrawals of
amounts held in fixed account investment options. Withdrawals from fixed account
investment options will be made in the same manner and be subject to the same
limitations as set forth under "WITHDRAWALS" plus the following provisions also
apply to withdrawals from fixed account investment options: (1) the Company
reserves the right to defer payment of amounts withdrawn from fixed account
investment options for up to six months from the date it receives the written
withdrawal request (if a withdrawal is deferred for more than 30 days pursuant
to this right, the Company will pay interest on the amount deferred at a rate
not less than 4% per year); (2) if there are multiple investment accounts under
a fixed account investment option, amounts must be withdrawn from such accounts
on a first-in-first-out basis; and (3) the market value charge described above
may apply to withdrawals from the three and six year investment options. In the
event a market value charge applies to a withdrawal from a fixed investment
account, it will be calculated with respect to the full amount in the investment
account and deducted from the amount payable in the case of a total withdrawal.
In the case of a partial withdrawal, the market value charge will be calculated
on the amount requested and deducted, if applicable, from the remaining
investment account value.
Where a contract owner requests a partial withdrawal from a contract in
excess of the amounts in the variable account investment options and does not
specify the fixed account investment options from which the withdrawal is to be
made, such withdrawal will be made from the one, three and six year investment
options in that order. Within such sequence, where there are multiple investment
accounts within a fixed account investment option, withdrawals will be made on a
first-in-first-out basis.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances. (See "FEDERAL
TAX MATTERS".)
Loans. The Company offers a loan privilege only to owners of contracts
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA. Owners of such contracts may obtain loans using the contract
as the only security for the loan. Owners of such contracts may borrow amounts
allocated to fixed investment accounts in the same manner and subject to the
same limitations as set forth under "LOANS". The market value charge described
above may apply to amounts transferred from three and six year investment
accounts to the loan account in connection with such loans and, if applicable,
will be deducted from the amount so transferred.
Fixed Annuity Options. Subject to the distribution of death benefit
provisions (see "DEATH BENEFIT BEFORE THE MATURITY DATE"), on death, withdrawal
or the maturity date of the contract, the proceeds may be applied to a fixed
annuity option. (See "ANNUITY OPTIONS") The amount of each fixed annuity payment
is determined by applying the portion of the proceeds (less any
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applicable premium taxes) applied to purchase the fixed annuity to the
appropriate table in the contract. If the table in use by the Company is more
favorable to the contract owner, the Company will substitute that table. The
Company guarantees the dollar amount of fixed annuity payments.
CHARGES AND DEDUCTIONS
Charges and deductions under the contracts are assessed against
purchase payments, contract values or annuity payments. Currently, there are no
deductions made from purchase payments, except for premium taxes in certain
states. In addition, there are deductions from and expenses paid out of the
assets of the Trust portfolios that are described in the accompanying Prospectus
of the Trust.
WITHDRAWAL CHARGES
If a withdrawal is made from the contract before the maturity date, a
withdrawal charge (contingent deferred sales charge) may be assessed against
amounts withdrawn attributable to purchase payments that have been in the
contract less than six complete contract years. There is never a withdrawal
charge with respect to earnings accumulated in the contract, certain other free
withdrawal amounts described below or purchase payments that have been in the
contract more than six complete contract years. In no event may the total
withdrawal charges exceed 6% of the amount invested. The amount of the
withdrawal charge and when it is assessed is discussed below:
1. Each withdrawal from the contract is allocated first to the "free
withdrawal amount" and second to "unliquidated purchase payments". In any
contract year, the free withdrawal amount for that year is the greater of (1)
the excess of the contract value on the date of withdrawal over the unliquidated
purchase payments (the accumulated earnings on the contract) or (2) 10% of total
purchase payments less any prior partial withdrawals in that year. Withdrawals
allocated to the free withdrawal amount may be withdrawn without the imposition
of a withdrawal charge.
2. If a withdrawal is made for an amount in excess of the free
withdrawal amount, the excess will be allocated to purchase payments which will
be liquidated on a first-in first-out basis. On any withdrawal request, the
Company will liquidate purchase payments equal to the amount of the withdrawal
request which exceeds the free withdrawal amount in the order such purchase
payments were made: the oldest unliquidated purchase payment first, the next
purchase payment second, etc... until all purchase payments have been
liquidated.
3. Each purchase payment or portion thereof liquidated in connection
with a withdrawal request is subject to a withdrawal charge based on the length
of time the purchase payment has been in the contract. The amount of the
withdrawal charge is calculated by multiplying the amount of the purchase
payment being liquidated by the applicable withdrawal charge percentage obtained
from the table below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN PERCENTAGE
CONTRACT
-----------------------------------------------------
<S> <C>
0 6%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
</TABLE>
The total withdrawal charge will be the sum of the withdrawal charges
for the purchase payments being liquidated.
4. The withdrawal charge is deducted from the contract value remaining
after the contract owner is paid the amount requested, except in the case of a
complete withdrawal when it is deducted from the amount otherwise payable. In
the case of a partial withdrawal, the amount requested from an investment
account may not exceed the value of that investment account less any applicable
withdrawal charge.
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5. There is no withdrawal charge on distributions made as a result of
the death of the annuitant or contract owner and no withdrawal charges are
imposed on the maturity date if the contract owner annuitizes as provided in the
contract.
The amount collected from the withdrawal charge will be used to
reimburse the Company for the compensation paid to cover selling concessions to
broker-dealers, preparation of sales literature and other expenses related to
sales activity.
For examples of calculation of the withdrawal charge, see Appendix A.
Withdrawals from the fixed account investment options may be subject to a market
value charge in addition to the withdrawal charge described above. (See "FIXED
ACCOUNT INVESTMENT OPTIONS.") See Appendix C for information on withdrawal
charges applicable to certain contracts which are no longer being issued (Ven 3
and Ven 1 contracts).
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
The amount of the withdrawal charge on a contract may be reduced or
eliminated when sales of the contracts are made to individuals or to a group of
individuals in such a manner that results in savings of sales expenses. The
entitlement to such a reduction in the withdrawal charge will be determined by
the Company in the following manner:
1. The size and type of group to which sales are to be made will be
considered. Generally, sales expenses for a larger group are smaller than for a
smaller group because of the ability to implement large numbers of contracts
with fewer sales contacts.
2. The total amount of purchase payments to be received will be
considered. Per dollar sales expenses are likely to be less on larger purchase
payments than on smaller ones.
3. Any prior or existing relationship with the Company will be
considered. Per contract sales expenses are likely to be less when there is a
prior or existing relationship because of the likelihood of implementing the
contract with fewer sales contacts.
4. The level of commissions paid to selling broker-dealers will be
considered. Certain broker-dealers may offer the contract in connection with
financial planning programs offered on a fee for service basis. In view of the
financial planning fees, such broker-dealers may elect to receive lower
commissions for sales of the contracts, thereby reducing the Company's sales
expenses.
5. There may be other circumstances of which the Company is not
presently aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, it is determined that
there will be a reduction in sales expenses, the Company will provide a
reduction in the withdrawal charge. The withdrawal charge will be eliminated
when a contract is issued to an officer, director or employee (or a relative
thereof) of the Company, Manulife, the Trust or any of their affiliates. In no
event will reduction or elimination of the withdrawal charge be permitted where
such reduction or elimination will be unfairly discriminatory to any person.
ADMINISTRATION FEES
Each year the Company will deduct an annual administration fee of $30
as partial compensation for the cost of providing all administrative services
attributable to the contracts and the operations of the Variable Account and the
Company in connection with the contracts. Prior to the maturity date, this
administration fee is deducted on the last day of each contract year. It is
withdrawn from each investment option in the same proportion that the value of
such investment option bears to the contract value. If the entire contract is
withdrawn on other than the last day of any contract year, the $30
administration fee will be deducted from the amount paid. During the annuity
period, the fee is deducted on a pro-rata basis from each annuity payment.
A daily charge in an amount equal to 0.15% of the value of each
variable investment account on an annual basis is also deducted from each
sub-account to reimburse the Company for administrative expenses. This asset
based administrative charge will not be deducted from the fixed account
investment options. The charge will be reflected in the contract value as a
proportionate reduction in the value of each variable investment account.
Because this portion of the administrative fee is a percentage of assets rather
than a flat amount, larger contracts will in effect pay a higher proportion of
this portion of the administrative expense than smaller contracts.
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<PAGE> 36
The Company does not expect to recover from such fees any amount in
excess of its accumulated administrative expenses. Even though administrative
expenses may increase, the Company guarantees that it will not increase the
amount of the administration fees.
See Appendix C for information on Administration Fee applicable to
certain contracts no longer being issued (Ven 1 contracts).
REDUCTION OR ELIMINATION OF ANNUAL ADMINISTRATION FEE
The amount of the annual administration fee on a contract may be
reduced or eliminated when sales of the contracts are made to individuals or to
a group of individuals in such a manner that results in savings of
administration expenses. The entitlement to such a reduction or elimination of
the administration charges will be determined by the Company in the following
manner:
1. The size and type of group to which administrative services are to
be provided will be considered.
2. The total amount of purchase payments to be received will be
considered.
3. There may be other circumstances of which the Company is not
presently aware, which could result in reduced administrative expense.
If, after consideration of the foregoing factors, it is determined that
there will be a reduction or elimination of administration expenses, the Company
will provide a reduction in the annual administration fee. In no event will
reduction or elimination of the administration fees be permitted where such
reduction or elimination will be unfairly discriminatory to any person. The
Company may waive all or a portion of the administration fee when a contract is
issued to an officer, director or employee, or relative thereof, of the Company,
Manulife, the Trust or any of their affiliates.
MORTALITY AND EXPENSE RISK CHARGE
The mortality risk assumed by the Company is the risk that annuitants
may live for a longer period of time than estimated. The Company assumes this
mortality risk by virtue of annuity rates incorporated into the contract which
cannot be changed. This assures each annuitant that his longevity will not have
an adverse effect on the amount of annuity payments. Also, the Company
guarantees that if the annuitant dies before the maturity date, it will pay a
minimum death benefit. (See "DEATH BENEFIT BEFORE MATURITY DATE") The expense
risk assumed by the Company is the risk that the administration charges or
withdrawal charge may be insufficient to cover actual expenses.
To compensate it for assuming these risks, the Company deducts from
each of the sub-accounts a daily charge in an amount equal to 1.25% of the value
of the variable investment accounts on an annual basis, consisting of .8% for
the mortality risk and .45% for the expense risk. The charge will be reflected
in the contract value as a proportionate reduction in the value of each variable
investment account. The rate of the mortality and expense risk charge cannot be
increased. If the charge is insufficient to cover the actual cost of the
mortality and expense risks undertaken, the Company will bear the loss.
Conversely, if the charge proves more than sufficient, the excess will be profit
to the Company and will be available for any proper corporate purpose including,
among other things, payment of distribution expenses. The mortality and expense
risk charge is not assessed against the fixed account investment options. See
Appendix C for information on the mortality and expense risk charge applicable
to certain contracts which are no longer being issued (Ven 1 contracts).
TAXES
The Company reserves the right to charge, or provide for, certain taxes
against purchase payments, contract values or annuity payments. Such taxes may
include premium taxes or other taxes levied by any government entity which the
Company determines to have resulted from the (i) establishment or maintenance of
the Variable Account, (ii) receipt by the Company of purchase payments, (iii)
issuance of the contacts, or (iv) commencement or continuance of annuity
payments under the contracts. In addition, the Company will withhold taxes to
the extent required by applicable law.
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Except for residents in Pennsylvania and South Dakota, premium taxes
will be deducted from the contract value used to provide for fixed or variable
annuity payments unless required otherwise by applicable law. The amount
deducted will depend on the premium tax assessed in the applicable state. State
premium taxes currently range from 0% to 3.5% depending on the jurisdiction and
the tax status of the contract and are subject to change by the legislature or
other authority. (See "APPENDIX B: STATE PREMIUM TAXES") FOR RESIDENTS OF SOUTH
DAKOTA OR PENNSYLVANIA, THE FOLLOWING PREMIUM TAX ASSESSMENT WILL APPLY: A
premium tax will be assessed against all non-qualified purchase payments
received from contract owners who are residents of South Dakota. The rate of tax
is 1.25% for South Dakota residents. Purchase payments received for the period
October 1, 1992 through September 7, 1995 for non-qualified contracts of
Pennsylvania residents will be assessed a 2.00% premium tax; purchase payments
received on or after September 8, 1995 will not be assessed a premium tax. For
purchase payments received on or after October 1, 1992, the state premium tax
will be collected upon payment of any withdrawal benefits, upon any
annuitization or payment of death benefits. For purchase payments received prior
to October 1, 1992 the premium tax will be deducted upon annuitization only. In
the states of Pennsylvania and South Dakota, purchase payments received in
connection with the funding of a qualified plan are exempt from state premium
tax.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the
contract is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. A qualified tax adviser should always be consulted with
regard to the application of law to individual circumstances. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Department regulations, and interpretations existing on the date of this
Prospectus. These authorities, however, are subject to change by Congress, the
Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences
associated with the purchase of a contract. In addition, THE COMPANY MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under Subchapter L of
the Code. Since the operations of the Variable Account are a part of, and are
taxed with, the operations of the Company, the Variable Account is not
separately taxed as a "regulated investment company" under Subchapter M of the
Code. Under existing federal income tax laws, investment income and capital
gains of the Variable Account are not taxed to the extent they are applied to
increase reserves under a contract. Since, under the contracts, investment
income and realized capital gains of the Variable Account are automatically
applied to increase reserves, the Company does not anticipate that it will incur
any federal income tax liability attributable to the Variable Account, and
therefore the Company does not intend to make provision for any such taxes. If
the Company is taxed on investment income or capital gains of the Variable
Account, then the Company may impose a charge against the Variable Account in
order to make provision for such taxes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in the contract value is generally not taxable to the contract owner or
annuitant until received, either in the form of annuity payments, as
contemplated by the contract, or in some other form of distribution. However,
this rule applies only if (1) the owner is an individual, (2) the investments of
the Variable Account are "adequately diversified" in accordance with Treasury
Department regulations, and (3) the Company, rather than the owner, is
considered the owner of the assets of the Variable Account for federal tax
purposes.
Non-Natural Owner. As a general rule, deferred annuity contracts held
by "non-natural persons" such as a corporation, trust or other similar entity,
as opposed to a natural person, are not treated as annuity contracts for federal
tax purposes. The investment income on such contracts is taxed as ordinary
income that is received or accrued by the owner of the contract during the
taxable year. There are several exceptions to this general rule for non-natural
contract owners. First, contracts will generally be treated as held by a natural
person if the nominal owner is a trust or other entity which holds the contract
as an agent for a natural person. However, this special exception will not apply
in the case of any employer who is the nominal owner of an annuity contract
under a non-qualified deferred compensation arrangement for its employees.
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<PAGE> 38
In addition, exceptions to the general rule for non-natural contract
owners will apply with respect to (1) contracts acquired by an estate of a
decedent by reason of the death of the decedent, (2) certain qualified
contracts, (3) contracts purchased by employers upon the termination of certain
qualified plans, (4) certain contracts used in connection with structured
settlement agreements, and (5) contracts purchased with a single premium when
the annuity starting date is no later than a year from purchase of the annuity
and substantially equal periodic payments are made, not less frequently than
annually, during the annuity period.
Diversification Requirements. For a contract to be treated as an
annuity for federal income tax purposes, the investments of the Variable Account
must be "adequately diversified" in accordance with Treasury Department
regulations. The Secretary of the Treasury has issued regulations which
prescribe standards for determining whether the investments of the Variable
Account are "adequately diversified." If the Variable Account failed to comply
with these diversification standards, a contract would not be treated as an
annuity contract for federal income tax purposes and the contract owner would be
taxable currently on the excess of the contract value over the premiums paid for
the contract.
Although the Company does not control the investments of the NASL
Series Trust, it expects that the Trust will comply with such regulations so
that the Variable Account will be considered "adequately diversified."
Ownership Treatment. In certain circumstances, variable annuity
contract owners may be considered the owners, for federal income tax purposes,
of the assets of the separate account used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includible in the contract owners' gross income. The Internal Revenue Service
(the "Service") has stated in published rulings that a variable contract owner
will be considered the owner of separate account assets if the owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. In addition, the Treasury Department
announced, in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a separate account
may cause the investor, 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 [of a
separate account] without being treated as owners of the underlying assets." As
of the date of this Prospectus, no such guidance has been issued.
The ownership rights under this contract are similar to, but different
in certain respects from, those described by the Service in rulings in which it
was determined that contract owners were not owners of separate account assets.
For example, the owner of this contract has the choice of more investment
options to which to allocate premiums and contract values, and may be able to
transfer among investment options more frequently than in such rulings. These
differences could result in the contract owner being treated as the owner of the
assets of the Variable Account. In addition, the Company does not know what
standards will be set forth in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves the
right to modify the contract as necessary to attempt to prevent the contract
owner from being considered the owner of the assets of the Variable Account.
Delayed Maturity Dates. If the contract's scheduled maturity date is at
a time when the annuitant has reached an advanced age, e.g., past age 85, it is
possible that the contract would not be treated as an annuity. In that event,
the income and gains under the contract could be currently includible in the
owner's income.
The remainder of this discussion assumes that the contract will be
treated as an annuity contract for federal income tax purposes and that the
Company will be treated as the owner of the Variable Account assets.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal, amounts received are includible in
income to the extent the contract value before the withdrawal exceeds the
"investment in the contract." In the case of a full withdrawal, amounts received
are includible in income to the extent they exceed the "investment in the
contract." For these purposes the investment in the contract at any time equals
the total of the purchase payments made under the contract to that time (to the
extent such payments were neither deductible when made nor excludible from
income as, for example, in the case of certain contributions to qualified plans)
less any amounts previously received from the contract which were not included
in income.
Other than in the case of certain qualified contracts, any amount
received as a loan under a contract, and any assignment or pledge (or agreement
to assign or pledge) any portion of the contract value, is treated as a
withdrawal of such amount or portion. The investment in the contract is
increased by the amount includible as income with respect to such assignment or
pledge, though it is not affected by any other
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aspect of the assignment or pledge (including its release). If an individual
transfers an annuity contract without adequate consideration to a person other
than the owner's spouse (or to a former spouse incident to divorce), the owner
will be taxed on the difference between the "contract value" and the "investment
in the contract" at the time of transfer. In such case, the transferee's
investment in the contract will be increased to reflect the increase in the
transferor's income.
The contract provides a death benefit that in certain circumstances may
exceed the greater of the purchase payments and the contract value. As described
elsewhere in this prospectus, the Company imposes certain charges with respect
to the death benefit. It is possible that some portion of those charges could be
treated for federal tax purposes as a partial withdrawal from the contract.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. In the
case of variable annuity payments, the exclusion amount is the "investment in
the contract" (defined above) allocated to the variable annuity option, adjusted
for any period certain or refund feature, when payments begin to be made divided
by the number of payments expected to be made (determined by Treasury Department
regulations which take into account the annuitant's life expectancy and the form
of annuity benefit selected). In the case of fixed annuity payments, the
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract allocated to the fixed annuity
option, adjusted for any period certain or refund feature, to the total expected
value of annuity payments for the term of the contract (determined under
Treasury Department regulations).
Once the total amount of the investment in the contract is excluded
using these ratios, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant in his last taxable year.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a contract because of the death of an
owner or an annuitant. In the case of a non-qualified contract, such death
benefit proceeds are includible in income as follows: (1) if distributed in a
lump sum, they are taxed in the same manner as a full withdrawal, as described
above, or (2) if distributed under an annuity option, they are taxed in the same
manner as annuity payments, as described above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any payment from a
non-qualified contract unless the payment is: (a) received on or after the
contract owner reaches age 59 1/2; (b) attributable to the contract owner's
becoming disabled (as defined in the tax law); (c) made to a beneficiary on or
after the death of the contract owner or, if the contract owner is not an
individual, on or after the death of the primary annuitant (as defined in the
tax law); (d) made as a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life expectancy) of the
annuitant or the joint lives (or joint life expectancies) of the annuitant and
"designated beneficiary" (as defined in the tax law); (e) made under an annuity
contract purchased with a single premium when the annuity starting date is no
later than a year from purchase of the annuity and substantially equal periodic
payments are made, not less frequently than annually, during the annuity period;
and (f) made with respect to certain annuities issued in connection with
structured settlement agreements.
There is also a 10% penalty tax on the taxable amount of any payment
from certain qualified contracts (but not section 457 plans). There are
exceptions to this penalty tax which vary depending on the type of qualified
plan. In the case of an "Individual Retirement Annuity" ("IRA"), exceptions
provide that the penalty tax does not apply to a payment (a) received on or
after the contract owner reaches age 59 1/2, (b) received on or after the
owner's death or because of the owner's disability (as defined in the tax law),
or (c) made as a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the owner or the
joint lives (or joint life expectancies) of the owner and "designated
beneficiary" (as defined in the tax law). These exceptions, as well as certain
others not described herein, generall y apply to taxable distributions from
other qualified plans (although, in the case of plans qualified under section
401 and 403, exception "c" above for substantially equal periodic payments
applies only if the owner has separated from service).
AGGREGATION OF CONTRACTS
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In certain circumstances, the Service may determine the amount of an
annuity payment or a withdrawal from a contract that is includible in income by
combining some or all of the non-qualified contracts owned by an individual. For
example, if a person purchases a contract offered by this Prospectus and also
purchases at approximately the same time an immediate annuity, the Service may
treat the two contracts as one contract. In addition, if a person purchases two
or more deferred annuity contracts from the same insurance company (or its
affiliates) during any calendar year, all such contracts will be treated as one
contract. The effects of such aggregation are not clear; however, it could
affect the time when income is taxable and the amount which might be subject to
the 10% penalty tax described above.
QUALIFIED RETIREMENT PLANS
The contracts are also designed for use in connection with certain
types of retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the participants in such qualified plans and
to the contracts used in connection with such qualified plans. These tax rules
vary according to the type of plan and the terms and conditions of the plan
itself. For example, for both withdrawals and annuity payments under certain
qualified contracts, there may be no "investment in the contract" and the total
amount received may be taxable. In addition, loans from qualified contracts,
where allowed, are subject to a variety of limitations, including restrictions
as to the amount that may be borrowed, the duration of the loan, and the manner
in which the loans must be repaid. (Owners should always consult their tax
advisors and retirement plan fiduciaries prior to exercising their loan
privileges.) Also, special rules apply to the time at which distributions must
commence and the form in which the distributions must be paid. For example,
failure to comply with minimum distribution requirements applicable to qualified
plans will result in the imposition of an excise tax. This excise tax generally
equals 50% of the amount by which a minimum required distribution exceeds the
actual distribution from the qualified plan. In the case of IRAs and certain
other qualified plans, distributions of minimum amounts (as specified in the tax
law) must generally commence by April 1 of the calendar year in which the owner
attains age 70 1/2. For these reasons, no attempt is made to provide more than
general information about the use of contracts with the various types of
qualified plans.
When issued in connection with a qualified plan, a contract will be
amended as generally necessary to conform to the requirements of the type of
plan. However, contract owners, annuitants, and beneficiaries are cautioned that
the rights of any person to any benefits under qualified plans may be subject to
the terms and conditions of the plans themselves, regardless of the terms and
conditions of the contract. In addition, the Company shall not be bound by terms
and conditions of qualified plans to the extent such terms and conditions
contradict the contract, unless the Company consents.
QUALIFIED PLAN TYPES
Following are brief descriptions of various types of qualified plans in
connection with which the Company may issue a contract.
Individual Retirement Annuities. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." IRAs are subject to limits on the
amounts that may be contributed, the persons who may be eligible and on the time
when distributions may commence. Also, distributions from certain other types of
qualified retirement plans may be "rolled over" on a tax-deferred basis into an
IRA.
Simplified Employee Pensions (SEP-IRAs). Section 408(k) of the Code
allows employers to establish simplified employee pension plans for their
employees, using the employees' IRAs for such purposes, if certain criteria are
met. Under these plans the employer may, within specified limits, make
deductible contributions on behalf of the employees to IRAs. Employers intending
to use the contract in connection with such plans should seek competent advice.
In particular, employers should consider that IRAs generally may not provide
life insurance, but they may provide a death benefit that equals the greater of
the premiums paid and the contract's cash value. The contract provides a death
benefit that in certain circumstances may exceed the greater of the purchase
payments and the contract value. The Company intends to ask the IRS to approve
use of the contract, as to form, as an IRA, but there is no assurance that such
approval will be granted.
Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and
Profit-Sharing Plans. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such
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tax-favored retirement plans for themselves and their employees. Such retirement
plans may permit the purchase of the contracts in order to provide benefits
under the plans. The contract provides a death benefit that in certain
circumstances may exceed the greater of the purchase payments and the contract
value. It is possible that such death benefit could be characterized as an
incidental death benefit. There are limitations on the amount of incidental
benefits that may be provided under pension and profit sharing plans. In
addition, the provision of such benefits may result in currently taxable income
to participants. Employers intending to use the contract in connection with such
plans should seek competent advice.
Tax-Sheltered Annuities. Section 403(b) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. These annuity contracts are commonly referred to as "tax-sheltered
annuities." Purchasers of the contracts for such purposes should seek competent
advice as to eligibility, limitations on permissible amounts of purchase
payments and other tax consequences associated with the contracts. In
particular, purchasers should consider that the contract provides a death
benefit that in certain circumstances may exceed the greater of the purchase
payments and the contract value. It is possible that such death benefit could be
characterized as an incidental death benefit. If the death benefit were so
characterized, this could result in currently taxable income to purchasers. In
addition, there are limitations on the amount of incidental death benefits that
may be provided under a tax-sheltered annuity. Even if the death benefit under
the contract were characterized as an incidental death benefit, it is unlikely
to violate those limits unless the purchaser also purchases a life insurance
contract as part of his or her tax-sheltered annuity plan.
Withdrawals from a tax-sheltered annuity attributable to contributions
made pursuant to a salary reduction agreement in a taxable year beginning after
December 31, 1988, may be paid only if the employee has reached age 59 1/2,
separated from service, died, become disabled, or in the case of hardship.
Amounts permitted to be distributed in the event of hardship are limited to
actual contributions; earnings thereon may not be distributed on account of
hardship. (These limitations on withdrawals do not apply to the extent the
Company is directed to transfer some or all of the contract value to the issuer
of another tax-sheltered annuity or into a Section 403(b)(7) custodial account.)
Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations. Section 457 of the Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. To the extent the contracts are used in
connection with an eligible plan, employees are considered general creditors of
the employer and the employer as owner of the contract has the sole right to the
proceeds of the contract. Loans to employees are not permitted under such plans.
Generally, with respect to purchase payments made after February 28, 1986, a
contract purchased by a state or local government or a tax-exempt organization
will not be treated as an annuity contract for federal income tax purposes.
Those who intend to use the contracts in connection with such plans should seek
competent advice.
DIRECT ROLLOVERS
If the contract is used in connection with a pension, profit-sharing,
or annuity plan qualified under sections 401(a) or 403(a) of the Code, or is a
tax-sheltered annuity under section 403(b) of the Code, any "eligible rollover
distribution" from the contract will be subject to the direct rollover and
mandatory withholding requirements enacted by Congress in 1992. An eligible
rollover distribution generally is any taxable distribution from a qualified
pension plan under section 401(a) of the Code, qualified annuity plan under
section 403(a) of the Code, or section 403(b) annuity or custodial account,
excluding certain amounts (such as minimum distributions required under section
401(a)(9) of the Code and distributions which are part of a "series of
substantially equal periodic payments" made for life or a specified period of 10
years or more).
Under these requirements, federal income tax equal to 20% of the
eligible rollover distribution will be withheld from the amount of the
distribution. Unlike withholding on certain other amounts distributed from the
contract, discussed below, the owner cannot elect out of withholding with
respect to an eligible rollover distribution. However, this 20% withholding will
not apply if, instead of receiving the eligible rollover distribution, the owner
elects to have it directly transferred to certain qualified plans. Prior to
receiving an eligible rollover distribution, the owner will receive a notice
explaining generally the direct rollover and mandatory withholding requirements
and how to avoid the 20% withholding by electing a direct transfer.
FEDERAL INCOME TAX WITHHOLDING
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The Company will withhold and remit to the U.S. government a part of
the taxable portion of each distribution made under a contract unless the
distributee notifies the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances, the
Company may be required to withhold tax, as explained above. The withholding
rates applicable to the taxable portion of periodic annuity payments (other than
eligible rollover distributions) are the same as the withholding rates generally
applicable to payments of wages. In addition, the withholding rate applicable to
the taxable portion of non-periodic payments (including withdrawals prior to the
maturity date) is 10%. As discussed above, the withholding rate applicable to
eligible rollover distributions is 20%.
GENERAL MATTERS
TAX DEFERRAL
The status of the contract as an annuity generally allows all earnings
on the underlying investments to be tax-deferred until withdrawn or until
annuity payments begin. (See "FEDERAL TAX MATTERS".) This tax deferred treatment
may be beneficial to contract owners in building assets in a long-term
investment program.
PERFORMANCE DATA
From time to time the Variable Account may publish advertisements
containing performance data relating to its sub-accounts. For periods prior to
August 7, 1989, performance data will be hypothetical figures based on the
assumption that a contract offered by this Prospectus was issued when the
sub-accounts first became available for investment under other contracts offered
by the Company. The sub-accounts may advertise both "standardized" and
"non-standardized" total return figures, although standardized figures will
always accompany non-standardized figures. Standardized performance data will
consist of total return quotations, which will always include quotations for
recent one year and, when applicable, five and ten year periods and, where less
than ten years, for the period subsequent to the date each sub-account first
became available for investment. Such quotations for such periods will be the
average annual rates of return required for an initial purchase payment of
$1,000 to equal the actual contract value attributable to such purchase payment
on the last day of the period, after reflection of all charges. Standardized
total return figures will be quoted assuming redemption at the end of the
period. Such figures may be accompanied by non-standardized total return figures
that are calculated on the same basis as the standardized returns except that
the calculations (i) assume no redemption at the end of the period and (ii) do
not reflect imposition of the $30 per contract charge inasmuch as the impact of
such charge varies by contract size. In addition to the non-standardized
returns, each of the sub-accounts may from time to time quote aggregate
non-standardized total returns for other time periods. Except as noted above,
performance figures used by the Variable Account are based on the actual
historical performance of its sub-accounts for specified periods, and the
figures are not intended to indicate future performance. More detailed
information on the computations is set forth in the Statement of Additional
Information.
FINANCIAL STATEMENTS
Financial Statements for the Variable Account and the Company are
contained in the Statement of Additional Information.
ASSET ALLOCATION AND TIMING SERVICES
The Company is aware that certain third parties are offering asset
allocation and timing services in connection with the contracts. In certain
cases the Company has agreed to honor transfer instructions from such asset
allocation and timing services where it has received powers of attorney, in a
form acceptable to it, from the contract owners participating in the service.
THE COMPANY DOES NOT ENDORSE, APPROVE OR RECOMMEND SUCH SERVICES IN ANY WAY AND
CONTRACT OWNERS SHOULD BE AWARE THAT FEES PAID FOR SUCH SERVICES ARE SEPARATE
AND IN ADDITION TO FEES PAID UNDER THE CONTRACTS.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 830.105 of the Texas Government Code permits participants in
the Texas Optional Retirement Program ("ORP") to withdraw their interest in a
variable annuity contract issued under the ORP only upon (1) termination of
employment in the Texas public institutions of higher education, (2) retirement,
(3) death, or (4) the participant's attainment of age 70 1/2. Accordingly,
before any amounts may be distributed from the contract, proof must be furnished
to the Company that one of these four events has occurred. The foregoing
restrictions on withdrawal do not apply in the event a participant in the ORP
transfers the contract value to another contract or another qualified custodian
during the period of participation in the ORP. Loans are not available under
contracts subject to the ORP.
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DISTRIBUTION OF CONTRACTS
NASL Financial Services, Inc. ("NASL Financial"), 116 Huntington
Avenue, Boston, Massachusetts 02116, a wholly-owned subsidiary of the Company,
is the principal underwriter of the contracts in addition to providing advisory
services to the Trust. NASL Financial is a broker-dealer registered under the
Securities Exchange Act of 1934 ("1934 Act") and a member of the National
Association of Securities Dealers, Inc. ("NASD"). NASL Financial has entered
into an exclusive promotional agent agreement with Wood Logan Associates, Inc.
("Wood Logan"). Wood Logan is a broker-dealer registered under the 1934 Act and
a member of the NASD. Wood Logan is a wholly owned subsidiary of a holding
company that is 85% owned by Manulife and approximately 15% owned by principals
of Wood Logan. Sales of the contracts will be made by registered representatives
of broker-dealers authorized by NASL Financial to sell the contracts. Such
registered representatives will also be licensed insurance agents of the
Company. Under the promotional agent agreement, Wood Logan will recruit and
provide sales training and licensing assistance to such registered
representatives. In addition, Wood Logan will prepare sales and promotional
materials for the Company's approval. NASL Financial will pay distribution
compensation to selling brokers in varying amounts which under normal
circumstances are not expected to exceed 5% of purchase payments plus 0.25% of
the contract value per year. NASL Financial may from time to time pay additional
compensation pursuant to promotional contests. Additionally, in some
circumstances, NASL Financial will provide reimbursement of certain sales and
marketing expenses. NASL Financial will pay the promotional agent for providing
marketing support for the distribution of the contracts.
CONTRACT OWNER INQUIRIES
All contract owner inquiries should be directed to the Company's
Annuity Service Office at P.O. Box 9230, Boston, Massachusetts 02205-9230.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to which the assets of the Variable Account are subject. Neither the Company
nor NASL Financial are involved in any litigation that is of material importance
in relation to their total assets or that relates to the Variable Account.
OTHER INFORMATION
A registration statement has been filed with the Commission under the
Securities Act of 1933, as amended, with respect to the variable portion of the
contracts discussed in this Prospectus. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Prospectus. Statements contained in this Prospectus or the Statement of
Additional Information concerning the content of the contracts and other legal
instruments are only summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the
Commission.
EXCHANGE OFFER
The exchange offer described below is not currently available in the following
states: California, Florida, Idaho, Maryland, New Jersey, Oregon, South
Carolina, and Washington.
The Company also offers a new individual variable and fixed annuity
contract ("New Contract") substantially similar to the annuity contract
described in this Prospectus ("Old Contract"). In states and other jurisdictions
where the New Contract is available, the Old Contract will no longer be offered.
In states and other jurisdictions where the New Contract is available,
the Company will permit any owner of an outstanding Old Contract to exchange his
or her Contract for a New Contract without surrender charge, except a possible
market value charge, as described below. For purposes of computing the
applicable surrender charge upon any withdrawals made subsequent to the
exchange, the New Contract will be deemed to have been issued on the date the
Old Contract was issued, and any purchase payment credited to the Old Contract
will be deemed to have been credited to the New Contract on the date it was
credited under the Old Contract. The death benefit under the New Contract on the
date of its issue will be the greater of the minimum death benefit under the Old
Contract or the contract value on the date of exchange and will "step up"
annually thereafter as described in paragraph "2." below.
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Old Contract owners interested in a possible exchange should obtain a
copy of the prospectus for the New Contract from their securities dealer or the
Company's Annuity Service Office. Both the New Contract prospectus and this
Prospectus should be carefully reviewed before deciding to make an exchange.
AN EXCHANGE MAY NOT BE IN THE BEST INTERESTS OF AN OWNER OF AN OLD
CONTRACT, particularly in light of the availability of the Enhanced Death
Benefit endorsement described below. Further, under Old Contracts with a fixed
account investment option, a market value charge may apply to any amounts
transferred from a three or six year investment account in connection with an
exchange. (Reference should be made to the discussion of the market value charge
under the caption "Fixed Account Investment Options" in this Prospectus.) The
Company believes that an exchange of Contracts will not be a taxable event for
Federal tax purposes; however, any owner considering an exchange should consult
a tax adviser. The Company reserves the right to terminate this exchange offer
or to vary its terms at any time.
The principal differences between the Old and New Contracts are as
follows:
1. In general, the death benefit of the New Contract will be payable
upon the death of the owner (or first owner to die if there is more than one
owner). The death benefit of the Old Contract is generally payable on the death
of the annuitant (or last annuitant to die if there is more than one annuitant);
if the owner predeceases the annuitant, the Old Contract contract value is paid,
which may be a lesser amount than the death benefit payable on the death of the
annuitant.
2. The guaranteed death benefit payable under the New Contract will be
in most circumstances more favorable. If an owner dies on or prior to his or her
85th birthday and the oldest owner had an attained age of less than 81 years on
the contract date, the death benefit will be the greater of (i) the contract
value or (ii) the sum of all purchase payments made less any amounts deducted in
connection with certain withdrawals. The New Contract will step up the measure
of clause (ii) every year, so that clause (ii) will be the greater of clause (i)
or (ii) on the last day of the previous contract year period plus any purchase
payments made and less any amounts deducted in connection with certain
withdrawals since then. Under the Old Contract, the death benefit is stepped up
every six years instead of every year.
Under the New Contract, if an owner dies after his or her 85th birthday
and the oldest owner had an attained age of less than 81 years on the contract
date, the death benefit will be the greater of the contract value or the excess
of the sum of all purchase payments less the sum of any amounts deducted in
connection with certain withdrawals. If an owner dies and the oldest owner had
an attained age greater than 80 on the contract date, the death benefit will be
the contract value less any applicable withdrawal charges at the time of
payment. Under the Old Contract, if the annuitant dies after the first of the
month following his or her 85th birthday, the minimum death benefit will be the
contract value. Also, if the owner is not the annuitant and dies before the
maturity date and before the annuitant, an amount equal to the amount payable on
total withdrawal, without reduction for any withdrawal charge, will be paid.
3. The New Contract will waive the $30 annual administration fee prior
to the maturity date if the contract value is equal to or greater than $100,000
at the time the fee is to be assessed.
4. The surrender charges under the New Contract will be higher in
certain cases. The surrender charges are the same under both Contracts for the
first three contract years, but thereafter the charges under the New Contract
are 5%, 4%, 3% and 2% for withdrawals made within years four, five, six and
seven, respectively, of payment while under the Old Contract the charges for
such years are 4%, 3%, 2% and 0%, respectively.
5. The minimum interest rate to be credited for any guarantee period
under the fixed portion of the New Contract will be three percent as opposed to
four percent under the Old Contract. The market value charge under the New
Contract will be limited so as to only affect accumulated earnings in excess of
three percent, whereas under the Old Contract the market value charge is limited
so as to not invade principal.
6. The annuity purchase rates guaranteed in the New Contract have been
determined using 3% as opposed to 4% under the Old Contract.
The above comparison does not take into account differences between the
Old Contracts, as amended by qualified plan endorsements, and the New Contracts,
as amended by similar qualified plan endorsements. Owners using their Old
Contract in connection with a qualified plan should consult a tax advisor. See
also the Federal Tax Matters section of the prospectuses for both the Old
Contract and the New Contract.
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Contract owners who do not wish to exchange their Old Contracts for the
New Contracts may continue to make purchase payments to their Old Contracts. Or,
they can keep their Old Contracts and buy a New Contract to which to apply
additional purchase payments.
ADDITIONAL CONSIDERATIONS FOR VEN 1 AND VEN 3 CONTRACT OWNERS
The comparison of Old and New Contract provisions set forth above does
not include the Ven 1 and Ven 3 contracts which are described in Appendix C to
this prospectus. These contracts will also be eligible for voluntary exchange
for the New Contracts. Ven 3 and Ven 1 contract owners should in particular
consider the following differences between the Ven 3 and Ven 1 contracts and the
New Contract.
1. In general, the death benefit of the New Contract will be payable upon the
death of the owner (or first owner to die if there is more than one owner). The
death benefit of the Ven 3 and Ven 1 contracts is generally payable on the death
of the annuitant (or last annuitant to die if there is more than one annuitant);
if the owner predeceases the annuitant, the Ven 3 or Ven 1 contract value (as
applicable) is paid, which may be a lesser amount than the death benefit payable
on the death of the annuitant.
2. The guaranteed death benefit payable under the New Contract will in most
circumstances be more favorable. The minimum death benefit for the Ven 1
contract is the greater of (a) the contract value or (b) the sum of all purchase
payments made, less any amount deducted in connection with partial withdrawals.
The minimum death benefit for the Ven 3 contract is as described below under
"Enhanced Death Benefit - Additional Considerations for Ven 3 Contract Owners."
The minimum death benefit for the New Contract is as described above in this
"Exchange Offer" section. Ven 3 contract owners should note that the New
Contract contains additional provisions which limit the death benefit paid if an
owner dies after his or her 85th birthday and the oldest owner had an attained
age of less than 81 years on the contract date, to the greater of the contract
value or the excess of the sum of all purchase payments less the sum of any
amounts deducted in connection with certain withdrawals. Ven 3 contract owners
should also note that the New Contract contains a provision which limits the
death benefit paid to the contract value less any applicable withdrawal charges
at the time of payment if the owner dies and the oldest owner had an attained
age greater than 80 on the contract date. These provisions may not be as
favorable to Ven 3 contract owners.
3. The New Contract will waive the $30 annual administration fee prior to the
maturity date if the contract value is equal to or greater than $100,000 at the
time the fee is to be assessed.
4. The surrender charges under the New Contract are higher in certain cases. The
New Contract surrender charges are 6%, 6%, 5%, 5%, 4%, 3% and 2% for withdrawals
made within one, two, three, four, five, six and seven, respectively, of
payment. The surrender charges for the Ven 3 and Ven 1 contract is 5% for
withdrawals made within five years of payment (certain exceptions apply to the
withdrawal charge as described in Appendix C).
5. The New Contract provides for twenty investment options (sixteen variable and
four fixed). Neither the Ven 3 contract nor the Ven 1 contract provide for fixed
investment options. In addition, the Ven 1 contract offers only three variable
investment options.
6. The New Contract provides for the deduction from each sub-account each
valuation period of a charge at an effective annual rate of 1.40% ( 1.25% for
mortality and expense risk fees and 0.15% for administration fees) of the
contract reserves allocated to such subaccount. The Ven 1 contract provides for
the deduction from each sub-account each valuation period of a charge at an
effective annual rate of 1.30% (for mortality and expense risk) of the contract
reserves allocated to such subaccount. The Ven 3 charges are the same as those
for the New Contract.
7. The annuity purchase rates guaranteed in the New Contract have been
determined using 3% as opposed to 4% under the Ven 1 and Ven 3 contracts.
8. Certain Ven 3 and Ven 1 contracts may not be subject to some changes in the
Federal tax law that have occurred since the contracts were issued, i.e., the
contract were" grandfather." If such a grandfather contract is exchanged, the
New Contract is likely to be subject to the changes in the law. For example,
annuity contract issued on or prior to April 22, 1987 are generally not subject
to Federal tax rules treating transferred of annuity contracts for inadequate
consideration as taxable events. See "Taxation of Partial and Full Withdrawals"
in the Federal Tax Matters section of the prospectus. A New Contract received in
exchange for a Ven 3 or Ven 1 contract would, however, typically be subject to
these rules.
37
<PAGE> 46
ENHANCED DEATH BENEFIT OPTION
As an alternative to the exchange privilege described above, the
Company is offering an Enhanced Death Benefit Option to any owner of an Old
Contract issued prior to August 15, 1994 in all states except California, Idaho,
Illinois, Montana, New Jersey, Oregon and South Carolina. The Company is
offering the Enhanced Death Benefit Option to any owner of an Old Contract
issued prior to September 6, 1994 in Illinois and Montana, prior to October 3,
1994 in Idaho, New Jersey and Oregon and prior to January 3, 1995 in California.
The Enhanced Death Benefit Option is not available in South Carolina.
The Enhanced Death Benefit, as described below, is available as an
endorsement to such Contracts, only upon the payment of (i) an additional
purchase payment of at least 10% of all purchase payments made to the Old
Contract through the date the Enhanced Death Benefit Option first became
available in that state, or (ii) $10,000, whichever is greater.
The Enhanced Death Benefit will provide an annual step-up in death
benefit comparable to the New Contract death benefit described above, except
that the death benefit under the endorsement will be payable on the death of the
last surviving annuitant as opposed to the death of the first owner as provided
in the New Contract.
The Enhanced Death Benefit provided by the endorsement will always be
equal to or better than the death benefit of an Old Contract issued without the
endorsement. In the case of the death of the annuitant on or prior to the first
of the month following his or her 85th birthday, the minimum death benefit is as
described in this Prospectus under the caption "Death Benefit Before Maturity
Date," except that the death benefit is stepped up each contract year instead of
each six contract year period. In the case of the death of the annuitant after
the first of the month following his or her 85th birthday, the minimum death
benefit is the greater of the contract value or the excess of the sum of all
purchase payments less the sum of any amounts deducted in connection with
partial withdrawals. Under an Old Contract issued without the endorsement, if
the annuitant dies after the first of the month following his or her 85th
birthday, the death benefit is the contract value only. For purposes of
computing the Enhanced Death Benefit under an Old Contract issued without the
endorsement, the death benefit will be computed as if the Enhanced Death Benefit
endorsement had been a part of the Old Contract on the contract date.
The Company believes that the addition of the Enhanced Death Benefit
endorsement to an Old Contract will not be treated as a taxable event for
Federal tax purposes; however, any owner considering the addition of the
endorsement should consult a tax advisor.
VEN 1 CONTRACT OWNERS
The Enhanced Death Benefit described above is not available for the Ven
1 contract.
ADDITIONAL CONSIDERATIONS FOR VEN 3 CONTRACT OWNERS
The Enhanced Death Benefit described above is available for the Ven 3
contract. For Ven 3 contracts, the Enhanced Death Benefit provided by the
endorsement will always be equal to or better than the death benefit of the Ven
3 contract issued without the endorsement. The Enhanced Death Benefit provides
that upon the death of the annuitant, the death benefit, during the first
contract year, will be the greater of (a) the contract value or (b) the sum of
all Purchase payments made, less any amount deducted in connection with partial
withdrawals and, during any subsequent contract year, will be (a) the contract
value or (b) the death benefit on the last day of the previous contract year
plus any purchase payments made and less any amounts deducted in connection with
partial withdrawals since then. As described in Appendix C, upon the death of
the annuitant, the minimum death benefit for the Ven 3 contract, during the
first five contract years, will be the greater of (a) the contract value or (b)
the sum of all purchase payments made, less any amount deducted in connection
with partial withdrawals and, during any subsequent five contract year period,
will be the greater of (a) the contract value or (b) the minimum death benefit
determined in accordance with these provisions as of the last day of the
previous five contract year period plus any purchase payments made and less any
amount deducted in connection with partial withdrawals since then.
Ven 3 contracts may not be subject to some changes in the Federal tax
law that have occurred since the contracts were issued, i.e., the contracts were
"grandfather". If the Enhanced Death Benefit endorsement is added to such a
grandfather contract, the amended contracts are likely to be subject to the
changes in the law. For example, annuity contracts issued on or prior to April
22, 1987 are generally not subject to Federal tax rules treating transfers of
annuity contracts for inadequate consideration as taxable events. See "Taxation
of Partial and Full Withdrawals" in the Federal Tax Matters section of this
Prospectus. A contract to which the Enhanced Death Benefit endorsement is added
may, however, be subject to these rules.
38
<PAGE> 47
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History...................................... 3
Performance Data..................................................... 3
Services
Independent Accountants....................................... 6
Servicing Agent............................................... 6
Principal Underwriter......................................... 6
Cancellation of Contracts..................................... 6
Financial Statements................................................. 8
39
<PAGE> 48
APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
Example 1 - Assume a single payment of $50,000 is made into the contract, no
transfers are made, no additional payments are made and there are no partial
withdrawals. The table below illustrates four examples of the withdrawal charges
that would be imposed if the contract is completely withdrawn, based on
hypothetical contract values.
<TABLE>
<CAPTION>
CONTRACT HYPOTHETICAL FREE PURCHASE WITHDRAWAL
YEAR CONTRACT WITHDRAWAL PAYMENTS CHARGE
VALUE AMOUNT LIQUIDATED ---------------------
PERCENT AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 55,000 5,000(a) 50,000 6% 3,000
3 50,500 5,000(b) 45,500 5% 2,275
5 60,000 10,000(c) 50,000 3% 1,500
7 70,000 20,000(d) 50,000 0% 0
<FN>
(a) During any contract year the free withdrawal amount is the greater of
accumulated earnings, or 10% of the total purchase payments made under
the contract less any prior partial withdrawals in that contract year.
In the first contract year the earnings under the contract and 10% of
purchase payments both equal $5,000. Consequently, on total withdrawal
$5,000 is withdrawn free of the withdrawal charge, the entire $50,000
purchase payment is liquidated and the withdrawal charge is assessed
against such liquidated purchase payment (contract value less free
withdrawal amount).
(b) In the example for the third contract year, the accumulated earnings of
$500 is less than 10% of purchase payments, therefore the free
withdrawal amount is equal to 10% of purchase payments ($50,000 X 10% =
$5,000) and the withdrawal charge is only applied to purchase payments
liquidated (contract value less free withdrawal amount).
(c) In the example for the fifth contract year, the accumulated earnings of
$10,000 is greater than 10% of purchase payments ($5,000), therefore
the free withdrawal amount is equal to the accumulated earnings of
$10,000 and the withdrawal charge is applied to the purchase payments
liquidated (contract value less free withdrawal amount).
(d) There is no withdrawal charge on any purchase payments liquidated that
have been in the contract for at least 6 years.
</TABLE>
Example 2 - Assume a single payment of $50,000 is made into the contract, no
transfers are made, no additional payments are made and there are a series of
four partial withdrawals made during the third contract year of $2,000, $5,000,
$7,000, and $8,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE PURCHASE WITHDRAWAL
CONTRACT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE
VALUE REQUESTED AMOUNT LIQUIDATED ----------------------
PERCENT AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
65,000 2,000 15,000(a) 0 5% 0
49,000 5,000 3,000(b) 2,000 5% 100
52,000 7,000 4,000(c) 3,000 5% 150
44,000 8,000 0(d) 8,000 5% 400
<FN>
(a) The free withdrawal amount during any contract year is the greater of
the contract value less the unliquidated purchase payments (accumulated
earnings), or 10% of purchase payments less 100% of all prior
withdrawals in that contract year. For the first example, accumulated
earnings of $15,000 is the free withdrawal amount since it is greater
than 10% of purchase payments less prior withdrawals ($5,000-0). The
amount requested ($2,000) is less than the free withdrawal amount so no
purchase payments are liquidated and no withdrawal charge applies.
(b) The contract has negative accumulated earnings ($49,000-$50,000), so
the free withdrawal amount is limited to 10% of purchase payments less
all prior withdrawals. Since $2,000 has already been withdrawn earlier
in the current contract year, the remaining
</TABLE>
40
<PAGE> 49
free withdrawal amount during the third contract year is $3,000. The
$5,000 partial withdrawal will consist of $3,000 free of withdrawal
charge, and the remaining $2,000 will be subject to a withdrawal charge
and result in purchase payments being liquidated. The remaining
unliquidated purchase payments are $48,000.
(c) The contract has increased in value to $52,000. The unliquidated
purchase payments are $48,000 so the accumulated earnings are $4,000,
which is greater than 10% of purchase payments less prior withdrawals
($5,000-$2,000-$5,000[LESS THAN SYMBOL]0). Hence the free withdrawal
amount is $4,000. Therefore, $3,000 of the $7,000 partial withdrawal
will be subject to a withdrawal charge and result in purchase payments
being liquidated. The remaining unliquidated purchase payments are
$45,000.
(d) The free withdrawal amount is zero since the contract has negative
accumulated earnings ($44,000-$45,000) and the full 10% of purchase
payments ($5,000) has already been utilized. The full amount of $8,000
will result in purchase payments being liquidated subject to a
withdrawal charge. At the beginning of the next contract year the full
10% of purchase payments would be available again for withdrawal
requests during that year.
APPENDIX B
STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In many
jurisdictions there is no tax at all. For current information, a tax adviser
should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
- ------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA................................... .50% 2.35%
DISTRICT OF COLUMBIA......................... 2.25% 2.25%
KANSAS....................................... .00 2.00%
KENTUCKY..................................... 2.00% 2.00%
MAINE........................................ .00 2.00%
MICHIGAN..................................... .00075% .00075%
NEVADA....................................... .00 3.50%
PUERTO RICO.................................. 1.00% 1.00%
SOUTH DAKOTA................................. .00 1.25%
TEXAS........................................ .04% .04%
WEST VIRGINIA................................ 1.00% 1.00%
WYOMING...................................... .00 1.00%
</TABLE>
41
<PAGE> 50
APPENDIX C
PRIOR CONTRACTS
Prior to October, 1993, the Company issued two classes of variable
annuity contracts which are no longer being issued but under which purchase
payments may continue to be made ("prior contracts") -- "Ven 3" contracts, which
were sold during the period from November 1986 until October, 1993, and "Ven 1"
contracts, which were sold during the period from June 1985 until June 1987.
The principal differences between the contract offered by this
Prospectus and the prior contracts relate to the investment options available
under the contracts, charges made by the Company and death benefit provisions.
Owners of Ven 3 and Ven 1 contracts may be eligible to exchange their
contracts for a new contract or to add an enhanced death benefit endorsement to
their contracts. See " Exchange Offer" and " Enhanced Death Benefit Option" in
the Prospectus.
INVESTMENT OPTIONS
The Ven 3 and Ven 1 contracts do not provide for a fixed-dollar
accumulation prior to the maturity date. Thus the descriptions in this
Prospectus of the Fixed Account Investment Options, loan provisions, Guarantee
Plus Program and the transfer and Dollar Cost Averaging provisions, to the
extent that they relate to the fixed account investment options, are not
applicable to the prior contracts. Ven 1 differs further in that only three of
the thirteen sub-accounts of the Variable Account are available for the
investment of contract values, namely, the Equity Sub-Account, the Investment
Quality Bond Sub-Account and the Money Market Sub-Account.
WITHDRAWAL CHARGES
The withdrawal charges under the prior contracts differ from the
withdrawal charges described in this Prospectus.
Ven 3 Withdrawal Charge.
The withdrawal charge assessed under the Ven 3 contract is as follows:
If a withdrawal is made from the contract before the maturity date, a
5% withdrawal charge (contingent deferred sales charge) may be assessed. The
amount of the withdrawal charge and when it is assessed are discussed below:
1. Withdrawals are allocated to purchase payments on a
first-in-first-out basis. Each time a contract owner requests a withdrawal,
whether or not a withdrawal charge is assessed, the Company will liquidate
purchase payments equal to the amount requested in the order such purchase
payments were made: the oldest unliquidated purchase payment first, the next
purchase payment second, etc... until all purchase payments have been
liquidated. Once all purchase payments have been liquidated, additional
withdrawals will be allocated to the remaining contract value.
2. A withdrawal charge will be assessed against purchase payments
liquidated in excess of the free withdrawal amount. The free withdrawal amount
in any contract year is the greater of: (i) 10% of the contract value at the
beginning of the contract year, or (ii) 10% of the total purchase payments made
in the current contract year and the preceding 4 contract years plus the amount
of all unliquidated purchase payments made 5 or more contract years prior to the
current contract year. Therefore, no withdrawal charge will apply to any
purchase payment that has been in the contract for at least 5 years. After all
purchase payments have been liquidated, any remaining contract value
(accumulated earnings) may be withdrawn free of charge.
3. The withdrawal charge is deducted from the contract value remaining
after the contract owner is paid the amount requested, except in the case of a
complete withdrawal when it is deducted from the amount otherwise payable. The
withdrawal charge is deducted from the contract value by canceling accumulation
units of a value equal to the charge and is deducted from each investment
account ("subdivision") in proportion to the amount withdrawn from each
investment account. In the case of a partial withdrawal the amount requested
from an investment account may not exceed the value of that investment account
less any applicable withdrawal charge.
4. Under no circumstances will the total of all withdrawal charges
exceed 5% of total purchase payments.
42
<PAGE> 51
There is no withdrawal charge on distributions made as a result of the
death of the annuitant or contract owner. There is also no withdrawal charge on
amounts applied to an annuity option at the maturity date, as provided in the
contract.
Ven 1 Withdrawal Charge.
The withdrawal charge ("surrender charge") assessed under the Ven 1
contract is as follows:
If a contract is surrendered, in whole or in part, before the maturity
date, a withdrawal charge may be assessed. The amount of the withdrawal charge
and when it is assessed are discussed below:
The withdrawal charge is 5% of the lesser of (1) the amount surrendered
or (2) the total of all purchase payments made within the sixty months
immediately preceding the date of surrender. The charge is deducted from the
contract value remaining after the contract owner is paid the amount requested,
except in the case of a complete surrender when it is deducted from the amount
otherwise payable. After the first contract year, no withdrawal charge will be
made on that part of the first surrender in any contract year which does not
exceed 10% of the contract value computed as of the date of such surrender. The
right to surrender up to 10% of the contract value free of any withdrawal charge
does not apply to qualified contracts issued as tax-sheltered annuities under
Section 403(b) of the Internal Revenue Code. There is no withdrawal charge on
distributions made as a result of the death of the annuitant or contract owner.
Under no circumstances will the total of all withdrawal charges exceed 9% of
total purchase payments.
The withdrawal charge will be deducted from the contract value by
canceling accumulation units of a value equal to the charge. It will be made
from each investment account in proportion to the amount withdrawn from such
investment account.
OTHER CONTRACT CHARGES
The Ven 1 contract provides for the deduction from each sub-account
each valuation period of a charge at an effective annual rate of 1.30% of the
contract reserves allocated to such sub-account, consisting of .8% for the
mortality risk assumed by the Company and .5% for the expense risk assumed by
the Company. However, there is no administration charge under the Ven 1 contract
other than the $30 annual administration fee.
DEATH BENEFIT PROVISIONS
Ven 3 Death Benefit Provisions
The provisions governing the death benefit prior to the maturity date
under the Ven 3 contract are as follows:
Death of Owner. The Company will pay a minimum death benefit to the
beneficiary if the contract owner is the annuitant and dies before the maturity
date. If the contract owner is not the annuitant and the contract owner dies
before the annuitant and before the maturity date (or the contract owner is the
annuitant and there is a surviving co-annuitant), instead of a minimum death
benefit, the Company will distribute the contract owner's entire interest in the
contract (the contract value determined on the date due proof of death and all
required claim forms are received at the Company's Annuity Service Office) to
the contract owner's estate or to a successor owner. Distributions to a
beneficiary, successor owner, or estate, as appropriate, will be made no later
than 5 years after the contract owner's death, unless (1) the contract owner's
spouse is the beneficiary or successor owner (in which case the spouse will be
treated as the owner and distribution will be made no later than the date on
which distribution would be required in accordance with this paragraph after the
death of the spouse), or (2) the distribution is made to the beneficiary or
successor owner who is an individual, begins not later than a year after the
contract owner's death, and is made over a period not greater than the life
expectancy of that beneficiary or successor owner.
Death of Annuitant. A minimum death benefit will be paid to the
beneficiary if the contract owner is not the annuitant and the annuitant dies
before the contract owner and before the maturity date. If there is a
co-annuitant, the minimum death benefit will be paid on the death of the last
surviving co-annuitant.
Entity as Owner. If the contract is not owned by an individual, for
example, if it is owned by a corporation or a trust, the special rules stated in
this paragraph apply. A change in the annuitant shall be treated as the death of
the owner for purposes of these special distribution rules and the Company will
distribute the contract owner's entire interest in the contract. Distributions
to the contract owner or to the beneficiary, as appropriate, will be made not
later than 5 years after the annuitant's death, unless (1) the annuitant's
spouse is the beneficiary (in which case the spouse will be treated as the
contract owner and distribution will be made no later than the date on which
43
<PAGE> 52
distribution would be required in accordance with this paragraph after the death
of the spouse), or (2) the distribution is made to a beneficiary who is an
individual, begins not later than a year after the annuitant's death, and is
made over a period not greater than the life expectancy of that beneficiary.
General Provisions. If there is more than one individual contract
owner, death benefits must be paid as provided in the contract upon the death of
any such contract owner.
If there is both an individual and a non-individual contract owner,
death benefits must be paid as provided in the contract upon the death of the
annuitant or any individual contract owner, whichever occurs earlier.
Due proof of death and all required claim forms are required upon the
death of the contract owner or annuitant.
During the first five contract years, the minimum death benefit payable
to a beneficiary upon death of the annuitant is the greater of (a) the contract
value on the date due proof of death and all required claim forms are received
at the Company's Annuity Service Office, or (b) the sum of all purchase payments
made, less any amount deducted in connection with partial withdrawals. During
any subsequent five contract year period, the minimum death benefit will be the
greater of (a) the contract value on the date due proof of death and all
required claim forms are received at the Company's Annuity Service Office, or
(b) the minimum death benefit determined in accordance with these provisions as
of the last day of the previous five contract year period plus any purchase
payments made and less any amount deducted in connection with partial
withdrawals since then. The death benefit will be paid within seven days of
receipt of due proof of death and all required claim forms at the Company's
Annuity Service Office, subject to postponement under the same circumstances
that payment of withdrawals may be postponed.
Ven 1 Death Benefit Provisions
The death benefit provisions of the Ven 1 contract are as described
above for the Ven 3 contract except that (i) the Ven 1 contract does not provide
for the designation of successor owners or co-annuitants or changes of
annuitants and (ii) the Ven 1 contract does not make special adjustments to the
minimum death benefit for subsequent five contract year periods. The Enhanced
Death Benefit is not available for the Ven 1 contract.
OTHER CONTRACT PROVISIONS
Transfers
Under Ven 3 and Ven 1 contracts, owners may transfer all or part of
their contract value to a fixed annuity contract issued by the Company at any
time. In such case, the Company will waive any withdrawal charge that would
otherwise be applicable under the terms of the contract. Similarly, the Company
will permit holders of such fixed contracts to transfer certain contract values
to the Variable Account. In such case, the contract values transferred will be
attributable to certain purchase payments made under the fixed contract. For
purposes of calculating the withdrawal charge under the contract, the contract
date will be deemed to be the date of the earliest purchase payment transferred
from the fixed contract and the date of other purchase payments transferred will
be deemed to be the dates actually made under the fixed contract. A transfer of
all or a part of the contract value from one contract to another may be treated
as a distribution of all or a part of the contract value for Federal tax
purposes.
Under the Ven 1 contract, a contract owner may transfer prior to the
maturity date amounts among investment accounts of the contract without charge,
but such transfers cannot be made on more than two occasions in any contract
year. After annuity payments have been made for at least 12 months under a Ven 1
contract, all or a portion of the assets held in a sub-account with respect to
the contract may be transferred by the annuitant to one or more other
sub-accounts. Such transfers can be made only once each 12 months upon notice to
the Company at least 30 days before the due date of the first annuity payment to
which the change will apply.
Annuity Option Provisions
Under Ven 3 and Ven 1 contracts, there is no prescribed maturity date
that will govern in the absence of contract owner selection. The owner must
select a maturity date in the application. If no annuity option is selected by
the owner of a Ven 3 or Ven 1 contract, the automatic option will be on a
variable, not fixed, basis.
44
<PAGE> 53
Ven 3 and Ven 1 contracts require a minimum contract value in order to
effect an annuity -- $2,000 for a Ven 3 contract and $5,000 for a Ven 1
contract, except for certain qualified Ven 1 contracts where the minimum is
$3,500. Ven 3 and Ven 1 contracts prescribe no minimum amount for the first
annuity payment but reserve the right to change the frequency of annuity
payments if the first annuity payment would be less than $50.
Purchase Payments
The provisions governing purchase payments under Ven 1 contracts are as
follows: For qualified contracts, the minimum purchase payment is $25. For
nonqualified contracts, the minimum initial purchase payment is $5,000 and the
minimum subsequent purchase payment is $300. The Company may refuse to accept
any purchase payment in excess of $10,000 per contract year.
Annuity Rates
The annuity rates guaranteed in the Ven 1 contract differ from those
guaranteed in the Ven 7 and Ven 3 contracts for annuitants of certain ages.
EXPENSE SUMMARY
The following table and example are designed to assist contract owners
in understanding the various costs and expenses that contract owners bear
directly and indirectly. The table reflects expenses of the separate account and
the underlying portfolio company. In addition to the items listed in the
following table, premium taxes may be applicable to certain contracts. The items
listed under "Contract Owner Transaction Expenses" and "Separate Account Annual
Expenses" are more completely described in this Appendix (see "Other Contract
Charges") and in the Prospectus (see "Charges and Deductions"). The items listed
under "Trust Annual Expenses" are described in detail in the accompanying Trust
Prospectus to which reference should be made.
CONTRACT OWNERS TRANSACTION EXPENSES
Ven 1 and Ven 3 Contracts
Deferred sales load (as percentage of purchase payments)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN PERCENTAGE
CONTRACT
-------------------------------------------------------
<S> <C>
0 5%
1 5%
2 5%
3 5%
4 5%
5+ 0%
</TABLE>
Ven 1 and Ven 3 Contracts
<TABLE>
<S> <C>
ANNUAL CONTRACT FEE.................................................. $30
Ven 1 Contracts
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and expense risk fees...................................... 1.30%
Total Separate Account Annual Expenses............................... 1.30%
</TABLE>
45
<PAGE> 54
Ven 3 Contracts
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and expense risk fees...................................... 1.25%
Administration fee - asset based..................................... 0.15%
Total Separate Account Annual Expenses............................... 1.40%
</TABLE>
Ven 1 and Ven 3 Contracts
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
See "Summary - Trust Annual Expenses" in the Prospectus.
Ven 1 Contracts
EXAMPLE
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner surrendered the
contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity.............................. 74 117 169 252
Investment Quality Bond............. 73 116 166 246
Money Market........................ 71 110 156 225
</TABLE>
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner annuitized as
provided in the contract or did not surrender the contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity ............................. 22 68 117 252
Investment Quality Bond............. 22 67 114 246
Money Market........................ 20 60 104 225
</TABLE>
46
<PAGE> 55
Ven 3 Contracts
EXAMPLE
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner surrendered the
contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap....................... $74 $133
International Small Cap............. 75 137
Global Equity....................... 72 127 $185 $288
Pasadena Growth..................... 71 125 181 280
Equity.............................. 70 120 172 262
Value Equity........................ 70 122 175 268
Growth and Income................... 70 120 172 262
International Growth and Income..... 76 139 205 328
Strategic Bond...................... 71 124 178 275
Global Government Bond.............. 71 124 179 276
Investment Quality Bond............. 69 119 169 256
U.S. Government Securities.......... 69 118 168 253
Money Market........................ 67 113 159 236
Aggressive Asset Allocation......... 71 123 178 274
Moderate Asset Allocation........... 70 121 174 267
Conservative Asset Allocation....... 70 122 176 270
</TABLE>
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner annuitized as
provided in the contract or did not surrender the contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap....................... $28 $85
International Small Cap............. 29 89
Global Equity....................... 26 79 $135 $288
Pasadena Growth..................... 25 77 131 280
Equity ............................. 23 71 122 262
Value Equity........................ 24 73 125 268
Growth and Income................... 23 71 122 262
International Growth and Income..... 30 91 156 328
Strategic Bond...................... 24 75 128 275
Global Government Bond.............. 24 75 129 276
Investment Quality Bond............. 23 70 119 256
U.S. Government Securities.......... 22 69 118 253
Money Market........................ 21 64 109 236
Aggressive Asset Allocation......... 24 75 128 274
Moderate Asset Allocation........... 24 73 124 267
Conservative Asset Allocation....... 24 74 126 270
</TABLE>
47
<PAGE> 56
TABLE OF ACCUMULATION UNIT VALUES
Ven 3 Contracts
<TABLE>
<CAPTION>
UNIT VALUE
AT START UNIT VALUE AT NUMBER OF UNITS
YEAR ENDED 12/31 OF YEAR END OF YEAR AT END OF YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Sub-account
1987................................ $10.000000* $ 8.144663 4,242,221.369
1988................................ 8.144663 9.695125 13,563,655.062
1989................................ 9.695125 12.208846 1,443,222.778
1990 ............................... 12.208846 10.618693 2,192,929.561
1991................................ 10.618693 12.349952 3,748,439.163
1992................................ 12.349952 13.143309 4,354,245.114
1993................................ 13.143309 15.075040 4,165,733.576
1994................................ 15.075040 14.786831 2,684,785.345
1995................................ 14.786831 20.821819 2,572,695.681
Pasadena*****
1992................................ 10.000000 9.923524 356,487.848
1993................................ 9.923524 9.413546 586,908.649
1994................................ 9.413546 8.837480 576,875.573
1995................................ 8.837480 11.026969 683,051.399
Value Equity******
1993................................ 10.000000 11.175534 251,822.076
1994................................ 11.175534 11.107620 562,603.632
1995................................ 11.107620 13.548849 818,646.261
Growth and Income Sub-account****
1991................................ 10.000000 10.973500 1,530,130.493
1992................................ 10.973500 11.927411 2,211,083.415
1993................................ 11.927411 12.893007 2,248,648.359
1994................................ 12.893007 13.076664 2,043,186.985
1995................................ 13.076664 16.660889 2,105,056.205
International Growth and Income#
1995................................ 10.000000 10.554228 227,050.855
Strategic Bond******
1993................................ 10.000000 10.750617 163,195.638
1994................................ 10.750617 9.965972 181,540.594
1995................................ 9.965972 11.716972 211,267.468
Investment Quality Bond Sub-account
(formerly Bond Sub-account)
1987................................ $10.000000* $10.357400 2,234,030.945
1988................................ 10.357400 10.937890 10,253,483.698
1989................................ 10.937890 12.008936 1,924,256.679
</TABLE>
48
<PAGE> 57
<TABLE>
<S> <C> <C> <C>
1990................................ 12.008936 11.517610 1,423,403.443
1991................................ 11.517610 13.183268 1,720,219.933
1992................................ 13.183268 13.936240 1,572,065.442
1993................................ 13.936240 15.118716 1,119,425.316
1994................................ 15.118716 14.216516 841,610.498
1995................................ 14.216516 16.751499 734,994.414
U.S. Government Securities Sub-account
(formerly U.S. Gov. Bond Sub-account)
1988................................ $10.000000** $9.702201 10,203.403
1989................................ 9.702201 10.826483 300,163.430
1990................................ 10.826483 11.596537 366,010.353
1991................................ 11.596537 13.037076 720,491.624
1992................................ 13.037076 13.651495 1,938,232.553
1993................................ 13.651495 14.490734 1,478,270.571
1994................................ 14.490734 14.111357 909,659.824
1995................................ 14.111357 16.083213 954,067.593
Money Market Sub-account
1987................................ $10.000000* $10.317570 510,079.365
1988................................ 10.317570 10.865066 983,327.102
1989................................ 10.865066 11.634481 1,480,696.936
1990................................ 11.634481 12.364687 4,430,249.555
1991................................ 12.364687 12.890414 2,754,467.033
1992................................ 12.890414 13.137257 2,138,783.498
1993................................ 13.137257 13.303085 1,659,478.414
1994................................ 13.303085 13.623292 3,357,660.681
1995................................ 13.623292 14.190910 2,370,449.919
Global Equity Sub-account
1988................................ $10.000000** $10.038462 187,978.790
1989................................ 10.038462 12.259530 1,599,855.768
1990................................ 12.259530 10.827724 2,578,853.673
1991................................ 10.827724 12.044260 2,395,298.635
1992................................ 12.044260 11.790318 2,262,222.969
1993................................ 11.790318 15.450341 3,100,733.209
1994................................ 15.450341 15.500933 3,543,341.154
1995................................ 15.500933 16.459655 2,642,703.724
Global Government Bond Sub-account
1988................................ $10.000000** $10.097842 108,831.804
1989................................ 10.097842 10.404562 300,163.262
1990................................ 10.404562 11.642912 470,980.068
1991................................ 11.642912 13.302966 692,920.988
1992................................ 13.302966 13.415849 976,794.214
1993................................ 13.415849 15.741586 1,551,958.318
1994................................ 15.741586 14.630721 1,018,783.920
1995................................ 14.630721 17.772344 793,225.829
</TABLE>
49
<PAGE> 58
<TABLE>
<S> <C> <C> <C>
Conservative Asset Allocation Sub-account
1989................................ $10.000000*** $10.052759 11,861,277.612
1990................................ 10.052759 9.531831 10,705,080.076
1991................................ 9.531831 11.166459 8,708,253.007
1992................................ 11.166459 11.821212 7,777,630.143
1993................................ 11.821212 12.705196 6,463,981.799
1994................................ 12.705196 12.298940 4,556,265.387
1995................................ 12.298940 14.320582 3,177,786.472
Moderate Asset Allocation Sub-account
1989................................ $10.000000*** $9.973206 2,137,590.858
1990................................ 9.973206 9.221559 23,978,405.670
1991................................ 9.221559 11.023964 22,330,124.078
1992................................ 11.023964 11.772128 20,887,367.134
1993................................ 11.772128 12.775798 17,512,695.707
1994................................ 12.775798 12.396295 12,484,174.615
1995................................ 12.396295 14.752561 9,042,096.910
Aggressive Asset Allocation Sub-account
1989................................ $10.000000*** $9.824046 7,476,667.034
1990................................ 9.824046 8.982210 6,387,718.448
1991................................ 8.982210 10.891189 6,407,235.310
1992................................ 10.891189 11.623893 6,026,587.849
1993................................ 11.623893 12.642493 5,042,331.574
1994................................ 12.642493 12.381395 3,562,197.567
1995................................ 12.381395 14.990551 2,708,444.950
<FN>
* Commencement of operations May 4, 1987
** Commencement of operations March 18, 1988
*** Commencement of operations August 3, 1989
**** Commencement of operations April 23, 1991
***** Commencement of operations December 11, 1992
****** Commencement of operations February 19, 1993
# Commencement of operations January 9, 1995.
</TABLE>
50
<PAGE> 59
Ven 1 Contracts
<TABLE>
<CAPTION>
UNIT VALUE
AT START UNIT VALUE AT NUMBER OF UNITS
YEAR ENDED 12/31 OF YEAR END OF YEAR AT END OF YEAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Sub-account
1985................................ $10.000000* $10.734987 385.265
1986................................ 10.734987 12.558028 4,651.489
1987................................ 12.558028 13.248428 179,246.825
1988................................ 13.248428 15.787546 146,228.732
1989................................ 15.787546 19.902359 108,382.617
1990................................ 19.902359 17.329021 93,278.975
1991................................ 17.329021 20.176180 88,873.664
1992................................ 20.176180 21.495619 39,451.366
1993................................ 21.495619 24.681624 29,876.682
1994................................ 24.681624 24.235928 24,893.636
1995................................ 24.235928 34.164256 18,792.722
Investment Quality Bond Sub-account
(formerly called Bond Sub-account)
1985................................ $10.000000** $10.455832 157.237
1986................................ 10.455832 11.689643 2,426.738
1987................................ 11.689643 11.841366 164,289.054
1988................................ 11.841366 12.518584 157,248.809
1989................................ 12.518585 13.759270 113,311.078
1990................................ 13.759270 13.210721 100,560.220
1991................................ 13.210721 15.137617 75,660.271
1992................................ 15.137617 16.019604 38,307.149
1993................................ 16.019604 17.397685 25,428.550
1994................................ 17.397685 16.377174 17,796.020
1995................................ 16.377174 19.318272 13,340.073
Money Market Sub-account
1985................................ $10.000000*** $10.199136 108.287
1986................................ 10.199136 10.647679 116.902
1987................................ 10.647679 11.156548 69,537.264
1988................................ 11.156548 11.761294 40,025.230
1989................................ 11.761294 12.607783 43,520.107
1990................................ 12.607783 13.413682 41,671.105
1991................................ 13.413682 13.999175 35,261.861
1992................................ 13.999175 14.282708 9,873.140
1993................................ 14.282708 14.478685 5,683.780
1994................................ 14.478685 14.843213 4,598.398
1995................................ 14.843213 15.478376 7,968.626
<FN>
* Commencement of operations July 1, 1985
** Commencement of operations August 6, 1985
*** Commencement of operations August 23, 1985
</TABLE>
51
<PAGE> 60
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 61
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
NASL VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
OF
NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
This Statement of Additional Information is not a Prospectus. It
contains information in addition to that described in the Prospectus and should
be read in conjunction with the Prospectus dated the same date as this Statement
of Additional Information. The Prospectus may be obtained by writing North
American Security Life Insurance Company (the "Company") at the Annuity Service
Office, P.O. Box 9230, Boston, Massachusetts 02205-9230 or telephoning (617)
266-6008.
The date of this Statement of Additional Information is May 1, 1996.
North American Security Life Insurance Company
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6008
- --------------------------------------------------------------------------------
V7SAI.596
<PAGE> 62
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History...................................... 3
Performance Data..................................................... 3
Services
Independent Accountants....................................... 6
Servicing Agent............................................... 6
Principal Underwriter......................................... 6
Cancellation of Contract...................................... 6
Financial Statements................................................. 8
2
<PAGE> 63
GENERAL INFORMATION AND HISTORY
The NASL Variable Account ("Variable Account") is a separate investment
account of the Company, a stock life insurance company organized under the laws
of Delaware in 1979. The ultimate parent of the Company is The Manufacturers
Life Insurance Company ("Manulife"), a Canadian mutual life insurance Company
based in Toronto, Canada. Prior to January 1, 1996, the company was a wholly
owned subsidiary of North American Life Assurance Company ("NAL"), a Canadian
mutual life insurance company. On January 1, 1996 NAL and Manulife merged with
the combined company retaining the Manulife name.
PERFORMANCE DATA
Each of the sub-accounts may in its advertising and sales materials
quote total return figures. For periods prior to August 7, 1989, performance
data will be hypothetical figures based on the assumption that a contract
offered by the Prospectus was issued when the sub-accounts first became
available for investment under other contracts offered by the Company. The
sub-accounts may advertise both "standardized" and "non-standardized" total
return figures, although standardized figures will always accompany
non-standardized figures. Such figures will always include the average annual
total return for recent one year and, when applicable, five and ten year periods
and, where less than ten years, the period since the sub-account first became
available for investment. Where the period since inception is less than one
year, the total return quoted will be the aggregate return for the period. The
average annual total return is the average annual compounded rate of return that
equates a purchase payment to the market value of such purchase payment on the
last day of the period for which such return is calculated. The aggregate total
return is the percentage change (not annualized) that equates a purchase payment
to the market value of such purchase payment on the last day of the period for
which such return is calculated. For purposes of the calculations it is assumed
that an initial payment of $1,000 is made on the first day of the period for
which the return is calculated. In calculating standardized return figures, all
recurring charges (all asset charges (mortality and expense risk fees and
administration fees) and the $30 administration fee) are reflected, the asset
charges are reflected in changes in unit values and the $30 administration fee
is deducted as a dollar amount based on the approximate average contract size
for contracts of this series issued by the Company in 1995 of $35,000.
Standardized total return figures will be quoted assuming redemption at the end
of the period. Such figures may be accompanied by non-standardized total return
figures that are calculated on the same basis as the standardized returns except
that the calculations (i) assume no redemption at the end of the period and (ii)
do not reflect imposition of the $30 per contract charge inasmuch as the impact
of such charge varies by contract size. The Company believes such
non-standardized figures are useful to contract owners who wish to assess the
performance of an ongoing contract of the size that is meaningful to the
individual contract owner.
3
<PAGE> 64
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION OR INCEPTION DATE
10 YEARS WHICHEVER
IS SHORTER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Equity 0.32% 8.22% 6.48% 3/18/88
Pasadena Growth 18.68% N/A 1.90% 12/11/92
Equity 34.71% 13.98% 12.09%* 6/18/85
Value Equity 15.88% N/A 9.64% 2/19/93
Growth and Income 21.31% N/A 10.97% 4/23/91
International Growth -0.28%** N/A N/A 1/09/95
and Income
Strategic Bond 11.47% N/A 3.99% 2/19/93
Global Government Bond 15.37% 8.31% 7.53% 3/18/88
Investment Quality 11.73% N/A 7.36% 4/23/91
Bond*
U.S. Government 7.87% 6.21% 6.95% 5/01/89
Securities**
Money Market -1.58% 2.15% 4.06%* 6/18/85
Aggressive Asset 14.97% 10.30% 6.72% 8/03/89
Allocation
Moderate Asset 12.91% 9.36% 6.33% 8/03/89
Allocation
Conservative Asset 10.34% 7.96% 5.73% 8/03/89
Allocation
<FN>
* 10 Year
** Aggregate total return from January 9, 1995 to December 31, 1995
</TABLE>
4
<PAGE> 65
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION OR INCEPTION DATE
10 YEARS WHICHEVER
IS SHORTER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Equity 6.18% 8.74% 6.56% 3/18/88
Pasadena Growth 24.78% N/A 3.25% 12/11/92
Equity 40.81% 14.42% 12.15%* 6/18/85
Value Equity 21.98% N/A 11.19% 2/19/93
Growth and Income 27.41% N/A 11.49% 4/23/91
International Growth 5.54** N/A N/A 1/09/95
and Income
Strategic Bond 17.57% N/A 5.69% 2/19/93
Global Government Bond 21.47% 8.83% 7.62% 3/18/88
Investment Quality 17.83% N/A% 7.94% 4/23/91
Bond*
U.S. Government 13.97% 6.76% 7.03% 5/01/89
Securities**
Money Market 4.17% 2.79% 4.15%* 6/18/85
Aggressive Asset 21.07% 10.79% 6.82% 8/03/89
Allocation
Moderate Asset 19.01% 9.85% 6.43% 8/03/89
Allocation
Conservative Asset 16.44% 8.48% 5.83% 8/03/89
Allocation
<FN>
* 10 Year
** Aggregate total return from January 9, 1995 to December 31, 1995
</TABLE>
5
<PAGE> 66
* Because the Investment Quality Bond Trust changed its subadviser and
investment objective effective April 23, 1991, the Company has elected to quote
performance for the Investment Quality Bond Sub-account only since the date of
change in order to quote returns representative of its current objective and
produced by its current portfolio manager. Per share information concerning the
period prior to the change appears in the Trust's Prospectus. The average annual
total rates of return for the one, five and ten year periods for the sub-account
are available upon request.
** The U.S. Government Securities Sub-account commenced operations on
March 18, 1988 by investing in shares of the Convertible Securities Trust. That
Trust changed its investment objective and its investment Subadviser effective
May 1, 1989, pursuant to a vote of its shareholders. In view of the change in
investment objective and portfolio manager, the U.S. Government Securities
Sub-account has elected to quote performance only since the date of the change
in order to quote returns representative of its current objective and produced
by its current portfolio manager. Per share information concerning the period
prior to the change appears in the Trust's Prospectus. The average annual total
rates of return for the one, five and ten year periods for the sub-account are
available upon request.
In addition to the non-standardized returns quoted above, each of the
sub-accounts may from time to time quote aggregate non-standardized total
returns calculated in the same manner as set forth above for other time periods.
From time to time the Trust may include in its advertising and sales literature
general discussions of economic theories, including but not limited to,
discussions on how demographic and political trends can affect the financial
markets. Further, the Trust may also include in its advertising and sales
literature specific information on each of the Trust's subadvisers, including
but not limited to, research capabilities of a subadviser, assets under
management, information relating to other clients of a subadviser, and other
generalized information.
SERVICES
INDEPENDENT ACCOUNTANTS
The financial statements of the Company and the Variable Account
included in this Statement of Additional Information have been examined by
Coopers & Lybrand L.L.P. certified public accountants, as indicated in their
reports in this Statement of Additional Information, and are included herein in
reliance upon such reports and upon the authority of such accountants as experts
in accounting and auditing.
The financial statements of the Company which are included in the
Statement of Additional Information should be considered only as bearing on the
ability of the Company to meet its obligations under the contracts. They should
not be considered as bearing on the investment performance of the assets held in
the Variable Account.
SERVICING AGENT
Vantage Computer Systems, Inc. ("Vantage") provides to the Company a
computerized data processing recordkeeping system for variable annuity
administration. Vantage provides various daily, semimonthly, monthly, semiannual
and annual reports including: daily updates on accumulation unit values,
variable annuity participants and transactions, agent production and
commissions; semimonthly commission statements; monthly summaries of agent
production and daily transaction reports; semiannual statements for contract
owners; and annual contract owner tax reports. Vantage receives approximately $7
per policy per year, plus certain other fees paid by the Company for the
services provided.
PRINCIPAL UNDERWRITER
NASL Financial Services, Inc., a wholly-owned subsidiary ofthe Company,
serves as principal underwriter of the contracts. Contracts are offered on a
continuous basis. The aggregate dollar amount of underwriting commissions paid
to NASL Financial Services, Inc. in 1995, 1994, and 1993 were $68,782,161,
$69,999,469 and $60,174,411, respectively. The amounts retained by NASL
Financial Services, Inc. during such periods were $0, $0 and $0, respectively.
CANCELLATION OF CONTRACT
The Company may, at its option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments by or on behalf of the
contract owner have been made, if both (i) the total purchase payments made for
the contract, less any withdrawals, are
6
<PAGE> 67
less than $2,000; and (ii) the contract value at the end of such two year period
is less than $2,000. The Company, as a matter of administrative practice, will
attempt to notify a contract owner prior to such cancellation in order to allow
the contract owner to make the necessary purchase payment to keep the contract
in force.
7
<PAGE> 68
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY (A Wholly-Owned
Subsidiary of North American Life Assurance
Company of North York, Canada)
------------
FINANCIAL STATEMENTS
For the years ended
December 31, 1995, 1994 and 1993
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholder of North American Security
Life Insurance Company:
We have audited the accompanying statements of admitted assets, liabilities,
capital and surplus of North American Security Life Insurance Company (a
wholly-owned subsidiary of North American Life Assurance Company of North York,
Canada) as of December 31, 1995 and 1994, and the related statements of
operations, capital and surplus, and cash flows for the three years ended
December 31, 1995, 1994 and 1993. 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 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, capital and surplus of
North American Security Life Insurance Company as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995 in conformity with accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
which practices are considered to be generally accepted accounting principles
for wholly-owned stock life subsidiaries of mutual life insurance companies.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in Schedule 1 -
Selected Financial Data, is presented to comply with the NAIC's Annual Statement
Instructions and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 23, 1996
<PAGE> 70
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN LIFE ASSURANCE COMPANY
OF NORTH YORK, CANADA)
<TABLE>
STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS
December 31, 1995 and 1994
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Investments
Bonds $ 16,281,452 $ 333,973,085
Mortgages -- 115,429,834
Real estate 4,847,164 4,745,559
Common stock 20,097,789 11,039,222
Policy loans -- 2,579,308
Cash and short-term investments 1,797,230 101,578,176
-------------- --------------
Total investments 43,023,635 569,345,184
Accrued investment income 431,415 7,197,833
Other assets 4,320,909 2,427,102
Separate account assets 4,914,727,917 3,661,278,295
-------------- --------------
Total assets $4,962,503,876 $4,240,248,414
============== ==============
LIABILITIES
Aggregate reserves 1,931,894 519,092,606
Transfers from separate account, net (156,458,903) (148,035,998)
Borrowed money 107,865,148 100,023,562
Accrued interest on surplus note 3,248,219 1,648,219
Payable to Parent 3,033,665 --
Funds held account from reinsurers 9,000,000 12,000,000
Asset valuation reserve 2,895,914 5,536,860
Interest maintenance reserve -- 2,494,101
Bank overdraft 8,606,730 9,547,533
Amounts payable on reinsurance ceded 7,256,229 --
Payable to Parent on reinsurance ceded -- 8,577,268
Other liabilities 10,239,069 8,677,836
Separate account liabilities 4,914,727,917 3,661,278,295
-------------- --------------
Total liabilities 4,912,345,882 4,180,840,282
CAPITAL AND SURPLUS
Common stock (Shares authorized: 3,000;
issued and outstanding 2,600; par value $1,000) 2,600,000 2,600,000
Surplus note payable to Parent 20,000,000 20,000,000
Paid-in capital in excess of par value 110,633,000 110,633,000
Unassigned deficit (83,075,006) (73,824,868)
-------------- --------------
Total capital and surplus 50,157,994 59,408,132
-------------- --------------
Total liabilities, capital and surplus $4,962,503,876 $4,240,248,414
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE> 71
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN LIFE ASSURANCE COMPANY
OF NORTH YORK, CANADA)
<TABLE>
STATEMENTS OF OPERATIONS
December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues
Annuity considerations and deposits $ 991,551,945 $1,139,953,302 $1,255,219,443
Net investment income 35,909,722 30,559,559 27,851,126
Commissions and expense allowances on
reinsurance ceded 14,676,544 7,019,266 586,983
Experience refund on reinsurance ceded 3,901,633 4,967,753 --
Reserve adjustments on reinsurance (48,222,552) (6,023,746) (23,681,983)
-------------- -------------- --------------
997,817,292 1,176,476,134 1,259,975,569
-------------- -------------- --------------
Expenses
Annuity benefits 269,688,906 206,710,232 195,064,882
Increase (decrease) in reserves (517,160,712) 146,552,124 5,337,935
Increase in separate account liability 415,529,185 732,768,257 971,871,375
Commissions 73,593,478 81,981,046 82,137,269
General expenses 22,872,812 19,253,764 13,475,040
Interest expense 8,980,132 4,599,441 456,196
Recapture fee on reinsurance ceded 1,445,889 8,029,909 13,300
Initial consideration on reinsurance ceded 727,522,634 -- --
-------------- -------------- --------------
1,002,472,324 1,199,894,773 1,268,355,997
Loss before federal income tax provision and
realized capital losses (4,655,032) (23,418,639) (8,380,428)
Federal income tax provision -- 6,415 193,000
-------------- -------------- --------------
Loss after federal income tax provision (4,655,032) (23,425,054) (8,573,428)
Realized capital (losses) (2,632,953) (7,029,018) (2,104,462)
-------------- -------------- --------------
Net loss $ (7,287,985) $ (30,454,072) $ (10,677,890)
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 72
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN LIFE ASSURANCE COMPANY
OF NORTH YORK, CANADA)
<TABLE>
STATEMENTS OF CAPITAL AND SURPLUS
For the years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Capital and Surplus - beginning of the year $59,408,132 $51,722,525 $35,773,897
Net loss (7,287,985) (30,454,072) (10,677,890)
Change in net unrealized capital gains (losses) 636,335) 3,514,108 (1,198,895)
Change in asset valuation reserve 2,640,946 1,976,033 (5,847,867)
Increase in non-admitted assets (958,941) (1,859,181) (1,326,720)
Issuance of common stock 600,000 458,000
Paid in capital in excess of par 29,400,000 4,542,000
Initial commission allowance on reinsurance ceded (3,007,823) 4,508,719 10,000,000
Surplus note from Parent -- -- 20,000,000
----------- ----------- -----------
Capital and Surplus - end of the year $50,157,994 $59,408,132 $51,722,525
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 73
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN LIFE ASSURANCE COMPANY
OF NORTH YORK, CANADA)
<TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
From operating activities:
Annuity considerations and deposits $991,551,945 $1,139,953,302 $1,255,219,443
Allowances & reserve adjustments on reinsurance ceded (33,546,008) 1,140,018 (20,898,549)
Net investment income 32,128,833 28,230,341 27,231,438
Experience refund on reinsurance ceded 3,901,633 4,967,753 --
Surrender benefits and other fund withdrawals paid (232,650,150) (175,523,156) (171,434,721)
Other benefits paid to policyholders (36,860,052) (30,555,923) (22,727,802)
Commissions, other expenses & taxes paid (97,024,418) (100,210,171) (93,392,207)
Net transfers to separate account (423,952,090) (768,208,239) (1,022,539,449)
Other operating expenses paid (735,369,347) (13,571,986) (1,546,814)
------------ -------------- --------------
Net cash provided (used) by operating activities (531,819,654) 86,221,939 (50,088,661)
------------ -------------- --------------
From investing activities:
Proceeds from investments sold, matured or
repaid:
Bonds 763,005,273 112,385,919 75,750,376
Stocks 5,080,010 5,805,050 5,818,725
Mortgage loans 110,791,047 14,076,659 6,294,101
Real estate 860,375 5,950,412 5,528,761
Cost of investments acquired:
Bonds (441,405,890) (232,208,934) (42,169,482)
Stocks (10,137,862) (488,212) (11,144,711)
Mortgage loans (136,101) (4,301,717) (3,890,750)
------------ -------------- --------------
Net cash provided (used) by investing activities 428,056,852 (98,780,823) 36,187,020
------------ -------------- --------------
Other cash provided (applied):
Capital and surplus paid-in -- 30,000,000 5,000,000
Borrowed money 7,000,000 70,000,000 80,000,000
Reinsurance ceding commission and expense allowance -- -- 25,000,000
Other sources 11,380,829 17,892,210 4,771,451
Other applications (14,398,973) (103,250,950) (4,931,341)
------------ -------------- --------------
Total other cash provided (used) 3,981,856 14,641,260 109,840,110
------------ -------------- --------------
Net change in cash and short-term investments (99,780,946) 2,082,376 95,938,469
Cash and short-term investments, beginning of year 101,578,176 99,495,800 3,557,331
------------ -------------- --------------
Cash and short-term investments, end of year $ 1,797,230 $ 101,578,176 $ 99,495,800
============ ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 74
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN LIFE ASSURANCE COMPANY
OF NORTH YORK, CANADA)
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
A. ORGANIZATION
------------
North American Security Life Insurance Company ("the Company") is a
wholly-owned subsidiary of North American Life Assurance Company of North
York, Canada ("NAL"). See Note O for subsequent event describing merger
with the Manufacturers Life Insurance Company.
The Company issues fixed and variable annuity and variable life
contracts (the "Contracts"). Amounts invested in the fixed portion of the
Contracts are allocated to the general account of the Company (see Note F
on fixed annuity reinsurance). Amounts invested in the variable portion of
the Contracts are allocated to the separate accounts of the Company. The
separate account assets are invested in shares of the NASL Series Trust, a
no-load, open-end management investment company organized as a
Massachusetts business trust.
On June 19, 1992, the Company formed First North American Life
Assurance Company ("FNA"). Subsequently, on July 22, 1992, FNA was granted
a license by the New York State Insurance Department. FNA issues fixed and
variable annuity contracts in the State of New York.
NASL Financial Services Inc. ("NASL Financial"), a wholly-owned
subsidiary of the Company, acts as investment adviser to the NASL Series
Trust and principal underwriter of the Contracts issued by the Company and
FNA. NASL Financial has entered into a promotional agent agreement with
Wood Logan Associates, an affiliate of NAL, to act as the exclusive agent
for promotion of annuity and variable life contract sales.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF REPORTING
------------------
The Company's financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware. These practices, in the case of a wholly-owned stock
life insurance subsidiary of a mutual life insurance company, are
considered to be generally accepted accounting principles (GAAP).
The Financial Accounting Standards Board issued Interpretation 40,
Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long- Duration
participating Contracts. The American Institute of Certified Public
Accountants issued Statement of Position 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises. Neither of these
groups has a role in establishing regulatory accounting practices.
6
<PAGE> 75
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
BASIS OF REPORTING, CONTINUED
-----------------------------
These pronouncements will require mutual life insurance companies to modify
their financial statements in order for them to continue to be in
accordance with generally accepted accounting principles, effective for
1996 financial statements. The manner in which policy reserves, new
business acquisition costs, asset valuations and related tax effects are
recorded will change. Management has not determined the impact of such
changes on its financial statements.
Certain amounts in the 1994 and 1993 financial statements are presented
differently than in prior years to conform with 1995 presentation
guidelines.
PREPARATION OF FINANCIAL STATEMENTS
-----------------------------------
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
FINANCIAL INSTRUMENTS
---------------------
Financial instruments reported on the balance sheet consist primarily of
investments in cash and short-term investments, marketable securities, and
debt. Fair value of financial instruments have been determined through
information obtained from market sources and management estimates. At
December 31, 1995, the fair value of cash and short-term investments and
debt approximates the carrying value due to the short maturity and variable
interest rate arrangements, respectively.
Credit risk associated with concentrations can arise when changes in
economic, industry, or geographical factors affect groups of counterparties
with similar characteristics causing aggregate credit exposure to be
significant to the Company. All of the Company's investments in mortgage
loans are collaterized by real estate which is geographically dispersed
throughout the United States. During 1994, the most significant
concentrations existed in California (40%), Georgia (14%) and Illinois
(11%). The Company had no outstanding mortgages at December 31, 1995 (see
Note G). There are no other significant concentrations of credit risk (See
also Note C).
7
<PAGE> 76
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
INVESTMENTS AND INVESTMENT INCOME
---------------------------------
Investments are valued in accordance with rules promulgated by the National
Association of Insurance Commissioners ("NAIC"). Bonds and short-term
investments, where eligible under NAIC rules, are valued at amortized cost.
Investment income is recognized on the accrual basis. Unrealized gains or
losses on investments are recorded in unassigned surplus. Realized gains or
losses on investments sold are determined on the basis of the specific
identification method.
Common stocks are valued at market value except for investments in
affiliates which are carried on the equity basis; and real estate acquired
in satisfaction of debt which is stated at the lower of the appraised
market value or the outstanding principal loan balance plus accrued
interest and foreclosure costs.
There are no mortgage loans outstanding at December 31, 1995 (See Note G).
For the year ended December 31, 1994 mortgage loans in good standing
are stated at the aggregate unpaid balance. Mortgage loans are considered
to be in default if interest and principal payments are delinquent for more
than 90 days. The Company writes-down mortgage loans in default to the
lower of unpaid principal or the value of the underlying property. The
Company maintains asset valuation reserves sufficiently in excess of
minimum requirements which serve to cover the excess of the loan balance
over the underlying property values on restructured loans.
The maximum percentage of any one loan to the value of the property at the
time of the original loan commitment, exclusive of purchase money
mortgages, was 75%. Fire insurance is required on all properties covered by
mortgage loans at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the buildings. At
December 31, 1995, 1994, and 1993, the Company held $0, $414,974, and
$5,682,476, respectively, of mortgages in default at statement value. In
1995, 1994 and 1993, the Company wrote- down $0, $1,745,682, and
$1,915,623, respectively of mortgages held at year end to reflect the
carrying value at the lower of appraised value or outstanding principal
plus accrued interest and foreclosure costs.
In 1995, 1994 and 1993, the Company transferred, in satisfaction of debt,
mortgages with statement values of $2,405,052, $6,407,174 and $4,413,889,
respectively to foreclosed real estate. Subsequently, in 1995, 1994 and
1993, the Company wrote-down $1,360,620, $0, and $1,016,484, respectively,
on these properties to reflect the carrying value at the lower of the
current market valuation or the value transferred at the time of
foreclosure. At year end, the Company held $4,847,164 of foreclosed real
estate at adjusted book value which approximates market value.
8
<PAGE> 77
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
SHORT-TERM INVESTMENTS
----------------------
Short-term investments generally consist of U.S. Treasury bills, commercial
paper and money market instruments whose maturities at the time of
acquisition are one year or less. Short-term investments are valued at
cost, which approximates market value.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
--------------------------------------------------------
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit related losses on all invested assets with risk of
loss including mortgages, real estate, fixed-income securities, and common
stocks. Changes in the AVR are accounted for as a direct increase or
decrease in unassigned surplus.
The Interest Maintenance Reserve (IMR) captures realized capital gains and
losses which result from changes in interest rates for all fixed income
securities and amortizes these capital gains and losses into investment
income over the original life of the investments sold. During 1995,
$11,040,025 of cumulative net gains were released from IMR in connection
with a reinsurance treaty whereby the Company reinsured all of its fixed
annuity business (see Note F). This accounting was approved by the State of
Delaware Department of Insurance as a permitted practice. Total net gains
(losses) of $(59,933) and $1,807,018 were realized of which $541,484 and
$495,672 were amortized and included in net investment income in 1994 and
1993, respectively.
AGGREGATE RESERVES
------------------
The reserves, developed using accepted actuarial methods, have been
established and maintained on the basis of published mortality tables and
prescribed interest rates per the National Association of Insurance
Commissioners' standard valuation law, as adopted by the State of Delaware.
The method used for the valuation of annuities is the Commissioner's
Annuity Reserve Valuation Method (CARVM). Under this method the reserve is
the highest present value of all future guaranteed cash surrender values.
In addition, the Company has established additional reserves during 1995 to
cover the impact of guideline GGG. The method used for the valuation of
Variable Life Insurance ("VLI") is the Commissioners Reserve Valuation
Method (CRVM). Under this method, the VLI reserves are equal to the present
value of future death benefits, with a minimum of the cash surrender value.
RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
---------------------------------------------------
Premium revenues are recognized as received. Expenses, including
acquisition costs such as commissions and other costs in connection with
acquiring new business, are charged to operations as incurred.
9
<PAGE> 78
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
SEPARATE ACCOUNT
----------------
Separate account assets represent mutual funds held for the exclusive
benefit of both variable annuity and variable life contractholders and are
reported at fair market value. Since the contractholders receive the full
benefit and bear the full risk of the separate account investments, the
income, realized and unrealized gains and losses from such investments, is
offset by an equivalent change in the liabilities related to the separate
accounts. Transfers from separate account, net, primarily represents the
difference between the contract owner's account value and the CARVM
reserve.
UNCONSOLIDATED SUBSIDIARIES
---------------------------
The Company records its equity in the earnings of unconsolidated
subsidiaries as net investment income. The Company owns 100% of the
outstanding common stock of First North American Life Assurance Company and
NASL Financial
Services, Inc.
<TABLE>
Summarized financial data for unconsolidated subsidiaries at December 31,
1995 and 1994 is shown below:
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Total assets at year-end $318,326 $194,177
Total liabilities at year-end 304,409 183,777
Net income 1,220 894
</TABLE>
INCOME TAXES
------------
The Company files a consolidated federal income tax return with
its subsidiaries, FNA and NASL Financial. The Company files
separate state income tax returns.
The method of allocation between the companies is subject to a tax sharing
agreement. Tax liability is allocated to each member on a pro rata basis
based on the relationship the member's tax liability (computed on a
separate return basis) bears to the tax liability of the consolidated
group.
10
<PAGE> 79
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
C. INVESTMENTS
-----------
<TABLE>
Net investment income was as follows:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $18,046,504 $16,182,157 $14,861,152
Common stock 137,862 498,222 125,986
Equity in undistributed income
(loss) of subsidiaries (482,580) 737,688 (747,294)
Short-term investments 2,642,678 1,664,563 104,719
Mortgage loans 5,420,613 12,026,724 13,830,160
Real estate 1,071,080 1,248,043 635,245
Policy loan interest (32,300) 10,658 66,228
Amortization of IMR 11,040,025 541,484 495,672
Investment expenses (1,934,160) (2,349,980) (1,520,742)
----------- ----------- -----------
Net investment income $35,909,722 $30,559,559 $27,851,126
=========== =========== ===========
</TABLE>
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Value of Financial Instruments," requires
disclosures, if practical, of fair value information about financial
instruments, whether or not recognized in the balance sheet. SFAS 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Presentation of the estimated fair value
of assets without a corresponding revaluation of liabilities associated
with insurance contracts can be misinterpreted.
11
<PAGE> 80
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
<TABLE>
The amortized cost and estimated fair values of investments in debt securities
at December 31, 1995 and 1994 are as follows:
<CAPTION>
December 31, 1995
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S. $ 8,998 $362 $3 $ 9,357
Government agencies
Corporate securities 3,672 125 3 3,794
Mortgage-backed securities 3,611 195 0 3,806
------- ---- -- -------
Totals $16,281 $682 $6 $16,957
======= ==== == =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury
securities and $ 8,673 $ 70 $ 402 $ 8,341
obligations of U.S.
Government agencies
Corporate securities 294,447 939 6,185 289,201
Mortgage-backed 30,853 16 2,267 28,602
securities
-------- ------ ------ --------
Totals $333,973 $1,025 $8,854 $326,144
======== ====== ====== ========
</TABLE>
The fair value of debt securities were determined based on quoted market prices
or dealer quotes.
12
<PAGE> 81
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
<TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1995, by the contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers or
lenders may have the right to call or prepay obligations with or without
call or prepayment penalties.
<CAPTION>
Estimated
Amortized Fair
(in thousands) Cost Value
--------- ----------
<S> <C> <C>
Due in one year or less $ 2,162 $ 2,175
Due after one year through five years 5,336 5,553
Due after five years through ten years 4,281 4,439
Due after ten years 892 984
------- -------
Sub-totals 12,671 13,151
Mortgage-backed securities 3,610 3,806
------- -------
Totals $16,281 $16,957
======= =======
</TABLE>
Gross gains of $10,452,916, $1,600,852 and $2,015,587 and gross losses of
$2,035,657, $1,660,785 and $208,569 were recognized on those sales for the
years ended December 31, 1995, 1994 and 1993, respectively. Net realized
gains (losses) of $8,417,259 (see Note A), $(59,933) and $1,797,140 for the
years ended December 31, 1995, 1994 and 1993, respectively, were
transferred to IMR.
Policy loans are an integral component of insurance policies, therefore, it
is not practicable to value policy loans.
13
<PAGE> 82
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
D. FEDERAL INCOME TAXES
--------------------
At December 31, 1995 and 1994 the Company had net operating loss
carryforwards of approximately $33,000,000 and $21,000,000, respectively,
which expire between the years 2007 and 2010.
E. LIFE AND ANNUITY ACTUARIAL RESERVES
-----------------------------------
The Company issues flexible premium deferred combination fixed and variable
annuity contracts and variable life insurance contracts. Reserves for these
contracts are established using the Commissioners Annuity Reserve Valuation
Method ("CARVM") and the Commissioner's Reserve Valuation Method ("CRVM")
as adopted by the State of Delaware Insurance Department. The reserves for
the fixed portion of the contracts are subject to an indemnity reinsurance
agreement and the reserves for the variable portion of the contracts are
held in the separate account. The Company has now reinsured its Minimum
Guaranteed Death Benefit risks, and accordingly, is holding no reserve for
this risk, which relates to the excess of Death Benefit over policyholder
Account Value. The Company does not offer surrender values in excess of the
reserves.
<TABLE>
Withdrawal characteristics of Annuity Actuarial Reserves and Deposit
Liabilities are as follows:
<S> <C> <C>
Subject to discretionary withdrawal
with market value adjustment $ 467,775,126 8.53%
Subject to discretionary withdrawal
at book value less surrender charge 228,269,135 4.16
Subject to discretionary withdrawal
at market value 4,760,670,029 86.79
Subject to discretionary withdrawal
at book value 11,553,562 .21
-------------- -----
Subtotal 5,468,267,852 99.69
Not subject to discretionary
withdrawal provision 17,150,937 .31
-------------- -----
Total gross annuity actuarial reserves and
deposit fund liabilities 5,485,418,789 100%
-------------- =====
Reinsurance ceded 729,344,503
--------------
Total net annuity actuarial reserves and
deposit funds liabilities $4,756,074,286
==============
</TABLE>
14
<PAGE> 83
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
F. REINSURANCE
-----------
Effective June 30, 1995 an indemnity coinsurance agreement was entered into
between the Company and Peoples Security Life Insurance Company ("Peoples"
or "the Reinsurer"), a AAA rated subsidiary of the Providian Corporation,
to reinsure both in force and new fixed annuity business written by the
Company.
The indemnity aspects of the agreement provide that the Company remains
liable for the contractual obligations whereas the Reinsurer agrees to
indemnify the Company for any contractual claims incurred. The coinsurance
aspects of the agreement required the Company to transfer all assets
backing the fixed annuity obligations to the Reinsurer together with all
future fixed premiums received by the Company for fixed annuity contracts.
Once transferred, the assets belong to the Reinsurer. In exchange, the
Reinsurer reimburses the Company for all claims and provides expense
allowances to cover commissions and other costs associated with the fixed
annuity business.
The Reinsurer is responsible for investing the assets and is at risk for
any potential investment gains and losses. There is no recourse back to the
Company if investment losses are incurred. Under this agreement the Company
will continue to administer the fixed annuity business for which it will
earn an expense allowance. The Company has set up a reserve of $1,931,894
to recognize that expense allowances received from Providian under this
indemnity coinsurance agreement do not fully reimburse the Company for
overhead expenses allocated to the fixed annuity line of business.
The reinsurance agreement required the Company to transfer to the Reinsurer
a consideration of $726.7 million, in cash or securities, to cover all in
force business as of June 30, 1995.
<TABLE>
The financial impact of the reinsurance agreement was as follows:
(in millions)
Net loss from operations:
<S> <C>
Consideration paid to reinsurer $(726.7)
Net reserves reinsured 725.1
Expense gap reserve (1.9)
-------
(3.5)
Capital and Surplus adjustments:
Release of IMR 11.0
Market loss on sale of mortgages (2.2)
Release of bond and mortgage asset
valuation reserve 4.7
-------
Net impact on surplus $10.0
=======
</TABLE>
15
<PAGE> 84
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
REINSURANCE, CONTINUED
----------------------
Effective July 1, 1995 and August 1, 1995, respectively, the Company
entered into treaties with the Connecticut General Life Insurance Company
("CIGNA") and Swiss Re Life Company America companies to reinsure its
Minimum Death Benefit Guarantee risks. Each company has assumed 50% of the
risk. In addition, the Company reinsured 50% of its risk related to the
waiving of surrender charges at death with CIGNA. The Company is paying the
reinsurers an asset based premium, the level of which varies with both the
amount of exposure to this risk and the realized experience.
On December 7, 1995, the Company entered into a letter of intent with
Transamerica Occidental Life Insurance Company. Transamerica will reinsure
a 50% quota share of the variable portion of the Company's VLI contracts.
In addition, Transamerica will also reinsure 80% of this product's net
amount at risk in excess of the Company's retention limit of $100,000 on a
YRT basis.
During 1984, the Company assumed from its parent, NAL, approximately 26% of
NAL's ordinary and group vested annuity contracts issued in the United
States prior to 1983. In 1984, the Company received consideration from NAL
relating to the agreement of $800,000. In December, 1989 the percentage
assumed was increased to 90% and the Company recognized consideration of
$2,325,000. On March 31, 1995, this agreement was 100% recaptured. To
effect this recapture the Company paid NAL $1,445,889. At December 31,
1994, the Company's liability for future policy benefits was $1,635,097.
Effective October 1, 1988, the Company ceded 18% of its variable annuity
contracts (policy from 203-VA) to its parent NAL under a modified
coinsurance agreement. Under this agreement, NAL provides the Company with
an expense allowance on reinsured premiums which is repaid out of a portion
of future profits on the business reinsured. The agreement provides full
risk transfer of mortality, persistency and investment performance to the
reinsurer with respect to the portion reinsured. Effective July 1, 1992,
the quota share percentage was increased to 36%.
On December 31, 1993 the Company entered into a modified coinsurance
agreement with an ITT Lyndon Life, a non-related third party to cede the
remaining 64% of the Company's variable annuity contracts (policy form
203-VA) and 95% of the Company's new variable annuity contract series
issued in 1994 (policy form Ven 10). The Company received approximately $25
million in cash representing withheld premiums of $15 million and $10
million ceding commission. The amounts of withheld premiums will be repaid
with interest over 5 years. The ceding commission is payable out of future
profits generated by the business reinsured.
16
<PAGE> 85
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
REINSURANCE, CONTINUED
----------------------
Effective December 31, 1994, the Company recaptured its reinsurance with
NAL. Upon recapture, 1994 operating results were negatively impacted by a
one-time recapture fee of approximately $6.5 million. Concurrent with this
transaction, the Company ceded 31% of the recaptured contracts (policy form
203-VA) to ITT Lyndon Life bringing the portion of these contracts
reinsured by ITT Lyndon to 95%. In return, the Company received
consideration of $5.2 million which is reflected as a surplus adjustment
and will be amortized into income in future years.
Effective December 31, 1994, the Company entered into indemnity reinsurance
agreement with Paine Webber Life to reinsure a portion of its policy forms
207-VA, VFA, VENTURE.001, and VENTURE.003. The quota share percentage
varies between 15% and 35% depending on the policy form. The form of
reinsurance is modified coinsurance and only covers the variable portion of
contracts written by Paine Webber brokers. The Company received an
allowance of $1,580,896 to complete this transaction. All elements of risk
(including mortality, persistency, investment performance) have been
transferred with the exception of the minimum death benefit guarantee. The
Company receives an allowance to cover the expected cost of the minimum
death benefit guarantee.
G. RELATED PARTY TRANSACTIONS
--------------------------
In connection with the fixed annuity indemnity coinsurance agreement (See
Note F), the Company pooled its mortgage portfolio (book value of
approximately $106 million) and transferred a senior participation interest
to an affiliate of the reinsurer. The senior interest was transferred for a
purchase price of approximately $72 million and entitles an affiliate of
the reinsurer to 100% of the cash flows produced by the portfolio until
they recover in full the purchase price with interest at a rate of 7.52%.
The remaining residual interest was transferred to First North American
Realty, Inc., a wholly-owned subsidiary of NAL for a purchase price of $33
million. As a result of the sale of the senior and residual interests in
the Company's mortgages, the Company has no further economic interest in
any mortgages and hence has reported zero for mortgage loan assets on its
balance sheet as of December 31, 1995.
17
<PAGE> 86
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
RELATED PARTY TRANSACTIONS, CONTINUED
-------------------------------------
The Company utilizes various services administered by NAL, such as payroll
and investment accounting. The charges for these services were
approximately $295,000, $234,000 and $232,000, in 1995, 1994 and 1993,
respectively. At December 31, 1995, the Company had a net liability to NAL
for $5,928,889.
The Company provides various services and personnel to FNA for accounting,
actuarial, administration, and systems support. These services are
allocated on a pro rata basis and charged as incurred. The total costs
allocated for these services in 1995, 1994 and 1993 was approximately
$456,000, $418,000 and $310,000, respectively. At December 31, 1995, the
Company had a net receivable from FNA for $1,427,631.
The Company's annuity and insurance contracts are distributed through NASL
Financial pursuant to an underwriting agreement. At December 31, 1995, the
Company had a receivable from NASL Financial for $881,119.
The financial statements have been prepared from the records maintained by
the Company and may not necessarily be indicative of the financial
condition or results of operations that would have occurred if the Company
had been operated as an unaffiliated corporation.
H. INVESTMENTS ON DEPOSIT WITH REGULATORY AUTHORITIES
--------------------------------------------------
Bonds and United States Treasury Notes with a carrying value of $5,600,444
at December 31, 1995, and $6,620,154 at December 31, 1994, were on deposit
with, or in custody accounts on behalf of, certain state insurance
departments.
I. BORROWED MONEY
--------------
The Company has an unsecured line of credit with State Street Bank and
Trust, in the amount of $10 million, bearing interest at the bank's prime
rate (8.5% at December 31, 1995). There were no outstanding balances at
December 31, 1995 and 1994. Interest expense was approximately $76,000,
$81,600 and $236,000 in 1995, 1994 and 1993, respectively.
In December 1994, the Company entered into a $150 million revolving credit
and term loan agreement (the "Loan") with the Canadian Imperial Bank of
Commerce and Deutsche Bank AG ("CIBC"). The amount outstanding at December
31, 1995 was, $107 million and is payable in quarterly installments through
December 31, 1999. Interest is due at the maturity of each LIBOR contract.
The interest rate is determined based on LIBOR plus an interest rate
margin. Accrued interest at December 31, 1995 is $865,148.
18
<PAGE> 87
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
BORROWED MONEY, CONTINUED
-------------------------
The Loan is collaterized by the mortality and expense risk charges and
surrender charges due from the separate account, excluding any portion
thereof subject to existing reinsurance agreements. The Loan is
subordinated in every respect to the claims of the Company's
contractholders as directed by the Insurance Commissioner of the State of
Delaware. The Company is subject to various affirmative and negative
covenants under this Loan, whereby breach of these covenants could cause an
event of default. Such covenants require the Company to meet certain
financial ratios and places restrictions on the incurrence of additional
debt, reinsurance and capital changes.
J. SURPLUS NOTES
-------------
The Company received $20 million on December 20, 1994 pursuant to a surplus
note agreement with NAL bearing interest at 8%. The note and accrued
interest are subordinated to payments due to policyholders, and other
claimants. Principal and interest payments can be made only upon prior
approval of the Delaware Insurance Commissioner. Interest accrued at
December 31, 1995 is $3,248,219, and was paid on January 2, 1996.
K. DEFERRED COMPENSATION AND RETIREMENT PLANS
------------------------------------------
The parent, NAL, sponsors a defined benefit pension plan covering
substantially all of the Company's employees. The benefits are based on
years of service and the employee's compensation during the last five years
of employment. NAL's funding policy is to contribute annually the normal
cost up to the maximum amount that can be deducted for federal income tax
purposes and to charge each subsidiary for its allocable share of such
contributions based on a percentage of payroll. No pension cost was
allocated to the Company in 1995, 1994, and 1993 as the plan was subject to
the full funding limitation under the Internal Revenue Code.
The Company sponsors a defined contribution retirement plan pursuant to
regulation 401(k) of the Internal Revenue Code. All employees on September
1, 1990 were eligible to participate. Employees hired after September 1,
1990 will be eligible after one year of service and attaining age 21. The
Company contributes two percent of base pay plus fifty percent of the
employee savings contribution. The employee savings contribution is
limited to six percent of base pay. The Company contributed $203,248,
$167,148, and $89,218 in 1995, 1994 and 1993, respectively.
19
<PAGE> 88
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
L. LEASES
------
<TABLE>
The Company leases its office space and various office equipment under
operating lease agreements. For the years ended December 31, 1995, 1994 and
1993 the Company incurred rent expense of $1,388,780 and $840,233, and
$718,579, respectively. The Company negotiated a ten year lease for new
office space which commenced in March 1992. In connection with the lease,
the Company was required to deposit $1,500,000 in an escrow account as
security toward fulfilling the future lease commitment. The balance of the
escrow account at December 31, 1995 is $1,050,000. The minimum lease
payments associated with the office space and various office equipment
under operating lease agreements is as follows:
<CAPTION>
Minimum
Year Lease Payments
--------------------------------
<S> <C>
1996 $1,017,006
1997 1,187,665
1998 1,203,878
1999 1,203,364
2000 1,194,527
Remaining years 1,384,493
----------
Total $7,190,933
==========
</TABLE>
The Company also guarantees FNA's office space lease which has an annual
cost to FNA of approximately $72,000.
M. INTEREST RATE SWAP CONTRACT
---------------------------
The Company entered into an interest rate swap with CIBC for the purpose of
minimizing exposure to fluctuations in interest rates on a portion of the
outstanding debt held by the Company. The notional amount of the matched
swap outstanding at December 31, 1995 was $97 million. The unexpired term
at December 31, 1995 was 4 years. CIBC is a major international financial
institution. The agreement subjects the Company to financial risk that will
vary during the life of the agreement in relation to market interest rates.
Gains or losses on the swap will be recognized in investment income when
due.
20
<PAGE> 89
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS, continued
----------
N. GUARANTEE AGREEMENT
-------------------
A guarantee agreement continues in effect, whereby NAL has agreed to
unconditionally guarantee that it will, on demand, make funds available to
the Company for the timely payment of contractual claims made under fixed
annuity and variable life contracts issued by the Company. The guarantee
covers all outstanding fixed annuity contracts, including those issued
prior to the date of the guarantee agreement. Following the merger (see
Note O), Manufacturers Life Insurance Company has assumed all of NAL's
obligations under the guarantee agreement.
O. SUBSEQUENT EVENTS
-----------------
MERGER
------
On January 1, 1995, NAL merged with the Manufacturers Life Insurance
Company ("MLI") of Canada. The surviving company will conduct business
under the name "Manufacturers Life Insurance Company".
CORPORATE RESTRUCTURING
-----------------------
Effective January 1, 1996, immediately following the merger,
the Company experienced a corporate restructuring which
resulted in the formation of a newly organized holding
corporation, NAWL Holding Company, Inc. ("NAWL"). NAWL
holds all of the outstanding shares of the Parent and Wood
Logan Associates, Inc. ("WLA").
MLI owns all class A shares of NAWL, representing 85% of the voting shares
of NAWL. Certain employees of WLA own all class B shares, which represent
the remaining 15% voting interest in NAWL.
21
<PAGE> 90
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NORTH AMERICAN
LIFE ASSURANCE COMPANY)
<TABLE>
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995
Schedule 1 - Selected Financial Data
---------------
<S> <C>
Investment Income Earned
Government bonds $ 1,060,741
Other bonds (unaffiliated) 16,510,356
Common stocks of affiliates 1,287,731
Mortgages loans 5,420,613
Real estate 1,071,080
Premium notes, policy loans and liens (32,300)
Short-term investments 2,642,678
Aggregate write-ins for investment income 475,407
-----------
Gross investment Income $28,436,306
===========
Real Estate Owned - Book Value less
Encumbrances $ 4,847,164
===========
Bonds and Stocks of Parents, Subsidiaries and
Affiliates - Book Value
Common Stocks $21,282,599
===========
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity-Statement Value
Due within one year 3,957,418
Over 1 year through 5 years 5,477,162
Over 5 years through 10 years 4,645,633
Over 10 years through 20 years 127,972
Over 20 years 3,868,984
-----------
Total by Maturity $18,077,169
===========
Bonds by Class - Statement Value
Class 1 $16,756,213
Class 2 1,010,956
Class 3 310,000
-----------
Total by Class $18,077,169
===========
Total Bonds Publicly Traded $17,066,213
===========
Total Bonds Privately Traded $ 1,010,956
===========
</TABLE>
22
<PAGE> 91
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NORTH AMERICAN
LIFE ASSURANCE COMPANY)
<TABLE>
ANNUAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995
Schedule 1 - Selected Financial Data
---------------
<S> <C>
Common Stocks - Market Value $ 21,730,238
==============
Supplementary Contracts in Force
Ordinary - Involving Life Contingencies
Income Payable $ 24,442
==============
Ordinary - Not Involving Life Contingencies
Income Payable $ 341,176
==============
Annuities:
Ordinary
Immediate - Amount of Income Payable $ 2,291,184
==============
Deferred - Fully Paid Account $5,267,516,243
==============
Balance
Group
Fully Paid Account Balance $ 374,375,752
==============
</TABLE>
23
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
NASL Variable Account:
We have audited the accompanying statement of assets and liabilities of the
sub-accounts comprising NASL Variable Account (consisting of the Equity,
Investment Quality Bond, Growth and Income, Pasadena Growth, Money Market,
Global Equity, Global Government Bond, U.S. Government Securities, Conservative
Asset Allocation, Moderate Asset Allocation, Aggressive Asset Allocation, Value
Equity, Strategic Bond and International Growth and Income sub-accounts) of
North American Security Life Insurance Company as of December 31, 1995 and the
related statements of operations and changes in net assets of the Equity,
Investment Quality Bond, Growth and Income, Pasadena Growth, Money Market,
Global Equity, Global Government Bond, U.S. Government Securities, Conservative
Asset Allocation, Moderate Asset Allocation, Aggressive Asset Allocation, Value
Equity and Strategic Bond sub-accounts for the two years then ended and the
related statement of operations and changes in net assets of the International
Growth and Income sub-account for the period January 9, 1995 (date of
commencement of operations) to December 31, 1995. 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 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the aforementioned sub-accounts
comprising NASL Variable Account of North American Security Life Insurance
Company as of December 31, 1995, and the results of their operations and the
changes in their net assets for the two years then ended or the period
indicated, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 23, 1996
<PAGE> 93
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1995
<S> <C>
ASSETS
Investments at market value:
Sub-accounts:
Equity Portfolio - 45,697,001 Shares (Cost $748,334,745) $ 950,040,654
Investment Quality Bond Portfolio - 11,175,951 Shares (Cost $126,565,276) 137,687,722
Growth and Income Portfolio - 38,987,834 Shares (Cost $516,028,619) 638,230,845
Pasadena Growth Portfolio - 23,033,499 Shares (Cost $223,563,247) 262,581,885
Money Market Portfolio - 24,720,308 Shares (Cost $247,203,082) 247,203,082
Global Equity Portfolio - 38,369,470 Shares (Cost $605,619,464) 617,748,460
Global Government Bond Portfolio - 15,639,853 Shares (Cost $209,448,407) 227,716,254
U.S. Government Securities Portfolio - 14,982,032 Shares (Cost $195,178,203) 204,504,730
Conservative Asset Allocation Portfolio - 18,951,755 Shares (Cost $199,604,166) 219,650,840
Moderate Asset Allocation Portfolio - 51,107,809 Shares (Cost $547,584,223) 633,225,754
Aggressive Asset Allocation Portfolio - 15,892,868 Shares (Cost $177,405,368) 204,223,358
Value Equity Portfolio - 25,985,404 Shares (Cost $312,465,138) 358,858,426
Strategic Bond Portfolio - 9,937,696 Shares (Cost $103,788,977) 111,898,460
International Growth and Income Portfolio - 7,976,230 Shares (Cost $81,634,511) 83,511,130
--------------
Total assets .......................................................... $4,897,081,600
==============
LIABILITIES
0
--------------
Total liabilities ................................................. 0
NET ASSETS
Variable annuity contracts .............................................. $4,895,365,586
Annuity reserves ........................................................ 1,716,014
--------------
Total net assets ................................................. $4,897,081,600
==============
</TABLE>
The accompanying notes are an integral part of the financial
2
<PAGE> 94
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Sub-Account
---------------------------------------------------------------------------------
Investment
Equity Quality Bond Growth and Income
------------------------- ------------------------- --------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
------------------------- ------------------------- --------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends................................. $ 3,952,413 $22,253,900 $ 6,801,549 $ 4,551,500 $12,295,900 $ 8,789,400
Expenses:
Mortality & expense risk and
administrative charges ................. 10,216,686 6,350,391 1,667,841 1,477,254 7,054,820 4,825,591
----------- ----------- ------------ ----------- ----------- ------------
Net investment income (loss)................ (6,264,273) 15,903,509 5,133,708 3,074,246 5,241,080 3,963,809
Net realized gain (loss).................... 29,102,556 10,744,790 (1,374,226) (1,048,833) 11,439,262 4,920,481
Unrealized appreciation (depreciation)
during the period....................... 208,487,783 (36,590,074) 15,585,843 (8,368,756) 101,632,851 (5,125,689)
----------- ----------- ------------ ----------- ----------- ------------
Net increase (decrease) in net assets
from operations......................... 231,326,066 (9,941,775) 19,345,325 (6,343,343) 118,313,193 3,758,601
----------- ----------- ------------ ----------- ----------- ------------
Changes from principal transactions:
Purchase payments......................... 152,243,325 160,841,107 20,615,193 27,514,787 105,864,684 105,421,732
Transfers between sub-accounts
and the Company......................... 91,976,289 10,527,048 610,884 (977,918) 53,438,203 24,558,952
Withdrawals............................... (41,022,073) (24,977,355) (9,834,428) (9,402,496) (30,901,300) (20,690,150)
Annual contract fee....................... (453,864) (300,540) (63,118) (58,951) (286,289) (202,599)
----------- ----------- ------------ ----------- ----------- ------------
Net increase in net assets
from principal transactions............. 202,743,677 146,090,260 11,328,531 17,075,423 128,115,298 109,087,934
----------- ----------- ------------ ----------- ----------- ------------
Total increase in net assets................ 434,069,743 136,148,485 30,673,856 10,732,080 246,428,491 112,846,535
Net assets at beginning of period........... 515,970,911 379,822,426 107,013,866 96,281,786 391,802,354 278,955,819
----------- ----------- ------------ ------------ ----------- ------------
Net assets at end of period.................$950,040,654 $515,970,911 $137,687,722 $107,013,866 $638,230,845 $391,802,354
=========== =========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 95
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
---------------------------------------------------------------------------------
Pasadena Growth Money Market Global Equity
------------------------- ------------------------- --------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
------------------------- ------------------------- --------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Income:
Dividends.................................$ 786,320 $ 491,100 $ 13,942,901 $ 8,915,200 $ 28,730,987 $ 7,473,600
Expenses:
Mortality & expense risk and
administrative charges ................. 2,893,560 1,717,075 3,608,339 3,212,553 8,281,164 7,450,951
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)................ (2,107,240) (1,225,975) 10,334,562 5,702,647 20,449,823 22,649
Net realized gain (loss).................... 2,658,959 (2,357,041) 0 0 18,159,858 19,889,019
Unrealized appreciation (depreciation)
during the period....................... 41,777,908 (4,009,835) 0 0 (3,640,061) (30,918,793)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from operations......................... 42,329,627 (7,592,851) 10,334,562 5,702,647 34,969,620 (11,007,125)
------------ ------------ ------------ ------------ ------------ ------------
Changes from principal transactions:
Purchase payments......................... 48,522,911 46,741,660 126,215,692 146,929,088 73,846,536 200,013,903
Transfers between sub-accounts
and the Company......................... 39,579,399 9,644,387 (105,785,452) 29,195,804 (41,016,819) 61,282,270
Withdrawals............................... (9,818,260) (5,926,769) (52,028,607) (43,566,631) (39,666,888) (26,475,341)
Annual contract fee....................... (124,885) (83,671) (109,865) (101,914) (410,630) (319,584)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
from principal transactions............. 78,159,165 50,375,608 (31,708,232) 132,456,348 (7,247,801) 234,501,249
------------ ------------ ------------ ------------ ------------ ------------
Total increase in net assets................ 120,488,792 42,782,757 (21,373,670) 138,158,995 27,721,819 223,494,124
Net assets at beginning of period........... 142,093,093 99,310,336 268,576,752 130,417,757 590,026,641 366,532,517
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period.................$262,581,885 $142,093,093 $247,203,082 $268,576,752 $617,748,460 $590,026,641
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 96
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
---------------------------------------------------------------------------------
Global U.S. Conservative
Government Bond Government Securities Asset Allocation
------------------------- ------------------------- --------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
------------------------- ------------------------- --------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends.................................$ 11,134,112 $ 10,695,800 $ 11,234,073 $10,912,700 $10,694,769 $15,496,900
Expenses:
Mortality & expense risk and
administrative charges ................. 3,009,593 2,973,944 2,655,339 2,806,318 3,052,427 3,306,523
------------ ------------ ------------ ----------- ----------- -----------
Net investment income (loss)................ 8,124,519 7,721,856 8,578,734 8,106,382 7,642,342 12,190,377
Net realized gain (loss).................... 2,214,020 238,463 75,470 (1,818,099) 5,148,076 2,826,007
Unrealized appreciation (depreciation)
during the period....................... 31,070,281 (24,232,538) 15,587,098 (11,972,785) 19,853,900 (23,002,822)
------------ ------------ ------------ ----------- ----------- -----------
Net increase (decrease) in net assets
from operations......................... 41,408,820 (16,272,219) 24,241,302 (5,684,502) 32,644,318 (7,986,438)
------------ ------------ ------------ ----------- ----------- -----------
Changes from principal transactions:
Purchase payments......................... 19,314,715 70,655,674 41,695,417 67,722,255 17,444,784 32,149,383
Transfers between sub-accounts
and the Company......................... (18,811,224) (32,815,445) (24,365,001) (80,123,945) (12,482,271) (27,534,113)
Withdrawals............................... (15,701,657) (11,555,506) (16,213,816) (16,422,470) (31,190,237) (30,991,374)
Annual contract fee....................... (127,214) (105,041) (90,102) (92,483) (146,082) (163,915)
------------ ------------ ------------ ----------- ----------- -----------
Net increase in net assets
from principal transactions............. (15,325,380) 26,179,681 1,026,498 (28,916,643) (26,373,806) (26,540,020)
Total increase in net assets................ 26,083,440 9,907,462 25,267,800 (34,601,145) 6,270,512 (34,526,458)
Net assets at beginning of period........... 201,632,814 191,725,352 179,236,930 213,838,075 213,380,328 247,906,786
------------ ------------ ------------ ----------- ----------- -----------
Net assets at end of period.................$227,716,254 $201,632,814 $204,504,730 $179,236,930 $219,650,840 $213,380,328
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 97
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
Sub-Account
---------------------------------------------------------------------------------------
Moderate Aggressive Value
Asset Allocation Asset Allocation Equity
--------------------------- ---------------------------- ---------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
--------------------------- ---------------------------- ---------------------------
1995 1994 1995 1994 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends.......................... $ 28,759,406 $ 42,041,800 $ 11,134,600 $ 11,101,500 $ 3,410,640 $ 664,100
Expenses:
Mortality & expense risk and
administrative charges.......... 8,527,910 8,801,780 2,650,794 2,479,359 3,916,735 1,998,342
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)........ 20,231,496 33,240,020 8,483,806 8,622,141 (506,095) (1,334,242)
Net realized gain (loss)............ 15,018,509 8,083,729 7,897,507 4,985,071 5,501,447 2,037,707
Unrealized appreciation (depreciation)
during the period............... 70,271,801 (60,546,683) 19,421,882 (17,369,916) 45,616,955 (3,845,224)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from operations................. 105,521,806 (19,222,934) 35,803,195 (3,762,704) 50,612,307 (3,141,759)
------------ ------------ ------------ ------------ ------------ ------------
Changes from principal transactions:
Purchase payments................. 42,501,661 94,528,916 22,202,012 33,674,065 78,127,224 90,859,559
Transfers between sub-accounts
and the Company................. (26,640,289) (44,720,185) (10,804,739) (764,703) 45,625,228 41,456,303
Withdrawals....................... (79,543,856) (75,763,521) (22,397,713) (20,923,967) (12,728,807) (6,039,315)
Annual contract fee............... (485,596) (521,671) (195,083) (195,473) (140,801) (59,538)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
from principal transactions..... (64,168,080) (26,476,462) (11,195,523) 11,789,922 110,882,844 126,217,009
------------ ------------ ------------ ------------ ------------ ------------
Total increase in net assets........ 41,353,726 (45,699,396) 24,607,672 8,027,218 161,495,151 123,075,250
Net assets at beginning of period... 591,872,028 637,571,424 179,615,686 171,588,468 197,363,275 74,288,025
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period......... $633,225,754 $591,872,028 $204,223,358 $179,615,686 $358,858,426 $197,363,275
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE> 98
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
----------------------------------------------
Strategic International
Bond Growth and Income
--------------------------- -----------------
Year Ended December 31, January 9, 1995
--------------------------- thru
1995 1994 December 31, 1995
------------ ----------- -----------------
<S> <C> <C> <C>
Income:
Dividends ............................ $ 3,783,473 $ 1,951,613 $ 1,766,390
Expenses:
Mortality & expense risk and
administrative charges ............. 1,283,369 987,658 606,981
------------ ----------- -----------
Net investment income (loss) ........... 2,500,104 963,955 1,159,409
Net realized gain (loss) ............... 41,813 119,939 502,507
Unrealized appreciation (depreciation)
during the period .................. 12,274,700 (6,295,983) 1,876,619
------------ ----------- -----------
Net increase (decrease) in net assets
from operations .................... 14,816,617 (5,212,089) 3,538,535
------------ ----------- -----------
Changes from principal transactions:
Purchase payments .................... 21,970,895 36,072,168 36,977,061
Transfers between sub-accounts
and the Company .................... 3,987,010 835,251 45,342,755
Withdrawals .......................... (5,783,698) (3,909,501) (2,331,931)
Annual contract fee .................. (45,959) (29,888) (15,290)
------------ ----------- -----------
Net increase in net assets
from principal transactions ........ 20,128,248 32,968,030 79,972,595
------------ ----------- -----------
Total increase in net assets ........... 34,944,865 27,755,941 83,511,130
Net assets at beginning of period ...... 76,953,595 49,197,654 0
------------ ----------- -----------
Net assets at end of period ............ $111,898,460 $76,953,595 $83,511,130
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
7
<PAGE> 99
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
The NASL Variable Account (the "Account") is a separate account established by
North American Security Life Insurance Company (the "Company"). The Company
established the Account on August 24, 1984 as a separate account under Delaware
law. The Account operates as a Unit Investment Trust under the Investment
Company Act of 1940, as amended, and invests in the NASL Series Trust (the
"Trust"). The Account is a funding vehicle for variable annuity contracts (the
"Contracts") issued by the Company. The Account includes 12 contracts,
distinguished principally by the level of expenses and surrender charges. These
12 contracts are as follows: Venture Variable Annuity 1, 3, 7, 8, 17, 18, 20,
21, 22 and 23 ("VEN 1, 3, 7, 8, 17, 18, 20, 21, 22 and 23") and Venture Vision
Variable Annuity 5 and 25 ("VIS 5 and 25"). The Company is a wholly-owned
subsidiary of North American Life Assurance Company ("NAL"), a Canadian mutual
life insurance company. NAL merged with the Manufacturers Life Insurance Company
of Canada effective January 1, 1996. The surviving company will conduct business
under the name "Manufacturers Life Insurance Company."
2. SIGNIFICANT ACCOUNTING POLICIES:
Investments are made in the portfolios of the Trust and are valued at the
reported net asset values of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of
identified cost of the investment sold.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed account have not
been registered under the Securities Act of 1933 and the Company's general
account has not been registered as an investment company under the Investment
Company act of 1940.
Annuity reserves are computed for contracts in the income stage according to the
1983a Individual Annuitant Mortality Table. The assumed investment return is 4%,
as regulated by the laws of the respective states. The mortality risk is fully
borne by the Company and may result in additional amounts being transferred into
the account by the Company.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a Life Insurance Company under the provisions of
the Internal Revenue Code (the "Code"). Under the current provisions of the
Code, the Company does not expect to incur federal income taxes on the earnings
of the Account to the extent the earnings are credited under the contracts.
Based on this, no charge is being made currently to the Account for federal
income taxes. The Company will review periodically the status of such decision
based on changes in the tax law. Such a charge may be made in future years for
any federal income taxes that would be attributable to the contract.
3. AFFILIATED COMPANY TRANSACTIONS:
Administrative services necessary for the operation of the Account are borne by
the Company. The Company has an underwriting agreement with its wholly-owned
subsidiary, NASL Financial Services, Inc. ("NASL Financial"). NASL Financial has
a promotional agent agreement with Wood Logan Associates, Inc., an affiliate of
the Company, to promote the sales of annuity contracts.
8
<PAGE> 100
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
4. CONTRACT CHARGES:
There are no deductions made from purchase payments for sales charges at the
time of purchase. In the event of a surrender, a contingent deferred sales
charge may be charged by the Company to cover sales expenses. An annual
administrative fee of $30 is deducted from each contract owners' account on the
contract anniversary date to cover contract administration costs. This charge is
waived on certain contracts.
Deductions from each sub-account are made daily for administrative fees and for
the assumption of mortality and expense risk charges as follows:
(i) Prior Contract Series (VEN 1): deductions from each sub-account
are made daily for the assumption of mortality and expense risks equal to an
effective annual rate of 1.30% of the contract value.
(ii) Current Contract Series (VEN 3, 7, 8, 17, 18, 20, 21, 22, 23):
deductions from each sub-account are made daily for administration and for the
assumption of mortality and expense risks equal to an effective annual rate of
0.15% and 1.25% of the contract value, respectively.
(iii) Current Contract Series (VIS 5, 25): deductions from each
sub-account are made daily for distribution fees, administration and for the
assumption of mortality and expense risks equal to an effective annual rate of
0.15%, 0.25% and 1.25% of the contract value, respectively.
5. PURCHASES AND SALES OF INVESTMENTS:
<TABLE>
The following table shows aggregate cost of shares purchased and proceeds from
sales of each sub-account for the year ended December 31, 1995.
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Equity Portfolio $340,875,652 $144,396,247
Investment Quality Bond Portfolio $ 74,432,358 $ 57,970,119
Growth and Income Portfolio $183,109,759 $ 49,753,391
Pasadena Growth Portfolio $113,755,759 $ 37,703,834
Money Market Portfolio $427,663,905 $449,037,574
Global Equity Portfolio $172,985,538 $159,783,517
Global Government Bond Portfolio $ 70,819,330 $ 78,020,192
U.S. Government Securities Portfolio $105,546,174 $ 95,940,942
Conservative Asset Allocation Portfolio $ 32,726,129 $ 51,457,591
Moderate Asset Allocation Portfolio $ 74,018,277 $117,954,863
Aggressive Asset Allocation Portfolio $ 51,355,943 $ 54,067,658
Value Equity Portfolio $144,444,973 $ 34,068,225
Strategic Bond Portfolio $ 49,966,492 $ 27,338,139
International Growth and Income Portfolio $123,594,274 $ 42,462,270
</TABLE>
9
<PAGE> 101
<TABLE>
6. UNIT VALUES:
A summary of the accumulation unit values at December 31, 1994 and 1995
and the accumulation units and dollar value outstanding at December 31,
1995 are as follows:
<CAPTION>
1994 1995
---------- ---------------------------------------------
Unit Unit
Value Value Units Dollars
----- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Equity sub-account
VEN 1 Contracts......... $24.235928 $34.164256 18,793 $ 642,039
VEN 3 Contracts......... 14.786831 20.821819 2,560,363 53,311,406
VEN 7 Contracts......... 14.786831 20.821819 30,454,576 634,119,677
VEN 8 Contracts......... 14.786831 20.821819 2,259,042 47,037,372
VIS 5 Contracts......... 10.965867 15.402975 3,171,419 48,849,281
VEN 17 Contracts........ 14.786831 20.821819 810,360 16,873,172
VEN 18 Contracts........ 14.786831 20.821819 19,532 406,683
VEN 20 Contracts........ 14.786831 20.821819 4,768,927 99,297,742
VEN 21 Contracts........ 14.786831 20.821819 1,112,879 23,172,173
VEN 22 Contracts........ 14.786831 20.821819 631,813 13,155,498
VEN 23 Contracts........ 14.786831 20.821819 129,508 2,696,591
VIS 25 Contracts........ 10.965867 15.402975 663,652 10,222,223
---------- -----------
46,600,864 949,783,857
Investment Quality Bond
sub-account
VEN 1 Contracts......... 16.377174 19.318272 13,340 257,707
VEN 3 Contracts......... 14.216516 16.751499 729,995 12,228,515
VEN 7 Contracts......... 14.216516 16.751499 5,304,008 88,850,090
VEN 8 Contracts......... 14.216516 16.751499 359,190 6,016,969
VIS 5 Contracts......... 9.713969 11.417606 798,121 9,112,627
VEN 17 Contracts........ 14.216516 16.751499 141,285 2,366,739
VEN 18 Contracts........ 14.216516 16.751499 12,139 203,342
VEN 20 Contracts........ 14.216516 16.751499 723,525 12,120,130
VEN 21 Contracts........ 14.216516 16.751499 166,381 2,787,133
VEN 22 Contracts........ 14.216516 16.751499 88,027 1,474,580
VEN 23 Contracts........ 14.216516 16.751499 30,409 509,401
VIS 25 Contracts........ 9.713969 11.417606 143,843 1,642,346
---------- -----------
8,510,263 137,569,578
Growth & Income sub-account
VEN 3 Contracts......... 13.076664 16.660889 2,083,819 34,718,282
VEN 7 Contracts......... 13.076664 16.660889 24,593,427 409,748,356
VEN 8 Contracts......... 13.076664 16.660889 2,207,363 36,776,624
VIS 5 Contracts......... 10.436393 13.263871 3,073,294 40,763,776
VEN 17 Contracts........ 13.076664 16.660889 719,055 11,980,091
VEN 18 Contracts........ 13.076664 16.660889 22,958 382,506
VEN 20 Contracts........ 13.076664 16.660889 3,892,471 64,852,031
VEN 21 Contracts........ 13.076664 16.660889 1,044,506 17,402,406
VEN 22 Contracts........ 13.076664 16.660889 728,500 12,137,450
VEN 23 Contracts........ 13.076664 16.660889 187,608 3,125,711
VIS 25 Contracts........ 10.436393 13.263871 448,740 5,952,028
---------- -----------
39,001,741 637,839,262
</TABLE>
10
<PAGE> 102
<TABLE>
<CAPTION>
1994 1995
---------- ---------------------------------------------
Unit Unit
Value Value Units Dollars
-------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Pasadena sub-account
VEN 3 Contracts......... 8.837480 11.026969 677,346 7,469,070
VEN 7 Contracts......... 8.837480 11.026969 15,323,337 168,969,962
VEN 8 Contracts......... 8.837480 11.026969 1,242,713 13,703,360
VIS 5 Contracts......... 9.280989 11.551552 1,436,443 16,593,141
VEN 17 Contracts........ 8.837480 11.026969 690,555 7,614,730
VEN 18 Contracts........ 8.837480 11.026969 14,302 157,702
VEN 20 Contracts........ 8.837480 11.026969 2,684,332 29,600,048
VEN 21 Contracts........ 8.837480 11.026969 849,791 9,370,621
VEN 22 Contracts........ 8.837480 11.026969 408,845 4,508,318
VEN 23 Contracts........ 8.837480 11.026969 123,573 1,362,639
VIS 25 Contracts........ 9.280989 11.551552 274,368 3,169,379
---------- -----------
23,725,605 262,518,970
Money Market sub-account
VEN 1 Contracts......... 14.843213 15.478376 7,969 123,341
VEN 3 Contracts......... 13.623292 14.190910 2,369,684 33,627,970
VEN 7 Contracts......... 13.623292 14.190910 9,527,103 135,198,263
VEN 8 Contracts......... 13.623292 14.190910 522,909 7,420,560
VIS 5 Contracts......... 10.290731 10.692803 1,528,995 16,349,247
VEN 17 Contracts........ 13.623292 14.190910 194,629 2,761,963
VEN 18 Contracts........ 13.623292 14.190910 7,702 109,293
VEN 20 Contracts........ 13.623292 14.190910 2,609,345 37,028,975
VEN 21 Contracts........ 13.623292 14.190910 595,446 8,449,926
VEN 22 Contracts........ 13.623292 14.190910 126,100 1,789,477
VEN 23 Contracts........ 13.623292 14.190910 92,776 1,316,578
VIS 25 Contracts........ 10.290731 10.692803 282,117 3,016,617
---------- -----------
17,864,775 247,192,210
Global Equity sub-account
VEN 3 Contracts......... 15.500933 16.459655 2,636,403 43,394,284
VEN 7 Contracts......... 15.500933 16.459655 25,283,469 416,157,179
VEN 8 Contracts......... 15.500933 16.459655 2,108,360 34,702,882
VIS 5 Contracts......... 12.153179 12.872711 3,158,250 40,655,234
VEN 17 Contracts........ 15.500933 16.459655 664,163 10,931,896
VEN 18 Contracts........ 15.500933 16.459655 23,767 391,199
VEN 20 Contracts........ 15.500933 16.459655 2,880,706 47,415,435
VEN 21 Contracts........ 15.500933 16.459655 592,070 9,745,262
VEN 22 Contracts........ 15.500933 16.459655 486,869 8,013,700
VEN 23 Contracts........ 15.500933 16.459655 96,415 1,586,963
VIS 25 Contracts........ 12.153179 12.872711 361,285 4,650,719
---------- -----------
38,291,757 617,644,753
</TABLE>
11
<PAGE> 103
<TABLE>
<CAPTION>
1994 1995
---------- ---------------------------------------------
Unit Unit
Value Value Units Dollars
-------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Global Government Bond
sub-account
VEN 3 Contracts......... 14.630721 17.772344 786,252 13,973,536
VEN 7 Contracts......... 14.630721 17.772344 9,225,433 163,957,577
VEN 8 Contracts......... 14.630721 17.772344 569,655 10,124,097
VIS 5 Contracts......... 10.262238 12.434811 1,299,621 16,160,540
VEN 17 Contracts........ 14.630721 17.772344 152,343 2,707,487
VEN 18 Contracts........ 14.630721 17.772344 16,954 301,319
VEN 20 Contracts........ 14.630721 17.772344 784,307 13,938,975
VEN 21 Contracts........ 14.630721 17.772344 167,849 2,983,072
VEN 22 Contracts........ 14.630721 17.772344 94,174 1,673,689
VEN 23 Contracts........ 14.630721 17.772344 23,520 418,014
VIS 25 Contracts........ 10.262238 12.434811 108,888 1,354,002
---------- -----------
13,228,996 227,592,308
U.S. Government Securities
sub-account
VEN 3 Contracts......... 14.111357 16.083213 941,636 15,144,531
VEN 7 Contracts......... 14.111357 16.083213 8,256,341 132,788,486
VEN 8 Contracts......... 14.111357 16.083213 490,958 7,896,181
VIS 5 Contracts......... 9.968713 11.333420 1,175,658 13,324,226
VEN 17 Contracts........ 14.111357 16.083213 146,130 2,350,236
VEN 18 Contracts........ 14.111357 16.083213 3,185 51,223
VEN 20 Contracts........ 14.111357 16.083213 1,418,177 22,808,847
VEN 21 Contracts........ 14.111357 16.083213 327,333 5,264,560
VEN 22 Contracts........ 14.111357 16.083213 87,885 1,413,473
VEN 23 Contracts........ 14.111357 16.083213 48,563 781,043
VIS 25 Contracts........ 9.968713 11.333420 218,997 2,481,982
---------- -----------
13,114,863 204,304,788
Conservative Asset Allocation
sub-account
VEN 3 Contracts......... 12.298940 14.320582 3,171,219 45,413,704
VEN 7 Contracts......... 12.298940 14.320582 10,063,785 144,119,262
VEN 8 Contracts......... 12.298940 14.320582 414,923 5,941,936
VIS 5 Contracts......... 10.050011 11.672867 725,547 8,469,213
VEN 17 Contracts........ 12.298940 14.320582 143,888 2,060,554
VEN 18 Contracts........ 12.298940 14.320582 1,069 15,304
VEN 20 Contracts........ 12.298940 14.320582 537,668 7,699,717
VEN 21 Contracts........ 12.298940 14.320582 178,822 2,560,828
VEN 22 Contracts........ 12.298940 14.320582 106,721 1,528,309
VEN 23 Contracts........ 12.298940 14.320582 21,236 304,117
VIS 25 Contracts........ 10.050011 11.672867 123,692 1,443,846
---------- -----------
15,488,570 219,556,790
</TABLE>
12
<PAGE> 104
<TABLE>
<CAPTION>
1994 1995
---------- ---------------------------------------------
Unit Unit
Value Value Units Dollars
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Moderate Asset Allocation
sub-account
VEN 3 Contracts......... 12.396295 14.752561 9,035,442 133,295,915
VEN 7 Contracts......... 12.396295 14.752561 28,124,797 414,912,783
VEN 8 Contracts......... 12.396295 14.752561 1,426,928 21,050,842
VIS 5 Contracts......... 10.156264 12.056663 1,611,982 19,435,123
VEN 17 Contracts........ 12.396295 14.752561 383,888 5,663,326
VEN 18 Contracts........ 12.396295 14.752561 8,486 125,193
VEN 20 Contracts........ 12.396295 14.752561 1,737,509 25,632,707
VEN 21 Contracts........ 12.396295 14.752561 401,708 5,926,216
VEN 22 Contracts........ 12.396295 14.752561 260,944 3,849,595
VEN 23 Contracts........ 12.396295 14.752561 51,262 756,248
VIS 25 Contracts........ 10.156264 12.056663 205,665 2,479,635
---------- -----------
43,248,611 633,127,583
Aggressive Asset Allocation
sub-account
VEN 3 Contracts......... 12.381395 14.990551 2,706,318 40,569,200
VEN 7 Contracts......... 12.381395 14.990551 8,803,203 131,964,863
VEN 8 Contracts......... 12.381395 14.990551 419,414 6,287,251
VIS 5 Contracts......... 10.303433 12.443644 439,301 5,466,506
VEN 17 Contracts........ 12.381395 14.990551 201,631 3,022,555
VEN 18 Contracts........ 12.381395 14.990551 3,497 52,427
VEN 20 Contracts........ 12.381395 14.990551 752,249 11,276,626
VEN 21 Contracts........ 12.381395 14.990551 211,506 3,170,588
VEN 22 Contracts........ 12.381395 14.990551 81,836 1,226,765
VEN 23 Contracts........ 12.381395 14.990551 21,094 316,211
VIS 25 Contracts........ 10.303433 12.443644 67,383 838,485
---------- -----------
13,707,432 204,191,477
Value Equity sub-account
sub-account
VEN 3 Contracts......... 11.107620 13.548849 810,623 10,983,011
VEN 7 Contracts......... 11.107620 13.548849 15,423,348 208,968,608
VEN 8 Contracts......... 11.107620 13.548849 1,718,375 23,282,000
VIS 5 Contracts......... 10.578121 12.870851 2,145,334 27,612,280
VEN 17 Contracts........ 11.107620 13.548849 831,496 11,265,818
VEN 18 Contracts........ 11.107620 13.548849 23,600 319,757
VEN 20 Contracts........ 11.107620 13.548849 3,323,100 45,024,178
VEN 21 Contracts........ 11.107620 13.548849 1,130,548 15,317,622
VEN 22 Contracts........ 11.107620 13.548849 686,269 9,298,148
VEN 23 Contracts........ 11.107620 13.548849 130,666 1,770,368
VIS 25 Contracts........ 10.578121 12.870851 375,816 4,837,066
---------- -----------
26,599,175 358,678,856
</TABLE>
13
<PAGE> 105
<TABLE>
<CAPTION>
1994 1995
---------- ---------------------------------------------
Unit Unit
Value Value Units Dollars
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Strategic Bond sub-account
VEN 3 Contracts......... 9.965972 11.716972 207,513 2,431,421
VEN 7 Contracts......... 9.965972 11.716972 5,937,342 69,567,668
VEN 8 Contracts......... 9.965972 11.716972 656,915 7,697,049
VIS 5 Contracts......... 9.897404 11.607403 691,404 8,025,400
VEN 17 Contracts........ 9.965972 11.716972 219,646 2,573,582
VEN 18 Contracts........ 9.965972 11.716972 25,633 300,346
VEN 20 Contracts........ 9.965972 11.716972 1,009,224 11,825,045
VEN 21 Contracts........ 9.965972 11.716972 383,430 4,492,636
VEN 22 Contracts........ 9.965972 11.716972 197,193 2,310,508
VEN 23 Contracts........ 9.965972 11.716972 79,026 925,949
VIS 25 Contracts........ 9.897404 11.607403 146,877 1,704,862
---------- -----------
9,554,203 111,854,466
International Growth and Income
sub-account
VEN 3 Contracts......... -------- 10.554228 227,009 2,395,904
VEN 7 Contracts......... -------- 10.554228 4,084,598 43,109,775
VEN 8 Contracts......... -------- 10.554228 99,374 1,048,818
VIS 5 Contracts......... -------- 10.528678 274,338 2,888,415
VEN 17 Contracts........ -------- 10.554228 256,261 2,704,637
VEN 18 Contracts........ -------- 10.554228 1,101 11,622
VEN 20 Contracts........ -------- 10.554228 1,759,715 18,572,435
VEN 21 Contracts........ -------- 10.554228 628,587 6,634,250
VEN 22 Contracts........ -------- 10.554228 336,650 3,553,086
VEN 23 Contracts........ -------- 10.554228 67,146 708,670
VIS 25 Contracts........ -------- 10.528678 178,852 1,883,076
---------- -----------
7,913,631 83,510,688
$4,895,365,586
==============
</TABLE>
14
<PAGE> 106
PART C
OTHER INFORMATION
<PAGE> 107
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements of the Registrant,
NASL Variable Account (Part B of the registration
statement)
(2) Financial Statements of the Depositor,
North American Security Life Insurance Com-
pany (Part B of the registration statement)
(b) Exhibits
(1) (i) Resolution of the Board of Directors of North
American Security Life Insurance Company establishing
the NASL Variable Account - - Incorporated by
reference to Exhibit (A)(1) to Form S-6, file number
2-93435, filed September 24, 1984 on behalf of the
NASL Variable Account of North American Security Life
InsuranceCompany.
(ii) Resolution of the Board of Directors of North
American Security Life Insurance Company redesignating
existing sub-accounts and dividing the NASL Variable
Account to create additional sub- accounts, dated May
30, 1995 -- Filed herewith.
(2) Agreements for custody of securities and similar
investments - Not Applicable.
(3) (i) Underwriting Agreement between North American
Security Life Insurance Company (Depositor) and NASL
Financial Services, Inc. (Underwriter) Incorporated by
reference to Exhibit (A)(3)(a) to Form S-6, file number
2-93435, filed September 24, 1984 on behalf of the NASL
Variable Account of North American Security Life
Insurance Company.
(ii) Promotional Agent Agreement between NASL Financial
Services, Inc. (Underwriter), North American Security
Life Insurance Company (Depositor) and Wood Logan
Associates, Inc. (Promotional Agent)
<PAGE> 108
--previously filed as Exhibit 3(ii) to Form N-4 filed on
February 15, 1991.
(iii) Form of broker-dealer agreement between North
American Security Life Insurance Company, NASL Financial
Services, Inc. (Underwriter), Wood Logan Associates,
Inc. (Promotional Agent) and broker-dealers -
Incorporated by reference to Exhibit (b)(3)(iii) to
pre-effective amendment no. 1 to Form N-4, file number
33-9960, filed February 2, 1987 on behalf of the NASL
Variable Account of North American Security Life
Insurance Company.
(4) (i) Specimen Flexible Purchase Payment Individual
Deferred Combination Fixed and Variable Annuity
Contract, Non-Participating -- previously filed as
Exhibit 4 to Form N-4 filed on May 8, 1989.
(ii) Specimen Death Benefit Endorsement to Flexible
Purchase Payment Individual Deferred Variable Annuity
Contract, Non-Participating - Incorporated by reference
to Exhibit (b)(4)(ii) to Form N-4, file number 33-28455,
filed March 2, 1995 on behalf of the NASL Variable
Account of North American Security Life Insurance
Company.
(iii) Specimen Death Benefit Endorsement to Venture 3
Contract, Non-Participating - Incorporated by reference
to Exhibit (b)(4)(iii) to Form N-4, file number
33-28455, filed March 2, 1995 on behalf of the NASL
Variable Account of North American Security Life
Insurance Company.
(5) Specimen Application for Flexible Purchase Payment
Individual Deferred Combination Fixed and Variable
Annuity Contract, Non-Participating - Incorporated by
reference to Exhibit (b)(5) to Form N-4, file number
33-28455, filed March 2, 1995 on behalf of the NASL
Variable Account of North American Security Life
Insurance Company.
(6) (i) Certificate of Incorporation of North American
Security Life Insurance Company - Incorporated by
reference to Exhibit (A)(6) to Form S-6, file number
2-93435, filed September 24, 1984 on behalf of the NASL
Variable Account of North American Security Life
Insurance Company.
(ii) Amended and Restated By-laws of North American
Security Life Insurance Company -- Filed herewith.
<PAGE> 109
(7) Contract of reinsurance in connection with the variable
annuity contracts being offered - Reinsurance and
Accounts Receivable Agreements between North American
Security Life Insurance Company and ITT Lyndon Life,
effective December 31, 1993, and Amendments thereto
effective January 1, 1994 and December 31, 1994 -
Incorporated by reference to Exhibit (b)(7) to Form N-4,
file number 33-28455, filed March 2, 1995 on behalf of
the NASL Variable Account of North American Security
Life Insurance Company.
(i) Contract of reinsurance in connection with the
variable annuity contracts being offered - Variable
Annuity Guaranteed Death Benefit Reinsurance Contract
between North American Security Life Insurance Company
and Connecticut General Life Insurance Company,
effective July 1, 1995 - Filed herewith.
(ii) Contract of reinsurance in connection with the
variable annuity contracts being offered - Variable
Annuity Guaranteed Death Benefit Reinsurance Contract
Ven 3 between North American Security Life Insurance
Company and Connecticut General Life Insurance Company,
effective July 1, 1995 - Filed herewith.
(iii) Contract of reinsurance in connection with the
variable annuity contracts being offered - Automatic
Reinsurance Agreement between North American Security
Life Insurance Company and Swiss Re America, effective
August 1, 1995 -- Filed herewith.
(iv) Contract of reinsurance in connection with the
variable annuity contracts being offered - Reinsurance
Agreement between North American Security Life Insurance
Company and PaineWebber Life Insurance Company,
effective December 31, 1994 -- Filed herewith.
(8) Other material contracts not made in the ordinary course
of business which are to be performed in whole or in
part on or after the date the registration statement is
filed:
(i) Service Agreement between North American Security
Life Insurance Company and DST Systems, Inc., assigned
by DST Systems, Inc. to TPA Systems, Inc. with North
American Security Life Insurance Company's consent -
Incorporated by reference to Exhibit (b)(8) to Form N-4,
file number 33-9960, filed November 4, 1986 on behalf of
the NASL Variable Account of North American Security
Life Insurance Company. Addendum 1
<PAGE> 110
and Addendum 3 -- Incorporated by reference to Exhibit
(b)(8) to Form N-4, file number 33-28455, filed March 2,
1994.
(ii) License and Service Agreement between North
American Security Life Insurance Company and Mentap
Systems, Inc. - Incorporated by reference to Exhibit
(b)(8)(ii) to Form N-4, file number 33-28455, filed
March 2, 1995 on behalf of the NASL Variable Account of
North American Security Life Insurance Company.
(9) Opinion of Counsel and consent to its use as to the
legality of the securities being registered--Previously
filed as Exhibit (9) to Form N-4, filed on May 8, 1989.
(10) Written consent of Coopers & Lybrand, independent
certified public accountants
(11) All financial statements omitted from Item 23, Financial
Statements - Not Applicable.
(12) Agreements in consideration for providing initial
capital between or among Registrant, Depositor,
Underwriter or initial contract owners - Not Applicable.
(13) Schedule for computation of each performance quotation
provided in the Registration Statement in response to
Item 21 -- incorporated by reference to Exhibit (b)(13)
to Form N-4, file number 33-28455, filed May 8, 1989 on
behalf of the NASL Variable Account of North American
Security Life Insurance Company. Additional Schedules of
computation incorporated by reference to Exhibit (b)(13)
to Form N-4, file number 33-55712, filed March 2, 1994.
An additional schedule for computation is filed
herewith.
(14) (a) Powers of Attorney - North American Security Life
Insurance Company Directors --incorporated by reference
to Exhibit (b)(14) to Form N-4, file number 33-55712,
filed March 22, 1993.
(b) Power of Attorney - North American Security Life
Insurance Company Treasurer (Principal Financial and
Accounting Officer) -- incorporated by reference to
Exhibit (b)(14)(b) to Form N-4, file no. 33-28455, filed
April 2, 1993.
(27) Financial Data Schedule is filed herewith.
<PAGE> 111
Item 25. Directors and Officers of the Depositor.
<TABLE>
OFFICERS AND DIRECTORS OF NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
<CAPTION>
Name and Principal Business Address Position with Security Life
- ----------------------------------- ---------------------------
<S> <C>
Brian L. Moore Chairman of the Board of Directors
200 Bloor Street East
North Tower, 11 th Floor
Toronto, Ontario
Canada M4W-1E5
Peter S. Hutchison Director
5650 Yonge Street
North York, Ontario
Canada M2M 4G4
William J. Atherton President and Director
116 Huntington Avenue
Boston, MA 02116
Scott L. Stolz Vice President, Annuity Services
116 Huntington Avenue
Boston, MA 02116
John G. Vrysen Vice President & Chief Actuary
73 Tremont Street
Boston, MA 02108
Hugh McHaffie Vice President & Product Management
116 Huntington Avenue
Boston, MA 02116
Richard C. Hirtle Sr. Vice President, Chief Operating
116 Huntington Avenue Officer & Treasurer
Boston, MA 02116
James D. Gallagher Vice President, Secretary and General
116 Huntington Avenue Counsel
Boston, MA 02116
</TABLE>
<PAGE> 112
<TABLE>
<S> <C>
Iain Scott Vice President Single Premium Variable
116 Huntington Avenue Life Insurance
Boston, MA 02116
Janet Sweeney Vice President, Corporate Services
73 Tremont Street
Boston, MA 02108
</TABLE>
Item 26. Persons Controlled by or Under Common Control with Depositor or
Registrant.
THE MANUFACTURERS LIFE INSURANCE COMPANY
(Subsidiaries Organization Chart
- including certain Significant Investments)
The Manufacturers Life Insurance Company (Canada)
1. ManuLife Holdings (Hong Kong) Limited - H.K. (100%)
2. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%)
3. P.T. Asuransi Jiwa Dharmala Manulife - Indonesia (51%)
4. ManuLife (International) Limited - Bermuda (100%)
5. OUB Manulife Pte. Ltd. - Singapore (50%)
6. Manulife (Malaysia) SDN. BHD. - Malaysia (100%)
7. Manulife (Thailand) Ltd. - Thailand (100%)
8. Young Poong Manulife Insurance Company - Korea (50%)
9. Ennal, Inc. - Ohio (100%)
10. 495603 Ontario Limited - Ontario (100%)
11. 994744 Ontario Inc. - Ontario (100%)
<PAGE> 113
12. 1056416 Ontario Limited - Ontario (100%)
13. 484551 Ontario Limited - Ontario (100%)
(a) 911164 Ontario Limited - Ontario (100%)
14. NAWL (North American Wood Logan Holding Company) - Delaware (85%)
(a) Wood Logan Associate Inc. - Connecticut (100%)
(b) North American Security Life Insurance Company - Delaware (100%)
(i) NASL Financial Services, Inc. - Massachusetts (100%)
(ii) First North American Life Assurance Company - New York (100%)
(iii) North American Funds - Massachusetts (100%)
(iv) NASL Series Trust - Massachusetts (100%)
15. Domlife Realty Limited - Canada (100%)
16. Balmoral Developments Inc. - Canada (100%)
17. Cantay Holdings Inc. - Ontario (100%)
18. 576986 Ontario Inc. - Ontario (100%)
19. KY Holding Corporation - Canada (100%)
20. 172846 Canada Limited - Canada (100%)
21. First North American Realty, Inc. - Minnesota (100%)
22. North American Capital Corporation - Ontario (100%)
23. Elliott & Page Mutual Fund Corporation - Ontario (100%)
24. TBD Life Insurance Company - Canada (100%)
25. The North American Group Inc. - Canada (100%)
26. Capitol Bankers Life Insurance Company - Minnesota (100%)
27. Manulife Investment Management Corporation - Canada (100%)
(a) 159139 Canada Inc. - Canada (50%)
i. Altamira Management Ltd. - Canada (60.96%)
A. ACI2 Limited - Cayman (100%)
a/ Regent Pacific Group Limited-Cayman (63.8%)
a.1 Manulife Regent Investment Corporation -
<PAGE> 114
Barbados (100%) (50% by Regent Pacific Group Limited and
50% by Manulife Data Services Inc.)
b.1 Manulife Regent Investment Asia Limited - Hong Kong (100%)
B. Altamira Financial Services Inc. - Ontario (100%)
a/ AIS Securities (Partnership) - Ontario (100%) (5% by
Altamira Financial Services, Inc. and 95% by Altamira
Investment Services Inc.)
b/ Altamira Investment Services Inc. - Ontario (100%)
(a) AIS Securities (Partnership) - Ontario (100%)(95% by
Altamira Investments Services Inc. and 5% by Altamira
Financial Services Inc.)
(b) Altamira (Alberta) Ltd. - Alberta (100%)
(c) Capital Growth Financial Services Inc. - Ontario (100%)
28. Manulife International Investment Management Limited - U.K. (100%)
(a) Manulife International Fund Management Limited - U.K. (100%)
29. ManuCab Ltd. - Canada (100%)
(a) Plazcab Service Limited - Canada (100%)
30. Manulife Data Services Inc.- Barbados (100%)
(a) Manulife Regent Investment Corporation - Barbados - (100%) (50% by
Manulife Data Services Inc. and 50% by Regent Pacific Group Limited)
(b) Manulife Regent Investment Asia Limited - Hong Kong (100%)
31. 16351 Canada Limited - Canada (100%)
32. Manufacturers Life Capital Corporation Inc. - Canada (100%)
33. Townvest Inc. - Ontario (100%)
34. Manulife Financial Holdings Limited - Ontario (100%)
(a) Family Financial Services Limited - Ontario (100%)
i. 742166 Ontario Inc. - Ontario (100%)
ii. Family Trust Corporation - Ontario (100%)
A. Family Financial Mortgage Corporation - Ontario (100%)
B. Family Realty Firstcorp Limited - Ontario (100%)
C. Thos. N. Shea Investment Corporation Limited - Ontario (100%)
(b) Manulife Bank of Canada - Canada (100%)
i. Manulife Securities International Ltd. - Canada (100%)
ii. Cabot Financial Services Corporation - Ontario (100%)
iii.Cabot Investments Limited - Ontario (100%)
35. NALACO Mortgage Corporation - Ontario (100%)
<PAGE> 115
(a) Underwater Gas Developers Limited - Ontario (100%)
36. Manulife (International) Reinsurance Limited - Bermuda (100%)
(a) Manulife (International) P&C Limited - Bermuda (100%)
(b) Manufacturers P&C Limited - Bermuda (100%)
37. FNA Financial Inc. - Canada (100%)
(a) NAL Resources Management Limited - Canada (100%)
(b) First North America Insurance Company - Canada (100%)
(c) NAL Trustco Inc. - Ontario (100%)
(d) North American Life Financial Services Inc. - Ontario (100%)
(e) Nalafund Investors Limited - Canada - (100%)
(f) Seamark Asset Management Ltd. - Canada (69.175%)
(g) Elliott & Page Limited - Ontario (100%)
38. NAL Resources Limited - Alberta (100%)
39. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%)
(a) Manulife Reinsurance Limited - Bermuda (100%)
(b) Manulife Holding Corporation - Delaware (100%)
i. Manufacturers Life Mortgage Securities
Corporation - Delaware (100%)
ii. Underwriters International Inc. - Delaware (50%)
iii. Capital Design Corporation - California - (100%)
iv. ManEquity, Inc. - Colorado (100%)
v. Manulife Service Corporation - Colorado (100%)
(c) The Manufacturers Life Insurance Company (U.S.A.) - Michigan (100%)
(d) The Manufacturers Life Insurance Company of America - Michigan (100%)
i. Manulife Series Fund, Inc. - Maryland (100%)
ii. Manufacturers Adviser Corporation - Colorado (100%)
Item 27. Number of Contract Owners.
As of December 31, 1995, there were 39,630 qualified (including 24 for Ven 1 and
4,682 for Ven 3) and 50,199 (including 20 for Ven 1 and 6,567 for Ven 3)
non-qualified contracts of the series offered hereby outstanding.
Item 28. Indemnification.
Section IX, paragraph D of the Promotional Agent Agreement among the Company
(referred to therein as "Security Life"), NASL Financial and Wood/Logan
(referred to therein as "Promotional Agent") provides as follows:
a. NASL Financial and Security Life agree to indemnify and hold harmless
Promotional Agent, its officers, directors and employees against any and all
losses, claims, damages or liabilities to
<PAGE> 116
which they may become subject under the Securities Act of 1933 ("1933 Act"), the
1934 Act or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission to state
a material fact required to be stated or necessary to make the statements made
not misleading in any registration statement for the Contracts filed pursuant to
the 1933 Act or any prospectus included as a part thereof, as from time to time
amended and supplemented, or any advertisement or sales literature approved in
writing by NASL Financial or Security Life pursuant to Section VI, paragraph B
of this Agreement.
b. Promotional Agent agrees to indemnify and hold harmless NASL Financial and
Security Life, their officers, directors and employees against any and all
losses, claims, damages or liabilities to which they may become subject
under the 1933 Act, the 1934 Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any oral or written misrepresentation by Promotional Agent
or its officers, directors, employees or agents unless such
misrepresentation is contained in any registration statement for the
Contracts or Fund shares, any prospectus included as a part thereof, as from
time to time amended and supplemented, or any advertisement or sales
literature approved in writing by NASL Financial pursuant to Section VI,
paragraph B of this Agreement or, (ii) the failure of Promotional Agent or
its officers, directors, employees or agents to comply with any applicable
provisions of this Agreement.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 117
<TABLE>
Item 29. Principal Underwriters.
a. North American Funds
First North American Life Assurance Company
<CAPTION>
b. Name and Principal Positions and Offices
Business Address with Underwriter
<S> <C>
William J. Atherton** President & Director
Brian L. Moore* Chairman & Director
John D. DesPrez III** Director
James D. Gallagher** Vice President & General Counsel
John G. Vrysen**** Vice President
Richard C. Hirtle** Vice President; Treasurer & Compliance Officer
Brian H. Buckley** Clerk
Susan E. Heffernan** Assistant Clerk
Lori-Ann Herbsmann*** Assistant Clerk - New York Operations
E. Paige Sabine** Assistant Clerk
<FN>
* 200 Bloor Street East
Toronto, Ontario
Canada M4W-1E5
** 116 Huntington Avenue
Boston, MA 02116
*** International Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, New York 10580
****73 Tremont Street
Boston, MA 02108
c. None.
</TABLE>
<PAGE> 118
Item 30. Location of Accounts and Records.
All books and records are maintained at 116 Huntington Avenue, Boston, MA 02116.
Item 31. Management Services.
None.
Item 32. Undertakings.
Previously furnished.
<PAGE> 119
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, NASL Variable Account, has caused this Amendment to
the Registration Statement to be signed on its behalf, in the City of Boston,
and Commonwealth of Massachusetts on this 27th day of February, 1996.
NASL VARIABLE ACCOUNT
(Registrant)
By: NORTH AMERICAN SECURITY
------------------------------
LIFE INSURANCE COMPANY
(Depositor)
By: /s/ William J. Atherton
------------------------------
William J. Atherton, President
Attest:
/s/ James D. Gallagher
- -----------------------------
James D. Gallagher, Secretary
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Depositor has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned on the
27th day of February, 1996 in the City of Boston, and Commonwealth of
Massachusetts.
NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
(Depositor)
By: /s/ William J. Atherton
------------------------------
William J. Atherton, President
Attest:
/s/ James D. Gallagher
- -----------------------------
James D. Gallagher, Secretary
<PAGE> 120
As required by the Securities Act of 1933, this amended Registration
Statement has been signed by the following persons in the capacities with the
Depositor and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Director and President 2/27/96
- --------------------- (Principal Executive (Date)
William J. Atherton Officer)
* Director 2/27/96
- --------------------- (Date)
Peter S. Hutchison
* Director and Chairman 2/27/96
- --------------------- of the Board (Date)
Brian L. Moore
* Vice President and 2/27/96
- --------------------- Treasurer (Principal (Date)
Richard C. Hirtle Financial and Accounting
Officer)
*By: /s/ John G. Vrysen 2/27/96
---------------------- (Date)
John G. Vrysen
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
<PAGE> 121
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(b)(1)(ii) Resolution redesignating existing sub-accounts and dividing
the NASL Variable Account to create additional sub-accounts
(b)(6)(ii) Amended and Restated By-Laws of North American Security Life
Insurance Company
(b)(7)(i) Variable Annuity Guaranteed Death Benefit Reinsurance
Contract with Connecticut General Life
(b)(7)(ii) Variable Annuity Guaranteed Death Benefit Reinsurance
Contract Ven 3 with Connecticut General Life
(b)(7)(iii) Automatic Reinsurance Agreement with Swiss Re America
(b)(7)(iv) Reinsurance Agreement with PaineWebber Life Insurance Company
(b)(10) Consent of Coopers & Lybrand
(b)(13) Schedule of Computation
(b)(27) Financial Data Schedule
<PAGE> 1
NORTH AMERICAN SECURITY LIFE
INSURANCE COMPANY
SECRETARY'S CERTIFICATE
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
I, KIMBERLY S. SKIDMORE, ASSISTANT SECRETARY of NORTH AMERICAN SECURITY LIFE
INSURANCE COMPANY (the "Company") does hereby certify that the following is a
true and correct copy of the action taken by the Board of Directors of the
Company on May 30, 1995, and that the following resolutions in pertinent part
are in full force and effect on the date hereof:
AUTHORIZATION FOR ADDITIONAL SUB-ACCOUNTS OF VARIABLE SEPARATE ACCOUNT
VARIABLE ACCOUNT
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code
Annotated, as amended, the Company, pursuant to a resolution dated
August 24, 1984, established a separate account, designated the NASL
Variable Account, and divided the separate account into three
sub-accounts, designated the "Equity," "Bond" and "Money Market"
sub-accounts, respectively, for use in connection with the offer and
sale of variable annuity contracts,
RESOLVED, that the Company does hereby redesignate the three
sub-accounts as the "Equity Trust," the "Investment Quality Bond Trust"
and the "Money Market Trust" and does hereby divide the separate
account to create eleven additional sub-accounts, designated the
"Global Equity Trust," the "Pasadena Growth Trust," the "Value Equity
Trust," the "Growth and Income Trust," the "Strategic Bond Trust," the
"Global Government Bond Trust," the "International Growth and Income
Trust," the "US Government Securities Trust," the "Aggressive Asset
Allocation Trust," the "Moderate Asset Allocation Trust" and the
"Conservative Asset Allocation Trust."
FURTHER RESOLVED, that, from time to time, the sub-accounts may be
redesignated and the separate account divided to create additional
sub-accounts without further action by the Board of Directors of the
Company.
DATED at Boston, Massachusetts as of January 26, 1996
/s/ KIMBERLY S. SKIDMORE
------------------------
KIMBERLY S. SKIDMORE
ASSISTANT SECRETARY
<PAGE> 1
Exhibit (b)(6)(ii)
<PAGE> 2
AMENDED AND RESTATED
BY-LAWS
of
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
ARTICLE I
MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders shall be held each year at such time
and on such date as the Board, the Chairman or the President may from time to
time determine.
Written notice of the Annual Meeting shall be given at least ten days
prior to the date of such meeting to each stockholder whose name shall be
registered as such upon the books of the Company, and such notice shall state
the place, date and hour of the Meeting.
Special meetings of the stockholders may be called on the order of the
Chairman, the President or a majority of the Board of Directors. Such call shall
be made by a written notice given at least ten days prior to the date of such
meeting to each stockholder whose name shall be registered as such upon the
books of the Company, and such call shall state the place, date and hour of the
meeting, and the general nature of the business proposed to be transacted
thereat; and no other business shall be transacted at such meeting.
Annual and special meetings of stockholders shall be held at such
places, within or without the United States, as may from time to time be
designated by the Board of Directors and stated in the notice of meeting.
The attendance in person or by proxy of a majority in interest of all
stockholders entitled to vote at any meeting, whether annual or special, shall
be necessary to constitute a quorum at such meeting, and each stockholder shall
be entitled, either in person or by proxy at any such meeting, to as many votes
as he owns shares of stock in the Company, upon all matters that come properly
before the meeting.
Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the Company, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing setting forth the action so taken, shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Whenever, under the provision of these By-Laws, notice is required to
be given to any stockholder, such provision shall not be construed to require
personal notice; but the notice may be given by facsimile or by mail, to such
stockholder, at such address as he or she may have registered with the Secretary
of the Company or, in default of such registered address, then at his or her
last known place of residence or business. Such notice shall be deemed to be
given at the time when the same shall be sent via facsimile or mail.
<PAGE> 3
Any stockholder may, at any time, waive any notice required to be given
under the By-Laws or otherwise, either before or after the meeting or action
with respect to which notice is waived.
ARTICLE II
ELECTION OF DIRECTORS
The stockholders at their annual meeting shall elect such number of
directors, not less than three nor more than ten, as shall be determined by
resolution of the Board of Directors and specified in the notice of meeting, and
such Directors shall hold office until the next annual meeting of the
stockholders and until others are duly chosen and qualified in their stead.
To be eligible for election as a Director of the Company, a person must
be less than 72 years of age and of sound mental health. Directors need not be
stockholders.
If election of Directors is not held at the annual meeting of
stockholders, the Directors shall cause the election to be held at a special
meeting of stockholders as soon thereafter as conveniently may be.
The number of Directors may be increased at any time and from time to
time by amendment of the By-Laws or by resolution of the Board of Directors. The
number of Directors may be decreased at any time and from time to time (but
never to a smaller number than three) by amendment of the By-Laws or by
resolution of the Directors. Any directorship to be filled by reason of an
increase in the number of Directors shall be filled by election at any annual or
at a special meeting of stockholders called for that purpose or by resolution of
the Board of Directors. A Director elected by the Board to fill any such
directorship shall hold office until the next succeeding annual meeting of
stockholders and until his or her successor has been elected and qualified.
Any vacancy occurring through death, resignation, disqualification or
otherwise, among the Directors of the Company, may be filled by the vote of a
majority of the Directors in office. A Director elected by the Board to fill any
such directorship shall hold office until the next succeeding annual meeting of
stockholders and until his or her successor has been elected and qualified.
A Director of the Company may resign his or her office at any time by
delivering his or her resignation in writing to the Company, and the acceptance
of such resignation, unless required by the terms thereof, shall not be
necessary to make such resignation effective.
Any or all of the Directors may be removed by the stockholders for
cause or without cause.
ARTICLE III
POWERS OF THE DIRECTORS
The Board of Directors shall manage the business and affairs of the
Company and, in addition to the powers and authority expressly conferred upon
them by the By-Laws, may exercise all such powers and do all such
2
<PAGE> 4
things as may be exercised or done by the Company subject, nevertheless, to the
provisions of the applicable statutes, of the company's Articles of
Incorporation, and of the By-Laws.
ARTICLE IV
MEETINGS OF DIRECTORS
The Board of Directors shall hold meetings at such places, within or
without the United States, and at such time and on such date as the Chairman,
the President or any two Directors may request. The Secretary shall give notice
of each meeting of the Board by mailing the same at least five days before the
meeting or by telephoning or faxing the same at least one day before the meeting
to each Director.
Whenever, under the provision of these By-Laws, notice is required to
be given to any Director, such provision shall not be construed to require
personal notice; but the notice may be given by facsimile or by mail, to such
Director, at such address as he or she may have registered with the Secretary of
the Company or, in default of such registered address, then at his or her last
known place of residence or business. Such notice shall be deemed to be given at
the time when the same shall be sent via facsimile or mail.
Any Director may at any time waive any notice required to be given
under the By-Laws or otherwise, either before or after the meeting or action
with respect to which notice is waived. Attendance of a Director at a meeting
shall constitute waiver of notice of the meeting, except when the Director
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
The attendance of a majority of the Board of Directors shall be
necessary to constitute a quorum for the transaction of business; but a smaller
number may meet and adjourn. When a vacancy or vacancies prevents a majority of
the whole Board constituting a quorum, then a majority of the Directors in
office shall constitute a quorum, provided that such majority shall constitute
at least one-third (1/3) of the whole Board.
Any Director may participate in a meeting of the Board by means of a
conference telephone or similar communications equipment by means of which all
Directors participating in the meeting can hear each other, and such
participation in a meeting of the Board shall constitute presence in person at
such meeting.
Unless otherwise restricted by the certificate of incorporation or
these By-Laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE V
STANDING COMMITTEES
Section 1. The Board may appoint a Investment Committee. If appointed,
the Investment Committee shall consist of two or more Directors, to be appointed
annually by the Board of Directors who shall appoint one of the members of such
Committee as Chairman.
3
<PAGE> 5
If appointed, the Investment Committee shall have authority to direct
and control the investment of funds and the purchase and sale of securities by
the Company. A majority of the members of such Committee shall constitute a
quorum. The Investment Committee, or a quorum thereof, may act from time to time
on the basis of written approval without a formal meeting. Regular meetings of
the Committee shall be held quarterly at dates set by vote of the Committee.
Special meetings may be called at any time at the request of any member.
Section 2. The Board of Directors may appoint other committees which
shall have such powers and perform such duties as from time to time may be
prescribed by a majority of the Board. The Board shall have the power at any
time to establish, fill vacancies in, to change the membership of, or to
dissolve any committee. Action taken by any committee shall be reported at the
meeting of the Board next succeeding such action.
ARTICLE VI
OFFICERS
Section 1. Executive Officers. The Board of Directors will elect or
appoint a President, one or more Vice Presidents, a Treasurer and a Secretary.
The Board of Directors may also elect a Chairman of the Board, a Vice Chairman
and may designate Vice Presidents as Executive or Senior Vice Presidents, and
may elect from time to time such other officers as it considers necessary, each
of whom shall hold office for such period, have such authority, and perform such
duties as the Board may from time to time determine. Any person may hold two but
no more than two offices, provided the same individual shall not hold the office
of Treasurer and Controller. The Chairman, the Vice Chairman, if any, and the
President shall be chosen from among the Directors.
Section 2. Administrative Officers. The administrative officers of the
Company shall be a Chief Actuary, a Controller and a General Counsel, who shall
be appointed by the President and hold office for a period of time as prescribed
by the President. Additional administrative officers may be designated and
appointed by the President and the authorities and duties of all administrative
officers shall be generally designated by the President.
Section 3. Term of Office. The executive officers shall be chosen
annually by the Board of Directors at the first meeting of the Board following
the stockholders' annual meeting, or as soon thereafter as is conveniently
possible. Additional executive officers may be elected from time to time. Unless
otherwise provided in the resolution of election or appointment, the term of
office of all executive officers shall be for one year and until their
respective successors are duly chosen and qualified, but any executive officer
may be removed, with or without cause, at any time by the Board of Directors.
Section 4. Salaries. The salaries of the executive officers of the
Company shall be fixed by the Board of Directors.
Section 5. Duties and Responsibilities.
(a) The Chairman shall be jointly responsible with the
President for the establishment of corporate policies. Except where, by law, the
signature of the President is required, the Chairman shall possess the same
power as the President to sign all certificates, contracts and other instruments
of the Company which may be authorized by the Board of Directors.
(b) The Vice Chairman, if any, shall have such powers and
perform such duties as the Chairman may delegate to him or her.
4
<PAGE> 6
(c) The President shall have such powers and perform such
duties as the Board of Directors and the Chairman may delegate to him or her. In
the absence of the Chairman, the President shall exercise the functions and
duties of the Chairman.
(d) Each Vice President shall have such powers and perform
such duties as the Board of Directors, the Chairman or the President may from
time to time prescribe. The Vice Presidents in the order of priority designated
by the Chairman, the President or the Board of Directors, shall exercise the
functions of the President in his or her absence. If no priority is designated,
then by order of election.
(e) The Treasurer shall have the custody and care of all the
funds and securities of the Company, and shall deposit all funds to the credit
of the Company in such institution or institutions as the Board of Directors may
designate; he or she or an Assistant Treasurer or such other officer or officers
or appointee or appointees as may be authorized by the Board of Directors shall
endorse all instruments or documents requiring endorsement for or on behalf of
the Company; he or she shall perform all acts incident to the position of
Treasurer, subject to the control of the Board; he or she shall have such other
powers and perform such other duties as the Board of Directors, the Chairman or
the President may from time to time prescribe.
(f) The Secretary shall keep the minutes of all meetings of
the Board of Directors and of the Stockholders and shall attend to the giving of
proper notices to Directors and stockholders; he or she or an Assistant
Secretary or such other officer or officers or appointee or appointees as
authorized by the Board of Directors may sign, with the President, all
authorized contracts, instruments or documents in the name of the Company; he or
she shall be the custodian of the seal of the Company and shall attest such seal
when required; he or she shall perform all the duties incident to the office of
Secretary, subject to the control of the Board of Directors; he or she shall
have custody of the stock registers and transfer books of the Company; he or she
shall have such other powers and perform such other duties as the Board of
Directors, the Chairman or the President may from time to time prescribe or as
may be prescribed by these By-Laws.
(g) The Chairman, or the Vice Chairman, if any, or the
President or any Vice President, jointly with the Secretary, shall have power
and is hereby authorized to do all acts and things necessary to comply with the
laws of any state, territory, foreign government or other jurisdiction to secure
the right of the Company to do or continue the business of insurance in such
jurisdiction, and to act in the name of the Company to appoint from time to time
such person or persons as may be necessary and under such terms and conditions
as may be necessary, as the true and lawful attorney or attorneys of the Company
in and for such jurisdiction upon whom all lawful processes of any description
in any suit, action or proceeding against the Company may be served in like
manner and with the same effect as if served upon the Company and as if the
Company were organized under the laws of the jurisdiction for which such
attorney or attorneys are appointed; and the Company hereby empowers and
authorizes said officers for it and its name to agree that any lawful process
against the Company which may be served on its attorneys so appointed shall be
of the same legal force, effect and validity as if served on the Company.
(h) In case of the absence or disability of any officer of the
Company and of any persons hereby authorized to act in his or her place during
such period of absence or disability, the Board of Directors may from time to
time delegate the powers and duties of such officer to any other officer, or any
Director, or any other person whom it may select.
Section 6. Bonding of Officers. All officers shall be bonded under a
blanket bond, upon undertaking the duties of their respective offices, with a
surety company authorized to transact business in the state of Delaware, as
surety, and in such sum as may be specified by resolution of the Board of
Directors, conditioned for the faithful
5
<PAGE> 7
discharge of their duties. The Board of Directors may at any time, by
resolution, increase or decrease the amount of bond as hereinabove provided.
Section 7. Deaths, Resignations and Vacancies. An officer of the
Company may resign his or her office at any time by delivering his or her
resignation in writing to the Company, and the acceptance of such resignation,
unless required by the terms thereof, shall not be necessary to make such
resignation effective.
Any vacancy occurring through death, resignation, disqualification or
otherwise, among the Executive Officers of the Company, may be filled by the
vote of a majority of the Directors in office. Any person so chosen shall hold
office until the annual election of executive officers at the first meeting of
the Board of Directors following the stockholders' annual meeting, or as soon
thereafter as is conveniently possible.
ARTICLE VII
OFFICES
The Company may have offices and transact business at such other place
than its registered office in the State of Delaware as from time to time the
business of the Company may require.
ARTICLE VIII
INVESTMENTS AND MONEYS
Investment of the funds of the Company and the purchase and sale of
securities by the Company shall be made only as authorized or approved by the
Board of Directors or the Investment Committee or by some other committee
appointed by the Board of Directors and charged with the duty of supervising or
making such investments, purchases or sales. All investments requiring
registration shall be registered in the name of the Company except in such cases
as the Board of Directors or the Investment Committee may specially direct
otherwise.
Securities representing the invested funds of the Company shall be
placed for safekeeping in safe deposit vaults in the name of the Company, or
pursuant to a custodian account, in such Banks, Trust or Safe Deposit Companies
as shall be approved by the Board of Directors. Access to the vaults shall be in
accordance with procedures approved by resolution of the Board of Directors and
such resolution shall be effective upon a copy thereof being provided to the
Bank, Trust or Safe Deposit Company in which the securities are held. In the
event that the Board of Directors shall determine to establish a custodian
account with a Bank or Trust Company and shall provide that all or any part of
the securities now or hereafter representing the invested funds of the Company
shall be delivered to such Bank or Trust Company approved by the Board of
Directors; then, and in that event, such Bank or Trust Company shall hold such
securities so delivered in the custodian account in accordance with the
procedure and under the authority of the resolution approved by the Board of
Directors.
Any two of the following: the Chairman, Vice Chairman, if any,
President, or any Vice President acting jointly, or any one of them acting
jointly with any Vice President or the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer is authorized and empowered to
sell, assign, exchange and transfer any and all
6
<PAGE> 8
shares of stock, bonds and other securities owned by or standing in the name of
the Company, and to make, execute and deliver in the name and as the act of the
Company under its corporate seal any and all instruments in writing necessary or
proper to carry such sales, assignments, exchanges and transfers into effect,
but the Board of Directors or the Investment Committee may from time to time
adopt resolutions authorizing other methods for accomplishing same.
The Chairman, or the Vice Chairman, if any, or the President or any
Vice President or the Treasurer shall have authority to vote in person or by
proxy any of the stock of any other company in which the Company may hold and to
execute any and all consents or other documents relating to such stocks.
Moneys received by the Company may be deposited to its credit in such
Trust Companies or Banks as the Board of Directors may designate and checks
thereon shall be signed by two officers, one of whom shall be the Chairman or
the Vice Chairman, if any, or the President or Vice President; but the Board of
Directors may from time to time adopt resolutions authorizing other methods for
drawing checks, including the use of facsimile signatures, and such resolutions
shall be effective upon a copy thereof being provided to the Trust Company or
Bank upon which the check is drawn.
ARTICLE IX
FISCAL YEAR
Except as from time to time otherwise provided by the Board of
Directors, the fiscal year of the Company shall be the calendar year.
ARTICLE X
DIVIDENDS
Dividends may be declared and paid at such times as may be determined
by the Board of Directors.
Before declaring payment of any dividends or making any other
distribution of the surplus or profits of the Company, the Directors of the
Company may, according to their discretion, set aside such sum or sums as they
think proper as a reserve fund to meet contingencies or to meet the statutory
requirements of any State or country in which they may be transacting business,
or for equalizing dividends, or for any other purpose which they shall think
conducive to the interest of the Company.
ARTICLE XI
STOCK CERTIFICATES, TRANSFER AND RECORD DATES
All certificates of stock of the Company shall be signed by the
Chairman or the Vice Chairman, if any, or the President or a Vice President and
by the Secretary or an Assistant Secretary.
7
<PAGE> 9
ARTICLE XII
EMERGENCY AUTHORITY
The Board of Directors, by resolution adopted by a majority of the
whole Board, may make advance provision for the continuity and authority of the
Company's management in the event of a major catastrophe or force majeure
resulting in the loss or unavailability of members of the Board of Directors,
whether by death, incapacity, isolation or otherwise, or in loss or
unavailability of officers of the Company, and, in the event of such major
catastrophe, the terms of any such resolution shall have the same effect as if
included in these By-Laws and shall supersede the terms of these By-Laws to the
extent that they may be inconsistent therewith.
ARTICLE XIII
COMPENSATION OF DIRECTORS, ETC.
The Directors shall receive such compensation for their services as
Directors as may be prescribed by the Board of Directors and shall be reimbursed
by the Company for ordinary and reasonable expenses incurred in the performance
of their duty.
Each member of the Investment or other committees, if any, and each
alternate member thereof, if any, shall receive such compensation as may be
deemed just and reasonable by a majority of the Board of Directors, which may be
a fee for attendance at meetings or on an annual basis. No officers of the
Company, however, shall be eligible to receive compensation for serving on any
of the foregoing committees.
ARTICLE XIV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director or officer, whether or not then in office, shall be
indemnified by the Company against all costs and expenses reasonably incurred by
or imposed upon him or her, including legal fees, in connection with or
resulting from any claim, action, suit or proceeding, whether civil, criminal or
administrative, in which he or she may become involved as a party or otherwise,
by reason of his or her being or having been a Director or officer of the
Company.
(1) Indemnity will not be granted to any Director or officer with
respect to any claim, action, suit or proceeding which shall be brought against
such Director or officer by or in the right of the Company, and
(2) Indemnification for amounts paid and expenses incurred in settling
such action, claim, suit or proceeding, will not be granted, until
it shall be determined by a disinterested majority of the Board of Directors or
by a majority of any disinterested committee or group of persons to whom the
question may be referred by the Board, that said Director or officer did
8
<PAGE> 10
indeed act in good faith and in a manner he or she reasonably believed to be in,
or not adverse, to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonably cause to believe that his or
her conduct was legal, and that the payment of such costs, expenses, penalties
or fines is in the interest of the Company, and not contrary to public policy or
other provisions of law.
The termination of any action, suit or proceeding by judgement, order,
settlement, conviction or upon a plea of nolo contendre or its equivalent, shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in, or not adverse, to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Indemnification shall be made by the corporation upon determination by a
disinterested majority of the Board of Directors or of a majority of any
disinterested committee or group or persons to whom the question may be referred
to by said Board, that the person did indeed act in good faith and in a manner
he or she reasonably believed to be in, or not adverse, to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonably cause to believe that his or her conduct was legal.
The foregoing right to indemnity shall not be exclusive of any other
rights to which such Director or officer may be entitled as a matter of law.
The foregoing right to indemnity shall also extend to the estate of any
deceased Director or officer with respect to any such claim, action, suit or
proceeding in which such Director or officer or his or her estate may become
involved by reason of his or her having been a Director or officer of the
Company, and subject to the same conditions outlined above.
ARTICLE XV
BY-LAWS
These By-Laws or any articles thereof may be altered, amended or
repealed or further By-Laws may be adopted by a vote of a majority of the
Directors then in office at any regular or special meeting of the Board of
Directors, or by written consent, provided five days' notice in writing shall be
given to each of the Directors of the proposed alteration, amendment or repeal
of an existing By-Law or the proposed adoption of a new By-Law. Any By-Law made
by the Directors under this Article may be altered, amended or repealed by the
stockholders.
AMENDED and RESTATED by the Board on the 5th day of January, 1995.
/s/ James Gallagher
- -------------------
James Gallagher
Secretary
9
<PAGE> 1
VARIABLE ANNUITY GUARANTEED DEATH BENEFIT REINSURANCE
Effective JULY 1, 1995
between
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(BOSTON, MA)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CIGNA REINSURANCE
(Hartford, Connecticut)
<PAGE> 2
REINSURANCE AGREEMENT, Effective JULY 1, 1995
between
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(BOSTON, MA)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CIGNA REINSURANCE
(Hartford, Connecticut)
INDEX
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C> <C>
Access to Records XI 8
Amounts at Risk II 2
Arbitration XVI 11
Automatic Excess Reinsurance III 3
Claims VII 6
Currency XIII 9
DAC Tax Regulation Election XVII 12
Delays, Errors, or Omissions XII 9
Effective Date; Term and Termination XVIII 13
Extra Contractual Obligations VIII 7
Hold Harmless XIV 9
Insolvency XV 10
Liability of Connecticut General IV 3
Litigation IX 8
Notices XIX 16
Offset X 8
Parties to the Agreement I 1
Premium Accounting VI 6
Reinsurance Premiums V 4
</TABLE>
-1-
<PAGE> 3
SCHEDULES
A Maximum Limits of Reinsurance in Connecticut General
B Policy Forms and Funds Subject to this Reinsurance Agreement
C Limits and Rules of NASL
D Reinsurance Premium Rates
E Reporting Format Description
REINSURANCE AGREEMENT
(hereinafter called Agreement)
between
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(hereinafter called NASL)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(hereinafter called Connecticut General or Reinsurer)
It is agreed by the two companies as follows:
ARTICLE I PARTIES TO THE AGREEMENT
This Agreement shall be binding upon and shall inure solely to the benefit of
NASL and Connecticut General. This Agreement shall not and is not intended to
create any right or interest in any third party and shall not and is not
intended to create any legal relationship between either party and any third
party, including, without limitation, annuitants, insureds, certificate holders,
employees, dependents, beneficiaries, policy owners, applicants or assignees
under any policy or contract issued by NASL.
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<PAGE> 4
ARTICLE II AMOUNTS AT RISK
A. The reinsurance death benefit is 50% of the excess of the guaranteed
minimum death benefit over the contract value. The death benefit is paid
upon the death of the last annuitant.
VENTURE
ALL CONTRACTS BEGINNING WITH FORM NUMBER 207, EXCEPT;
EXCLUDE FORM 207-VFA-NY; INCLUDE FORM VFA-MN;
INCLUDE ALL CERTIFICATES BEGINNING WITH FORM VFA-CERT
If the annuitant dies prior to their 85 birthday, the guaranteed minimum death
benefit payable upon death of the last surviving annuitant, during the first 6
Contract Years, will be the greater of the Contract Value or the sum of all
Purchase Payments made, less any amount deducted in connection with partial
withdrawals. During any subsequent 6 Contract Year period, the minimum death
benefit will be the greater of the Contract Value, or the minimum death benefit
on the last day of the previous 6 Contract Year period plus any Purchase
Payments made and less any amount deducted in connection with partial
withdrawals since then.
If the oldest annuitant has an attained age over 85 at death, the policy form
does not provide a minimum death benefit guarantee and is not covered by the
treaty.
ALL CONTRACTS BEGINNING WITH FORM NUMBER 207, WHICH HAVE
FORM ENDORSEMENT.005 ATTACHED, EXCEPT; EXCLUDE
FORM 207-VFA-NY; INCLUDE CONTRACTS ISSUED IN MONTANA WHICH USE FORM
ENDORSEMENT.005.94 ALL CONTRACTS BEGINNING WITH
FORM VFA-MN WITH FORM ENDORSEMENT.005 ATTACHED
ALL CERTIFICATES BEGINNING WITH FORM VFA-CERT
WITH FORM ENDORSEMENT.007 ATTACHED
If the Annuitant dies on or prior to the first of the month following his/her
85th birthday, the Death Benefit during the first Contract Year, will be the
greater of: the Contract Value, or the sum of all Payments made, less any amount
deducted in connection with partial withdrawals. During any subsequent Contract
Year, the Death Benefit will be the greater of: the Contract Value, or the Death
Benefit on the last day of the previous Contract Year plus any Payments made and
less any amounts deducted in connection with partial withdrawals, since then.
Death benefits payable after age 85 are not covered under this treaty
Please refer to Schedule C for a detailed discussion of the guaranteed minimum
death benefit.
B. The contract value represents the owner's invested assets in the funds in
Schedule B as it appears in the records of NASL before application of any
surrender charges, on any given date.
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<PAGE> 5
C. In determining the amount at risk, the guaranteed minimum death benefit
and the contract value are calculated as the average of the values at the
end of the current calendar quarter and the end of the prior calendar
quarter. The amount at risk cannot fall below zero.
ARTICLE III AUTOMATIC EXCESS REINSURANCE
A. On and after the Effective Date of this Agreement, subject to the limit of
Reinsurer's liability set forth in Schedule A and all other terms,
conditions and limitations set forth in this Agreement and the Schedules
attached to and made a part hereof, NASL shall cede and the Reinsurer
shall accept 50% of NASL'S guaranteed death benefit liability under the
Variable Annuity Contracts, as described in Article II A.
B. This Agreement covers only NASL'S liability for claims paid under Variable
Annuity Contracts written on forms and investment in funds which were
reviewed by the Reinsurer prior to their issuance. Forms, as supplemented
by additional materials, and funds available as of the date of this
Agreement are listed on Schedule B, attached hereto and made a part
hereof. If NASL intends to cede to Reinsurer liability with respect to a
new form or fund, or a revised version of an approved form or fund, it
must provide to the Reinsurer written notice of such intention together
with a copy of the proposed form, fund or revision, and a revised Schedule
B.
C. NASL shall provide written notice to Connecticut General of any changes in
its published limits and rules identified on Schedule C, and Connecticut
General shall have no liability pursuant to revised limits and rules
unless and until Connecticut General provides written notice to NASL that
such revised limits and rules are acceptable.
ARTICLE IV LIABILITY OF CONNECTICUT GENERAL
Connecticut General's liability for reinsurance under this Agreement shall
follow that of NASL in every case, and be subject in all respects to the general
stipulations, terms, clauses, conditions, waivers and modifications of the
Variable Annuity Contracts.
In no event shall Connecticut General have any reinsurance liability unless the
Variable Annuity Contract issued by NASL is in force and the underwriting and
issuance of coverage by NASL constitutes the doing of business in a state of the
United States of America in which NASL is properly licensed and authorized to do
business.
-4-
<PAGE> 6
ARTICLE V REINSURANCE PREMIUMS
The calendar quarterly premiums for reinsurance subject to the terms and
conditions of this Agreement shall be determined by application of the rates set
forth in Schedule D to the amount of reinsurance coverage provided for each
annuity insured by NASL, subject to the following:
1. The reinsurance shall be based on the annuitant's age last birthday
at the end of each calendar quarter. If the contract has more than
one annuitant, the reinsurance premiums shall be based on the age
listed on the records of NASL. NASL shall determine the annuitant's
age at the time it prepares the quarterly exposure data submission
for the variable annuity guaranteed death benefit, as set forth in
schedule E, attached hereto.
2. The reinsurance premiums shall be calculated separately for funds
identified as variable and guaranteed in Schedule B.
3. The Age Adjusted Aggregate Contract Value is the sum of the contract
values in all of NASL's variable annuities subject to this
Agreement, minus contract values attributable to amounts in excess
of the maximum purchase amounts listed in Schedule A.
4. For funds identified as variable in Schedule B, and for attained
ages less than 70, the premium over each calendar year will be at
least equivalent to 50% of the Age Adjusted Aggregate Contract
Values times .8 BASIS POINTS (.00008) for year one (1); 1.2 BASIS
POINTS (.00012) for year two (2); and 1.6 BASIS POINTS (.00016)
thereafter. For attained ages 70 and older the premium over each
calendar year will be at least equivalent to 50% of the Age Adjusted
Aggregate Contract Values times 2.4 BASIS POINTS (.00024) for year
one (1); 3.6 BASIS POINTS (.00036) for year two (2); and 4.4 BASIS
POINTS (.00044) thereafter.
5. For funds identified as guaranteed in Schedule B, there will be no
minimum premium regardless of attained age.
6. For all funds identified in Schedule B, and for attained ages less
than 70, the premium over each calendar year will not exceed 50% of
the Age Adjusted Aggregate Contract Values times 3.6 BASIS POINTS
(.00036) for year one (1); 4.8 BASIS POINTS (.00048) for year two
(2) and 5.6 BASIS POINTS (.00056) thereafter. For attained ages 70
and older the premium over each calendar year will not exceed 50% of
the Age Adjusted Aggregate Contract Values times 9.6 BASIS POINTS
(.00096) for year one (1); 10.8 BASIS POINTS (.00108) for year two
(2) and 12.0 BASIS POINTS (.00120) thereafter.
7. 50% of the Age Adjusted Aggregate Contract Values times one fourth
(1/4) of the minimum premium rate will be remitted to Connecticut
General in advance for the current calendar quarter, at the time of
settlement for the prior calendar quarter.
-5-
<PAGE> 7
ARTICLE VI PREMIUM ACCOUNTING
NASL shall forward to Connecticut General within thirty (30) days of the end of
the reporting period a quarterly statement as set forth in Schedule E. NASL
shall also remit any premium due for the prior quarter along with an advance
premium for the current quarter, in accordance with Article V. In the event of
any over payment by NASL of premiums or advance premiums, Connecticut General
shall remit to NASL the excess amount within thirty (30) days following receipt
of the quarterly reinsurance statement.
If the amounts described in Article V cannot be determined by the dates set
forth in the above paragraph, on an exact basis, such payments will be made with
a generally agreed upon formula which will approximate the actual payments.
Adjustments will then be made to reflect actual amounts when they become
available.
ARTICLE VII CLAIMS
A. NASL is solely responsible for payment of its claims under the Underlying
Annuity Contracts, policies, master contracts or certificates identified
on Schedule B. NASL shall provide Connecticut General with proof of claim,
proof of claim payment and any other claim documentation requested by
Connecticut General on a quarterly basis. Payment of reinsurance shall be
made by Connecticut General in one sum regardless of the method of payment
by NASL and within thirty (30) days following receipt of the quarterly
reinsurance statement, as set forth in Schedules E-1 and E-2.
B. NASL shall notify Connecticut General of NASL'S intention to contest, or
deny a claim which may involve the reinsurance coverage under this
Agreement before any notice of contest or denial is provided to the
claimant. Connecticut General shall then have thirty (30) days within
which to advise NASL whether it agrees that the claim should be contested
or denied. If Connecticut General does not agree that the claim should be
contested or denied, then it shall pay to NASL the full amount of the
reinsurance on the risk reinsured, as set forth in Article II, and
Connecticut General shall have no further obligation in respect to such
claim. If Connecticut General agrees that the claim should be contested or
denied, then Connecticut General shall pay its share of the following in
accordance with its share of liability set forth in Article II:
- Expenses incurred by NASL in investigating, contesting, or
litigating or otherwise resisting the claim, excluding salaries and
expenses of employees, officers and agents of NASL and ordinary
overhead expenses of NASL, and costs of third party administrators
acting on behalf of NASL; and
- Interest which is paid by NASL in respect of the claim.
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<PAGE> 8
ARTICLE VIII EXTRA CONTRACTUAL OBLIGATIONS
A. In no event shall Connecticut General be liable for extra contractual
damages (whether they constitute Compensatory damages, Statutory
penalties, Exemplary or Punitive damages) which are awarded against NASL
as a result of an act, omission or course of conduct by NASL in connection
with policies subject to this Agreement, unless the Reinsurer shall have
received notice of and concurred with the actions taken or not taken by
NASL which led to its liability, in which case the Reinsurer shall pay its
share of such liability. For this purpose, the Reinsurer's share shall be
proportionate with its risk under the business reinsured hereunder.
B. The following definitions shall apply:
(1) Punitive damages and Exemplary damages are those damages awarded as
a penalty, the amount of which is not governed nor fixed by statute.
(2) Statutory penalties are those amounts which are awarded as a penalty
but fixed in amount by statute.
(3) Compensatory damages are those amounts awarded to compensate for the
actual damages sustained and are not awarded as a penalty nor fixed
in amount by statute.
-7-
<PAGE> 9
ARTICLE IX LITIGATION
A. In the event of any action brought against NASL under any Underlying
Annuity Contract that is subject to the terms and conditions of this
Agreement, NASL shall provide to Connecticut General a copy of such action
within ten (10) business days following NASL'S direct receipt of the
service process. If Connecticut General is a party to action brought
against NASL, NASL shall counsel with Connecticut General on the selection
and appointment of local counsel to represent NASL in such action.
B. If NASL pursues any litigation where Connecticut General is not a party or
where Connecticut General is a party but does not agree to pursue
litigation, NASL and Connecticut General agree that all litigation costs,
excluding the salaries of employees of NASL and Connecticut General, shall
be borne by NASL. However, if NASL and Connecticut General agree to
jointly defend any litigation, or if Connecticut General agrees that NASL
should pursue litigation, litigation costs will be borne in proportion to
the net liability borne by each party.
ARTICLE X OFFSET
Either party shall have, and may exercise at any time and from time to time, the
right to offset any balance or amounts whether on account of premiums or on
account of losses or otherwise, due from one party to the other under the terms
of this Agreement. However, in the event of insolvency of NASL subject to the
provisions of Article XV, offset shall only be allowed in accordance with the
statutes and/or regulations of the state having jurisdiction over the
insolvency.
ARTICLE XI ACCESS TO RECORDS
NASL and Connecticut General (or its duly authorized representative) each shall
have the right during normal business and at reasonable intervals, to audit at
the office of the other, all records relating to this reinsurance.
Books and records shall be maintained in accordance with prudent standards of
insurance company record keeping and must be retained for a period of at least
seven (7) years from the date of creation. Within one hundred and fifty (150)
days following the end of each calendar year, NASL and Connecticut General will
provide each office with copies of their respective audited financial
statements.
-8-
<PAGE> 10
ARTICLE XII DELAYS, ERRORS OR OMISSIONS
No accidental delay, errors or omissions on the part of NASL shall relieve
Connecticut General of liability provided such delay, errors or omissions are
rectified as soon as possible after discovery. However, Connecticut General
shall not be liable with respect to any reinsurance which may have been
inadvertently included in the premium computation but which ought not to have
been included by reason of the terms and conditions of this Agreement. It is
expressly understood and agreed that if failure to comply with any terms of this
Agreement is hereby shown to be unintentional or the result of misunderstanding
or oversight on the part of either party, both parties shall be restored to the
position they would have occupied had no such error or oversight occurred,
subject always to the correction of the error or oversight.
ARTICLE XIII CURRENCY
All retentions and limits hereunder are expressed in United States dollars and
all premium and loss payments shall be made in United States currency. For the
purposes of this Agreement, amounts paid or received by Connecticut General in
any other currency shall be converted into United States dollars at the rates of
exchange on the date such transactions are entered on the books of Connecticut
General.
ARTICLE XIV HOLD HARMLESS
A. Connecticut General shall indemnify and hold NASL harmless from any and
all liability, loss, damage, fines, punitive damages, penalties and costs,
including expenses and attorney's fees, which results from any negligence
or willful misconduct of Connecticut General in fulfilling its duties and
obligations under this Agreement or which results from any action which
exceeds its authority under this Agreement.
B. NASL shall indemnify and hold Connecticut General harmless from any and
all liability, loss, damage, fines, punitive damages, penalties and costs,
including expenses and attorney's fees, which results from any negligence
or willful misconduct of NASL in fulfilling its duties and obligations
under this Agreement or which results from any action which exceeds its
authority under this Agreement.
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<PAGE> 11
ARTICLE XV INSOLVENCY
In the event of insolvency of NASL, the reinsurance under this Agreement shall
be payable directly by Connecticut General to NASL or to its liquidator,
receiver, conservator or statutory successor on the basis of Connecticut
General's liability to NASL without diminution because of the insolvency of NASL
or because the liquidator, receiver, conservator or statutory successor of NASL
has failed to pay all or a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of NASL shall give
prompt written notice to Connecticut General of the pendency of a claim against
NASL within a reasonable time after such claim is filed in the receivership,
conservation, insolvency or liquidation proceeding and that during the pendency
of such claim, Connecticut General may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses that it may deem available to NASL or its liquidator,
receiver, conservator or statutory successor. The expense thus incurred by
Connecticut General shall be chargeable, subject to the approval of the Court,
against NASL as part of the expense of conservation or liquidation to the extent
of a pro-rata share of the benefit which may accrue to NASL solely as a result
of the defense undertaken by Connecticut General.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by NASL.
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<PAGE> 12
ARTICLE XVI ARBITRATION
A. As a condition precedent to any right of action hereunder, any dispute
between the parties with respect to the interpretation of this Agreement
or any right, obligation or liability of either party, whether such
dispute arises before or after termination of this Agreement, shall be
submitted to arbitration upon the written request of either party. Each
party shall select an arbitrator within thirty (30) days of the written
request for arbitration. If either party refuses or neglects to appoint an
arbitrator within thirty (30) days of the written request for arbitration,
the other party may appoint the second arbitrator. The two arbitrators
shall select an umpire within thirty (30) days of the appointment of the
second arbitrator. If the two arbitrators fail to agree on the selection
of the umpire within thirty (30) days of the appointment of the second
arbitrator, each arbitrator shall submit to the other a list of three
umpire candidates, each arbitrator shall select one name from the list
submitted by the other and the umpire shall be selected from the two names
chosen by a lot drawing procedure to be agreed upon by the arbitrators.
B. The arbitrators and the umpire all shall be active or retired,
disinterested executive officers of insurance or reinsurance companies.
C. The arbitration panel shall interpret this Agreement as an honorable
engagement rather than merely as a legal obligation and shall make its
decision considering the custom and practice of the applicable insurance
and reinsurance business. The arbitration panel is released from judicial
formalities and shall not be bound by strict rules of procedure and
evidence.
D. The decision of the arbitration panel shall be final and binding on both
parties. The arbitration panel may, at its discretion, award costs and
expenses as it deems appropriate, including, but not limited to,
attorneys' fees and interest. Judgment may be entered upon the final
decision of the arbitration panel in any court of competent jurisdiction.
E. All meetings and hearings before the arbitration panel shall take place in
Worcester, Massachusetts unless some other place is mutually agreed upon
by the parties.
F. Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expenses of the umpire and of
the arbitration.
-11-
<PAGE> 13
ARTICLE XVII DAC TAX REGULATION ELECTION
Connecticut General and NASL hereby agree to make an election pursuant to
Internal Revenue Code Regulation Section 1.848-2(g)(8). This election shall be
effective for all taxable years for which the Reinsurance Agreement remains in
effect.
The terms used in this article are defined by reference to Regulation Section
1.848-2 promulgated on December 28, 1992.
Connecticut General and NASL agree that the entity with net positive
consideration for the reinsurance agreement for each taxable year will
capitalize specified policy acquisition expenses with respect to the reinsurance
agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended.
Connecticut General and NASL agree to exchange information pertaining to the
amount of net consideration under the reinsurance agreement each year to ensure
consistency. To achieve this, NASL shall provide Connecticut General with a
schedule of its calculation of the net consideration for all reinsurance
agreements in force between them for a taxable year by no later than April 30 of
the succeeding year. Connecticut General shall advise NASL if it disagrees with
the amounts provided by no later than May 31, otherwise the amounts will be
presumed correct and shall be reported by both parties in their respective tax
returns for such tax year. If Connecticut General contests NASL's calculation of
the net consideration, the Parties agree to act in good faith to resolve any
differences within thirty (30) days of the date Connecticut General submits its
alternative calculation and report the amounts agreed upon in their respective
tax returns for such tax year.
Connecticut General represents and warrants that it is subject to U.S. taxation
under either Subchapter L or Subpart F of Part III of Subchapter N of the
Internal Revenue Code of 1986, as amended.
-12-
<PAGE> 14
ARTICLE XVIII EFFECTIVE DATE; TERM AND TERMINATION
A. The effective date of this Agreement is JULY 1, 1995. This Agreement
remains effective for all annuity contracts subject to this Agreement
written by NASL through JUNE 30, 1998, unless terminated pursuant to the
paragraphs listed below:
B. Either Connecticut General or NASL shall have the option of terminating
this agreement with one hundred and eighty (180) days written notice to
the other party for new business anytime on or after June 30, 1998.
C. Once each calendar year, NASL shall have the option to recapture existing
contracts beginning with the fifteenth (15) anniversary of their
reinsurance hereunder. If NASL elects to recapture, 1/3 of the contracts
can be recaptured in the first year eligible, 1/2 of the remaining
contracts can be recaptured in the second year, and the balance of the
contracts can be recaptured in the third year. Recapture must be made on
an issue year basis beginning with the earliest issue year. Recapture
cannot occur on contracts with later issue years until all contracts with
earlier issue dates have been recaptured.
D. Upon delivery of sixty (60) days written notice to NASL, Connecticut
General shall have the option of terminating this Agreement for new
business within sixty (60) days of the happening of any of the following
events:
(1) NASL'S A. M. Best rating is reduced to a "C" or lower.
(2) NASL'S parent company is placed upon a "watch list" by its
domiciliary state's insurance regulators;
(3) An order appointing a receiver, conservator or trustee for
management of NASL is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision or conservation of NASL;
(4) NASL is merged, purchased or there is any other material change
(in whole or in part) in the ownership of NASL other than is
currently contemplated by the following agreement: An agreement
and plan of reorganization dated September 5, 1995 among North
American Life Assurance Company, NASL, Wood Logan Associates,
Inc., H. Douglas Wood, A. Scott Logan and NAWL Holding Co., Inc.,
and an Amalgamation Agreement dated September 15, 1995 between The
Manufacturers Life Insurance Company and North American Life
Assurance Company;
(5) The Securities and Exchange Commission revokes the licenses of
NASL to conduct business.
-13-
<PAGE> 15
(6) Failure by NASL to pay premium in accordance with Article V and
Article VI. If, during the sixty (60) days notice period, the
Reinsurer receives all premiums in arrears and all premiums which
may become due within the sixty (60) days notice period, the
notice of termination shall be deemed withdrawn. In the event of
termination under this paragraph, this Agreement may be reinstated
upon the written consent of the Reinsurer if, at any time within
sixty (60) days of termination, NASL pays and the Reinsurer
receives all premiums due with interest thereon and payable up to
the date of reinstatement. (Please refer to paragraph J below for
the interest calculation description)
E. Upon delivery of sixty (60) days written notice to Connecticut General,
NASL shall have the option of terminating this Agreement for new business
within sixty (60) days of the happening of any of the following events:
(1) Connecticut General's A. M. Best rating is reduced to a "C" or
lower;
(2) Connecticut General is placed upon a "watch list" by its
domiciliary states's insurance regulators;
(3) An order appointing a receiver, conservator or trustee for
management of Connecticut General is entered or a proceeding is
commenced for rehabilitation, liquidation, supervision or
conservation of Connecticut General;
(4) Connecticut General is merged, purchased or there is any other
material change (in whole or in part) in the ownership of
Connecticut General;
(5) Failure by Connecticut General to pay reinsurance death benefits
in accordance with Article II. If, during the sixty (60) days
notice period, NASL receives all reinsurance death benefits in
arrears, the notice of termination shall be deemed withdrawn. In
the event of termination under this paragraph, this Agreement may
be reinstated upon the written consent of NASL if, at any time
within sixty (60) days of termination, the Reinsurer pays and NASL
receives all reinsurance death benefits due with interest thereon
and payable up to the date of reinstatement. (Please refer to
paragraph J below for the interest calculation description)
F. If this Agreement is terminated for new and existing business, Connecticut
General shall be relieved of all liability to NASL for claims incurred
following the termination date of this Agreement under such Underlying
Annuity Contracts issued by NASL, and
G. If this Agreement is terminated for new business only, Connecticut General
will remain liable, after termination, in accordance with the terms and
conditions of this Agreement, with respect to all reinsurance effective
prior to termination of the Agreement.
-14-
<PAGE> 16
H. Both parties shall continue to be entitled to all offset credits provided
by Article X up to the effective date of termination.
I. NASL shall not have the right to assign or transfer any portion of the
rights, duties and obligations of NASL under the terms and conditions of
this Agreement without the written approval of Connecticut General.
J. In the event of reinstatement as described in paragraph D and E above,
there will be an interest charge at the three (3) month LIBOR Rate (as
published in the Wall Street Journal), plus .01, determined on the first
business day following the end of the 60 day notice period. The settlement
is considered overdue at the end of the 60 day notice period and interest
shall commence from the overdue date.
-15-
<PAGE> 17
ARTICLE XIX NOTICES
All notices required to be given hereunder shall be in writing and shall be
deemed delivered if personally delivered, sent via facsimile, or dispatched by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
RICHARD C. HIRTLE
VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
P.O. BOX 9230
BOSTON, MA 02205-9230
PHONE NO. (617) 266-6008 (X253) FAX NO. (617) 437-6849
TIMOTHY J. RUARK, FSA
ASSISTANT VICE PRESIDENT AND ACTUARY
CIGNA REINSURANCE, R26
900 COTTAGE GROVE ROAD
HARTFORD, CT 06152-4026
PHONE NO. (860) 726-4053 FAX NO. (860) 726-3153
Notice shall be deemed given on the date it is deposited in the mail or sent via
facsimile in accordance with the foregoing. Any party may change the address to
which to send notices by notifying the other party of such change of address in
writing in accordance with the foregoing.
This Agreement constitutes the entire contract between the parties and shall be
deemed to have been made under and governed by the laws of the State of
Connecticut. Any amendment or modification hereto shall be in writing, endorsed
upon or attached hereto and signed by both NASL and Connecticut General.
In witness whereof, the parties hereto have caused this Agreement to be signed
in duplicate on the dates indicated to be effective as of the date specified
above.
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
Date: _________________, 19__ By: _______________________________
Date: _________________, 19__ By: _______________________________
-16-
<PAGE> 18
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
Date: _________________, 19__ By: _______________________________
-17-
<PAGE> 19
SCHEDULE A
Maximum Limits of Reinsurance in Connecticut General
The maximum purchase amount issued on the life of each insured:
$3,500,000
The maximum purchase amount is the sum of all premium contributions less
withdrawals in the contract. For purchase amounts in excess of the maximum,
Connecticut General's death benefit liability will be reduced by the ratio of
purchase amounts in excess of the maximum to the total purchase amounts.
SCHEDULE A
<PAGE> 20
SCHEDULE B
Contracts and Funds Subject to this Reinsurance Agreement
<TABLE>
<CAPTION>
Form
Number* Date
- ------- ----
<S> <C>
VENTURE August 8, 1989
</TABLE>
All contracts beginning with form number 207, except; exclude form 207-VFA-NY;
include form VFA-MN;include all certificates beginning with form VFA-CERT
All contracts beginning with form number 207, which have form ENDORSEMENT.005
attached, except; exclude form 207-VFA-NY; include contracts issued in Montana
which use form ENDORSEMENT.005.94
All contracts beginning with form VFA-MN with form ENDORSEMENT.005 attached All
certificates beginning with form VFA-CERT with form ENDORSEMENT.007 attached
Policy Description
Flexible Purchase Payment Individual Deferred Combination Fixed and Variable
Annuity Contract Non Participating
<TABLE>
<CAPTION>
Fund
Date Fund Description
- ---- ----------------
<S> <C>
VARIABLE FUNDS:
January 9, 1995 International Growth & Income Trust
February 19, 1993 Value Equity Trust
May 1, 1989 U.S. Government Securities Trust
February 19, 1993 Strategic Bond Trust
April 23, 1991 Growth & Income Trust
June 18, 1985 Investment Quality Bond Trust
June 18, 1985 Money Market Trust
June 18, 1985 Equity Trust
August 3, 1989 Conservative Asset Allocation Trust
August 3, 1989 Moderate Asset Allocation Trust
August 3, 1989 Aggressive Asset Allocation Trust
December 11, 1992 Pasadena Growth Trust
March 18, 1988 Global Equity Trust
</TABLE>
SCHEDULE B-1
<PAGE> 21
<TABLE>
<S> <C>
March 18, 1988 Global Government Bond Trust
March 1, 1996 International Small Cap Trust
March 1, 1996 Small\Mid Cap Trust
SCHEDULE B
----------
(continued)
FIXED FUNDS:
August 8, 1989 One Year
August 8, 1989 Three Year
August 8, 1989 Six Year
<FN>
* Includes all state variations
</TABLE>
SCHEDULE B-1
<PAGE> 22
SCHEDULE C
Limits and Rules of NASL
1) NASL will determine the Guaranteed Minimum Death Benefit for each deceased
within seven (7) working days of due proof of death.
2) The maximum purchase payment allowed without company approval is
$1,000,000.
3) The minimum purchase payment is $300.
MINIMUM DEATH BENEFIT
VENTURE
ALL CONTRACTS BEGINNING WITH FORM NUMBER 207, EXCEPT;
EXCLUDE FORM 207-VFA-NY; INCLUDE FORM VFA-MN
If the Annuitant dies on or prior to the first of the month following his or her
85th birthday, the minimum death benefit will be determined as follows:
1) During the first 6 Contract Years, the minimum death benefit will be the
greater of:
a) the Contract Value on the date that due proof of death is received
at the Annuity Service Office, or
b) the sum of all Purchase Payments made, less any amount deducted in
connection with partial withdrawals.
2) During any subsequent 6 Contract Year period, the minimum death benefit
will be the greater of:
a) the Contract Value on the date that due proof of death is received
at the Annuity Service Office, or
b) the minimum death benefit on the last day of the previous 6 Contract
Year period plus any Purchase Payments made and less any amount
deducted in connection with partial withdrawals since then.
If the Annuitant dies after the first of the month following his or her 85th
birthday, the minimum death benefit will be the Contract Value on the date that
due proof of death is received at the Annuity Service Office.
SCHEDULE C-1
<PAGE> 23
SCHEDULE C
(continued)
MINIMUM DEATH BENEFIT
ALL CERTIFICATES BEGINNING WITH FORM VFA-CERT
If the Annuitant dies on or prior to the first of the month following his or her
85th birthday, the minimum death benefit will be determined as follows:
1) During the first 6 certificate Years, the minimum death benefit will be
the greater of:
a) the Contract Value for an Owner on the date that due proof of death
is received at the Annuity Service Office; or
b) the sum of all Purchase Payments made by or on behalf of the Owner
less any amount deducted in connection with partial withdrawals.
2) During any subsequent 6 Certificate Year period, the minimum death benefit
will be the greater of:
a) the Contract Value for an Owner on the date that due proof of death
is received at the Annuity Service Office; or
b) the minimum death benefit on the last day of the previous 6
Certificate Year period plus any Purchase Payments made by or on
behalf of the Owner and less any amount deducted in connection with
partial withdrawals since then.
If the Annuitant dies after the first of the month following his or her 85th
birthday, the minimum death benefit will be the Contract Value for an Owner on
the date that due proof of death is received at the Annuity Service Office.
SCHEDULE C-2
<PAGE> 24
SCHEDULE C
(continued)
ALL CONTRACTS BEGINNING WITH FORM NUMBER 207, WHICH HAVE
FORM ENDORSEMENT.005 ATTACHED, EXCEPT; EXCLUDE
FORM 207-VFA-NY; INCLUDE CONTRACTS ISSUED IN MONTANA WHICH USE FORM
ENDORSEMENT.005.94 ALL CONTRACTS BEGINNING WITH FORM VFA-MN
WITH FORM ENDORSEMENT.005 ATTACHED
DEATH BENEFIT ENDORSEMENT
PART 4, BENEFITS, DEATH BENEFIT BEFORE MATURITY DATE OF THE FLEXIBLE PURCHASE
PAYMENT DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY TO WHICH THIS
ENDORSEMENT IS ATTACHED IS REPLACED AS FOLLOWS:
DEATH BENEFIT BEFORE MATURITY DATE
A death benefit will be determined as of the date on which written notice and
proof of death and all required claim forms are received at the Company's
Annuity Service Office as follows:
1) If the Annuitant dies on or prior to the first of the month following his
or her 85th birthday, the death benefit will be determined as follows:
a) During the first Contract Year, the death benefit will be the
greater of:
i) the Contract Value, or
ii) the sum of all Purchase Payments made, less any amount
deducted in connection with partial withdrawals.
b) During any subsequent Contract Year, the death benefit will be the
greater of:
i) the Contract Value, or
ii) the death benefit on the last day of the previous Contract
Year plus any Purchase Payments made and less any amounts
deducted in connection with partial withdrawals since then.
2) If the Annuitant dies after the first of the month following his or her
85th birthday, the death benefit will be determined as the greater of:
a) the Contract Value, or
SCHEDULE C-3
<PAGE> 25
SCHEDULE C
(continued)
b) the excess of (i) over (ii) where:
i) the sum of all Purchase Payments.
ii) the sum of all withdrawals, including any applicable
withdrawals charges.
If there is more than one Owner, distributions will occur upon the death of any
Owner. If both Owners are individuals, the distributions will be made to the
remaining Owner rather than the successor Owner or the Beneficiary.
If there is any Debt, the death benefit equals the amount described above less
the Debt under the Contract.
ALL CERTIFICATES BEGINNING WITH FORM VFA-CERT
WITH FORM ENDORSEMENT.007 ATTACHED
PART 4, BENEFITS, DEATH BENEFIT BEFORE MATURITY DATE OF THE FLEXIBLE PURCHASE
PAYMENTS DEFERRED COMBINATION FIXED AND VARIABLE GROUP ANNUITY CERTIFICATE TO
WHICH THIS ENDORSEMENT IS ATTACHED IS REPLACED AS FOLLOWS:
DEATH BENEFIT BEFORE MATURITY DATE
A death benefit will be determined as of the date on which written notice and
proof of death and all required claim forms are received at the Company's
Annuity Service Office as follows:
1) If the Annuitant dies on or prior to the first of the month following his
or her 85th birthday, the death benefit will be determined as follows:
a) During the first Certificate Year, the death benefit will be the
greater of:
i) the Contract Value, or
ii) the sum of all Purchase Payments made, less any amount
deducted in connection with partial withdrawals.
b) During any subsequent Certificate Year, the death benefit will be
the greater of:
SCHEDULE C-4
<PAGE> 26
i) the Contract Value, or
SCHEDULE C-4
<PAGE> 27
SCHEDULE C
(continued)
ii) the death benefit on the last day of the previous Certificate
Year plus any Purchase Payments made and less any amounts
deducted in connection with partial withdrawals since then.
2) If the Annuitant dies after the first of the month following his or her
85th birthday, the death benefit will be determined as the greater of:
a) the Contract Value, or
b) the excess of (i) over (ii) where:
i) the sum of all Purchase Payments.
ii) the sum of all withdrawals, including any applicable
withdrawal charges.
SCHEDULE C-5
<PAGE> 28
SCHEDULE D
Quarterly Reinsurance Premium Rates
Exposure Based
Per $1,000 Exposed
<TABLE>
<CAPTION>
Ages Unisex
---- ------
<S> <C>
Less Than 35 .19
35-39 .25
40-44 .37
45-49 .63
50-54 1.15
55-59 2.02
60-64 3.21
65-69 5.52
70-74 9.54
75-79 15.40
80-84 25.20
</TABLE>
SCHEDULE D
<PAGE> 29
SCHEDULE E
Quarterly Reporting Format
1. Following the end of each calendar quarter, the Quarterly Detail Page,
Fund/Exposure-Based exhibit (attached) must be prepared for each
Qualified plan and Non-Qualified plan separately.
2. The tabulation should be on an Adjusted Basis, which requires omission
of excess contract values due to an issue amount in excess of $3.5
million.
3. The tabulation is on a seriatim basis, with each contract contributing
toward the totals for both exposure and aggregate contract value.
4. An exhibit demonstrating the aggregate allocation of contract values by
fund shall be provided each calendar quarter.
5. At year end reporting, a tabulation of exposures by age based on a
percentage decrease in account value by fund type as specified by the
NAIC must be submitted for reserve purposes.
SCHEDULE E
<PAGE> 1
VARIABLE ANNUITY GUARANTEED DEATH BENEFIT REINSURANCE
Effective JULY 1, 1995
between
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(BOSTON, MA)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CIGNA REINSURANCE
(Hartford, Connecticut)
<PAGE> 2
REINSURANCE AGREEMENT, Effective JULY 1, 1995
between
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(BOSTON, MA)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CIGNA REINSURANCE
(Hartford, Connecticut)
INDEX
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C> <C>
Access to Records XI 8
Amounts at Risk II 2
Arbitration XVI 11
Automatic Excess Reinsurance III 3
Claims VII 6
Currency XIII 9
DAC Tax Regulation Election XVII 12
Delays, Errors, or Omissions XII 9
Effective Date; Term and Termination XVIII 13
Extra Contractual Obligations VIII 7
Hold Harmless XIV 9
Insolvency XV 10
Liability of Connecticut General IV 3
Litigation IX 8
Notices XIX 16
Offset X 8
Parties to the Agreement I 1
Premium Accounting VI 6
Reinsurance Premiums V 4
</TABLE>
1
<PAGE> 3
SCHEDULES
A Maximum Limits of Reinsurance in Connecticut General
B Policy Forms and Funds Subject to this Reinsurance Agreement
C Limits and Rules of NASL
D Reinsurance Premium Rates
E Reporting Format Description
REINSURANCE AGREEMENT
(hereinafter called Agreement)
between
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(hereinafter called NASL)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(hereinafter called Connecticut General or Reinsurer)
It is agreed by the two companies as follows:
ARTICLE I PARTIES TO THE AGREEMENT
This Agreement shall be binding upon and shall inure solely to the benefit of
NASL and Connecticut General. This Agreement shall not and is not intended to
create any right or interest in any third party and shall not and is not
intended to create any legal relationship between either party and any third
party, including, without limitation, annuitants, insureds, certificate holders,
employees, dependents, beneficiaries, policy owners, applicants or assignees
under any policy or contract issued by NASL.
2
<PAGE> 4
ARTICLE II AMOUNTS AT RISK
VENTURE FORMS BEGINNING WITH 203
A. The reinsurance death benefit is 50% of the excess of the guaranteed
minimum death benefit over the contract value. The death benefit is
payable upon death of the last surviving annuitant.
VENTURE FORMS BEGINNING WITH 203 AND ENDORSED WITH 301-VER 9/89
Upon death of the last surviving annuitant, the guaranteed minimum death
benefit during the first 5 Contract Years will be the greater of the
Contract Value or the sum of all Purchase Payments made, less any amount
deducted in connection with partial withdrawals. During any subsequent 5
Contract Year period, the minimum death benefit will be the greater of the
Contract Value, or the minimum death benefit on the last day of the
previous 5 Contract Year period plus any Purchase Payments made and less
any amount deducted in connection with partial withdrawals since then.
VENTURE FORMS BEGINNING WITH 203 AND ENDORSED WITH ENDORSEMENT.008
Upon death of the last surviving annuitant, the guaranteed minimum death
benefit during the first Contract Year will be the greater of the Contract
Value or the sum of all Purchase Payments made, less any amount deducted
in connection with partial withdrawals. During any subsequent Contract
Year, the minimum death benefit will be the greater of the Contract Value,
or the minimum death benefit on the last day of the previous Contract Year
period plus any Purchase Payments made and less any amount deducted in
connection with partial withdrawals since then.
Please refer to Schedule C for a detailed discussion of the guaranteed
minimum death benefit.
B. The contract value represents the owner's invested assets in the funds in
Schedule B as it appears in the records of NASL before application of any
surrender charges, on any given date.
C. In determining the amount at risk, the guaranteed minimum death benefit
and the contract value are calculated as the average of the values at the
end of the current calendar quarter and the end of the prior calendar
quarter. The amount at risk cannot fall below zero.
3
<PAGE> 5
ARTICLE III AUTOMATIC EXCESS REINSURANCE
A. On and after the Effective Date of this Agreement, subject to the limit of
Reinsurer's liability set forth in Schedule A and all other terms,
conditions and limitations set forth in this Agreement and the Schedules
attached to and made a part hereof, NASL shall cede and the Reinsurer
shall accept 50% of NASL'S guaranteed death benefit liability under the
Variable Annuity Contracts, as described in Article II A.
B. This Agreement covers only NASL'S liability for claims paid under Variable
Annuity Contracts written on forms and investment in funds which were
reviewed by the Reinsurer prior to their issuance. Forms, as supplemented
by additional materials, and funds available as of the date of this
Agreement are listed on Schedule B, attached hereto and made a part
hereof. If NASL intends to cede to Reinsurer liability with respect to a
new form or fund, or a revised version of an approved form or fund, it
must provide to the Reinsurer written notice of such intention together
with a copy of the proposed form, fund or revision, and a revised Schedule
B.
C. NASL shall provide written notice to Connecticut General of any changes in
its published limits and rules identified on Schedule C, and Connecticut
General shall have no liability pursuant to revised limits and rules
unless and until Connecticut General provides written notice to NASL that
such revised limits and rules are acceptable.
ARTICLE IV LIABILITY OF CONNECTICUT GENERAL
Connecticut General's liability for reinsurance under this Agreement shall
follow that of NASL in every case, and be subject in all respects to the general
stipulations, terms, clauses, conditions, waivers and modifications of the
Variable Annuity Contracts.
In no event shall Connecticut General have any reinsurance liability unless the
Variable Annuity Contract issued by NASL is in force and the underwriting and
issuance of coverage by NASL constitutes the doing of business in a state of the
United States of America in which NASL is properly licensed and authorized to do
business.
4
<PAGE> 6
ARTICLE V REINSURANCE PREMIUMS
The calendar quarterly premiums for reinsurance subject to the terms and
conditions of this Agreement shall be determined by application of the rates set
forth in Schedule D to the amount of reinsurance coverage provided for each
annuity insured by NASL, subject to the following:
1. The reinsurance shall be based on the annuitant's age last birthday
at the end of each calendar quarter. If the contract has more than
one annuitant, the reinsurance premiums shall be based on the age
listed on the records of NASL. NASL shall determine the annuitant's
age at the time it prepares the quarterly exposure data submission
for the variable annuity guaranteed death benefit, as set forth in
schedule E, attached hereto.
2. The reinsurance premiums shall be calculated separately for funds
identified as variable and guaranteed in Schedule B.
3. The Age Adjusted Aggregate Contract Value is the sum of the contract
values in all of NASL's variable annuities subject to this
Agreement, minus contract values attributable to amounts in excess
of the maximum purchase amounts listed in Schedule A.
4. For funds identified as variable in Schedule B, and for attained
ages less than 70, the premium over each calendar year will be at
least equivalent to 50% of the Age Adjusted Aggregate Contract
Values times .8 BASIS POINTS (.00008) for year one (1); 1.2 BASIS
POINTS (.00012) for year two (2); and 1.6 BASIS POINTS (.00016)
thereafter. For attained ages 70 and older the premium over each
calendar year will be at least equivalent to 50% of the Age Adjusted
Aggregate Contract Values times 2.4 BASIS POINTS (.00024) for year
one (1); 3.6 BASIS POINTS (.00036) for year two (2); and 4.4 BASIS
POINTS (.00044) thereafter.
5. For funds identified as guaranteed in Schedule B, there will be no
minimum premium regardless of attained age.
6. For all funds identified in Schedule B, and for attained ages less
than 70, the premium over each calendar year will not exceed 50% of
the Age Adjusted Aggregate Contract Values times 3.6 BASIS POINTS
(.00036) for year one (1); 4.8 BASIS POINTS (.00048) for year two
(2) and 5.6 BASIS POINTS (.00056) thereafter. For attained ages 70
and older the premium over each calendar year will not exceed 50% of
the Age Adjusted Aggregate Contract Values times 9.6 BASIS POINTS
(.00096) for year one (1); 10.8 BASIS POINTS (.00108) for year two
(2) and 12.0 BASIS POINTS (.00120) thereafter.
7. 50% of the Age Adjusted Aggregate Contract Values times one fourth
(1/4) of the minimum premium rate will be remitted to Connecticut
General in advance for the current calendar quarter, at the time of
settlement for the prior calendar quarter.
5
<PAGE> 7
ARTICLE VI PREMIUM ACCOUNTING
NASL shall forward to Connecticut General within thirty (30) days of the end of
the reporting period a quarterly statement as set forth in Schedule E. NASL
shall also remit any premium due for the prior quarter along with an advance
premium for the current quarter, in accordance with Article V. In the event of
any over payment by NASL of premiums or advance premiums, Connecticut General
shall remit to NASL the excess amount within thirty (30) days following receipt
of the quarterly reinsurance statement.
If the amounts described in Article V cannot be determined by the dates set
forth in the above paragraph, on an exact basis, such payments will be made with
a generally agreed upon formula which will approximate the actual payments.
Adjustments will then be made to reflect actual amounts when they become
available.
ARTICLE VII CLAIMS
A. NASL is solely responsible for payment of its claims under the Underlying
Annuity Contracts, policies, master contracts or certificates identified
on Schedule B. NASL shall provide Connecticut General with proof of claim,
proof of claim payment and any other claim documentation requested by
Connecticut General on a quarterly basis. Payment of reinsurance shall be
made by Connecticut General in one sum regardless of the method of payment
by NASL and within thirty (30) days following receipt of the quarterly
reinsurance statement, as set forth in Schedules E-1 and E-2.
B. NASL shall notify Connecticut General of NASL'S intention to contest, or
deny a claim which may involve the reinsurance coverage under this
Agreement before any notice of contest or denial is provided to the
claimant. Connecticut General shall then have thirty (30) days within
which to advise NASL whether it agrees that the claim should be contested
or denied. If Connecticut General does not agree that the claim should be
contested or denied, then it shall pay to NASL the full amount of the
reinsurance on the risk reinsured, as set forth in Article II, and
Connecticut General shall have no further obligation in respect to such
claim. If Connecticut General agrees that the claim should be contested or
denied, then Connecticut General shall pay its share of the following in
accordance with its share of liability set forth in Article II:
- Expenses incurred by NASL in investigating, contesting, or
litigating or otherwise resisting the claim, excluding salaries and
expenses of employees, officers and agents of NASL and ordinary
overhead expenses of NASL, and costs of third party administrators
acting on behalf of NASL; and
- Interest which is paid by NASL in respect of the claim.
6
<PAGE> 8
ARTICLE VIII EXTRA CONTRACTUAL OBLIGATIONS
A. In no event shall Connecticut General be liable for extra contractual
damages (whether they constitute Compensatory damages, Statutory
penalties, Exemplary or Punitive damages) which are awarded against NASL
as a result of an act, omission or course of conduct by NASL in connection
with policies subject to this Agreement, unless the Reinsurer shall have
received notice of and concurred with the actions taken or not taken by
NASL which led to its liability, in which case the Reinsurer shall pay its
share of such liability. For this purpose, the Reinsurer's share shall be
proportionate with its risk under the business reinsured hereunder.
B. The following definitions shall apply:
(1) Punitive damages and Exemplary damages are those damages awarded as
a penalty, the amount of which is not governed nor fixed by statute.
(2) Statutory penalties are those amounts which are awarded as a penalty
but fixed in amount by statute.
(3) Compensatory damages are those amounts awarded to compensate for the
actual damages sustained and are not awarded as a penalty nor fixed
in amount by statute.
7
<PAGE> 9
ARTICLE IX LITIGATION
A. In the event of any action brought against NASL under any Underlying
Annuity Contract that is subject to the terms and conditions of this
Agreement, NASL shall provide to Connecticut General a copy of such action
within ten (10) business days following NASL'S direct receipt of the
service process. If Connecticut General is a party to action brought
against NASL, NASL shall counsel with Connecticut General on the selection
and appointment of local counsel to represent NASL in such action.
B. If NASL pursues any litigation where Connecticut General is not a party or
where Connecticut General is a party but does not agree to pursue
litigation, NASL and Connecticut General agree that all litigation costs,
excluding the salaries of employees of NASL and Connecticut General, shall
be borne by NASL. However, if NASL and Connecticut General agree to
jointly defend any litigation, or if Connecticut General agrees that NASL
should pursue litigation, litigation costs will be borne in proportion to
the net liability borne by each party.
ARTICLE X OFFSET
Either party shall have, and may exercise at any time and from time to time, the
right to offset any balance or amounts whether on account of premiums or on
account of losses or otherwise, due from one party to the other under the terms
of this Agreement. However, in the event of insolvency of NASL subject to the
provisions of Article XV, offset shall only be allowed in accordance with the
statutes and/or regulations of the state having jurisdiction over the
insolvency.
ARTICLE XI ACCESS TO RECORDS
NASL and Connecticut General (or its duly authorized representative) each shall
have the right during normal business and at reasonable intervals, to audit at
the office of the other, all records relating to this reinsurance.
Books and records shall be maintained in accordance with prudent standards of
insurance company record keeping and must be retained for a period of at least
seven (7) years from the date of creation. Within one hundred and fifty (150)
days following the end of each calendar year, NASL and Connecticut General will
provide each office with copies of their respective audited financial
statements.
8
<PAGE> 10
ARTICLE XII DELAYS, ERRORS OR OMISSIONS
No accidental delay, errors or omissions on the part of NASL shall relieve
Connecticut General of liability provided such delay, errors or omissions are
rectified as soon as possible after discovery. However, Connecticut General
shall not be liable with respect to any reinsurance which may have been
inadvertently included in the premium computation but which ought not to have
been included by reason of the terms and conditions of this Agreement. It is
expressly understood and agreed that if failure to comply with any terms of this
Agreement is hereby shown to be unintentional or the result of misunderstanding
or oversight on the part of either party, both parties shall be restored to the
position they would have occupied had no such error or oversight occurred,
subject always to the correction of the error or oversight.
ARTICLE XIII CURRENCY
All retentions and limits hereunder are expressed in United States dollars and
all premium and loss payments shall be made in United States currency. For the
purposes of this Agreement, amounts paid or received by Connecticut General in
any other currency shall be converted into United States dollars at the rates of
exchange on the date such transactions are entered on the books of Connecticut
General.
ARTICLE XIV HOLD HARMLESS
A. Connecticut General shall indemnify and hold NASL harmless from any and
all liability, loss, damage, fines, punitive damages, penalties and costs,
including expenses and attorney's fees, which results from any negligence
or willful misconduct of Connecticut General in fulfilling its duties and
obligations under this Agreement or which results from any action which
exceeds its authority under this Agreement.
B. NASL shall indemnify and hold Connecticut General harmless from any and
all liability, loss, damage, fines, punitive damages, penalties and costs,
including expenses and attorney's fees, which results from any negligence
or willful misconduct of NASL in fulfilling its duties and obligations
under this Agreement or which results from any action which exceeds its
authority under this Agreement.
9
<PAGE> 11
ARTICLE XV INSOLVENCY
In the event of insolvency of NASL, the reinsurance under this Agreement shall
be payable directly by Connecticut General to NASL or to its liquidator,
receiver, conservator or statutory successor on the basis of Connecticut
General's liability to NASL without diminution because of the insolvency of NASL
or because the liquidator, receiver, conservator or statutory successor of NASL
has failed to pay all or a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of NASL shall give
prompt written notice to Connecticut General of the pendency of a claim against
NASL within a reasonable time after such claim is filed in the receivership,
conservation, insolvency or liquidation proceeding and that during the pendency
of such claim, Connecticut General may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses that it may deem available to NASL or its liquidator,
receiver, conservator or statutory successor. The expense thus incurred by
Connecticut General shall be chargeable, subject to the approval of the Court,
against NASL as part of the expense of conservation or liquidation to the extent
of a pro-rata share of the benefit which may accrue to NASL solely as a result
of the defense undertaken by Connecticut General.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by NASL.
10
<PAGE> 12
ARTICLE XVI ARBITRATION
A. As a condition precedent to any right of action hereunder, any dispute
between the parties with respect to the interpretation of this Agreement
or any right, obligation or liability of either party, whether such
dispute arises before or after termination of this Agreement, shall be
submitted to arbitration upon the written request of either party. Each
party shall select an arbitrator within thirty (30) days of the written
request for arbitration. If either party refuses or neglects to appoint an
arbitrator within thirty (30) days of the written request for arbitration,
the other party may appoint the second arbitrator. The two arbitrators
shall select an umpire within thirty (30) days of the appointment of the
second arbitrator. If the two arbitrators fail to agree on the selection
of the umpire within thirty (30) days of the appointment of the second
arbitrator, each arbitrator shall submit to the other a list of three
umpire candidates, each arbitrator shall select one name from the list
submitted by the other and the umpire shall be selected from the two names
chosen by a lot drawing procedure to be agreed upon by the arbitrators.
B. The arbitrators and the umpire all shall be active or retired,
disinterested executive officers of insurance or reinsurance companies.
C. The arbitration panel shall interpret this Agreement as an honorable
engagement rather than merely as a legal obligation and shall make its
decision considering the custom and practice of the applicable insurance
and reinsurance business. The arbitration panel is released from judicial
formalities and shall not be bound by strict rules of procedure and
evidence.
D. The decision of the arbitration panel shall be final and binding on both
parties. The arbitration panel may, at its discretion, award costs and
expenses as it deems appropriate, including, but not limited to,
attorneys' fees and interest. Judgment may be entered upon the final
decision of the arbitration panel in any court of competent jurisdiction.
E. All meetings and hearings before the arbitration panel shall take place in
Worcester, Massachusetts unless some other place is mutually agreed upon
by the parties.
F. Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expenses of the umpire and of
the arbitration.
11
<PAGE> 13
ARTICLE XVII DAC TAX REGULATION ELECTION
Connecticut General and NASL hereby agree to make an election pursuant to
Internal Revenue Code Regulation Section 1.848-2(g)(8). This election shall be
effective for all taxable years for which the Reinsurance Agreement remains in
effect.
The terms used in this article are defined by reference to Regulation Section
1.848-2 promulgated on December 28, 1992.
Connecticut General and NASL agree that the entity with net positive
consideration for the reinsurance agreement for each taxable year will
capitalize specified policy acquisition expenses with respect to the reinsurance
agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended.
Connecticut General and NASL agree to exchange information pertaining to the
amount of net consideration under the reinsurance agreement each year to ensure
consistency. To achieve this, NASL shall provide Connecticut General with a
schedule of its calculation of the net consideration for all reinsurance
agreements in force between them for a taxable year by no later than April 30 of
the succeeding year. Connecticut General shall advise NASL if it disagrees with
the amounts provided by no later than May 31, otherwise the amounts will be
presumed correct and shall be reported by both parties in their respective tax
returns for such tax year. If Connecticut General contests NASL's calculation of
the net consideration, the Parties agree to act in good faith to resolve any
differences within thirty (30) days of the date Connecticut General submits its
alternative calculation and report the amounts agreed upon in their respective
tax returns for such tax year.
Connecticut General represents and warrants that it is subject to U.S. taxation
under either Subchapter L or Subpart F of Part III of Subchapter N of the
Internal Revenue Code of 1986, as amended.
12
<PAGE> 14
ARTICLE XVIII EFFECTIVE DATE; TERM AND TERMINATION
A. The effective date of this Agreement is JULY 1, 1995. This Agreement
remains effective for all annuity contracts subject to this Agreement
written by NASL through JUNE 30, 1998, unless terminated pursuant to the
paragraphs listed below:
B. Either Connecticut General or NASL shall have the option of terminating
this agreement with one hundred and eighty (180) days written notice to
the other party for new business anytime on or after June 30, 1998.
C. Once each calendar year, NASL shall have the option to recapture existing
contracts beginning with the fifteenth (15) anniversary of their
reinsurance hereunder. If NASL elects to recapture, 1/3 of the contracts
can be recaptured in the first year eligible, 1/2 of the remaining
contracts can be recaptured in the second year, and the balance of the
contracts can be recaptured in the third year. Recapture must be made on
an issue year basis beginning with the earliest issue year. Recapture
cannot occur on contracts with later issue years until all contracts with
earlier issue dates have been recaptured.
D. Upon delivery of sixty (60) days written notice to NASL, Connecticut
General shall have the option of terminating this Agreement for new
business within sixty (60) days of the happening of any of the following
events:
(1) NASL'S A. M. Best rating is reduced to a "C" or lower.
(2) NASL'S parent company is placed upon a "watch list" by its
domiciliary state's insurance regulators;
(3) An order appointing a receiver, conservator or trustee for
management of NASL is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision or conservation of NASL;
(4) NASL is merged, purchased or there is any other material change
(in whole or in part) in the ownership of NASL other than is
currently contemplated by the following agreement: An agreement
and plan of reorganization dated September 5, 1995 among North
American Life Assurance Company, NASL, Wood Logan Associates,
Inc., H. Douglas Wood, A. Scott Logan and NAWL Holding Co., Inc.,
and an Amalgamation Agreement dated September 15, 1995 between The
Manufacturers Life Insurance Company and North American Life
Assurance Company;
(5) The Securities and Exchange Commission revokes the licenses of
NASL to conduct business.
13
<PAGE> 15
(6) Failure by NASL to pay premium in accordance with Article V and
Article VI. If, during the sixty (60) days notice period, the
Reinsurer receives all premiums in arrears and all premiums which
may become due within the sixty (60) days notice period, the
notice of termination shall be deemed withdrawn. In the event of
termination under this paragraph, this Agreement may be reinstated
upon the written consent of the Reinsurer if, at any time within
sixty (60) days of termination, NASL pays and the Reinsurer
receives all premiums due with interest thereon and payable up to
the date of reinstatement. (Please refer to paragraph J below for
the interest calculation description)
E. Upon delivery of sixty (60) days written notice to Connecticut General,
NASL shall have the option of terminating this Agreement for new business
within sixty (60) days of the happening of any of the following events:
(1) Connecticut General's A. M. Best rating is reduced to a "C" or
lower;
(2) Connecticut General is placed upon a "watch list" by its
domiciliary states's insurance regulators;
(3) An order appointing a receiver, conservator or trustee for
management of Connecticut General is entered or a proceeding is
commenced for rehabilitation, liquidation, supervision or
conservation of Connecticut General;
(4) Connecticut General is merged, purchased or there is any other
material change (in whole or in part) in the ownership of
Connecticut General;
(5) Failure by Connecticut General to pay reinsurance death benefits
in accordance with Article II. If, during the sixty (60) days
notice period, NASL receives all reinsurance death benefits in
arrears, the notice of termination shall be deemed withdrawn. In
the event of termination under this paragraph, this Agreement may
be reinstated upon the written consent of NASL if, at any time
within sixty (60) days of termination, the Reinsurer pays and NASL
receives all reinsurance death benefits due with interest thereon
and payable up to the date of reinstatement. (Please refer to
paragraph J below for the interest calculation description)
F. If this Agreement is terminated for new and existing business, Connecticut
General shall be relieved of all liability to NASL for claims incurred
following the termination date of this Agreement under such Underlying
Annuity Contracts issued by NASL, and
G. If this Agreement is terminated for new business only, Connecticut General
will remain liable, after termination, in accordance with the terms and
conditions of this Agreement, with respect to all reinsurance effective
prior to termination of the Agreement.
14
<PAGE> 16
H. Both parties shall continue to be entitled to all offset credits provided
by Article X up to the effective date of termination.
I. NASL shall not have the right to assign or transfer any portion of the
rights, duties and obligations of NASL under the terms and conditions of
this Agreement without the written approval of Connecticut General.
J. In the event of reinstatement as described in paragraph D and E above,
there will be an interest charge at the three (3) month LIBOR Rate (as
published in the Wall Street Journal), plus .01, determined on the first
business day following the end of the 60 day notice period. The settlement
is considered overdue at the end of the 60 day notice period and interest
shall commence from the overdue date.
15
<PAGE> 17
ARTICLE XIX NOTICES
All notices required to be given hereunder shall be in writing and shall be
deemed delivered if personally delivered, sent via facsimile, or dispatched by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
RICHARD C. HIRTLE
VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
P.O. BOX 9230
BOSTON, MA 02205-9230
PHONE NO. (617) 266-6008 (X253) FAX NO. (617) 437-6849
TIMOTHY J. RUARK, FSA
ASSISTANT VICE PRESIDENT AND ACTUARY
CIGNA REINSURANCE, R26
900 COTTAGE GROVE ROAD
HARTFORD, CT 06152-4026
PHONE NO. (860) 726-4053 FAX NO. (860) 726-3153
Notice shall be deemed given on the date it is deposited in the mail or sent via
facsimile in accordance with the foregoing. Any party may change the address to
which to send notices by notifying the other party of such change of address in
writing in accordance with the foregoing.
This Agreement constitutes the entire contract between the parties and shall be
deemed to have been made under and governed by the laws of the State of
Connecticut. Any amendment or modification hereto shall be in writing, endorsed
upon or attached hereto and signed by both NASL and Connecticut General.
In witness whereof, the parties hereto have caused this Agreement to be signed
in duplicate on the dates indicated to be effective as of the date specified
above.
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
Date: _________________, 19__ By: ___________________________________
Date: _________________, 19__ By: ___________________________________
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
Date: _________________, 19__ By: ___________________________________
16
<PAGE> 18
SCHEDULE A
Maximum Limits of Reinsurance in Connecticut General
The maximum purchase amount issued on the life of each insured:
$3,500,000
The maximum purchase amount is the sum of all premium contributions less
withdrawals in the contract. For purchase amounts in excess of the maximum,
Connecticut General's death benefit liability will be reduced by the ratio of
purchase amounts in excess of the maximum to the total purchase amounts.
SCHEDULE A
<PAGE> 19
SCHEDULE B
Contracts and Funds Subject to this Reinsurance Agreement
<TABLE>
<CAPTION>
Form
Number* Policy Description Date
- ------- ------------------ ----
<S> <C> <C>
VENTURE Flexible Purchase Payment May 5, 1987
Forms beginning with 203 Individual Deferred Variable
and endorsed with either Annuity Contract Non Participating
301-VER 9/89 or
ENDORSEMENT.008
<FN>
* Includes all state variations
Fund
</TABLE>
<TABLE>
<CAPTION>
Date Fund Description
VARIABLE FUNDS:
<S> <C>
January 9, 1995 International Growth & Income Trust
February 19, 1993 Value Equity Trust
May 1, 1989 U.S. Government Securities Trust
February 19, 1993 Strategic Bond Trust
April 23, 1991 Growth & Income Trust
June 18, 1985 Investment Quality Bond Trust
June 18, 1985 Money Market Trust
June 18, 1985 Equity Trust
August 3, 1989 Conservative Asset Allocation Trust
August 3, 1989 Moderate Asset Allocation Trust
August 3, 1989 Aggressive Asset Allocation Trust
December 11, 1992 Pasadena Growth Trust
March 18, 1988 Global Equity Trust
March 18, 1988 Global Government Bond Trust
March 1, 1996 International Small Cap Trust
March 1, 1996 Small\Mid Cap Trust
</TABLE>
SCHEDULE B
<PAGE> 20
SCHEDULE C
VENTURE FORMS BEGINNING WITH 203 AND ENDORSED WITH EITHER
301-VER 9/89 OR
ENDORSEMENT.008
Limits and Rules of NASL
1) NASL will determine the Guaranteed Minimum Death Benefit for each deceased
within seven (7) working days of due proof of death.
2) The maximum purchase payment allowed without company approval is
$1,000,000.
3) The minimum purchase payment is $300.
MINIMUM DEATH BENEFIT
VENTURE FORMS BEGINNING WITH 203 AND ENDORSED WITH 301-VER 9/89
If the Annuitant dies, the minimum death benefit will be determined as follows:
1) During the first 5 Contract Years, the minimum death benefit will be the
greater of:
a) The Contract Value on the date that due proof of death is received
at the Annuity Service Office, or
b) The sum of all Purchase Payments made, less any amount deducted in
connection with partial withdrawals.
2) During any subsequent 5 Contract Year period, the minimum death benefit
will be the greater of:
a) The Contract Value on the date that due proof of death is received
at the Annuity Service Office, or
b) The minimum death benefit on the last day of the previous 5 Contract
Year period plus any Purchase Payments made and less any amount
deducted in connection with partial withdrawals since then.
SCHEDULE C-1
<PAGE> 21
SCHEDULE C
(continued)
MINIMUM DEATH BENEFIT
VENTURE FORMS BEGINNING WITH 203 AND ENDORSED WITH ENDORSEMENT.008
ENHANCED DEATH BENEFIT ENDORSEMENT form number 301-VER 9/89 is replaced by this
Endorsement. Part 4, BENEFITS, DEATH BENEFIT BEFORE MATURITY DATE, General
Provisions of the Flexible Purchase Payment Deferred Variable Annuity Contract,
all contract form numbers beginning with 203, to which this Endorsement is
attached is also replaced as follows:
Death benefits will be paid as provided in this contract upon the death of any
Owner.
If there is both an individual and a non-individual Owner of the contract, death
benefits must be paid as provided in this contract upon the death of the
Annuitant or any individual Owner, whichever occurs earlier.
Upon the death of the Annuitant, the death benefit will be determined as of the
date on which written notice and proof of death and all required claim forms are
received at the Company's Annuity Service Office as follows:
1) During the first Contract Year, the death benefit will be the greater of:
a) the Contract Value, or
b) the sum of all Purchase Payments made, less any amount deducted in
connection with partial withdrawals.
2) During any subsequent Contract Year, the death benefit will be the greater
of:
a) the Contract Value, or
b) the death benefit on the last day of the previous Contract Year plus
any Purchase Payments made and less any amounts deducted in
connection with partial withdrawals since then.
SCHEDULE C-2
<PAGE> 22
SCHEDULE D
Quarterly Reinsurance Premium Rates
Exposure Based
Per $1,000 Exposed
<TABLE>
<CAPTION>
Ages Unisex
---- ------
<S> <C>
Less Than Symbol 35 .19
35-39 .25
40-44 .37
45-49 .63
50-54 1.15
55-59 2.02
60-64 3.21
65-69 5.52
70-74 9.54
75-79 15.40
80-84 25.20
</TABLE>
SCHEDULE D
<PAGE> 23
SCHEDULE E
Quarterly Reporting Format
1. Following the end of each calendar quarter, the Quarterly Detail Page,
Fund/Exposure-Based exhibit (attached) must be prepared for each
Qualified plan and Non-Qualified plan separately.
2. The tabulation should be on an Adjusted Basis, which requires omission
of excess contract values due to an issue amount in excess of $3.5
million.
3. The tabulation is on a seriatim basis, with each contract contributing
toward the totals for both exposure and aggregate contract value.
4. An exhibit demonstrating the aggregate allocation of contract values by
fund shall be provided each calendar quarter.
5. At year end reporting, a tabulation of exposures by age based on a
percentage decrease in account value by fund type as specified by the
NAIC must be submitted for reserve purposes.
SCHEDULE E
<PAGE> 1
AUTOMATIC REINSURANCE AGREEMENT
Between
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
Boston, Massachusetts
And
SWISS RE LIFE COMPANY AMERICA
New York, New York
<PAGE> 2
AUTOMATIC REINSURANCE AGREEMENT
Contents
ARTICLE I Scope of Agreement
ARTICLE II Commencement & Termination of Liability
ARTICLE III Oversights - Clerical Errors
ARTICLE IV Mortality Net Amount At Risk
ARTICLE V Reinsurance Premiums
ARTICLE VI Experience Refund
ARTICLE VII Reinsurance Administration
ARTICLE VIII Settlement of Claims
ARTICLE IX Tax Credits
ARTICLE X Regulatory Compliance
ARTICLE XI Inspection of Records
ARTICLE XII Insolvency
ARTICLE XIII Arbitration
ARTICLE XIV Rights of Offsetting Balances Due
ARTICLE XV Contract and Program Changes
ARTICLE XVI Federal Taxes
ARTICLE XVII Parties to Agreement
ARTICLE XVIII Entire Agreement
ARTICLE XIX Duration of Agreement
Signature Page
EXHIBIT A - Variable Annuities Covered Under This Agreement
EXHIBIT B - Sub-Accounts
EXHIBIT C - Experience Refund Definitions and Formulae
<PAGE> 3
AUTOMATIC REINSURANCE AGREEMENT
THIS AGREEMENT between the NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY, a
corporation organized under the laws of the State of Delaware, hereinafter
referred to as the "Company", and SWISS RE LIFE COMPANY AMERICA, a corporation
organized under the laws of the State of New York, hereinafter referred to as
"Swiss Re America", WITNESSETH AS FOLLOWS:
ARTICLE I
Scope of Agreement
l. On and after the 1st day of August, l995, the Company will
automatically reinsure with Swiss Re America, and Swiss Re America will
automatically accept, the following quota shares of the mortality net amount at
risk, as defined in Article IV, generated prior to annuitization, by the
Variable Annuity Contracts issued by the Company, as set forth in Exhibit A, on
or after that date:
a) a 50% quota share of the variable net amount at risk, as defined
in Article IV, generated prior to annuitization, by the variable
annuity contract forms listed in Exhibit A; and inforce as of the
1st day of August, 1995, and
b) a 50% quota share of the variable net amount at risk, as defined
in Article IV, generated prior to annuitization by the variable
annuity contract forms listed in Exhibit A; issued by the Company
with effective dates on and after the 1st day of August, 1995.
2. Swiss Re America's maximum liability in any one calendar year shall
not exceed 3% (300 basis points) of the average aggregate Account Value over
each respective calendar year of coverage. This average shall be calculated by
totaling the aggregate Account Value of reinsured contracts as of the end of
each calendar quarter and dividing the result by the number of quarters.
3. Swiss Re America's maximum liability on any one life reinsured
hereunder shall be One Million Dollars ($1,000,000), as specified in Article IV
of this Agreement.
4. This Agreement covers only the Company's liability for claims paid
under Variable Annuity Contracts written on forms and investment in funds which
were reviewed by Swiss Re America prior to their issuance. Forms as supplemented
by additional materials and funds available as of the date of this Agreement are
to be attached hereto and made part of this Agreement. If the Company intends to
cede to Swiss Re America liability with respect to
-1-
<PAGE> 4
a new form or fund, it must provide Swiss Re America written notice of such
intention together with a copy of the proposed form, fund or revision, and
Exhibit A or Exhibit B shall be revised accordingly.
-2-
<PAGE> 5
ARTICLE II
Commencement & Termination of Liability
1. On reinsurance ceded under the terms of this Agreement, the
liability of Swiss Re America shall commence simultaneously with that of the
Company, and will terminate upon the earliest of re-registration, annuitization,
surrender or termination in accordance with Article XIX and Exhibit A.
Re-registration is a term used to describe a process in which the Beneficiary
continues the Variable Annuity Contract as the new Owner upon death of the
original Owner.
-3-
<PAGE> 6
ARTICLE III
Oversights - Clerical Errors
l. Should either the Company or Swiss Re America fail to comply with
any of the terms of this Agreement, and if this is shown to be unintentional and
the result of a misunderstanding, oversight or clerical error on the part of
either the Company or Swiss Re America, then this Agreement shall not be deemed
abrogated thereby, but both companies shall be restored to the position they
would have occupied had no such oversight, misunderstanding, or clerical error
occurred. Such conditions are to be reported and corrected promptly after
discovery.
-4-
<PAGE> 7
ARTICLE IV
Mortality Net Amount At Risk
1. The variable net amount at risk for each variable annuity contract
reinsured hereunder shall be calculated as of the last day of each calendar
month and shall be determined as follows, up to a maximum of One Million Dollars
($1,000,000) per life. The contractual death benefit shall be as described in
the contract forms specified in Exhibit A.
VNAR = 50% of [(Contractual GMDB - Fixed Account Assets) - Separate Account CSV]
= 50% of [Variable GMDB - Separate Account CSV]
where:
Separate Account CSV = Separate Account CV - (SASC% x SC)
SASC% = SA / (SA + FA), an aggregate measure recalculated monthly.
SA = Separate Account Assets.
FA = Fixed Account Assets.
SC = Total surrender charges under all contracts reinsured.
-5-
<PAGE> 8
ARTICLE V
Reinsurance Premiums
1. Except as provided in paragraph 6, below, the reinsurance premiums
shall be calculated monthly and shall be a function of the reinsured portion of
(a) the average aggregate account values and (b) the average aggregate
guaranteed minimum death benefits (GMDB) over each calendar month for all
variable annuities reinsured hereunder. The monthly premium rates are defined in
Exhibit C.
2. The reinsurance premium due for the first calendar month during
which this Agreement commences shall be equal to the minimum monthly premium
rate multiplied by the greater of the average aggregate account values or the
average aggregate GMDB, as set forth in Exhibit C.
3. The reinsurance premium due for all subsequent months shall be equal
to 150% of the prior month's reinsured death claims, subject to calculated
minimum and maximum limits, as set forth in Exhibit C.
4. The total reinsurance premium shall be reduced by the ratio of the
sum of Swiss Re America's share of the variable net amount at risk in excess of
$1 million on any one life reinsured hereunder to Swiss Re America's share of
the total variable net amount at risk on all annuity contracts.
5. The monthly reinsurance premium shall be remitted on a calendar
quarterly basis, as described in Article VII.
6. The monthly reinsurance premium described above shall remain in
effect as long as the death benefit design, the contract fees, the mortality and
expense charges, the administration fees, and the surrender charges in effect at
the inception of this Agreement remain unchanged.
-6-
<PAGE> 9
ARTICLE VI
Experience Refund
1. Swiss Re America shall pay the Company an experience refund equal to
50% of the Adjusted Profit, as defined in Exhibit C, for all products covered
under this Agreement as set forth in Exhibit A.
2. The refund shall be calculated each calendar quarter by Swiss Re
America and settled annually on July 31st of each year.
-7-
<PAGE> 10
ARTICLE VII
Reinsurance Administration
1. Within 30 days of the end of each calendar quarter, the Company will
furnish Swiss Re America a separate electronic report for each GMDB design and
tax status combination specified in Exhibit A, valued as of the last day of that
calendar quarter. Each report will indicate for all inforce annuities reinsured
hereunder:
a) Annuitant's name, sex, date of birth and social security number
b) Owner's name, sex, date of birth and social security number
c) Contract number
d) Contract date
e) Contract form number
f) Current contract separate account value
g) Current contract fixed account value
h) Cumulative net considerations
i) Current contract minimum guaranteed death benefit
j) Current contract death benefit
k) Current contract cash surrender value
l) Current variable net amount at risk
2. Additionally, within 30 days of the end of each calendar quarter,
the Company will furnish Swiss Re America a separate paper report for each GMDB
design and tax status combination specified in Exhibit A, summarizing the
following data:
a) Reinsurance premiums due Swiss Re America
b) Death claim reimbursements due the Company
c) Total number of contracts reinsured
d) Total current contract separate account value
e) Total current fixed account value
f) Total cumulative net considerations
g) Total current guaranteed minimum death benefit
h) Total current death benefit
-8-
<PAGE> 11
i) Total current cash surrender value
j) Total current variable risk amount
3. If the net balance is due Swiss Re America, the amount due shall be
remitted with the report statement. If the net balance is due the Company, Swiss
Re America shall remit the amount to the Company within 10 days of the receipt
of the report.
-9-
<PAGE> 12
ARTICLE VIII
Settlement of Claims
1. The claims that are eligible for reimbursement are only those that
the Company is required to pay on deaths that occur on or after the effective
date of this Agreement.
2. Provided the Company provides satisfactory proof of claim to Swiss
Re America, claim settlements made by the Company shall be unconditionally
binding on Swiss Re America.
3. Within 30 days of the end of each calendar quarter, the Company
shall notify Swiss Re America of the reinsured death benefits paid in that
calendar quarter and Swiss Re America will reimburse the Company, as provided in
Article VII, for the reinsured benefits.
4. Settlements by Swiss Re America shall be in a lump sum regardless of
the mode of payment made by the Company to the beneficiary.
-10-
<PAGE> 13
ARTICLE IX
Tax Credits
1. Swiss Re America shall not reimburse the Company for state premium
taxes.
-11-
<PAGE> 14
ARTICLE X
Regulatory Compliance
1. Swiss Re America agrees to comply with all regulatory directives
required to permit the Company to receive statutory reserve credit for the
reinsurance ceded under this Agreement.
2. The Company warrants that it has secured all necessary federal and
state licenses and approvals, and that it is operating in compliance with
federal investment laws and state investment and insurance laws and regulations.
-12-
<PAGE> 15
ARTICLE XI
Inspection of Records
1. Swiss Re America shall have the right at all reasonable times and
for any reasonable purpose to inspect at the office of the Company all records
pertaining to reinsurance ceded to Swiss Re America.
2. Likewise, the Company shall have the right at all reasonable times
and for any reasonable purpose to inspect at the office of Swiss Re America all
records pertaining to reinsurance ceded to Swiss Re America by the Company.
Swiss Re America will also provide reasonable access, during regular business
hours, to records pertaining to such reinsurance to any regulator having
authority over the Company's products and operations.
-13-
<PAGE> 16
ARTICLE XII
Insolvency
1. In the event of the insolvency of the Company, all reinsurance made,
ceded, renewed or otherwise becoming effective under this Agreement shall be
payable by Swiss Re America directly to the Company or to its liquidator,
receiver, or statutory successor on the basis of the liability of the Company
under the contract or contracts reinsured without diminution because of the
insolvency of the Company. It is understood, however, that in the event of the
insolvency of the Company, the liquidator, receiver or statutory successor of
the insolvent Company shall give written notice of the pendency of a claim
against the insolvent Company on the policy reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during the
pendency of such claim, Swiss Re America may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses which it may deem available to the Company
or to its liquidator, receiver or statutory successor.
2. It is further understood that the expense thus incurred by Swiss Re
America shall be chargeable, subject to court approval, against the insolvent
Company as part of the expense of liquidation to the extent of a proportionate
share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by Swiss Re America. Where two or more assuming insurers are
involved in the same claim and a majority in interest elect to interpose defense
to such claim, the expense shall be apportioned in accordance with the terms of
the Reinsurance Agreement as though such expense had been incurred by the
Company.
3. In the event of the insolvency of Swiss Re America and the
appointment of receivers therefor, the liability of Swiss Re America shall not
terminate but shall continue with respect to the reinsurance ceded to Swiss Re
America by the Company prior to the date of such insolvency or appointment, and
the Company shall have a security interest in any and all sums held by or under
deposit in the name of Swiss Re America.
-14-
<PAGE> 17
ARTICLE XIII
Arbitration
1. In the event of any difference arising hereafter between the
contracting parties with reference to any transaction under this Agreement, the
same shall be referred to three arbitrators who must be current or former
executive officers of life insurance or life reinsurance companies other than
the two parties to this Agreement or their affiliates, each of the contracting
companies to appoint one of the arbitrators and such two arbitrators to select
the third. If either party refuses or neglects to appoint an arbitrator within
60 days after receipt of the written request for arbitration, the other party
may appoint a second arbitrator.
2. If the two arbitrators fail to agree on the selection of a third
arbitrator within 60 days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the decision shall be made
by drawing lots.
3. The arbitrators shall consider this Reinsurance Agreement not merely
as a legal document but also as a gentlemen's agreement. In resolving the
dispute, the arbitrators will give full consideration to the customs and
practices of the life insurance and life reinsurance industry, insofar as they
are not in conflict with the specific terms of this Agreement. The arbitrators
shall decide by a majority vote. There shall be no appeal from their written
decision.
4. Unless the arbitrators decide otherwise, each party shall bear the
expense of its own arbitration, including its arbitrator and outside attorney
fees, and shall jointly and equally bear with the other party the expense of the
third arbitrator. Any remaining costs of the arbitration proceedings shall be
apportioned by the Board of Arbitrators.
-15-
<PAGE> 18
ARTICLE XIV
Right of Offsetting Balances Due
1. The Company and Swiss Re America shall have, and may exercise at any
time, the right to offset any balance or balances due one party to the other,
its successors or assigns, against balances due the other party under this
Agreement or under any other Agreements or Contracts previously or subsequently
entered into between the Company and Swiss Re America. This right of offset
shall not be affected or diminished because of insolvency of either party to
this Agreement.
-16-
<PAGE> 19
ARTICLE XV
Contract and Program Changes
1. The Company may amend, substitute, add or delete separate accounts
or underlying investment funds to the annuity contract as described in the
contract general provisions. No such change will be made by the Company without
prior notification to Swiss Re America and without any required action by the
Securities and Exchange Commission. The Company agrees to maintain at all times
a satisfactory selection of core sub-accounts with characteristics similar to
the original sub-accounts listed in Exhibit B.
2. The Company shall also give Swiss Re America advance notice of any
other changes to its annuity product, its fees and charges, or its distribution
approaches.
-17-
<PAGE> 20
ARTICLE XVI
Federal Taxes
1. The Company and Swiss Re America hereby agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulation issued December
1992, under Section 848 of the Internal Revenue Code of 1986, as amended. This
election shall be effective as of the Effective Date of this Agreement and for
all subsequent taxable years for which this Agreement remains in effect.
(a) The term "party" will refer to either the Company or
Swiss Re America as appropriate.
(b) The terms used in this Article are defined by
reference to Regulation 1.848-2 in effect December
1992.
(c) The party with the net positive consideration for
this Agreement for each taxable year will capitalize
specified policy acquisition expenses with respect to
this Agreement without regard to the general
deductions limitation of Section 848(c)(1).
(d) Both parties agree to exchange information pertaining
to the amount of net consideration under this
Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.
(e) The Company will submit a schedule to Swiss Re
America by May 1 of each year of its calculation of
the net consideration for the preceding calendar
year. This schedule of calculations will be
accompanied by a statement stating that the Company
will report such net consideration in its tax return
for the preceding calendar year.
(f) Swiss Re America may contest such calculation by
providing an alternative calculation to the Company
by June 1. If Swiss Re America does not so notify the
Company, the Company will report the net
consideration as determined by the Company in the
Company's tax return for the previous calendar year.
(g) If Swiss Re America contests the Company's
calculation of the net consideration, the parties
will act in good faith to reach an agreement as to
the correct amount by July 1. If the Company and
Swiss Re America reach agreement on an amount of the
net consideration, each party shall report such
amount in their respective tax returns for the
previous calendar year.
-18-
<PAGE> 21
2. Swiss Re America and the Company represent and warrant that they are
subject to U.S. taxation under Subchapter L of Chapter 1 of the Internal Revenue
Code.
-19-
<PAGE> 22
ARTICLE XVII
Parties to Agreement
1. This Agreement is an indemnity reinsurance agreement solely between
the Company and Swiss Re America. The acceptance of reinsurance hereunder shall
not create any right or legal relation whatever between Swiss Re America and the
annuitant, owner, beneficiary or any other party under any contracts of the
Company which may be reinsured hereunder, and the Company shall be and remain
solely liable to the annuitant, owner or the beneficiary under such contracts
reinsured hereunder.
-20-
<PAGE> 23
ARTICLE XVIII
Entire Agreement
1. This Agreement shall constitute the entire agreement between the
parties with respect to business reinsured hereunder. There are no
understandings between the parties other than as expressed in this Agreement and
any change or modification of this Agreement shall be null and void unless made
by amendment to the Agreement and signed by both parties.
-21-
<PAGE> 24
ARTICLE XIX
Duration of Agreement
1. This Agreement shall be unlimited as to its duration but may be
reduced or terminated as provided in this Article, below.
2. Upon 180 days written notice, either the Company or Swiss Re America
may cancel this Agreement for new business any time on or after the third
anniversary of this Agreement. The reinsurance facility is renewable for another
three year period, subject to mutually acceptable terms.
3. Upon election, the reinsurance shall be recaptured at a constant
rate by reducing the quota share percentages set forth in Article I, paragraph
1, by 1.389% per month. The reduction shall begin in the month of election and
continue for 36 months. The quota share percentages will then be equal to 0% and
the reinsurance ceded hereunder will be fully recaptured.
-22-
<PAGE> 25
IN WITNESS WHEREOF, the Company and Swiss Re America have caused their names to
be subscribed and duly attested hereunder by their respective Authorized
Officers.
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
By:_______________________________ Attest:______________________________
Title:____________________________ Title:_______________________________
Date:_____________________________ Date:________________________________
SWISS RE LIFE COMPANY AMERICA
By:_______________________________ Attest:______________________________
Title:____________________________ Title:_______________________________
Date:_____________________________ Date:________________________________
-23-
<PAGE> 26
<TABLE>
EXHIBIT B
SUB-ACCOUNTS
<CAPTION>
NASL VARIABLE ACCOUNT
FUND NAME FUND INCEPTION DATE
<S> <C>
International Growth & Income Trust January 9, 1995
Value Equity Trust February 19, 1993
U.S. Government Securities Trust May 1, 1989
Strategic Bond Trust February 19, 1993
Growth & Income Trust April 23, 1991
Investment Quality Bond Trust June 18, 1995
Money Market Trust June 18, 1995
Equity Trust June 18, 1995
Conservative Asset Allocation Trust August 3, 1989
Moderate Asset Allocation Trust August 3, 1989
Aggressive Asset Allocation Trust August 3, 1989
Pasadena Growth Trust December 11, 1992
Global Equity Trust March 18, 1988
Global Government Bond Trust March 18, 1988
Small\Mid Cap Trust March 1, 1996
International Small Cap Trust March 1, 1996
</TABLE>
<PAGE> 27
EXHIBIT C
EXPERIENCE REFUND DEFINITIONS AND FORMULAE
<TABLE>
<S> <C>
t = current month
q = current quarter
SAV(t) = Sum total of account values at end of month t
Avg. AV(t) = 50% of (SAV(t-1) + SAV(t))
SGMDB(t) = Sum total of guaranteed minimum death benefits at end of month t
Avg. GMDB(t) = 50% of (SGMDB(t-1) + SGMDB(t))
APR = annualized premium rate for each product combination,
= 3.0 basis points for VEN3, tax qualified, 5 year ratchet
3.0 basis points for VEN3, tax qualified, 1 year ratchet
3.0 basis points for VEN7, tax qualified, 6 year ratchet
3.0 basis points for VEN7, tax qualified, 1 year ratchet
4.0 basis points for VEN20, tax qualified, 1 year ratchet
9.0 basis points for VIS5, tax qualified, 5% boost
9.0 basis points for VIS25, tax qualified, 5% boost
5.0 basis points for VEN3, non-qualified, 5 year ratchet
8.0 basis points for VEN3, non-qualified, 1 year ratchet
5.0 basis points for VEN7, non-qualified, 6 year ratchet
9.0 basis points for VEN7, non-qualified, 1 year ratchet
9.0 basis points for VEN20, non-qualified, 1 year ratchet
23.0 basis points for VIS5, non-qualified, 5% boost
23.0 basis points for VIS25, non-qualified, 5% boost
MPR = Monthly premium rate for each product combination
= (APR (,) 12)
RP(t) = Reinsurance premiums due at end of month t
= 150% DBR(t-1), subject to:
Min. = MPR x Minimum multiple x greater of (Avg. AV(t)) or (100% of Avg. GMDB(t))
Max. = MPR x Maximum multiple x greater of (Avg. AV(t))or (50% of Avg. GMDB(t))
Min. Multiple = 1.0000 for all product combinations
Max. Multiple = 1.6667 for VEN3, tax qualified, 5 year ratchet
2.0000 for VEN3, tax qualified, 1 year ratchet
1.6667 for VEN7, tax qualified, 6 year ratchet
2.0000 for VEN7, tax qualified, 1 year ratchet
1.5000 for VEN20, tax qualified, 1 year ratchet
2.0000 for VIS5, tax qualified, 5% boost
2.0000 for VIS25, tax qualified, 5% boost
</TABLE>
<PAGE> 28
EXHIBIT C, CONTINUED
<TABLE>
<S> <C>
2.0000 for VEN3, non-qualified, 5 year ratchet
1.8750 for VEN3, non-qualified, 1 year ratchet
2.2000 for VEN7, non-qualified, 6 year ratchet
1.6111 for VEN7, non-qualified, 1 year ratchet
1.6111 for VEN20, non-qualified, 1 year ratchet
1.5652 for VIS5, non-qualified, 5% boost
1.5652 for VIS25, non-qualified, 5% boost
RP(1) = MPR x greater of (Avg. AV(,)) or (Avg. GMDB(1))
DBR(t) = Death benefit recoveries in month t
= Sum of individual reinsured variable net risk amounts reimbursed upon death
DBR(o) = 0
AdjP(t) = Adjusted profit for all products reinsured hereunder for month t
= RP(t)-DBR(t)-MEC(t)-CHGRES(t)+CFWD(t)
AdjP(o) = 0
AdjP(y) = Adjusted profit for calendar year y
CHGRES(t) = Change in reinsurance reserves for month t
MEC(t) = Monthly expense charge for month t, applied to average aggregate account value over the month
= (2.0 basis points (,) 12) x Avg. AV(t)
CFWD(t) = Carryforward from month (t-1), adjusted for interest
= AdjP(t-1) x (1+CIR(t))
CIR(t) = Carryforward interest rate for month t
= (Avg. U.S. Treasury bill rate for month t + 2.0%)(,)12
PR(y) = Payout ratio for year y
= 1.0 if AdjP(y) > 0, otherwise 0
Refund(y) = 50% of adjusted profit for year y, provided it is positive
= 50% x AdjP(y) x PR(y)
</TABLE>
<PAGE> 29
EXHIBIT A
VARIABLE ANNUITIES COVERED UNDER THIS AGREEMENT
<TABLE>
<CAPTION>
FORM COVERED PRODUCT CODE DEATH BENEFIT PROVISION
<S> <C> <C>
All contracts beginning with 203 and endorsed with 301-VER VEN 3 5 year ratcheting death benefit
9/89 payable on the death of the last
annuitant.
All contracts beginning with 203 and endorsed with VEN 3 ENHANCED 1 year ratcheting death benefit
ENDORSEMENT.008 payable on the death of the last
annuitant.
All contracts beginning with 207, except: VEN 7, 8, 17, 18 6 year ratcheting death benefit
i) exclude form 207-VFA-NY payable on the death of the last
ii) include form VFA-MN annuitant.
iii) include all certificates beginning with form VFA-CERT
Reinsurance coverage is excluded
upon the annuitant's attainment
of age 85.
All contracts beginning with 207, which have form VEN 7, 17 1 year ratcheting death benefit
ENDORDSEMENT.005 attached, except: ENHANCED payable on the death of the last
i) exclude form 207-VFA-NY annuitant.
ii) include contracts issued in Montana which use form
ENDORSEMENT.005.94
Reinsurance coverage is excluded
upon the annuitant's attainment
of age 85.
All contracts beginning with form VFA-MN with form VEN 8, 18 1 year ratcheting death benefit
ENDORSEMENT.005 attached ENHANCED payable on the death of the last
annuitant.
Reinsurance coverage
is excluded upon the
annuitant's
attainment of age
85.
All certificates beginning with form VFA-CERT with form VEN 8, 18 1 year ratcheting death benefit
ENDORSEMENT.007 attached ENHANCED payable on the death of the last
annuitant.
Reinsurance coverage
is excluded upon the
annuitant's
attainment of age
85.
All contracts with VENTURE.001, VENTURE001.94 VEN 20,21,22,23 1 year ratcheting death benefit
VENTURE.005 payable on the death of the first
owner.
All certificates with VENTURE.003 Reinsurance coverage
is excluded upon the
owner's attainment
of age 85 or if the
oldest owner at
issue is age 81 or
greater.
</TABLE>
<PAGE> 30
EXHIBIT A
CONTINUED
<TABLE>
<S> <C> <C>
VEN 10 VIS 5 5% roll up death benefit payable on
the death of the last annuitant.
Reinsurance coverage is excluded
upon the annuitant's attainment of
age 85 or if the oldest annuitant
at issue is age 81 or greater.
VISION.001 VIS 25 5% roll up death benefit payable on
the death of the first owner.
Reinsurance coverage is excluded
upon the owner's attainment of age
85 or if the oldest owner at issue
is age 81 or greater.
</TABLE>
<PAGE> 1
REINSURANCE AGREEMENT
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
BOSTON, MASSACHUSETTS
referred to as the "Ceding Company"
AND
PAINEWEBBER LIFE INSURANCE COMPANY
WEEHAWKEN, NEW JERSEY
referred to as the "Reinsurer"
February 29, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I GENERAL PROVISIONS 3
ARTICLE II REINSURANCE PREMIUMS 7
ARTICLE III COMMISSIONS AND ALLOWANCES 8
ARTICLE IV BENEFIT PAYMENTS 11
ARTICLE V RESERVE ADJUSTMENTS 13
ARTICLE VI ADJUSTMENT FOR TRANSFERS INVOLVING FIXED ACCOUNT 14
ARTICLE VII ACCOUNTING AND SETTLEMENTS 15
ARTICLE VIII DURATION AND RECAPTURE 18
ARTICLE IX TERMINAL ACCOUNTING AND SETTLEMENT 21
ARTICLE X ARBITRATION 22
ARTICLE XI INSOLVENCY 23
ARTICLE XII EXECUTION AND EFFECTIVE DATE 24
SCHEDULE A ANNUITIES AND RISKS REINSURED 25
SCHEDULE B QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS 28
SCHEDULE C MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT 33
SCHEDULE D COMMISSION SCHEDULES 34
</TABLE>
1
<PAGE> 3
REINSURANCE AGREEMENT
This Agreement is made and entered into by and between North American
Security Life Insurance Company (hereinafter referred to as the "Ceding
Company") and Paine Webber Life Insurance Company (hereinafter referred to as
the "Reinsurer").
The Ceding Company and the Reinsurer mutually agree to reinsure on the terms
and conditions stated herein. This Agreement is an indemnity reinsurance
agreement solely between the Ceding Company and the Reinsurer, and performance
of the obligations of each party under this Agreement will be rendered solely
to the other party. In no instance will anyone other than the Ceding
Company or the Reinsurer have any rights under this Agreement, and the
Ceding Company will be and remains the only party hereunder that is liable to
any insured, policy owner or beneficiary under any annuity reinsured hereunder.
2
<PAGE> 4
ARTICLE I
GENERAL PROVISIONS
1. ANNUITIES AND RISKS REINSURED. The Reinsurer agrees to indemnify the
Ceding Company for, and the Ceding Company agrees to reinsure with the
Reinsurer, according to the terms and conditions hereof, the portion of
the risks under the annuities described in Schedule A attached hereto.
2. COVERAGES AND EXCLUSIONS. Only the variable annuities described in
Schedule A are reinsured under this Agreement.
3. PLAN OF REINSURANCE. This indemnity reinsurance will be on a
modified-coinsurance basis. The Ceding Company will retain, control and
own all assets held in relation to the Modified Coinsurance Reserve.
4. EXPENSES. The Reinsurer will bear no part of the expenses incurred in
connection with the annuities reinsured hereunder, except as otherwise
provided herein.
5. ANNUITY CHANGES. The Ceding Company must provide written notification to
the Reinsurer of any change which affects the original terms or
conditions of any annuity reinsured hereunder not later than thirty
(30) days after the change takes effect. The Reinsurer will provide
written notification to the Ceding Company as to the Reinsurer's
acceptance or rejection of the change within thirty (30) days after
receipt of notice of the change. If the Reinsurer accepts any such
change, the Reinsurer will (a) assume that portion of any increase in
the Ceding Company's liability, resulting from the change, which
corresponds to the portion of the annuities reinsured hereunder, and
(b) receive credit for that portion of any decrease in the Ceding
Company's liability, resulting from the change, which corresponds to
the portion of the annuities reinsured hereunder. If the Reinsurer
rejects any such change, the Reinsurer's liability under this
Agreement will be determined as if no such change had occurred.
6. NO EXTRACONTRACTUAL DAMAGES. The Reinsurer does not indemnify the Ceding
Company for, and will not be liable for, any extracontractual damages
or extracontractual liability of any kind whatsoever resulting from
fraud, oppression, bad faith, strict liability, or negligent, reckless or
intentional wrongs on the part of the Ceding Company or its directors,
officers, employees and agents. The following types of damages are
examples of damages that would be excluded under this Agreement for the
conduct described above: actual damages, damages for emotional
distress, and punitive or exemplary damages.
3
<PAGE> 5
7. ANNUITY ADMINISTRATION. The Ceding Company will administer the annuities
reinsured hereunder and will perform all accounting for such annuities;
provided, however, that the Reinsurer reserves the right to participate
in claims administration.
8. INSPECTION. At any reasonable time, the Reinsurer or its representatives
may inspect, during normal business hours, at the principal office of
the Ceding Company, the original papers and any and all other books or
documents relating to or affecting reinsurance under this Agreement. The
Reinsurer or its representatives will not use any information obtained
through any inspection pursuant to this Paragraph for any purpose not
relating to reinsurance hereunder.
9. TAXES. The allowance for any premium taxes paid in connection with the
annuities reinsured hereunder is included in the Commissions and
Allowances, described in Article III. The Reinsurer will not
reimburse the Ceding Company for any other taxes paid by the Ceding
Company in connection with the annuities reinsured hereunder.
10. PROXY TAX REIMBURSEMENT. Pursuant to IRC Section 848, insurance companies
are required to capitalize and amortize specified policy acquisition
expenses. The amount capitalized is determined by proxy based on a
percentage of "reinsurance premiums" as defined in the IRS regulations
relating to IRC Section 848. The Reinsurer and the Ceding Company agree
that any costs which would result from IRC Section 848 are not subject
to reimbursement hereunder.
11. ELECTION TO DETERMINE SPECIFIED POLICY ACQUISITION EXPENSES. The Ceding
Company and the Reinsurer agree that the party with net positive
consideration under this Agreement will capitalize specified policy
acquisition expenses with respect to annuities reinsured under this
Agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended. The Ceding
Company and the Reinsurer will exchange information pertaining to the
amount of net consideration under this Agreement each year to ensure
consistency. The Ceding Company will submit a schedule to the Reinsurer
by May 1 of each year presenting its calculation of the net consideration
for the preceding taxable year. The Reinsurer may contest the calculation
in writing within thirty (30) days of receipt of the Ceding Company's
schedule. Any differences will be resolved between the parties so that
consistent amounts are reported on the respective tax returns for the
preceding taxable year. This election to capitalize specified policy
acquisition expenses without regard to the general deductions limitation
is effective for all taxable years during which this Agreement remains in
effect.
4
<PAGE> 6
12. CONDITION. The reinsurance hereunder is subject to the same limitations
and conditions as the annuities issued by the Ceding Company which are
reinsured hereunder, except as otherwise provided in this Agreement.
13. MISUNDERSTANDINGS AND OVERSIGHTS. If any failure to pay amounts due or
to perform any other act required by this Agreement is unintentional and
caused by misunderstanding or oversight, the Ceding Company and the
Reinsurer will adjust the situation to what it would have been
had the misunderstanding or oversight not occurred.
14. ADJUSTMENTS. If the Ceding Company's liability under any of the
annuities reinsured hereunder is changed because of a misstatement of
age, sex or any other material fact, the Reinsurer will (a) assume
that portion of any increase in the Ceding Company's liability,
resulting from the change, which corresponds to the portion of the
annuities reinsured hereunder, and (b) receive credit for that portion
of any decrease in the Ceding Company's liability, resulting from the
change, which corresponds to the portion of the annuities reinsured
hereunder.
15. REINSTATEMENTS. If an annuity reinsured hereunder is surrendered or
annuitized, and is subsequently reinstated while this Agreement is in
force, the reinsurance for such annuity will be reinstated automatically.
The Ceding Company will pay the Reinsurer the Reinsurer's proportionate
share of all amounts received by the Ceding Company in connection with the
reinstatement of the annuity, plus any amounts previously refunded to the
Ceding Company by the Reinsurer in connection with the lapse of the
annuity.
16. ASSIGNMENT. The Ceding Company may not assign any of its rights, duties
or obligations under this Agreement without prior written consent of
the Reinsurer. The Reinsurer may not assign any of its rights, duties,
or obligations under this Agreement without prior written consent of
the Ceding Company.
17. AMENDMENTS AND WAIVER. Any change or modification to this Agreement
will be null and void unless made by amendment to the Agreement and
signed by both parties. Any waiver will constitute a waiver only in the
circumstances for which it was given and will not be a waiver of
any future circumstances.
18. ENTIRE AGREEMENT. The terms expressed herein constitute the entire
agreement between the parties with respect to the annuities reinsured
hereunder. There are no understandings between the parties with respect
to the annuities reinsured hereunder other than as expressed in this
Agreement.
5
<PAGE> 7
19. CURRENT PRACTICES. The Ceding Company will not materially change, alter
or otherwise compromise its underwriting, claims paying or administrative
practices with respect to the annuities reinsured hereunder without
prior written consent of the Reinsurer.
6
<PAGE> 8
ARTICLE II
REINSURANCE PREMIUMS
1. INITIAL CONSIDERATION. The Ceding Company will pay the Reinsurer an
Initial Consideration equal to the quota share, as defined in Schedule A,
of the Account Value on all annuities reinsured under this Agreement,
calculated as of the Effective Date of this Agreement.
2. REINSURANCE PREMIUMS. The Ceding Company will pay the Reinsurer
Reinsurance Premiums on all annuities reinsured under this Agreement in
an amount equal to a quota share, as defined in Schedule A, of the gross
premiums collected and deposited into the Separate Account during the
Accounting Period by the Ceding Company. The Reinsurance Premiums paid
to the Reinsurer by the Ceding Company will be remitted to the Reinsurer
at the end of the Accounting Period during which the gross premiums were
collected and deposited by the Ceding Company.
7
<PAGE> 9
ARTICLE III
COMMISSIONS AND ALLOWANCES
<TABLE>
1. INITIAL COMMISSION. Simultaneous with the payment of the Initial
Consideration, the Reinsurer will pay an Initial Commission to the Ceding
Company equal to a percentage of the Initial Consideration, as follows:
<CAPTION>
- -------------------------------------------------------------
Initial Commission as a
Category as Described Percentage of Initial
in Schedule A Consideration
- -------------------------------------------------------------
<S> <C>
A & B 6.69%
- -------------------------------------------------------------
C & D 7.71%
- -------------------------------------------------------------
E 7.35%
- -------------------------------------------------------------
F 7.95%
- -------------------------------------------------------------
</TABLE>
2. PREMIUM TAX. The Reinsurer shall reimburse the Ceding Company for all
premium taxes incurred on the Reinsurance Premiums.
3. COMMISSIONS. The Reinsurer shall reimburse the Ceding Company for
all commissions, wholesaler overrides and costs of special promotions
incurred on the Reinsurance Premiums and on that portion of the Account
Value of the annuities reinsured hereunder which corresponds to the
portion of the annuities reinsured hereunder as of the end of the
current Accounting Period. Commissions will be net of a quota share of
commission chargebacks on policies reinsured hereunder. Schedule D shows
the current commission schedules for the annuities reinsured hereunder.
4. ALLOWANCE FOR EXPENSES. The Reinsurer will pay the Ceding Company an
Allowance for Expenses for each Accounting Period equal to (i) plus (ii)
plus (iii) plus (iv) plus (v), where:
(i) For policy maintenance, equals (a) times (b), where:
(a) equals $14.60 times the quota share percentage of
the Venture annuities reinsured hereunder, as
described in Schedule A; and
(b) equals the number of Venture annuities reinsured
hereunder and described in Schedule A, that are
inforce at the end of the current Accounting Period;
8
<PAGE> 10
(ii) For policy issuance, equals (a) times (b), where:
(a) equals $112.50 times the quota share percentage of
the Venture annuities reinsured hereunder, as
described in Schedule A; and
(b) equals the number of Venture annuities reinsured
hereunder and described in Schedule A, that were issued
during the current Accounting Period;
(iii) For DAC proxy tax, equals (a) times (b), where
(a) equals 0.0036; and
(b) equals that amount of the Reinsurance Premiums
received on non-qualified policies;
(iv) For other costs and risks, an allowance of (a) times
(b), where:
(a) equals .0005125; and
(b) equals the quota share of the account values at
the end of the Accounting Period on the annuities
reinsured hereunder.
(v) (a) minus (b), times (c), where:
(a) equals the quota share of the account value at the
end of the Accounting Period of the annuities
reinsured hereunder.
(b) equals the Modified Coinsurance Reserve at the end
of the Accounting Period of the annuities reinsured
hereunder.
(c) equals the LIBOR Rate divided by 4, where the LIBOR
Rate equals the 3 month LIBOR rate (as published
in the Wall Street Journal), plus .01, determined
on the first business day of the Accounting Period.
(vi) Amounts in (i)(a) and (ii)(a) above are for 1994. They will
be adjusted annually on January 1, for inflation at the
change in the Consumer Price Index (CPI- U as determined
by Department of Labor and published in the Wall Street
Journal).
9
<PAGE> 11
<TABLE>
5. MINIMUM DEATH BENEFIT GUARANTEE COSTS: The Reinsurer will pay the Ceding
Company an allowance for each Accounting Period for the costs of the
minimum death benefit guarantee. The allowance equals (a) times (b),
where (a) and (b) equal:
<CAPTION>
-------------------------------------------------------------------------------------------------
Category as
Described in
Schedule A (a) (b)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
A & C .0002 Quota share of the account values at the end of the
Accounting Period on Category A & C annuities
-------------------------------------------------------------------------------------------------
B, D, E & F .00045 Quota share of the account values at the end of the
Accounting Period on Category B, D, E & F annuities
-------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 12
ARTICLE IV
BENEFIT PAYMENTS
1. BENEFIT PAYMENTS. Benefit Payments, as referred to in this Agreement,
means the Reinsurer's quota share of (i) Claims, as described in
Paragraph 2 below, (ii) Cash Surrenders, as described in Paragraph 3
below, (iii) Partial Withdrawals, as described in Paragraph 4 below,
and (iv) Annuity Benefits, as described in Paragraph 5 below.
2. CLAIMS. The Reinsurer will pay the Ceding Company Claims. The term
"Claims," as used in this Agreement, means that portion of the death
benefits paid by the Ceding Company on annuities reinsured hereunder
which is equal to the Reinsurer's quota share of the cash surrender
value as of the date the death benefit is payable.
3. CASH SURRENDERS. The Reinsurer will pay the Ceding Company that portion
of the Cash Surrenders paid by the Ceding Company on annuities reinsured
hereunder which corresponds to the portion of the annuities reinsured
hereunder.
4. PARTIAL WITHDRAWALS. The Reinsurer will pay the Ceding Company that
portion of Partial Withdrawals paid by the Ceding Company on annuities
reinsured hereunder which corresponds to the portion of the annuities
reinsured hereunder.
5. ANNUITY BENEFITS. The Reinsurer will pay the Ceding Company that portion
of Annuity Benefits paid by the Ceding Company on annuities reinsured
hereunder which corresponds to the portion of the annuities reinsured
hereunder. The Reinsurer s obligation will be satisfied in full by
the payment to the Ceding Company of that portion of the Account
Value, as of the date of annuitization, which corresponds to the
portion of the annuities reinsured hereunder.
6. ADJUSTMENT FOR ANNUITY BENEFITS. For any Accounting Period in which the
calculation of (i) divided by (ii) is greater than 0.0025, the Ceding
Company will pay the Reinsurer an amount equal to (iii) times (iv)
where:
(i) equals the account value of annuites reinsured hereunder that
annuitized during the current Accounting Period.
(ii) the average account value of annuities reinsured hereunder during
the current Accounting Period. For the purposes of this
calculation, the average account value of annuities reinsured
hereunder is calculated as one-half the sum of the account values
of annuities reinsured hereunder as of the
11
<PAGE> 13
beginning of the current accounting period and the account value of
annuities reinsured hereunder as of the end of the current
Accounting Period.
(iii) equals a quota share of the Account Value at the time of
annuitization, grouped by policy duration at the time of
annuitization; for the annuities reinsured that annuitized during
the current Accounting Period;
<TABLE>
(iv) equals the applicable Annuity Benefit Factor for each policy
duration described below.
<CAPTION>
POLICY DURATION (YEARS) ANNUITY BENEFIT
FACTOR
<S> <C>
1 0.06
2 0.05
3 0.04
4 0.03
5 0.02
6 0.01
7 0.01
8+ 0.01
</TABLE>
7. NOTICE. The Ceding Company will notify the Reinsurer at the end of
each Accounting Period regarding Benefit Payments on annuities
reinsured hereunder. The reinsurance claim and copies of notification,
claim papers, and proofs will be furnished to the Reinsurer upon request.
8. LIABILITY AND PAYMENT. The Reinsurer will accept the decision of the
Ceding Company with respect to Benefit Payments on annuities reinsured
hereunder. The Reinsurer will pay its proportionate share of Benefit
Payments in a lump sum to the Ceding Company without regard to the form
of settlement by the Ceding Company.
9. CONTESTED CLAIMS. The Ceding Company will advise the Reinsurer of
its intention to contest, compromise or litigate Benefit Payments
involving annuities reinsured hereunder. The Reinsurer will pay its
share of the expenses of such contests, in addition to its share of
Benefit Payments, or it may choose not to participate. If the Reinsurer
chooses not to participate, it will discharge its liability by payment
to the Ceding Company of the full amount of its liability, prior to
any contests, on the annuity reinsured hereunder.
12
<PAGE> 14
ARTICLE V
RESERVE ADJUSTMENTS
1. INITIAL RESERVE ADJUSTMENT. Simultaneous with the payment of the Initial
Consideration described in Article II, Paragraph 1, by the Ceding
Company to the Reinsurer, the Reinsurer will pay the Ceding Company an
Initial Reserve Adjustment in an amount that is equal to the Modified
Coinsurance Reserve determined in accordance with Paragraph 3 below, on
the Effective Date of this Agreement.
2. MODIFIED COINSURANCE RESERVE ADJUSTMENT.
A. The Modified Coinsurance Reserve Adjustment will be computed each
Accounting Period equal to (i) minus (ii) minus (iii), where:
1. equals the Modified Coinsurance Reserve, determined in
accordance with Paragraph 3 below, at the end of the
current Accounting Period;
2. equals the Modified Coinsurance Reserve, determined
in accordance with Paragraph 3 below, at the end of the
preceding Accounting Period;
3. equals the Modified Coinsurance Reserve Investment
Credit, as described in Schedule C.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (ii)
above to the end of the preceding Accounting Period refers to
the Effective Date of this Agreement immediately after the Initial
Reserve Adjustment, as described in Paragraph 1 above, has occurred.
B. For any Accounting Period in which the amount computed in A.
above is positive, the Reinsurer will pay the Ceding Company
such amount. For any Accounting Period in which the amount
computed in A. above is negative, the Ceding Company will pay
the Reinsurer the absolute value of such amount.
3. MODIFIED COINSURANCE RESERVE. The term "Modified Coinsurance Reserve," as
used in this Agreement, means a quota share of the statutory reserve
held by the Ceding Company with respect to that portion of the annuities
reinsured hereunder. The statutory reserve will be determined by the
Commissioners Annuity Reserve Valuation Method, excluding any reserve for
the minimum guaranteed death benefit.
13
<PAGE> 15
ARTICLE VI
ADJUSTMENT FOR TRANSFERS INVOLVING
THE FIXED ACCOUNT
1. The Reinsurer will pay the Ceding Company an amount equal to a quota share
of the amount transferred from the Separate Account to the fixed
account for the annuities reinsured hereunder during the current
Accounting Period
2. The Ceding Company will pay the Reinsurer an amount equal to a quota share
of the amount transferred from the fixed account to the Separate
Account for the annuities reinsured hereunder during the current
Accounting Period.
3. The Reinsurer will pay the Ceding Company an amount equal to (i) times
(ii) where:
(i) equals a quota share of the amount transferred from the fixed
account to the Separate Account grouped by policy duration at the
time of transfer; for the annuities reinsured hereunder during the
current Accounting Period;
(ii) equals the applicable Exchange Factor for each policy duration
described in Paragraph 5 below.
4. The Ceding Company will pay the Reinsurer an amount equal to (i) times
(ii) where:
(i) equals a quota share of the amount transferred from the Separate
Account to the fixed account, grouped by policy duration at the time
of transfer; for the annuities reinsured hereunder during the current
Accounting Period;
(ii) equals the applicable Exchange Factor for each policy duration
described in Paragraph 5 below.
<TABLE>
5. The exchange factors for each policy duration are shown below:
<CAPTION>
POLICY DURATION (YEARS) EXCHANGE FACTOR
<S> <C>
1 0.08
2 0.07
3 0.06
4 0.05
5 0.04
6 0.03
7 0.03
8+ 0.03
</TABLE>
14
<PAGE> 16
ARTICLE VII
ACCOUNTING AND SETTLEMENTS
1. QUARTERLY ACCOUNTING PERIOD. Each Accounting Period under this Agreement
will be a calendar quarter, except that: (a) the initial Accounting Period
runs from the Effective Date of this Agreement through the last day of
the calendar quarter during which the Effective Date of this Agreement
falls, and (b) the final Accounting Period runs from the end of the
preceding Accounting Period until the terminal accounting date of this
Agreement as described in Article IX, Paragraph 2. The amount in
Article III, paragraph 4 (i) (a) will be adjusted on a pro-rata basis
for time periods less than a calendar quarter.
2. QUARTERLY ACCOUNTING REPORTS. Quarterly accounting reports in the
form of Schedule B will be submitted to the Reinsurer by the Ceding
Company for each Accounting Period not later than fifteen (15) days after
the end of each Accounting Period. Such reports will include
information on the amount of Reinsurance Premiums, Allowance for
Commissions and Expenses, Benefit Payments, Modified Coinsurance
Reserve, and Modified Coinsurance Reserve Adjustment.
3. INITIAL QUARTERLY SETTLEMENT.
Within twenty-five (25) days after the initial Accounting Period, the
Ceding Company will pay the Reinsurer the Initial Consideration
determined in accordance with Article II, Paragraph 1.
Simultaneously, the Reinsurer will pay the Ceding Company the sum
of: (i) the Initial Reserve Adjustment determined in accordance with
Article V, Paragraph 1, plus (ii) the Initial Commission determined in
accordance with Article III, Paragraph 1.
4. QUARTERLY SETTLEMENTS.
A. Within twenty-five (25) days after the end of each Accounting Period,
the Ceding Company will pay the Reinsurer the sum of:
(i) Reinsurance Premiums, determined in accordance with Article II,
plus
(ii) any Modified Coinsurance Reserve Adjustment payable to the
Reinsurer, etermined in accordance with Article V,
Paragraph 2, plus
(iii) any Adjustment for Transfers Involving the Fixed Account payable
to the Reinsurer, determined in accordance with Article VI, plus
(iv) any Adjustments for Annuity Benefits payable to the Reinsurer,
determined in accordance with Article IV, paragraph 6.
B. Simultaneously, the Reinsurer will pay the Ceding Company the sum of:
(i) the amount of Benefit Payments, as described in Article IV, plus
15
<PAGE> 17
(ii) the Allowance for Commissions and Expenses, determined in
accordance with Article III, plus
(iii) any Modified Coinsurance Reserve Adjustment payable to the
Ceding Company, determined in accordance with Article V,
Paragraph 2, plus
(iv) any Adjustment for Transfers Involving the Fixed Account payable
to the Ceding Company, determined in accordance with Article VI.
5. AMOUNTS DUE QUARTERLY. Except as otherwise specifically provided in this
Agreement, all amounts due to be paid to either the Ceding Company or the
Reinsurer under this Agreement will be determined on a net basis as of
the last day of each Accounting Period and will be due as of such date
and payable within twenty-five (25) days after the end of the Accounting
Period.
6. ANNUAL ACCOUNTING REPORTS. The Ceding Company will provide the
Reinsurer with annual accounting reports within fifteen (15) days
after the end of the calendar year for which such reports are
prepared. These reports will contain sufficient information about the
annuities reinsured hereunder to enable the Reinsurer to prepare its
annual financial reports and to verify the information reported in
Schedule B, and will include Page 7, Page 27 and Schedule S of the Annual
Statement.
7. ESTIMATIONS. If the amounts, as described in Paragraph 4 above, cannot
be determined by the dates described in Paragraph 5 above, on an exact
basis, such payments will be paid in accordance with a mutually agreed
upon formula which will approximate the actual payments. Adjustments
will then be made to reflect actual amounts when they become available.
8. DELAYED PAYMENTS. For purposes of Paragraph 5 above, if there is a
delayed settlement of a payment due, there will be an interest penalty,
at the LIBOR Rate, as defined in Article III, paragraph 4(v)(c). For
purposes of this Paragraph, a payment will be considered overdue thirty
(30) days after the date such payment is payable, and interest shall
commence from the overdue date.
9. OFFSET OF PAYMENTS. All moneys due either the Ceding Company or the
Reinsurer under this Agreement will be offset against each other, dollar
for dollar, regardless of any insolvency of either party.
16
<PAGE> 18
ARTICLE VIII
DURATION AND RECAPTURE
1. DURATION. Except as otherwise provided herein, this Agreement is
unlimited in duration.
2. REINSURER'S LIABILITY. The liability of the Reinsurer with respect to
any annuity reinsured hereunder will begin simultaneously with that of
the Ceding Company, but not prior to the Effective Date of this
Agreement. The Reinsurer's liability with respect to any annuity
reinsured hereunder will terminate on the earliest of: (i) the date
such annuity is recaptured in accordance with paragraph 4 below; (ii)
the date the Ceding Company's liability on such annuity is terminated;
or (iii) the date this Agreement is terminated under paragraph 3 below.
Termination of the Reinsurer's liability is subject to payments in
respect of such liability in accordance with the provisions of Article
IX of this Agreement. In no event should the interpretation of this
Paragraph imply a unilateral right of the Reinsurer to terminate this
Agreement. However, the Reinsurer and/or the Ceding Company may, upon
thirty (30) days prior written notice to the other party, terminate
this Agreement as to annuities not yet written by the Ceding Company as
of the effective date of such termination.
3. TERMINATION FOR NONPAYMENT OF REINSURANCE PREMIUMS OR OTHER AMOUNTS DUE.
If the Ceding Company fails to pay the Reinsurance Premiums or any other
amounts due to the Reinsurer pursuant to this Agreement within sixty (60)
days after the end of any Accounting Period, the Reinsurer may
terminate this Agreement, subject to thirty (30) days prior written
notice to the Ceding Company. If the Reinsurer fails to pay any amounts
due to the Ceding Company pursuant to this Agreement within sixty (60)
days after the end of any Accounting Period, the Ceding Company may
terminate this Agreement, subject to thirty (30) days prior written notice
to the Reinsurer.
4. RECAPTURE. Annuities reinsured hereunder will be eligible for recapture,
at the option of the Ceding Company as described below:
(i) On any January 1, all reinsured annuities where the reinsurance
under this Agreement has been in effect for 20 years or longer,
subject to ninety (90) days prior written notice.
(ii) on any other date which is mutually agreed to in writing.
If the Ceding Company opts to recapture, then the Ceding Company must
recapture all of the annuities reinsured hereunder that are eligible for
recapture. In no event may the Ceding Company recapture anything other
than 100 percent of all annuities reinsured hereunder that are eligible
for recapture.
17
<PAGE> 19
5. INTERNAL REPLACEMENTS. Should the Ceding Company, its affiliates,
successors or assigns, initiate a formal program of Internal Replacement
that would include any of the annuities reinsured hereunder, the Ceding
Company will immediately notify the Reinsurer. For purposes of this
Agreement, the term "Internal Replacement" means any instance in which an
annuity or any portion of the cash value of an annuity which is written
by the Ceding Company, its affiliates, successors, or assigns is
exchanged for another policy or annuity.
The Reinsurer will participate on a quota share basis in any expenses
associated with that program provided reinsurance coverage will continue
under this Agreement for the new policy. The quota share percentage for
the new policy will be same as for the replaced policy, except when the
new policy is otherwise covered by this Agreement, and the quota share on
the old and new policies are different. In that case, the quota share
will be that of the new policy which would otherwise be applicable
under this Agreement, and an amount will be paid which is equal to (i)
minus (ii) where:
(i) equals the account value in the Separate Account of the new
policy times the quota share percentage of the new policy times
the Internal Replacement Exchange Factor below;
(ii) equals the account value in the Separate Account of the old policy
times the quota share percentage of the old policy times the
Internal Replacement Exchange Factor below;
<TABLE>
<CAPTION>
POLICY DURATION OF INTERNAL REPLACEMENT
REPLACED POLICY EXCHANGE FACTOR
(YEARS)
<S> <C>
1 0.08
2 0.07
3 0.06
4 0.05
5 0.04
6 0.03
7 0.03
8+ 0.03
</TABLE>
If the amount calculated above is positive, it will be paid to the
Ceding Company by the Reinsurer. If the amount calculated above is
negative, it will be paid to the Reinsurer by the Ceding Company.
The Ceding Company, its affiliates, successors or assigns, will not
initiate a program of internal replacement that includes any of the
annuities reinsured hereunder, to policies or annuities that are not
covered by this Agreement, without the Reinsurers consent unless the
volume of such internal replacements is incidental. The Reinsurer and
the Ceding Company must mutually agree to the volume of internal
replacements to be considered incidental.
18
<PAGE> 20
Any incidental internal replacement to an annuity not covered under
this Agreement will cause the reinsurance coverage under this agreement
to terminate for that policy. In that case, the Ceding Company will
pay the Reinsurer an amount equal to (i) times (ii) where:
(i) equals the account value in the Separate Account recaptured by the
Ceding Company;
(ii) equals the recapture factors below:
<TABLE>
<CAPTION>
POLICY DURATION OF INTERNAL REPLACEMENT
REPLACED POLICY RECAPTURE FACTOR
(YEARS)
<S> <C>
1 0.08
2 0.07
3 0.06
4 0.05
5 0.04
6 0.03
7 0.03
8+ 0.03
</TABLE>
The Reinsurer will not participate nor reinsure Internal Replacements,
where the original policy was not covered by this Agreement.
19
<PAGE> 21
ARTICLE IX
TERMINAL ACCOUNTING AND SETTLEMENT
1. TERMINAL ACCOUNTING. In the event that this Agreement is terminated in
accordance with Article VIII, Paragraphs 3 or 4, or Article XI, a Terminal
Accounting and Settlement will take place.
2. DATE. The terminal accounting date will be the earliest of: (1) the
effective date of recapture pursuant to any notice of recapture given
under this Agreement, (2) the effective date of termination pursuant to
any notice of termination given under this Agreement, or (3) any other
date mutually agreed to in writing.
3. SETTLEMENT. The Terminal Accounting and Settlement will consist of:
A. The quarterly settlement as provided in Article VII, Paragraph 4,
computed as of the terminal accounting date as if the treaty were
still in effect; and
B. payment by the Ceding Company to the Reinsurer of a Terminal Reserve
equal to the Modified Coinsurance Reserve on the annuities reinsured
hereunder as of the terminal accounting date;
C. payment by the Reinsurer to the Ceding Company of a Terminal Reserve
Adjustment equal to the Modified Coinsurance Reserve on the annuities
reinsured hereunder as of the terminal accounting date;
If the calculation of the Terminal Accounting and Settlement produces an
amount owing to the Ceding Company, such amount will be paid by the
Reinsurer to the Ceding Company. If the calculation of the Terminal
Accounting and Settlement produces an amount owing to the Reinsurer,
such amount will be paid by the Ceding Company to the Reinsurer.
4. SUPPLEMENTARY ACCOUNTING AND SETTLEMENT. In the event that, subsequent
to the Terminal Accounting and Settlement as provided above, a change is
made with respect to any amounts due, a supplementary accounting will
take place pursuant to Paragraph 3 above. Any amount owed to the Ceding
Company or to the Reinsurer by reason of such supplementary accounting
will be paid promptly upon the completion thereof.
20
<PAGE> 22
ARTICLE X
ARBITRATION
1. GENERAL. All disputes and differences between the Ceding Company and
the Reinsurer on which an agreement cannot be reached will be decided
by arbitration. The arbitrators will construe this Agreement from the
standpoint of practical business and equitable principles and the
customs and practices of the insurance and reinsurance business, rather
than from the standpoint of strict law. The parties intend that the
arbitrators will make their decision with a view to effecting the intent
of this Agreement.
2. METHOD. Three arbitrators will decide any differences. They must be
impartial and present or former officers of life insurance companies
other than the parties to this Agreement or any company owned by, or
affiliated with, either party. One of the arbitrators will be
appointed by the Reinsurer, another by the Ceding Company, and the two
arbitrators thus selected will select a third arbitrator before
arbitration begins. Should one of the parties decline to select an
arbitrator within thirty (30) days after the date of a written request to
do so, or should the two arbitrators selected by the parties not be able
to agree upon the choice of a third, the appointment(s) will be left
to the President of the American Arbitration Association or its successor.
The arbitrators will decide by a majority of votes and their decision
will be final and binding upon the parties. The costs of arbitration,
including the fees of the arbitrators, will be shared equally by the
parties unless the arbitrators decide otherwise. Any counsel fees
incurred by a party in the conduct of arbitration will be paid by the
party incurring the fees.
3. ARBITRATION SITE. In event of arbitration, the arbitration hearing shall
take place in New York, New York, unless agreed to in writing by both the
Ceding Company and the Reinsurer.
21
<PAGE> 23
ARTICLE XI
INSOLVENCY
INSOLVENCY. In the event of the Ceding Company's insolvency, any payments
due the Ceding Company from the Reinsurer pursuant to the terms of this
Agreement will be made directly to the Ceding Company or its conservator,
liquidator, receiver or statutory successor. The reinsurance will be payable
by the Reinsurer on the basis of the liability of the Ceding Company under
the annuities reinsured without diminution because of the insolvency of the
Ceding Company. The conservator, liquidator, receiver or statutory successor of
the Ceding Company will give the Reinsurer written notice of the pendency of a
claim against the Ceding Company on any annuity reinsured within a
reasonable time after such claim is filed in the insolvency proceeding.
During the pendency of any such claim, the Reinsurer may investigate such
claim and interpose in the Ceding Company's name (or in the name of the
Ceding Company's conservator, liquidator, receiver or statutory successor),
in the proceeding where such claim is to be adjudicated, any defense or
defenses which the Reinsurer may deem available to the Ceding Company or
its conservator, liquidator, receiver or statutory successor. The expense
thus incurred by the Reinsurer will be chargeable, subject to court approval,
against the Ceding Company as a part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Ceding
Company solely as a result of the defense undertaken by the Reinsurer.
In the event of the Reinsurer's insolvency, this treaty will terminate, and
the terminal accounting and settlement described in Article IX will occur.
Any payments due the Reinsurer from the Ceding Company pursuant to the
terms of this Agreement will be made directly to the Reinsurer or its
conservator, liquidator, receiver or statutory successor. Any amounts owed by
the Reinsurer to the Ceding Company will be payable without diminution because
of the insolvency of the Reinsurer. The conservator, liquidator, receiver or
statutory successor of the Reinsurer will give the Ceding Company written
notice of the pendency of a claim against the Reinsurer on any annuity
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding.
22
<PAGE> 24
ARTICLE XII
EXECUTION AND EFFECTIVE DATE
In witness of the above, this Agreement is executed in duplicate on the
dates indicated below with an Effective Date of December 31, 1994.
<TABLE>
<S> <C>
NORTH AMERICAN SECURITY LIFE PAINE WEBBER
INSURANCE COMPANY LIFE INSURANCE COMPANY
("Ceding Company") ("Reinsurer")
on March 29, 1995 on March 30, 1995
By: John G. Vrysen By: Richard J. Tucker
- ------------------------------ ----------------------------------
Title: VP & Actuary Title: Senior Vice President
By: Richard C. Hirtle By: Gerianne J. Silva
- ------------------------------ ----------------------------------
Title: VP Treasurer & CFO Title: Vice Prsident
</TABLE>
23
<PAGE> 25
SCHEDULE A
ANNUITIES AND RISKS REINSURED
ANNUITIES AND RISKS REINSURED. The amount of reinsurance under this Agreement
will be a percent quota share of the Ceding Company's net liability, with
respect to the separate account, on those variable annuities and the
corresponding state and group variations thereof listed below that are issued
by the Ceding Company and sold by the PaineWebber Affiliates listed below.
Policies included in the Initial Consideration calculation of Article II,
paragraph 1, will be included in this Agreement if the agency of record as of
the Effective Date of this Agreement is one of the PaineWebber Affiliates
listed below, instead of if it was sold by the PaineWebber Affiliates listed
below. Any policies covered by this Agreement will continue to be covered
even if the agency of record is changed subsequent to the Effective Date of this
Agreement.
<TABLE>
VENTURE VARIABLE ANNUITY PLANS
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Description Policy Form Numbers Quota Share
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CATEGORY A - Individual All contracts beginning with form number 207, except: 15%
Contracts with a 6 year (i) exclude form 207-VFA-NY
surrender charge and a 6 (ii) include form VFA-MN
year step-up death
benefit
- -------------------------------------------------------------------------------------------------------------
CATEGORY B - Individual All contracts beginning with form number 207 which have form 15%
Contracts with a 6 year ENDORSEMENT.005 attached, except:
surrender charge and (i) exclude form 207-VFA-NY
yearly step-up death (ii) include contracts issued in Montana which use form
benefit ENDORSEMENT.005.94
All contracts beginning with form VFA-MN with form
ENDORSEMENT.005 attached.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Description Policy Form Numbers Quota Share
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CATEGORY C - Group All certificates beginning with form VFA-CERT. 15%
Contracts with a 6 year
surrender charge and a 6
year step-up death
benefit
- -------------------------------------------------------------------------------------------------------------
CATEGORY D - Group All certificates beginning with form VFA-CERT which have 15%
Contracts with a 6 year ENDORSEMENT.007 attached.
surrender charge and
yearly step-up death
benefit
- -------------------------------------------------------------------------------------------------------------
CATEGORY E - Individual All contracts with form numbers VENTURE.001, VENTURE.001.94, 35%
Contracts with a 7 year and VENTURE.005.
surrender charge and
yearly step-up death
benefit
- -------------------------------------------------------------------------------------------------------------
CATEGORY F - Group All certificates with form number VENTURE.003. 35%
Contracts with a 7 year
surrender charge and
yearly step-up death
benefit
- -------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
PAINEWEBBER AFFILIATES TAX ID NUMBER
---------------------- -------------
<S> <C>
PWJC Agency, Inc. 51-0120742
PWJC Sales Agency 13-2769203
PWJC Insurance Agency Massachusetts 04-2535723
PWJC Insurance Sales Arizona 13-3103027
PWJC Agency Illinois 13-3117185
PWJC Insurance Agency Oklahoma 73-1065402
PWJC Insurance Sales Wyoming 63-0242350
PWJC Insurance Sales Montana, Inc. 81-0368992
PW Insurance Agency of Ohio 13-3432079
PW Insurance Agency Arkansas 13-3432081
PWJC Insurance Agency Texas 74-1976248
Rotan Mosle Insurance Agency, Inc 74-181-3848
</TABLE>
"Net liability," as used in this Agreement, means the Ceding Company's
liability on the annuities reinsured hereunder, less amounts recoverable from
other reinsurance.
26
<PAGE> 28
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: ________________
Calendar Year: ____________________
Date Report Completed: ____________
<TABLE>
<S> <C> <C> <C>
1. Reinsurance Premiums (Article II) ________
2. Benefit Payments (Article IV)
a. Claims ________
b. Cash Surrender Values ________
c. Partial Withdrawals ________
d. Annuity Benefits ________
Benefit Payments = a + b + c + d ________
3. Modified Coinsurance Reserve Adjustment (Article V)
a. Modco Reserve end of current Accounting Period ________
b. Modco Reserve end of preceding Accounting Period ________
c. Equals a - b ________
d. Modco Reserve Investment Credit (Schedule C) ________
Modified Coinsurance Reserve Adjustment = c - d ________
4. Allowance for Expenses and Death Benefit Guarantees (Article III) ________
5. Transfers Involving the Fixed Account (Article VI)
a. Quota share of transfers from Fixed Account to Separate
Account dring the current Accounting Period (paragraph 1) ________
b. Quota share of transfers from Separate Account to Fixed
Account dring the current Accounting Period (paragraph 2) ________
Transfers Involving the Fixed Account = a - b _______
6. Adjustment for Transfers Involving the Fixed Account (Article VI)
a. Adjustment for transfers from the Fixed Account to the
Separate Account (paragraph 3) ________
b. Adjustment for transfers from the Separate Account to the
Fixed Account (paragraph 4) ________
Adjustment for Transfers Involving the Fixed Account = a - b ________
7. Adjustment for Annuity Benefits (Article IV, paragraph 6) ________
8. Adjustment for Internal Replacements (Article VIII, paragraph 5)
a. Quota share of replaced policy account value in Separate
Account _________
b. Adjustment for replaced reinsured policy _________
c. Quota share of new policy account value in Separate Account _________
d. Adjustment for new reinsured policy _________
Adjustment for Internal Replacements = (a-b-c+d) ________
9. Cash Settlement = 1 -2 -3 - 4 + 5 - 6 + 7 - 8 ========
</TABLE>
27
<PAGE> 29
SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
TOTAL VARIABLE
NUMBER ANNUITY TOTAL PREMIUM RECEIVED DURING
OF FUND FUND PERIOD
ANNUITIES VALUE VALUE QUALIFIED NON-QUALIFIED
------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Beginning of Period _____ _____ _____ ________ ________
+ NewIssues _____ _____ _____
- Terminations _____ _____ _____
End of Period
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF VENTURE VARIABLE
VARIABLE ANNUITIES ACCOUNT RESERVE
------------------ ---------------
<S> <C> <C>
Beginning of Period ________________ ______________
+ New Issues ________________ ______________
- Terminations ________________ ______________
End of Period
================ ==============
</TABLE>
ALLOWANCE FOR COMMISSION AND EXPENSE (Article III)
<TABLE>
<S> <C>
a. quota share of premium taxes paid on annuities reinsured hereunder ________
b. quota share of commissions paid on annuities reinsured hereunder ________
c. $14.60 x quota share of Venture annuities reinsured hereunder ________
d. Number of Venture annuities reinsured hereunder ________
e. $112.50 x quota share of Venture annuities reinsured hereunder ________
f. Number of Venture annuities issues during the current Accounting Period ________
g. 0.0036 ________
h. Reinsurance Premiums received from non-qualified contracts ________
i. .0005125 x quota share of the account values at the end of the Accounting Period on
annuities reinsured hereunder ________
j. LIBOR Rate / 4 ________
k. Difference between quota share of account value, and Modified Coinsurance Reserve at
end of the Accounting Period on annuities reinsured hereunder ________
l. .0002 x quota share of the account values at the end of the Accounting Period on
Category A & C annuities ________
m. .00045 x quota share of the account values at the end of the Accounting Period on
Category B, D, E & F annuities ________
n. Commission and Expense Allowance
= a+b+(c x d)+(e x f)+(g x h)+i + j + k + l + m ========
</TABLE>
28
<PAGE> 30
DATA FOR CALCULATING ADJUSTMENT FOR TRANSFERS INVOLVING THE FIXED ACCOUNT
VENTURE
-------------------------------------------------------------------
TRANSFERS ADJUSTMENT FOR ADJUSTMENT FOR
TO FIXED TRANSFERS TO TRANSFER FROM TRANSFERS FROM
DURATION ACCOUNT FIXED ACCOUNT FIXED ACCOUNT FIXED ACCOUNT
- ---------------------------------------- ----------------------------------
1
------------------------------ ----------------------------------
2
------------------------------ ----------------------------------
3
------------------------------ ----------------------------------
4
------------------------------ ----------------------------------
5
------------------------------ ----------------------------------
6
------------------------------ ----------------------------------
7
------------------------------ ----------------------------------
8+
------------------------------ ----------------------------------
DATA FOR CALCULATING ADJUSTMENT FOR INTERNAL REPLACEMENTS
VENTURE
-------------------------------------------------------------------
REINSURED REINSURED
SEPARATE SEPARATE
ACCOUNT VALUE ACCOUNT
OF REPLACED ADJUSTMENT FOR VALUE OF NEW ADJUSTMENT
DURATION POLICY REPLACED POLICY POLICY NEW POLICY
- --------------------------------------------- -----------------------------
1
----------------------------------- -----------------------------
2
----------------------------------- -----------------------------
3
----------------------------------- -----------------------------
4
----------------------------------- -----------------------------
5
----------------------------------- -----------------------------
6
----------------------------------- -----------------------------
7
----------------------------------- -----------------------------
8+
----------------------------------- -----------------------------
29
<PAGE> 31
<TABLE>
DATA FOR CALCULATING ADJUSTMENT FOR ANNUITY BENEFITS
<CAPTION>
(1) (2) (3)
ACCOUNT VALUE ACCOUNT VALUE ACCOUNT VALUE (4) (5)
BEGINNING OF END OF ANNUITIZED ANNUITIZATION EXCESS
ACCOUNTING ACCOUNTING CURRENT RATE ANNUITIZATION RATE
DURATION PERIOD PERIOD PERIOD (3)/{[(1)+(2)]/2} MAX{0,(4)-.0025}
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1
2
3
4
5
6+
</TABLE>
<TABLE>
<CAPTION>
(6) (9)
ACCT VALUE (7) (8) ANNUITY BENEFITS
ANNUITIZED (6)x{(5)/ ADJUSTMENT ADJUSTMENT
DURATION CURRENT PERIOD [(5)+.0025)]} FACTOR (7)X(8)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 .06
2 .05
3 .04
4 .03
5 .02
6+ .01
</TABLE>
30
<PAGE> 32
SUPPLEMENTAL DATA PROVIDED BY THE CEDING COMPANY
A. Reinsurer's portion of M & E charges collected during the current
accounting period on the policies reinsured hereunder.
B. Reinsurer's portion of Administrative Charges collected during the
current accounting period on the policies reinsured hereunder.
C. Reinsurer's portion of Surrender Charges collected during the current
accounting period on the policies reinsured hereunder.
D. Reinsurer's portion of First Year Commissions paid during the current
accounting period on the policies reinsured hereunder.
E. Reinsurer's portion of Renewal Commissions paid during the current
accounting period on the policies reinsured hereunder.
31
<PAGE> 33
SCHEDULE C
MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT
MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT. The Modified Coinsurance
Reserve Investment Credit is equal to the portion of the sum of all accrued
investment income and capital gains and losses, realized and unrealized, on the
mutual funds underlying the Ceding Company's Separate Account for the current
Accounting Period which corresponds to the portion of the variable annuities
reinsured hereunder.
For Venture Annuities reinsured hereunder, the Modified Coinsurance Reserve
Investment Credit will be adjusted for income taxes or changes in any provision
for taxes. It will be reduced for investment management fees in excess of 45
basis points and any other fund level charges. It will not be reduced for
mortality and expense risk charges or administrative charges as defined in the
annuity contracts.
32
<PAGE> 34
SCHEDULE D
COMMISSION SCHEDULES
SCHEDULE 1
Commission as percent of premium
payable in all policy durations 7.0%
Commission as percent of account value
payable in all durations 0.28%
SCHEDULE 2
Commission as percent of premium payable
in all policy durations 8.0%
Commission as percent of account value
payable in all durations 0.03%
33
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 9 under the
Securities Act of 1933 and Amendment No. 14 under the Investment Company Act of
1940 to this Registration Statement on Form N-4 (File Nos. 33-28455, 33-9960,
2-93435) in Part B of the Registration Statement of (i) our report dated
February 23, 1996, on our audit of the financial statements of North American
Security Life Insurance Company and (ii) our report dated February 23, 1996, on
our audit of the financial statements of NASL Variable Account. We also consent
to the reference to our firm under the caption "Independent Accountants."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 28, 1996
V7
<PAGE> 1
EXHIBIT 13
TOTAL RATE OF RETURN CALCULATION
FORMULA
P(1 + T)(,)n = ERV
P = A hypothetical payment of $1,000
T = Average annual total return
n = Number of years
T = (ERV/P)(to the power of one divided by n) - 1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FROM NASL VARIABLE ACCOUNT FOR THE YEAR ENDED DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000753892
<NAME> NASL VARIABLE ACCOUNT
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 4,294,423,426
<INVESTMENTS-AT-VALUE> 4,897,081,600
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,897,081,600
<PAYABLE-FOR-SECURITIES> 2,079,887
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,895,001,713
<TOTAL-LIABILITIES> 4,897,081,600
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 342,457,710
<SHARES-COMMON-PRIOR> 302,110,785
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,897,081,600
<DIVIDEND-INCOME> 148,427,533
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (62,120,336)
<NET-INVESTMENT-INCOME> 89,001,975
<REALIZED-GAINS-CURRENT> 96,385,758
<APPREC-INCREASE-CURRENT> 579,817,560
<NET-CHANGE-FROM-OPS> 765,205,293
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 91,313,079
<NUMBER-OF-SHARES-REDEEMED> 24,456,322
<SHARES-REINVESTED> 158,116,326
<NET-CHANGE-IN-ASSETS> 1,241,543,327
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
