<PAGE> 1
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 PAYMENT DEFERRED COMBINATION
FIXED AND VARIABLE GROUP ANNUITY CONTRACT
NON-PARTICIPATING
This Prospectus describes a flexible purchase payment deferred
combination fixed and variable group 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 February, 1995, the Company issued a class of variable
annuity contract which is no longer being issued but under which purchase
payments may continue to be made ("prior contract"--"Ven 8" contracts), which
were sold during the period from September 1992 until February, 1995. This
prospectus principally describes the contract but also describes the Ven 8
contracts. The principal difference between the contract offered by this
Prospectus and the Ven 8 contract relate to the investment options available
under the contracts, a minimum interest rate to be credited for any guarantee
period under the fixed portion of the contracts, the charges made by the Company
and the death benefit provisions. See "Appendix D - 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 twenty investment options: sixteen variable and four 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, five and seven 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.
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.
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 38 of
this Prospectus.
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 AND CERTIFICATE THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE
INVESTING.
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.
V22/23.PRO596
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS ..................................................... 3
SUMMARY ........................................................... 5
TABLE OF ACCUMULATION UNIT VALUES.................................. 10
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
ELIGIBLE GROUPS ................................................ 14
ACCUMULATION PROVISIONS ........................................ 14
Purchase Payments ........................................... 14
Accumulation Units .......................................... 15
Value of Accumulation Units ................................. 15
Net Investment Factor ....................................... 15
Transfers Among Investment Options .......................... 16
Maximum Number of Investment Options......................... 16
Telephone Transactions ...................................... 16
Special Transfer Services - Dollar Cost Averaging............ 16
Asset Rebalancing Program.................................... 16
Withdrawals.................................................. 17
Special Withdrawal Services - Income Plan ................... 18
Loans........................................................ 18
Death Benefit Before Maturity Date........................... 19
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
Annuitant.................................................... 23
Modification ................................................ 23
Discontinuance of New Owners ................................ 24
Misstatement and Proof of Age, Sex or Survival............... 24
FIXED ACCOUNT INVESTMENT OPTIONS................................. 24
CHARGES AND DEDUCTIONS .......................................... 26
Withdrawal Charges........................................... 27
Reduction or Elimination of Withdrawal Charges............... 28
Administration Fees.......................................... 28
Reduction or Elimination of Annual
Administration Fee........................................ 29
Mortality and Expense Risk Charge ........................... 29
Taxes ....................................................... 29
FEDERAL TAX MATTERS ............................................... 30
INTRODUCTION .................................................... 30
THE COMPANY'S TAX STATUS ........................................ 30
TAXATION OF ANNUITIES IN GENERAL ................................ 30
Tax Deferral During Accumulation Period ..................... 30
Taxation of Partial and Full Withdrawals .................... 31
Taxation of Annuity Payments ................................ 32
Taxation of Death Benefit Proceeds .......................... 32
Penalty Tax on Premature Distributions ...................... 32
Aggregation of Contracts .................................... 33
QUALIFIED RETIREMENT PLANS....................................... 34
Qualified Plan Types ........................................ 34
Direct Rollovers ............................................ 34
FEDERAL INCOME TAX WITHHOLDING................................... 35
GENERAL MATTERS.................................................... 35
Tax Deferral................................................. 35
Performance Data............................................. 35
Financial Statements......................................... 35
Asset Allocation and Timing Services......................... 36
Restrictions Under the Texas Optional
Retirement Program .......................................... 36
Distribution of Contracts ................................... 36
Owner Inquiries.............................................. 36
Legal Proceedings ........................................... 36
EXCHANGE OFFER AND ENHANCED DEATH
BENEFIT OPTION..................................................... 37
Exchange Offer .............................................. 37
Enhanced Death Benefit Option ............................... 38
OTHER INFORMATION ................................................. 39
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: PENNSYLVANIA MAXIMUM
MATURITY AGE..................................................... 42
APPENDIX D: PRIOR CONTRACTS (VEN 8)............................... 42
</TABLE>
2
<PAGE> 3
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 an owner's variable investment account before the maturity date.
Annuitant - Any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. The
"annuitant" is as designated on the certificate specifications page or in the
application, unless changed.
Annuity Option - The method selected by each owner for annuity payments
made by the Company. At the maturity date, the Company will provide an 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 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.
Application - The document signed by each owner that serves as his or
her application for participation under the contract.
Beneficiary - The person, persons or entity entitled to the death
benefit under the contract upon the death of an owner or, in certain
circumstances, the annuitant. If there is a surviving owner, that person will be
deemed to be the beneficiary.
Certificate - The document issued to each owner which summarizes the
rights and benefits of the owner under the contract.
Certificate Anniversary - The anniversary of the certificate date.
Certificate Date - The date of issue of a certificate under the
contract.
Certificate Year - The period of twelve consecutive months beginning on
the certificate date or any anniversary thereof.
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 Application - The document signed by the Group Holder that
evidences the Group Holder's application for a Contract.
Contract Value - The total of an owner's investment account values and,
if applicable, any amount in the loan account attributable to that owner.
Debt - Any amounts in an owner's loan account plus any accrued loan
interest. The loan provision is available only under contracts or certificates
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA.
Due Proof of Death - Due Proof of Death is required upon the death of
the owner or annuitant, as applicable. 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.
Group Holder - The person, persons or entity to whom the contract is
issued.
3
<PAGE> 4
Investment Account - An account established by the Company which
represents an owner's interest in an investment option prior to the maturity
date.
Investment Account Value - The value of an owner's investment in an
investment account.
Investment Options - The investment choices available to owners.
Currently, there are sixteen variable and four fixed investment options under
the contract.
Loan Account - The portion of the general account that is used for
collateral when a loan is taken by an owner.
Market Value Charge - A charge that may be assessed if amounts are
withdrawn or transferred from the three, five or seven 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 certificate specifications page and
is generally the first day of the month following the later of the annuitant's
85th birthday or the tenth contract anniversary, unless changed. See Appendix D
for information on the Maturity Date applicable to certain contracts which are
no longer being issued (Ven 8 contracts).
Net Purchase Payment - The purchase payment paid by or on behalf of an
owner less the amount of premium tax, if any.
Non-Qualified Certificates - Certificates issued under non-qualified
Contracts.
Non-Qualified Contracts - Contracts which are not issued under
qualified plans.
Owner - The person, persons or entity named in a certificate and
entitled to all of the ownership rights under the contract not expressly
reserved to the group holder. The owner is 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 or on behalf of an owner to the
Company as consideration for the benefits provided by the contract.
Qualified Certificates - Certificates issued under qualified contracts.
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.
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> 5
SUMMARY
The Contract. The contract offered by this Prospectus is a flexible
purchase payment deferred combination fixed and variable group annuity contract.
Specific accounts are maintained under the contract for each member of the
eligible group participating in the contract as evidenced by the issuance of
certificates. 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.
Eligible Groups. The contract may be issued to fund 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 certificate may be issued upon the making of an
initial purchase payment by or on behalf of an owner of as little as $30. A
minimum of $300 must be paid for each certificate during the first certificate
year. Purchase payments may be made at any time, except that if a purchase
payment would cause the owner's contract value to exceed $1,000,000, or the
owner's 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 certificate and an owner's participation under a
contract at the end of any two consecutive certificate years in which no
purchase payments by or on behalf of the owner have been made, if both (i) the
total purchase payments made for the certificate, less any withdrawals, are less
than $2,000; and (ii) the contract value for the owner at the end of such two
year period is less than $2,000. The cancellation of contract privileges may
vary in certain states in order to comply with the requirements of insurance
laws and regulations in such state. (See "PURCHASE PAYMENTS")
Investment Options. Purchase payments may be allocated among the twenty
investment options currently available under the contract: sixteen variable
account investment options and four fixed account investment options. Due to
current administrative capabilities, a contract owner is limited to a maximum of
seventeen 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/Midcap 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 an owner's
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 four fixed account investment options: one, three, five and seven 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 an owner's 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
an owner's variable account investment options and from the owner's variable
account investment options to his or her fixed account investment options
without charge. In addition, amounts may be transferred prior to the maturity
date among the owner's fixed account investment options and from the owner's
fixed account investment options to his or her variable account investment
options, subject to a one year holding period requirement 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 from which the transfer
is made is less than $100, then we 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
an owner, the owner may withdraw all or a portion of his or her 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 owner's contract value to
5
<PAGE> 6
less than $300, the withdrawal request will be treated as a request to withdraw
the owner's 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")
Loans. The Company offers a loan privilege under contracts or
certificates issued in connection with Section 403(b) qualified plans that are
not subject to Title I of ERISA. Where available, owners may obtain loans using
their contract value as the only security for the loan. The effective cost of a
loan is 2% per year of the amount borrowed. (See "LOANS")
Death Benefits. The Company will pay the death benefit described below
(which, as defined, is net of any debt) to the beneficiary if any owner dies
before the maturity date. If there is a surviving owner, that owner will be
deemed to be the beneficiary. No death benefit is payable on the death of any
annuitant, except that if any owner is not a natural person, the death of any
annuitant will be treated as the death of an owner. 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.
If any 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 certificate date,
the death benefit will be determined as follows: During the first certificate
year, the death benefit will be the greater of: (a) the contract value or (b)
the sum of all purchase payments made, less any amounts deducted in connection
with partial withdrawals made by or on behalf of the owner. During any
subsequent certificate 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
certificate year, plus any purchase payments made and less any amounts deducted
in connection with partial withdrawals made by or on behalf of the owner since
then.
If any owner dies after his or her 85th birthday and the oldest owner
had an attained age of less than 81 years on the certificate date, the death
benefit will be the greater of: (a) the contract value or (b) the excess of (i)
the sum of all purchase payments made by or on behalf of the owner over (ii) the
sum of any amounts deducted in connection with partial withdrawals made by or on
behalf of the owner. If any owner dies and the oldest owner had an attained age
greater than 80 on the certificate date, the death benefit will be the contract
value less any applicable withdrawal charges at the time of payment of benefits.
(See "DEATH BENEFIT BEFORE MATURITY DATE") 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
owner selects the maturity date, frequency of payment and annuity option. (See
"ANNUITY PROVISIONS")
Ten Day Review. Within 10 days of receipt of his or her certificate, an
owner may cancel the certificate by returning it to the Company. 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. (See "TEN DAY
RIGHT TO REVIEW")
Modification. The contract or any certificate may not be modified by
the Company without the consent of the group holder or the owner, as applicable,
except as may be required to make it conform to any law or regulation or ruling
issued by a governmental agency. However, on 60 days' notice to the group
holder, the Company may change the withdrawal charges, administration fees,
mortality and expense risk charges, free withdrawal percentage, annuity purchase
rates and the market value charge as to any certificates issued after the
effective date of the modification. (See "MODIFICATION")
Discontinuance of New Owners. On thirty days' notice to the group
holder, the Company may limit or discontinue acceptance of new applications and
the issuance of new certificates under a contract. (See "DISCONTINUANCE OF NEW
OWNERS")
Charges and Deductions. The following table and Example are designed to
assist group holders and owners in understanding the various costs and expenses
to which they are subject 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
owners. The items listed under "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.
6
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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 5%
4 4%
5 3%
6 2%
7+ 0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL ADMINISTRATION FEE................................................ $ 30(1)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
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............................. 1.00% 0.25%* 1.25%
International Small Cap................... 1.10% 0.30%* 1.40%
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%
</TABLE>
*Based on estimates of payments to be made during the current fiscal year.
(1) The $30 annual administration fee will not be assessed prior to the
maturity date if at the time of its assessment the sum of all the owner's
investment accounts is equal to or greater than $100,000. See Appendix D for
information on the administration fee applicable to certain contracts which are
no longer being issued (Ven 8 contracts).
7
<PAGE> 8
EXAMPLE
An owner would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets, if the owner withdrew all of his or her contract value
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 $185 $307
International Small Cap................... $84 $138 $192 $322
Global Equity............................. $81 $128 $175 $288
Pasadena Growth........................... $80 $126 $171 $280
Equity.................................... $79 $121 $162 $262
Value Equity.............................. $79 $122 $165 $268
Growth and Income......................... $79 $121 $162 $262
Int'l Growth and Income................... $85 $140 $196 $328
Strategic Bond............................ $80 $124 $168 $275
Global Government Bond.................... $80 $124 $169 $276
Investment Quality Bond................... $78 $119 $159 $256
U.S. Government Securities................ $78 $118 $158 $253
Money Market.............................. $76 $113 $149 $236
Aggressive Asset Allocation............... $80 $124 $168 $274
Moderate Asset Allocation................. $79 $122 $164 $267
Conservative Asset Allocation............. $79 $123 $166 $270
</TABLE>
*For prior contracts no longer being issued, Ven 8 contracts, (as
described in Appendix D) these numbers are as follows: Small Mid-Cap, $175,
International Small Cap, $182, Global Equity, $165; Pasadena Growth, $161;
Equity, $152; Value Equity, $155; Growth and Income, $152; International Growth
and Income,$184, Strategic Bond, $158; Global Government Bond, $159; Investment
Quality Bond, $149; U.S. Government Securities, $148; Money Market, $139;
Aggressive Asset Allocation, $158; Moderate Asset Allocation, $154; Conservative
Asset Allocation, $156. The difference in numbers is attributable to the
different withdrawal charges. See Appendix D.
An owner would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets, if the owner annuitized as provided in the contract or
did not withdraw all of his or her contract value 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 $145 $307
International Small Cap................... $29 $89 $152 $322
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
Int'l Growth and Income................... $30 $91 $156 $328
Strategic Bond............................ $24 $75 $128 $275
Global Government Bond.................... $24 $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 and certificates, do not take into account certain features of
8
<PAGE> 9
the contract or certificate and prospective changes in the size of the Trust
which may operate to change the expenses borne by 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 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 Administration Fee" to a 0.0833% annual asset charge based on the
$36,000 approximate average size of certificates of this series issued during
1995 by the Company comparable to the certificates offered by this Prospectus.
So translated, such charge would be higher for smaller contract values and lower
for larger contract values.
* * * * * * * *
The above summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and the Statement of
Additional Information incorporated herein by reference and in the accompanying
Prospectus and the Statement of Additional Information incorporated by reference
therein 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.
9
<PAGE> 10
TABLE OF ACCUMULATION UNIT VALUES+
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT UNIT VALUE AT START OF YEAR* UNIT VALUE AT END OF YEAR NUMBER OF UNITS AT END OF YEAR
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity
1994 16.715126 15.500933 171,668.821
1995 15.500933 16.459655 583,284.547
- ----------------------------------------------------------------------------------------------------------------------------------
Pasadena Growth
1994 8.699511 8.837480 67,651.751
1995 8.837480 11.026969 532,417.987
- ----------------------------------------------------------------------------------------------------------------------------------
Equity
1994 14.381312 14.786831 156,302.930
1995 14.786831 20.821819 761,321.040
- ----------------------------------------------------------------------------------------------------------------------------------
Value Equity
1994 11.375744 11.107620 147,434.130
1995 11.107620 13.548849 816,934.091
- ----------------------------------------------------------------------------------------------------------------------------------
Growth and Income
1994 13.239339 13.076664 147,028.139
1995 13.076664 16.660889 916,107.230
- ----------------------------------------------------------------------------------------------------------------------------------
International Growth and Income
1995 10.000000 10.554228 403,796.120
- ----------------------------------------------------------------------------------------------------------------------------------
Strategic Bond
1994 10.192707 9.965972 17,448.655
1995 9.965972 11.716972 276,219.578
- ----------------------------------------------------------------------------------------------------------------------------------
Global Government Bond
1994 14.734788 14.630721 46,005.023
1995 14.630721 17.772344 117,694.301
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Quality Bond
1994 14.307698 14.216516 15,254.616
1995 14.216516 16.751499 118,436.044
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities
1994 14.188969 14.111357 14,981.455
1995 14.111357 16.083213 136,450.591
- ----------------------------------------------------------------------------------------------------------------------------------
Money Market
1994 13.453100 13.623292 57,620.649
1995 13.623292 14.190910 218,876.370
- ----------------------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation
1994 12.538660 12.381395 41,051.814
1995 12.381395 14.990551 102,929.895
- ----------------------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation
1994 12.522239 12.396295 98,925.767
1995 12.396295 14.752561 312,206.344
- ----------------------------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation
1994 12.378545 12.298940 33,929.162
1995 12.298940 14.320582 127,957.567
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Units under this series of contracts were first credited under the
sub-accounts on August 9, 1994, except in the case of International Growth and
Income where units were first credited under the sub-accounts on January 9,
1995.
+ See Appendix D for the TABLE of ACCUMULATION UNIT VALUES for certain contracts
which are no longer being issued (Ven 8 contracts).
10
<PAGE> 11
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. 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.
If deemed by the Company to be in the best interests of persons having voting
rights under the contracts, the Variable Account may be operated as a management
company under the 1940 Act or it may be deregistered under such Act in the event
such registration is no longer required.
There are currently sixteen sub-accounts within the Variable Account:
the Small/Mid Cap Sub-Account, the International Small Cap Sub-Acount, 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 obtaining any necessary approval of the appropriate state
or federal regulatory authorities.
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 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
11
<PAGE> 12
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 provides investment subadvisory services to the International Growth
and Income Trust. Fred Alger Management, Inc. provides 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 the
Subadviser. 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
12
<PAGE> 13
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.
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 International Small Cap, 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 Global Equity, Strategic Bond, International Growth &
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 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 owners under contracts 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 persons having the voting interest
under a contract are the owners and the number of votes as to each portfolio for
which voting instructions may be given by each is determined by dividing the
value of the owner's 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 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 annuity
option selected by the annuitant 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 the annuity option 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.
13
<PAGE> 14
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.
DESCRIPTION OF THE CONTRACT
ELIGIBLE GROUPS
The contract may be issued to fund 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") The contract is also
designed so that it may be used with non-qualified retirement plans, such as
deferred compensation and payroll savings plans and such other groups (trusteed
or non-trusteed) as may be eligible under applicable law. Contracts have been
issued to the Security Life Trust, a trust established with United Missouri
Bank, N.A., Kansas City, Missouri, as group holder for groups comprised of
persons who have brokerage accounts with brokers having selling agreements with
NASL Financial Services, Inc., the principal underwriter of the contracts.
An eligible member of a group to which a contract has been issued may
become an owner under the contract by submitting a completed application, if
required by the Company, and a minimum purchase payment. A certificate
summarizing the rights and benefits of the owner under the contract will be
issued to an applicant acceptable to the Company. The Company reserves the right
to decline to issue a certificate to any person in its sole discretion. All
rights and privileges under the contract may be exercised by each owner as to
his or her interest unless expressly reserved to the group holder. However,
provisions of any plan in connection with which the contract was issued may
restrict an owner's ability to exercise such rights and privileges.
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service
Office. The minimum purchase payment for any certificate is $30; however, at
least $300 must be paid for any certificate during the first certificate year.
Purchase payments may be made at any time. The Company may provide by separate
agreement for purchase payments to be automatically withdrawn from an owner's
bank account on a periodic basis. If a purchase payment would cause the contract
value for an owner to exceed $1,000,000 or the owner's 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 certificate and an owner's
participation under a contract at the end of any two consecutive certificate
years in which no purchase payments by or on behalf of the owner have been made,
if both (i) the total purchase payments made for the certificate, less any
withdrawals, are less than $2,000; and (ii) the contract value for the owner at
the end of such two year period is less than $2,000. The cancellation of
contract privileges may vary in certain states in order to comply with the
requirements of insurance laws and regulations in such state. Upon cancellation
the Company will pay the owner his or her contract value computed as of the
valuation period during which the cancellation occurs less any debt and less the
annual $30 administration fee. The amount paid will be treated as a withdrawal
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 owner. In addition, 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 certificate application. Owners may elect to participate in the Guarantee
Plus Program and may obtain full information concerning the program and its
restrictions from their securities dealers or the Annuity Service Office. An
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.
14
<PAGE> 15
ACCUMULATION UNITS
The Company will establish an investment account for each owner for
each variable account investment option to which such 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 for a certificate, pursuant to the
procedures described below.
Initial purchase payments for a certificate 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 all information necessary for processing issuance of the certificate. The
applicant will be informed of any deficiencies preventing processing if the
certificate cannot be issued 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 credited in the
valuation period during which received where such broker-dealers have made
special arrangements with the Company.
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 under
contracts similar to the contracts described in this Prospectus. 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. Currently, such factor is equal on an
annual basis to 1.4% (0.15% for administrative expenses
15
<PAGE> 16
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 an owner may transfer amounts among his or
her variable account investment options and from such investment options to his
or her fixed account investment options at any time and without charge upon
written notice to the Company or by telephone if the 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 for a certificate
on the date of the transfer will not be affected by the transfer. The 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 an owner may make to one per month or six at any
time within a certificate 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.
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 purchased 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
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, an owner must elect the option. 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, owners will
be asked to provide their account number, and if not available, their social
security number. For the owner's and Company's protection, all conversations
with 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 an owner to pre-authorize a periodic exercise of the contractual
transfer rights described above. 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 owners making a substantial deposit 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. Owners interested in the DCA program may elect to
participate in the program on the application or by separate application. Owners
may obtain a separate application and full information concerning the program
and its restrictions from their securities dealer or the Annuity Service Office.
ASSET REBALANCING PROGRAM
The Company administers an Asset Rebalancing Program which enables an
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 owner's contract value will be automatically rebalanced to maintain
the indicated percentages by transfers among the portfolios. (Fixed
16
<PAGE> 17
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, owners should monitor their use of
these other programs and any other transfers or withdrawals while the Asset
Rebalancing Program is being used. 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 an owner,
an owner may withdraw all or a portion of his or her 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 owner's contract value
as of the date of receipt of the request at its Annuity Service Office, less the
annual $30 administration fee if applicable, any debt and any applicable
withdrawal charge, and the owner's certificate will be canceled. In the case of
a partial withdrawal, the Company will pay the amount requested and 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 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 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, beginning with the
shortest guarantee period first and ending with the longest guarantee period
last. 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 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 owner's contract value to less than $300, the
Company will treat the partial withdrawal as a total withdrawal of the owner's
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 or certificates issued in
connection with Section 403(b) qualified plans only under limited circumstances.
(See "FEDERAL TAX MATTERS")
TELEPHONE REDEMPTIONS. The owner may request the option to withdraw a
portion of his or her contract value by telephone by completing a separate
application. 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.
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SPECIAL WITHDRAWAL SERVICES - INCOME PLAN
The Company administers an Income Plan ("IP") which enables an owner
to pre-authorize a periodic exercise of the contractual withdrawal rights
described above. Owners entering into an IP agreement instruct the Company to
withdraw a level dollar amount from specified investment options on a periodic
basis. The total of IP withdrawals in a certificate year is limited to not more
than 10% of the purchase payments made by or on behalf of the owner to ensure
that no withdrawal or market value charge will ever apply to an IP withdrawal.
If an additional withdrawal is made by an owner participating in an IP, the IP
will terminate automatically and may be reinstated only on or after the next
certificate anniversary. The IP is not available to owners participating in the
dollar cost averaging program or for which purchase payments are being
automatically deducted from a bank account on a periodic basis. IP withdrawals
will be free of withdrawal and market value charges. IP withdrawals may,
however, be subject to income tax and a 10% penalty tax. (See "FEDERAL TAX
MATTERS") Owners interested in an IP may elect to participate in this program
may obtain a separate application and full information concerning the program
and its restrictions from their securities dealer or the Annuity Service Office.
LOANS
The Company offers a loan privilege only under contracts or
certificates issued in connection with Section 403(b) qualified plans that are
not subject to Title I of ERISA. Where available, owners may obtain loans using
their contract value 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 an owner's 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 taken by the owner 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
owner's 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 owner's
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 owner's 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 certificate
anniversary, the Company will transfer from the owner's investment accounts to
his or her loan account the amount by which the owner's debt exceeds the balance
in his or her 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 owner's debt and bears interest at 6% as
well. The Company credits interest with respect to amounts held in the owner's
loan account at a rate of 4% per year. Consequently, the net cost of loans under
the contract is 2%. If on any date an owner's debt exceeds his or her contract
value, there will be a default as to the owner. In such case the owner will
receive a notice indicating the payment needed to cure the 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 as to that owner (terminated without value) and the certificate
canceled.
The amount of an owner's debt will be deducted from the death benefit
otherwise payable to the beneficiary. (See "DEATH BENEFIT BEFORE MATURITY DATE")
In addition, debt, whether or not repaid, will have a permanent effect on an
owner's 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 owner's 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.
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DEATH BENEFIT BEFORE MATURITY DATE
In General. The following discussion applies principally to contracts
and certificates that are not issued in connection with qualified plans, i.e., a
"non-qualified" contract or certificate. 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 a contract or certificate to be used in connection with a qualified
plan should seek competent legal and tax advice regarding the suitability of the
contract or certificate for the situation involved and the requirements
governing the distribution of benefits, including death benefits, from a
contract or certificate used in the plan. In particular, a prospective purchaser
who intends to use the contract or certificate in connection with a qualified
plan should consider that the contract provides a 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"). See APPENDIX D
for information on death benefit provisions applicable to certain contracts
which are no longer being issued (Ven 8 contracts).
Amount of Death Benefit. If any 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 certificate date, the death benefit will be determined as follows: During
the first certificate year, the death benefit will be the greater of: (a) the
contract value or (b) the sum of all purchase payments made, less any amounts
deducted in connection with partial withdrawals made by or on behalf of the
owner. During any subsequent certificate 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 certificate year, plus any purchase payments made and less any
amounts deducted in connection with partial withdrawals made by or on behalf of
the owner since then.
If any owner dies after his or her 85th birthday and the oldest owner
had an attained age of less than 81 years on the certificate date, the death
benefit will be the greater of: (a) the contract value or (b) the excess of (i)
the sum of all purchase payments made by or on behalf of the owner over (ii) the
sum of any amounts deducted in connection with partial withdrawals made by or on
behalf of the owner. If any owner dies and the oldest owner had an attained age
greater than 80 on the certificate date, the death benefit will be the contract
value less any applicable withdrawal charges at the time of payment of benefits.
The determination of the death benefit will be made on the date
written notice and proof of death, as well as all required claims forms, are
received at the Company's Annuity Service Office. No person is entitled to the
death benefit until this time. In addition, partial withdrawals include amounts
applied under an annuity option under the contract. Also, amounts deducted in
connection with partial withdrawals include charges imposed on a partial
withdrawal, but not amounts charged in payment of the annual administration fee.
If the owner has any debt under the contract, the death benefit equals the death
benefit, as described above, less such debt.
Payment of Death Benefit. The Company will pay the death benefit
(which, as defined above, is net of any debt) to the beneficiary if any owner
dies before the maturity date. If there is a surviving owner, that owner will be
deemed to be the beneficiary. No death benefit is payable on the death of any
annuitant, except that if any owner is not a natural person, the death of any
annuitant will be treated as the death of an owner. On the death of the last
surviving annuitant, the owner, if a natural person, will become the annuitant
unless the owner designates another person as the annuitant.
The death benefit may be taken in the form of a lump sum immediately.
If not taken immediately, the certificate will continue subject to the
following: (1) The beneficiary will become the owner. (2) Any excess of the
death benefit over the contract value will be allocated to the owner's
investment accounts in proportion to their relative values on the date of the
Company's receipt at its Annuity Service Office of written notice and proof of
death and all required claim forms. (3) No additional purchase payments may be
made. (4) If the beneficiary is not the deceased's owner spouse, distribution of
the owner's entire interest in the certificate must be made within five years of
the owner's death, or alternatively, distribution may be made as an annuity,
under one of the annuity options described below, which begins within one year
of the owner's death and is payable over the life of the beneficiary or over a
period not extending beyond the life expectancy of the beneficiary. Upon the
death of the beneficiary, the death benefit will equal the contract value which
must be distributed immediately in a single sum. (5) If the owner's spouse is
the beneficiary, the certificate will continue with the spouse as the new owner.
In such a case, the distribution rules described in "(4)" applicable when an
owner dies will apply when the spouse, as the owner, dies. (6) If any owner dies
and the oldest owner had an attained age of less than 81 on the certificate
date, withdrawal charges are not applied on payment of the death benefit
(whether taken through a partial or total withdrawal or applied under an annuity
option). If any owner dies and the oldest owner had an attained age greater than
80 on the certificate date, withdrawal charges will be assessed only upon
payment of the death benefit (if such charges are otherwise
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applicable), so that if the death benefit is paid in a subsequent year, a lower
withdrawal charge will be applicable.
If any annuitant is changed and any owner is not a natural person,
the entire interest in the certificate must be distributed to the owner within
five years.
A substitution or addition of any owner may result in resetting the
death benefit to an amount equal to the contract value as of the date of the
change and treating such value as a payment made on that date for purposes of
computing the amount of the death benefit. In addition, all purchase payments
made and all amounts deducted in connection with partial withdrawals prior to
the date of the change of owner will not be considered in the determination of
the death benefit. Furthermore, the death benefit on the last day of the
previous contract year shall be set to zero as of the date of the owner change.
No such change in death benefit will be made if the individual whose death will
cause the death benefit to be paid is the same after the change in ownership or
if ownership is transferred to the owner's spouse.
Death benefits will be paid within seven days of the date the amount
of the death benefit is determined, as described above, subject to postponement
under the same circumstances that payment of withdrawals may be postponed. (See
"WITHDRAWALS")
ANNUITY PROVISIONS
GENERAL
Proceeds payable on death, withdrawal or the maturity date may be
applied to the annuity options described below, subject to the distribution of
death benefits provisions. ( See "DEATH BENEFIT BEFORE MATURITY DATE")
Generally, annuity benefits under the contract will begin on the
maturity date of the certificate. The maturity date is the date specified on the
certificate specifications page, unless changed. If no date is specified, the
maturity date is the maximum maturity date described below. The maximum maturity
date is the first day of the month following the later of the 85th birthday of
the annuitant or the tenth contract anniversary. An 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
may not be later than the maximum maturity date unless the Company consents.
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"
Distributions from qualified contracts may be required before the maturity date.
An owner may select the frequency of annuity payments. However, if
the owner's 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. On or before the
maturity date, an 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 annuity payments on a fixed, variable or combined fixed and
variable basis in proportion to the Investment Account Value of each investment
option at the maturity date. Annuity payments will continue for 10 years or the
life of the annuitant, if longer. 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.
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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.
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 for a certificate 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 and the certificate. The rates contained in such
tables depend upon the annuitant's age (as adjusted depending on the annuitant's
year of birth) and the annuity option selected. 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
rates are based on the 1983 Table A projected at Scale G, assume births in year
1942 and reflect an assumed interest rate of 3% per year. See Appendix D for
information on assumed interest rates applicable to certain contracts which are
no longer being issued (Ven 8 contracts).
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 by the owner. 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 used to effect annuity
payments under a certificate 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
selected by the owner 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.
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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 3% 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 assumed
rate. A lower assumption would have the opposite effect. If the actual net
investment performance is 3% annually, annuity payments will be level.
TRANSFERS AFTER MATURITY DATE
Once variable annuity payments have begun, an 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 by the owner 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. 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. The
Company reserves the right to limit, upon notice, the maximum number of
transfers an owner may make per certificate year to four. 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
An owner may return his or her certificate to the Company's Annuity
Service Office or agent at any time within 10 days after receipt of the
certificate. Within 7 days of receipt of the certificate by the Company, the
Company will pay the owner's contract value, less any debt, computed at the end
of the valuation period during which the certificate is received by the Company,
to the owner.
No withdrawal charge is imposed upon return of the certificate 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 certificate 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 is owned by the group holder. However, all contract
rights and privileges not expressly reserved to the group holder may be
exercised by each owner as to his or her interests as specified in his or her
certificate. Prior to the maturity date, an owner is the person designated on
the certificate specifications page or as subsequently named. On and after a
certificate's maturity date, the annuitant is the owner. If amounts become
payable under the certificate to any beneficiary, the beneficiary is the owner.
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In the case of non-qualified contracts, an owner's interest in the
contract may be changed, or the certificate may be collaterally assigned, at any
time prior to the maturity date, subject to the rights of any irrevocable
beneficiary. Ownership of the contract may be assigned at any time by the group
holder. Assigning a contract or interest therein, or changing the ownership of a
contract or certificate, may be treated as a distribution of the contract value
for Federal tax purposes. A change of any owner may result in resetting the
death benefit to an amount equal to the contract value as of the date of the
change and treating such value as a purchase payment made on that date for
purposes of computing the amount of the death benefit. See "DEATH BENEFIT BEFORE
MATURITY DATE"
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 the Company receives the request at
its Annuity Service Office. The Company assumes no liability for any payments
made or actions taken before a change is approved or an assignment is accepted
or responsibility for the validity or sufficiency of any assignment. An absolute
assignment will revoke the interest of any revocable beneficiary.
In the case of qualified contracts, ownership of the contract or an
owner's interest in the contract generally may not be transferred except to the
trustee of an exempt employees' trust which is part of a retirement plan
qualified under Section 401 of the Internal Revenue Code or as otherwise
permitted by applicable IRS regulations. Subject to the foregoing, an owner's
interest in a 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.
See Appendix D for information on ownership applicable to certain
contracts which are no longer being issued (Ven 8 contracts).
BENEFICIARY
The beneficiary is the person, persons or entity designated on the
certificate specifications page or as subsequently named. However, if there is a
surviving owner, that person will be treated as the beneficiary. The beneficiary
may be changed 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. If no
beneficiary is living, the contingent beneficiary will be the beneficiary. The
interest of any beneficiary is subject to that of any assignee. If no
beneficiary or contingent beneficiary is living, the beneficiary is the estate
of the deceased owner. In the case of certain qualified contracts or
certificates, regulations promulgated by the Treasury Department prescribe
certain limitations on the designation of a beneficiary.
See Appendix D for information on ownership applicable to certain
contracts which are no longer being issued (Ven 8 contracts).
ANNUITANT
The annuitant is any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
owner names more than one person as an "annuitant," the second person named
shall be referred to as "co-annuitant." The annuitant is as designated on the
contract specifications page or in the application, unless changed.
On the death of the annuitant, the co-annuitant, if living, becomes
the annuitant. If there is no living co-annuitant, the owner becomes the
annuitant. In the case of certain qualified contracts, there are limitations on
the ability to designate and change the annuitant and the co-annuitant.
MODIFICATION
The contract or any certificate may not be modified by the Company
without the consent of the group holder or the owner, as applicable, except as
may be required to make it conform to any law or regulation or ruling issued by
a governmental agency. However, on 60 days' notice to the group holder, the
Company may change the withdrawal charges, administration fees, mortality and
expense risk charges, free withdrawal percentage, annuity purchase rates and the
market value charge as to any certificates issued after the effective date of
the modification. The provisions of the contract shall be interpreted so as to
comply with the requirements of Section 72(s) of the Internal Revenue Code.
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See Appendix D for information on ownership applicable to certain
contracts which are no longer being issued (Ven 8 contracts).
DISCONTINUANCE OF NEW OWNERS
On thirty days' notice to the group holder, the Company may limit or
discontinue acceptance of new applications and the issuance of new certificates
under a contract.
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 19, 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 and
groupholders 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 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. Currently there are four fixed account investment
options under the contract: one, three, five and seven year investment accounts.
The Company may offer additional fixed account investment options for any yearly
period from two to ten years. Fixed investment accounts provide for the
accumulation of interest on purchase payments at guaranteed rates for the
duration of the 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 3%. 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. See Appendix D for
information on fixed account investment options and the guaranteed rate of
interest applicable to certain contracts which are no longer being issued (Ven 8
contracts).
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<PAGE> 25
Investment Accounts. Owners may allocate purchase payments, or make
transfers from their variable investment options, to fixed account investment
options at any time prior to the maturity date. The Company establishes a
separate investment account each time an 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, an 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. An 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 an 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 an 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 Company
reserves the right to modify the market value charge as to any certificates
issued after the effective date of a charge specified in written notice to the
group holder.
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 may never be 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 owner:
(b) amounts withdrawn to pay fees or charges; (c) amounts applied at the
maturity date to purchase an annuity at the guaranteed rates provided in the
certificate; (d) amounts withdrawn from investment accounts within one month
prior to the end of the guarantee period; (e) amounts withdrawn from a one-year
fixed investment account; and (f) amounts withdrawn in any certificate year that
do not exceed 10% of (i) total purchase payments less (ii) any prior partial
withdrawals in that certificate year.
Notwithstanding application of the foregoing formula, in no event
will the market value charge (i) be greater than the amount by which the
earnings attributable to the amount withdrawn or transferred from an investment
account exceed an annual rate of 3%, (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 (or the effect of the withdrawal charge itself) could, however, result
in an owner receiving total withdrawal proceeds of less than the owner's
investment in the contract. See Appendix D for information on the market value
charge applicable to certain contracts which are no longer being
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<PAGE> 26
issued (Ven 8 contracts).
Transfers. Prior to the maturity date, an owner may transfer amounts
among his or her fixed account investment options and from the fixed account
investment options to his or her 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 transfers
may be made pursuant to the Dollar Cost Averaging program. 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 any other
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.
An 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, amounts must be withdrawn from the
fixed account investment option on a first-in-first-out basis.
Withdrawals. An owner may make total and partial withdrawals of
amounts held in his or her fixed account investment options at any time prior to
the earlier of the death of an owner or the maturity date. 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 and certificate if required (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 3% 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 any
investment option except for a one year investment option. 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 an owner requests a partial withdrawal in excess of his or her
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 his or her investment options beginning with the
shortest guarantee period. 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, and withdrawals are permitted from contracts and certificates
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 under contracts or
certificates issued in connection with Section 403(b) qualified plans that are
not subject to Title I of ERISA. Where available, owners may obtain loans using
their contract value as the only security for the loan. Owners may borrow
amounts allocated to their 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 the fixed
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 benefits
provisions (see "DEATH BENEFIT BEFORE MATURITY DATE)", on death, withdrawal or
the maturity date, 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 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 owner, the Company will
substitute that table. The Company guarantees the dollar amount of fixed annuity
payments.
CHARGES AND DEDUCTIONS
Charges and deductions are assessed against purchase payments,
contract values or annuity payments. Currently, there are
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<PAGE> 27
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 by an owner before the
maturity date of the certificate, a withdrawal charge (contingent deferred sales
charge) may be assessed against amounts withdrawn attributable to purchase
payments that have been in the contract for the owner less than seven complete
years. There is never a withdrawal charge with respect to earnings accumulated
for an owner in the contract, certain other free withdrawal amounts described
below or purchase payments by or on behalf of the owner that have been in the
contract more than seven complete years. In no event may the total withdrawal
charges exceed 6% of the total purchase payments made by or on behalf of the
owner. The amount of the withdrawal charge and when it is assessed is discussed
below:
1. Each withdrawal is allocated first to the "free withdrawal amount"
and second to "unliquidated purchase payments" for each certificate. In any
certificate year, the free withdrawal amount for that year is the greater of (1)
the excess of the owner's contract value on the date of withdrawal over the
unliquidated purchase payments made by or on behalf of the owner (the
accumulated earnings on the owner's certificate) or (2) the excess of (i) over
(ii), where (i) is 10% of total purchase payments made by or on behalf of the
owner and (ii) is all prior partial withdrawals made by or on behalf of the
owner in that certificate year. Withdrawals allocated to the free withdrawal
amount may be withdrawn without the imposition of a withdrawal charge.
2. If an owner makes a withdrawal for an amount in excess of the free
withdrawal amount, the excess will be allocated to purchase payments made by or
on behalf of the owner which will be liquidated on a first-in first-out basis.
On any withdrawal request, the Company will liquidate purchase payments made by
or on behalf of the owner 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
PURCHASE PAYMENT IN WITHDRAWAL CHARGE
CONTRACT PERENTAGE
--------------------------------------------------------------
<S> <C>
0 6%
1 6%
2 5%
3 5%
4 4%
5 3%
6 2%
7+ 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 owner's contract value
remaining after the 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 plus market value charge.
5. There is generally no withdrawal charge on distributions made as a
result of the death of the owner or, if applicable, annuitant (see "Death
Benefit Before Maturity Date - Amount of Death Benefit) and no withdrawal
charges are imposed on the maturity date if the owner annuitizes as provided in
the contract.
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<PAGE> 28
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.
See APPENDIX D for information on withdrawal charges applicable to certain
contracts which are no longer being issued (Ven 8 contracts). 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") The Company reserves the right to modify the withdrawal
charge as to certificates issued after the effective date of a change specified
in written notice to the group holder.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
The amount of the withdrawal charge on a contract or certificate may
be reduced or eliminated when some or all of the certificates are to be sold 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 the 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 sales 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. Certificate sales expenses are likely to be less when there is a
prior or existing relationship because of the likelihood of implementing more
sales with fewer sales contacts.
4. The level of commissions paid to selling broker-dealers will be
considered. Certain broker-dealers may offer certificates 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 certificates, 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 certificate 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
Except as noted below, the Company will deduct each year an annual
administration fee of $30 from each owner's contract value as partial
compensation for the cost of providing all administrative services attributable
to the contracts and certificates and the operations of the Variable Account and
the Company in connection with the contracts and certificates. However, if prior
to the maturity date the contract value is greater than or equal to $100,000 at
the time of the fee's assessment, the fee will be waived. Prior to the maturity
date, this administration fee is deducted on the last day of each certificate
year. It is withdrawn from each investment option in the same proportion that
the value of such investment option bears to the sum of the investments options.
If an owner's entire contract value is withdrawn on other than the last day of
any certificate 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. See Appendix D for the administration fee applicable
to certain contracts which are no longer being issued (Ven 8 contracts).
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 each owner's 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 contract values will in effect pay a higher
proportion of this portion of the administrative expense than smaller contract
values.
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<PAGE> 29
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 as to any certificates issued prior to the
effective date of the Company's modification of such fees. There is no necessary
relationship between the amount of the administrative charge imposed on a given
certificate and the amount of the expense that may be attributed to that
certificate.
REDUCTION OR ELIMINATION OF ANNUAL ADMINISTRATION FEE
The amount of the annual administration fee on a contract or a
certificate may be reduced or eliminated when some or all of the certificates
are to be sold 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 certificate
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 with respect to existing certificates. 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 an owner dies before the
maturity date, it will pay a 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 currently
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 each owner's contract value as a proportionate reduction in the
value of each variable investment account. The rate of the mortality and expense
risk charge can be increased, but only as to certificates issued after the
effective date of the increase and upon 60 days' prior written notice to the
group holder. The Company may issue contracts and certificates with a mortality
or expense risk charge at rates less than those set out above, if it concludes
that the mortality or expense risks of the groups involved are less than the
risks it has determined for persons for whom the contracts and certificates have
been generally designed. 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. On the Period Certain Only
Annuity Option, where an owner elects benefits payable on a variable basis, the
mortality and expense risk charge is assessed although the Company bears only
the expense risk and not any mortality risk. The mortality and expense risk
charge is not assessed against the fixed account investment options.
TAXES
The Company reserves the right to charge, or provide for, certain
taxes against purchase payments (either at the time of payment or liquidation),
contract values, payment of death benefit 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
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<PAGE> 30
maintenance of the Variable Account, (ii) receipt by the Company of purchase
payments, (iii) issuance of the contracts or certificates, or (iv) commencement
or continuance of annuity payments under the contracts or certificates. In
addition, the Company will withhold taxes to the extent required by applicable
law.
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 certificate 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 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. The
state premium tax will be collected upon payment of any withdrawal benefits,
upon any annuitization or payment of death benefits. 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 or certificate is not exhaustive, does not purport to cover all
situations, and is not intended as tax advice. The federal income tax treatment
of a group annuity contract is unclear in certain circumstances, and 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 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 or certificate. In addition, THE
COMPANY MAKES NO GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR
LOCAL -- OF ANY CONTRACT OR CERTIFICATE OR OF ANY TRANSACTION INVOLVING A
CONTRACT OR CERTIFICATE.
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 an owner's contract value is generally not taxable to the 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 Owners. As a general rule, deferred annuity contracts (or
certificates) held by "non-natural persons" such as a
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<PAGE> 31
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 (or certificates) is taxed as ordinary income that is received
or accrued by the owner during the taxable year. There are several exceptions to
this general rule for non-natural 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. Thus, if a
group annuity contract is held by a trustee, certificate owners who are
individuals should be treated as owning an annuity contract for federal tax
purposes. 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.
In addition, exceptions to the general rule for non-natural owners
will apply with respect to (1) certificates acquired by an estate of a decedent
by reason of the death of the decedent, (2) certain qualified contracts or
certificates, (3) annuities purchased by employers upon the termination of
certain qualified plans, (4) certain annuities used in connection with
structured settlement agreements, and (5) annuities 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 contract 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 an owner would be
taxable currently on the excess of his or her contract value over the premiums
he or she paid for the certificate.
Although the Company does not control the investments of 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
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 variable annuity owners' gross income. The Internal Revenue
Service (the "Service") has stated in published rulings that a variable 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 asset
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 owners were not owners of separate account assets.
For example, an owner under 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 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 owners from being
considered the owners of the assets of the Variable Account.
Delayed Maturity Dates. If the 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 owner's contract value before
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<PAGE> 32
the withdrawal exceeds his or her "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 certificate 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 certificate which were not included in income.
Other than in the case of certain qualified contracts or
certificates, 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 aspect of the
assignment or pledge (including its release). If an individual transfers a
certificate 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 his or her 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 made by or on behalf of an owner
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 certificate because of the death of
an owner or an annuitant. In the case of a non-qualified certificate, 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 certificate unless the payment is: (a) received on or after the
owner reaches age 59 1/2; (b) attributable to the owner's becoming disabled (as
defined in the tax law); (c) made to a beneficiary on or after the death of the
owner or, if the 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), or (e) made under a certificate purchased with a single premium when
the annuity starting date is no later than a year from purchase of the
certificate and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period.
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
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<PAGE> 33
reaches age 59 1/5, (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 expectations, as well as certain others not described herein,
generally apply to taxable distributions from other qualified plans (although,
in the case of plans qualified under sections 401 and 403, exception "c" above
for substantially equal periodic payments applies only if the owner has
separated from service).
AGGREGATION OF CONTRACTS
In certain circumstances, the Service may determine the amount of an
annuity payment or a withdrawal from a certificate that is includible in income
by combining some or all of the non-qualified certificates and annuity contracts
owned by an individual. For example, if a person purchases a certificate 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 or
certificates 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 (or
certificates), 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 IRA's and certain
other qualified plans, distributions of minimum amounts (as specified in the tsx
law) must generally commence by April 1 of the calendar year following 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 and certificates with the various types of qualified plans.
When issued in connection with a qualified plan, a contract and
certificate will be amended as generally necessary to conform to the
requirements of the type of plan. However, 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.
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 made by or on behalf of an owner
and the contract value. The Company intends to ask the IRS to approve the use of
the contract, as to form, as an IRA, but there is no assurance that such
approval will be granted.
Simplified Employee Pensions (SEP-IRAs). Section 408(k) of the Code
allows employers to establish simplified employee
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<PAGE> 34
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 or certificates 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 made by or on
behalf of an owner 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 tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
contract or certificates 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 made by or on behalf of an owner 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 or certificates 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 or certificates 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 or
certificates. In particular, purchasers should consider that the contract
provides a death benefit that in certain circumstances may exceed the greater of
the purchase payments made by or on behalf of an owner 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 contract or
certificates are used in connection with an eligible plan, employees are
considered general creditors of the employer and the employer as owner of the
contract or certificates has the sole right to the proceeds of the contract or
certificate. Loans to employees are not permitted under such plans. Generally, a
contract or certificate 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 or certificates 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
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<PAGE> 35
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
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 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 9, 1994, 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 a 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.
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<PAGE> 36
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 owners participating in the service. THE COMPANY
DOES NOT ENDORSE, APPROVE OR RECOMMEND SUCH SERVICES IN ANY WAY AND
GROUPHOLDERS/OWNERS SHOULD BE AWARE THAT FEES PAID FOR SUCH SERVICES ARE
SEPARATE AND IN ADDITION TO FEES PAID UNDER THE CONTRACTS AND CERTIFICATES.
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 the four events has occurred. The foregoing
restrictions on withdrawal do not apply in the event a participant in the ORP
transfers his or her contract value to another contract or another qualified
custodian during the period of participation in the ORP. Loans are not available
under contracts issued under the ORP.
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 and certificates 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 a non-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 the principals of Wood Logan. Sales of the contracts and certificates will be
made by registered representatives of broker-dealers authorized by NASL
Financial to sell them. 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 6% of purchase payments plus
0.25% of the certificate value per year beginning in the second certificate
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 and certificates.
OWNER INQUIRIES
All 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.
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<PAGE> 37
EXCHANGE OFFER AND ENHANCED DEATH BENEFIT OPTION
EXCHANGE OFFER
The certificates under Contracts described in this Prospectus ("New
Certificates") may be issued in exchange for certificates under certain group
annuity contracts previously issued by the Company ("Old Certificates") or Ven 8
contracts. The Old Certificates are described in Appendix D.
The Company will permit an owner of an outstanding Old Certificate to
exchange the Old Certificate for a New Certificate 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 Certificate will be deemed to have been issued on the
date the Old Certificate was issued, and any purchase payment credited to the
Old Certificate will be deemed to have been credited to the New Certificate on
the date it was credited under the Old Certificate. The death benefit under the
New Certificate on the date of its issue will be the greater of the minimum
death benefit under the Old Certificate or the contract value on the date of
exchange and will "step up" annually thereafter as described in paragraph "2."
below.
Old Certificate owners interested in a possible exchange should
carefully review both Appendix D and the remainder of this Prospectus before
deciding to make an exchange.
AN EXCHANGE MAY NOT BE IN THE BEST INTERESTS OF AN OWNER OF AN OLD
CERTIFICATE, particularly in light of the availability of the Enhanced Death
Benefit endorsement described below. Further, under Old Certificates, 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 in Appendix D.) The Company believes
that an exchange of Certificates 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 Certificates are as
follows:
1. The death benefit of the New Certificate 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 Certificate is 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 Certificate 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 Certificate
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 certificate 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 Certificate
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 certificate
year period plus any purchase payments made and less any amounts deducted in
connection with certain withdrawals since then. Under the Old Certificate, the
death benefit is stepped up every six years instead of every year.
Under the New Certificate, 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
certificate date, the death benefit will be the greater of the contract value or
the excess of the sum of all purchase payments made by the owner less the sum of
any amounts deducted in connection with certain withdrawals by the owner. If an
owner dies and the oldest owner had an attained age greater than 80 on the
certificate date, the death benefit will be the contract value less any
applicable withdrawal charges at the time of payment. Under the Old Certificate,
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 Certificate 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 be assessed.
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<PAGE> 38
4. The surrender charges under the New Certificate will be higher in
certain cases. The surrender charges are the same under both Old and New
Certificates for the first three certificate years, but thereafter the charges
under the New Certificate are 5%, 4%, 3% and 2% for withdrawals made during
certificate years four, five, six and seven, respectively, while under the Old
Certificate 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 Certificate will be three percent as opposed
to four percent under the Old Certificate. The market value charge under the New
Certificate will be limited so as to only affect accumulated earnings in excess
of three percent, whereas under the Old Certificate the market value charge is
limited so as to not invade principal.
6. The annuity purchase rates guaranteed in the New Certificate have
been determined using 3% as opposed to 4% under the Old Certificate.
Certificate owners who do not wish to exchange their Old Certificates
for the New Certificates may continue to make purchase payments to their Old
Certificates. Or, they can keep their Old Certificates and buy a New Certificate
to which to apply additional purchase payments.
The above comparison does not take into account differences between
the Old Certificates, as amended by qualified plan endorsements, and the New
Certificates, as amended by similar qualified plan endorsements. Owners using
their Old Certificate in connection with a qualified plan should consult a tax
advisor. See also the Federal Tax Matters section of the prospectus.
ENHANCED DEATH BENEFIT OPTION
As an alternative to the exchange privilege described above, the
Company is offering an Enhanced Death Benefit to any owner of an Old Certificate
(a Ven 8 contract) having a certificate date not later than August 15, 1994. The
Enhanced Death Benefit Option is available as an endorsement to such
Certificates only upon the payment of an additional purchase payment of at least
10% of all purchase payments made to the Old Certificate through August 15, 1994
or $10,000, whichever is greater. Old Certificates dated subsequent to August 15
will not be eligible for the Enhanced Death Benefit endorsement.
The Enhanced Death Benefit, as described below, will provide an
annual step-up in death benefit comparable to the New Certificate death benefit
described in the prospectus under "Death Benefit Before Maturity Date," 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 Certificate.
The Enhanced Death Benefit provided by the endorsement will always be
equal to or better than the death benefit of an Old Certificate 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 under the caption "Prior Contract Death Benefit Provision" in
Appendix D except that the death benefit is stepped up each certificate year
instead of each six certificate 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 certain withdrawals. Under an Old Certificate 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 Certificate issued without the endorsement, the death benefit will be
computed as if the Enhanced Death Benefit endorsement had been a part of the Old
Certificate on the certificate date.
The Company believes that the addition of the Enhanced Death Benefit
endorsement to an Old Certificate 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.
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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.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History............................................. 3
Performance Data............................................................ 3
Services
Independent Accountants............................................. 6
Servicing Agent..................................................... 6
Principal Underwriter............................................... 6
Cancellation of Certificate......................................... 6
Financial Statements........................................................ 7
</TABLE>
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APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
Example 1 - Assume a single payment of $50,000 is made by an owner into the
contract and a certificate is issued. 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 value of the certificate were completely withdrawn. This illustration
is based on hypothetical contract values.
<TABLE>
<CAPTION>
CERTIFICATE HYPOTHETICAL FREE WITHDRAWAL
YEAR CONTRACT WITHDRAWAL PAYMENTS CHARGE
VALUE AMOUNT LIQUIDATED ------------------
PERCENT AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 55,000 5,000(a) 50,000 6% 3,000
4 50,500 5,000(b) 45,500 5% 2,275
6 60,000 10,000(c) 50,000 3% 1,500
8 70,000 20,000(d) 50,000 0% 0
</TABLE>
- ----------
(a) During any certificate year the free withdrawal amount is the greater
of accumulated earnings, or 10% of the total payments made by the
owner less any prior partial withdrawals in that certificate year. In
the second certificate year the earnings under the contract and 10%
of payments both equal $5,000. Consequently, on total withdrawal
$5,000 is withdrawn free of the withdrawal charge, the entire $50,000
payment is liquidated and the withdrawal charge is assessed against
such liquidated payment (contract value less free withdrawal amount).
(b) In the example for the fourth certificate year, the accumulated
earnings of $500 is less than 10% of payments, therefore the free
withdrawal amount is equal to 10% of payments ($50,000 X 10% =
$5,000) and the withdrawal charge is only applied to payments
liquidated (contract value less free withdrawal amount).
(c) In the example for the sixth certificate year, the accumulated
earnings of $10,000 is greater than 10% of 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
payments liquidated (contract value less free withdrawal amount).
(d) There is no withdrawal charge on any payments liquidated that have
been in the contract for at least 7 years.
Example 2 - Assume a single payment of $50,000 is made by an owner
into the contract and a certificate is issued. No transfers are made, no
additional payments are made and there are a series of four partial withdrawals
made during the third certificate year of $2,000, $5,000, $7,000, and $8,000.
The illustration below is based on hypothetical contract values.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL WITHDRAWAL FREE WITHDRAWAL
CONTRACT REQUESTED WITHDRAWAL PAYMENTS CHARGE
VALUE 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
</TABLE>
- ----------
(a) The free withdrawal amount during any certificate year is the greater
of the contract value less the unliquidated payments (accumulated
earnings), or 10% of payments less 100% of all prior withdrawals in
that certificate year. For the first example, accumulated earnings of
$15,000 is the free withdrawal amount since it is greater than 10% of
payments less prior withdrawals ($5,000-0). The amount requested
($2,000) is less than the free withdrawal amount so no payments are
liquidated and no withdrawal charge applies.
40
<PAGE> 41
(b) The contract has negative accumulated earnings ($49,000-$50,000), so
the free withdrawal amount is limited to 10% of payments less all
prior withdrawals. Since $2,000 has already been withdrawn in the
current certificate year, the remaining free withdrawal amount during
the third certificate 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 payments
being liquidated. The remaining unliquidated payments are $48,000.
(c) The contract has increased in value to $52,000. The unliquidated
payments are $48,000 so the accumulated earnings are $4,000, which is
greater than 10% of payments less prior withdrawals
($5,000-$2,000-$5,000<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 payments being liquidated. The
remaining unliquidated 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 payments
($5,000) has already been withdrawn. The full amount of $8,000 will
result in payments being liquidated subject to a withdrawal charge.
At the beginning of the next certificate year the full 10% of
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%
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> 42
APPENDIX C
For all certificates issued in Pennsylvania the maximum maturity age based upon
the issue age of the annuitant is as follows:
<TABLE>
<CAPTION>
ISSUE AGE MAXIMUM MATURITY AGE
------------------------------------------------------------
<S> <C>
70 or less 85
71-75 86
76-80 88
81-85 90
86-90 93
91-93 96
94-95 98
96-97 99
98-99 101
100-101 102
102 103
103 104
104 105
105 106
</TABLE>
It is required that the annuitant exercise a settlement annuity
option no later than the maximum maturity age stated above. For example an
annuitant age 60 at issue must exercise a settlement option prior to the
attainment of age 86. The Company will use the issue age of the youngest named
annuitant in the determination of the required settlement option date.
If certificates are issued with annuitants over age 84, a withdrawal
charge could be imposed if they terminate the certificate rather than elect a
settlement option upon attainment of the maximum maturity age. This is a result
of the restrictions by Pennsylvania in combination with the 7-year withdrawal
charge schedule of the certificate.
APPENDIX D
PRIOR CONTRACTS
Prior to February, 1995, the Company issued a class of variable
annuity contract which is no longer being issued but under which purchase
payments may continue to be made ("prior contract") -- "Ven 8" contracts, which
were sold during the period from September 1992 until February, 1995.
The principal differences between the contract offered by this
Prospectus and the prior contract relate to the investment options available
under the contracts, a minimum interest rate to be credited for any guarantee
period under the fixed portion of the contracts, the charges made by the Company
and the death benefit provisions.
INVESTMENT OPTIONS
The investment options under the prior contract differ as follows
from the investment options described in this Prospectus. The prior contract
does not allow for investments in the five and seven year fixed account
investments options. The prior contract allows investments in a six year fixed
account investment option not available under the contract offered by this
Prospectus. The prior contract does not provide the Company the authority to
offer additional fixed account investment options for any yearly period from two
to ten years.
FIXED ACCOUNT MINIMUM INTEREST GUARANTEE
The minimum interest rate to be credited for any guarantee period
under the fixed portion of the prior contract is 4%.
MARKET VALUE CHARGE
For purposes of calculating the market value adjustment factor (see
"Fixed Account Investment Options - Market Value Charge") 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
42
<PAGE> 43
zero. ("A" is the guaranteed interest rate on the investment account. "B" is 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.)
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 provided in the certificate; (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 certificate year.
Notwithstanding application of the market value adjustment 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 (or the effect of the withdrawal charge itself) could,
however, result in a owner receiving total withdrawal proceeds of less than the
owner's investment in the contract.
WITHDRAWAL CHARGES
The withdrawal charges under the prior contract differ from the
withdrawal charges described in this Prospectus.
Prior Contract Withdrawal Charge
The withdrawal charge assessed under the prior contract is as
follows:
If a withdrawal is made from the contract by an owner before the
maturity date of the certificate, a withdrawal charge (contingent deferred sales
charge) may be assessed against amounts withdrawn attributable to purchase
payments that have been in the contract for the owner less than six complete
years. There is never a withdrawal charge with respect to earnings accumulated
for an owner in the contract, certain other free withdrawal amounts described
below or purchase payments by or on behalf of the owner that have been in the
contract more than six complete years. In no event may the total withdrawal
charges exceed 6% of the total purchase payments made by or on behalf of the
owner. The amount of the withdrawal charge and when it is assessed is discussed
below:
1. Each withdrawal is allocated first to the "free withdrawal amount"
and second to "unliquidated purchase payments" for each certificate. In any
certificate year, the free withdrawal amount for that year is the greater of (1)
the excess of the owner's contract value on the date of withdrawal over the
unliquidated purchase payments made by or on behalf of the owner (the
accumulated earnings on the owner's certificate) or (2) 10% of total purchase
payments made by or on behalf of the owner less any prior partial withdrawals by
the owner in that certificate year. Withdrawals allocated to the free withdrawal
amount may be withdrawn without the imposition of a withdrawal charge.
2. If an owner makes a withdrawal 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.
43
<PAGE> 44
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN CONTRACT PERCENTAGE
----------------------------------------------------------
<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 owner's contract value
remaining after the 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 and market value charge.
5. There is generally no withdrawal charge on distributions made as a
result of the death of the annuitant or owner and no withdrawal charges are
imposed on the maturity date if the owner annuitizes as provided in the
contract.
OTHER CONTRACT CHARGES
The prior contract makes no provision for the waiver of the $30
annual administration fee when prior to the maturity date the contract value
equals or exceeds $100,000 at the time of the fee's assessment.
DEATH BENEFIT PROVISIONS
Prior Contract Death Benefit Provisions
The provisions governing the death benefit prior to the maturity date
under the prior contract are as follows:
Death of Annuitant who is not the Owner. The Company will pay the
minimum death benefit, less any debt, to the beneficiary if the owner is not the
annuitant and the annuitant dies before the 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 the death benefit under an
annuity option must be made within 60 days after the date on which the death
benefit first becomes payable. Rather than receiving the minimum death benefit,
the beneficiary may elect to continue his or her participation under the
contract as a new owner. (In general, a beneficiary who makes such an election
will nonetheless be treated for federal income tax purposes as if he or she had
received the minimum death benefit.)
Death of Annuitant who is the Owner. The Company will pay the minimum
death benefit, less any debt, to the beneficiary if the owner is the annuitant,
dies before the maturity date and is not survived by a co-annuitant. If the
certificate is a non-qualified certificate, the owner is the annuitant and the
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. If the certificate is a
non-qualified certificate, 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, as appropriate) or over a period not in
excess of the life expectancy of the beneficiary (or the successor owner, as
appropriate). If the owner's spouse is the beneficiary (or the successor owner,
as appropriate) that spouse may elect to continue his or her participation under
the contract as a new owner in lieu of receiving the distribution. In such a
case, the distribution rules applicable when a 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
44
<PAGE> 45
annuitant, the successor owner shall have the ownership rights of the owner and
will be entitled to the owner's interest in the contract. If the certificate is
a nonqualified contract, an amount equal to the amount payable on total
withdrawal, without reduction for any withdrawal charge, will be paid to the
successor owner. Distribution of the 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 his or her participation under the
contract as a new owner in lieu of receiving the distribution. In such a case,
the distribution rules applicable when an owner dies generally will apply when
that spouse, as the owner, dies.
For purposes of these death benefit provisions applicable on an
owner's death (whether or not such owner is an annuitant), if a non-qualified
certificate has more than one individual owner, death benefits must be paid as
provided in the contract upon the death of any such owner. If both owners are
individuals, the distributions will be made to the remaining owner rather than
to the successor owner.
Entity as Owner. In the case of a non-qualified certificate where the
owner is not an individual (for example, the owner is 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 under the certificate
will be treated as the owner, 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.
If a non-qualified certificate has both an individual and a
non-individual 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 owner, whichever occurs earlier.
The minimum death benefit during the first six certificate years will
be equal to the greater of: (a) the owner's 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 by or on behalf of
the owner, less any amount deducted in connection with partial withdrawals made
by the owner. During any subsequent six contract year period, the minimum death
benefit will be the greater of (a) the owner's 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 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 made by the owner 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 owner's contract value on the date due proof of death and all required
claim forms are received at the Company' Annuity Service Office.
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.
Prior Contract Enhanced Death Benefit Option
The Company is offering an Enhanced Death Benefit Option to any owner
of a certificate ("Certificate") issued under a prior contract having a
certificate date not later than August 15, 1994. The Enhanced Death Benefit
Option is available as an endorsement to such Certificates only upon the payment
of an additional purchase payment of at least 10% of all purchase payments made
to the Certificate through August 15, 1994 or $10,000, whichever is greater.
Certificates dated subsequent to August 15 will not be eligible for the Enhanced
Death Benefit endorsement. (An owner of a Certificate may also exchange the
Certificate for the Certificate described in the Prospectus, see "Exchange Offer
and Enhanced Death Benefit Option" in the Prospectus.)
The Enhanced Death Benefit, as described below, will provide an
annual step-up in death benefit comparable to the death benefit described in
this Prospectus under "Death Benefit Before Maturity Date," 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
this Prospectus.
The Enhanced Death Benefit provided by the endorsement will always be
equal to or better than the death benefit of a Certificate 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 Appendix D under the caption "Prior Contract Death Benefit
Provisions" except that the death benefit is stepped up each certificate year
instead of each six certificate 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 certain withdrawals. Under a Certificate 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
45
<PAGE> 46
value only. For purposes of computing the Enhanced Death Benefit under a
Certificate issued without the endorsement, the death benefit will be computed
as if the Enhanced Death Benefit endorsement had been a part of the Certificate
on the certificate date.
OTHER CONTRACT PROVISIONS
Contract Maturity Date
Under the prior contract, the contract maturity date is the later of
the first day of the month following the 85th birthday of the annuitant or the
sixth certificate anniversary. The prior contract allows the owner to 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.
Annuity Tables Assumed Interest Rate
A 4% assumed interest rate is built into the annuity tables in the
prior contract used to determine the first variable annuity payment to be made
under that contract.
Beneficiary
Under the prior contract certain provisions relating to beneficiary
are as follows:
The beneficiary is the person, persons or entity designated in the
application or as subsequently named to whom benefits will be paid on the death
of the annuitant. The beneficiary may be changed by the owner during the
lifetime of the annuitant and prior to the maturity date 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 owner or the 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 or certificates, regulations promulgated by the
Treasury Department prescribe certain limitations on the designation of a
beneficiary.
Ownership
Under the prior contract certain provisions relating to ownership are
as follows:
The contract is owned by the group holder. However, all contract
rights and privileges not expressly reserved to the group holder may be
exercised by each owner as to his or her interests as specified in his or her
certificate. Prior to the maturity date, an owner is the person designated in an
application or as subsequently named. On and after a certificate's maturity
date, the annuitant is the owner and after the death of the annuitant, the
beneficiary is the owner.
In the case of non-qualified contracts, ownership of the contract may
be changed at any time. In the case of non-qualified certificates, an owner may
assign his or her interest in the contract during the lifetime of the annuitant
prior to the maturity date, subject to the rights of any irrevocable
beneficiary. Assigning a contract or interest therein, or changing the ownership
of a contract or certificate, may be treated as a distribution of all or a
portion of the contract value for Federal tax purposes. 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.
Modification
The prior contract does not include "free withdrawal percentage"
among contract terms the Company is authorized to change on 60 days' notice to
the group holder.
46
<PAGE> 47
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
1992......................... $12.003976 $11.790318 28,203.763
1993......................... 11.790318 15.450341 985,277.929
1994......................... 15.450341 15.500933 2,268,423.530
1995......................... 15.500933 16.459655 2,132,127.330
Pasadena Growth
1992*........................ $10.000000 $ 9.923524 58,049.495
1993......................... 9.923524 $ 9.413546 707,931.534
1994......................... 9.413546 8.837480 1,001,113.147
1995......................... 8.837480 11.026969 1,257,014.677
Equity
1992......................... $12.386657 $13.143309 122,807.657
1993......................... 13.143309 15.075040 1,315,253.114
1994......................... 15.075040 14.786831 1,958,082.571
1995......................... 14.786831 20.821819 2,278,573.962
Value Equity
1993**....................... $10.000000 $11.175534 715,700.792
1994......................... 11.175534 11.107620 1,432,473.155
1995......................... 11.107620 13.548849 1,741,975.072
Growth and Income
1992......................... $10.942947 $11.927411 149,476.889
1993......................... 11.927411 12.893007 1,610,454.400
1994......................... 12.893007 13.076664 2,142,828.604
1995......................... 13.076664 16.660889 2,230,320.953
International Growth and Income***
1995......................... $10.000000 $10.554228 100,475.374
Strategic Bond
1993**....................... $10.000000 $10.750617 381,406.287
1994......................... 10.750617 9.965972 564,406.390
1995......................... 9.965972 11.716972 682,547.892
Global Government Bond
1992......................... $13.322602 $13.415849 56,786.509
1993......................... 13.415849 15.741586 745,370.831
1994......................... 15.741586 14.630721 694,644.982
1995......................... 14.630721 17.772344 586,608.921
Investment Quality Bond (formerly called Bond Sub-account)
1992......................... $13.147350 $13.936240 59,746.432
1993......................... 13.936240 15.118716 319,417.770
1994......................... 15.118716 14.216516 384,804.353
1995......................... 14.216516 16.751499 371,328.627
U.S. Gov. Securities (formerly called U.S. Gov. Bond Sub-account)
1992......................... $13.015785 $13.651495 212,815.440
1993......................... 13.651495 14.490734 783,550.472
1994......................... 14.490734 14.111357 585,709.535
1995......................... 14.111357 16.083213 494,142.862
Money Market
1992......................... $12.892485 $13.137257 28,928.622
1993......................... 13.137257 13.303085 331,225.229
1994......................... 13.303085 13.623292 1,079,557.666
</TABLE>
47
<PAGE> 48
<TABLE>
<S> <C> <C> <C>
1995......................... 13.623292 14.190910 530,610.979
Aggressive Asset Allocation
1992......................... $10.880194 $11.623893 21,660.089
1993......................... 11.623893 12.642493 244,300.482
1994......................... 12.642493 12.381395 395,864.362
1995......................... 12.381395 14.990551 422,911.593
Moderate Asset Allocation
1992 ........................ $11.012835 $11.772128 120,020.418
1993......................... 11.772128 12.775798 1,245,900.794
1994......................... 12.775798 12.396295 1,690,801.919
1995......................... 12.396295 14.752561 1,435,414.191
Conservative Asset Allocation
1992......................... $11.102574 $11.821212 56,414.765
1993......................... 11.821212 12.705196 330,900.271
1994......................... 12.705196 12.298940 478,239.388
1995......................... 12.298940 14.320582 415,991.541
</TABLE>
* This Sub-account commenced operations on December 11, 1992.
** This Sub-account commenced operations on February 19, 1993.
*** This Sub-account commenced operations on January 9, 1995.
48
<PAGE> 49
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
NASL VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
OF
NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
FLEXIBLE PAYMENT DEFERRED COMBINATION
FIXED AND VARIABLE GROUP 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
V22/23.SAI596
<PAGE> 50
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History........................................... 3
Performance Data.......................................................... 3
Services
Independent Accountants........................................... 6
Servicing Agent............................................... 6
Principal Underwriter............................................. 6
Cancellation of Certificate....................................... 6
Financial Statements...................................................... 7
</TABLE>
2
<PAGE> 51
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 9, 1994, 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 of
contracts of this series issued by the Company in 1995 of $36,000. 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 administration fee inasmuch as the impact of
such charge varies in relation to contract value. The Company believes such
non-standardized figures are useful to owners who wish to assess the performance
of an ongoing contract of the size that is meaningful to the individual owner.
3
<PAGE> 52
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEARS SINCE INCEPTION OR 10 INCEPTION DATE
YEARS, WHICHEVER IS
SHORTER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Equity 0.32% 8.07% 6.48% 3/18/88
- ------------------------------------------------------------------------------------------------------------------------------------
Pasadena Growth 18.68% N/A 1.59% 12/11/92
- ------------------------------------------------------------------------------------------------------------------------------------
Equity 34.71% 13.86% ***12.09% 6/18/85
- ------------------------------------------------------------------------------------------------------------------------------------
Value Equity 15.88% N/A 9.64% 2/19/93
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income 21.31% N/A 10.82% 4/23/91
- ------------------------------------------------------------------------------------------------------------------------------------
International Growth and ****-0.28% N/A N/A 1/9/95
Income
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Bond 11.47% N/A 3.99% 2/19/93
- ------------------------------------------------------------------------------------------------------------------------------------
Global Government Bond 15.37% 8.16% 7.53% 3/18/88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Quality Bond* 11.73% N/A 7.20% 4/23/91
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government 7.87% 6.05% 6.74% 5/01/89
Securities**
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market -1.58% 1.97% ***4.06% 6/18/85
- ------------------------------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation 14.97% 10.17% 6.50% 8/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 12.91% 9.21% 6.10% 8/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Conservative Asset 10.34% 7.81% 5.50% 8/03/89
Allocation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 53
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION OR 10 INCEPTION DATE
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 and ****5.54% N/A N/A 1/9/96
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 Bond* 17.83% N/A 7.94% 4/23/91
- ------------------------------------------------------------------------------------------------------------------------------------
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 Allocation 21.07% 10.79% 6.82% 8/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 19.01% 9.85% 6.43% 8/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Conservative Asset 16.44% 8.48% 5.83% 8/03/89
Allocation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
*** 10 years
**** Aggregate total return from January 9, 1995 to December 31, 1995.
5
<PAGE> 54
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 owners; and
annual owner tax reports. Vantage receives approximately $7.00 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 of the
Company, serves as principal underwriter of the contracts and certificates.
Contracts and certificates 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 CERTIFICATE
The Company may, at its option, a certificate and an owner's
participation under a contract at the end of any two consecutive certificate
years in which no purchase payments by or on behalf of the owner have been made,
if both (i) the total purchase payments made for the certificate, less any
withdrawals, are less than $2,000; and (ii) the contract value for the owner 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 certificate owner prior to
such cancellation in order to allow the certificate owner to make the necessary
purchase payment to keep the certificate in force. The cancellation of
certificate provisions may vary in certain states in order to comply with the
requirements of insurance laws and regulations in such states.
6
<PAGE> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
<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> 81
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 $391,802,354
=========== =========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 82
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
---------------------------------------------------------------------------------
Pasadena Growth Money Market Global Equity
------------------------- ------------------------- --------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
------------------------- ------------------------- --------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Income:
Dividends.................................$ 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 $590,026,641
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 83
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
---------------------------------------------------------------------------------
Global U.S. Conservative
Government Bond Government Securities Asset Allocation
------------------------- ------------------------- --------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
------------------------- ------------------------- --------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends.................................$ 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> 84
<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> 85
<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> 86
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> 87
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> 88
<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> 89
<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> 90
<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> 91
<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> 92
<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
