<PAGE> 1
SUPPLEMENT DATED FEBRUARY 12, 1996 TO CURRENT PROSPECTUS FOR
NASL VARIABLE LIFE ACCOUNT
Effective March 4, 1996, two new investment portfolios will be added to
NASL Series Trust (the "Trust"), the underlying investment medium for the
variable portion of your contract. The new portfolios are the Small/Mid Cap
and the International Small Cap Trusts (the "Portfolios"). Fred Alger
Management, Inc. ("Alger") will provide investment subadvisory services to the
Small/Mid Cap Trust and Founders Asset Management, Inc. ("Founders") will
provide investment subadvisory services to the International Small Cap Trust.
Below is a brief description of each Portfolio's investment objective and
certain policies relating to that objective and a schedule of fees applicable
to the Portfolio.
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
Small/Mid Cap Trust
- -------------------
The investment objective of the Small/Mid Cap Trust is to seek long
term capital appreciation. Alger will pursue this objective by investing at
least 65% of the portfolio's 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.
International Small Cap Trust
- -----------------------------
The investment objective of the International Small Cap Trust is to
seek capital appreciation. Founders will pursue this objective by investing
primarily in securities issued by foreign companies which have total market
capitalizations or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
For more information on the Portfolios, Alger and Founders, see the NASL Series
Trust prospectus dated February 12, 1996.
The Contract Illustrations contained in the Prospectus have been revised to
reflect the estimated average expenses of the Small/Mid Cap Trust and the
International Small Cap Trust.
VARILIF.SUPP296
<PAGE> 2
NASL SERIES TRUST
Supplement to Prospectus dated May 1, 1995,
as amended August 28, 1995
FNAL VARIABLE ACCOUNT
NASL VARIABLE ACCOUNT
Supplement to Prospectus
dated May 1, 1995
NASL VARIABLE LIFE ACCOUNT
Supplement to Prospectus
dated October 16, 1995
On January 1, 1996, North American Life Assurance Company ("NAL") and
The Manufacturers Life Insurance Company merged with the combined company
retaining the name The Manufacturers Life Insurace Company ("Manulife"). NAL
is the ultimate parent of NASL Financial Services, Inc. ("NASL Financial"), the
investment adviser to NASL Series Trust (the "Trust"). Manulife, like NAL, is
a Canadian mutual life insurance company based in Toronto, Canada. The merger
may be considered to give rise to the assignment and automatic termination of
the investment advisory agreement between NASL Financial and the Trust as well
as the assignment and automatic termination of each of the underlying
subadvisory agreements for each of the portfolios (including the consulting
agreement between Salomon Brothers Asset Management Inc. ("SBAM") and Salomon
Brothers Asset Management Inc. ("SBAM Limited") relating to the Strategic Bond
Portfolio) (collectively, the "Existing Agreements"). Therefore, at the
Trust's Board of Trustees meeting held September 28-29, 1995, the Trustees of
the Trust (including all the noninterested Trustees) voted to approve a new
advisory agreement between the Trust and NASL Financial, new subadvisory
agreements between NASL Financial and each of the subadvisors, and a new
consulting agreement between SBAM and SBAM Limited (collectively, the "New
Agreements"), and to submit the New Agreements to shareholders for their
consideration. The New Agreements were approved by shareholders of each series
of the Trust on December 5, 1995. THE NEW AGREEMENTS ARE SUBSTANTIALLY
IDENTICAL TO THE EXISTING AGREEMENTS. THEREFORE, THE NEW AGREEMENTS WILL NOT
RESULT IN ANY CHANGES IN ADVISORY FEES PAID BY THE TRUST, THE INVESTMENT
MANAGEMENT OR OPERATIONS OF EITHER NASL FINANCIAL OR THE SUBADVISERS, THE
INVESTMENT PERSONNEL MANAGING THE TRUST OR THE SHAREHOLDER SERVICES OR OTHER
BUSINESS ACTIVITIES OF THE TRUST.
NASL.SUPP196
V7.SUPP.196
V20/21.SUPP196
V22/23.196
V9.SUPP.196
VV.SUPP.196
VIS.SUPP.196
VLSUPP196
THE DATE OF THIS SUPPLEMENT IS JANUARY 2, 1996
<PAGE> 3
- -------------------------------------------------------------------------------
NASL VARIABLE LIFE ACCOUNT
- -------------------------------------------------------------------------------
OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
VENTURE LIFE
MODIFIED SINGLE PAYMENT VARIABLE
LIFE INSURANCE CONTRACT
NON-PARTICIPATING
This Prospectus describes Venture Life, a modified single payment
combination fixed and variable life insurance contract (the "contract"),
offered by North American Security Life Insurance Company (the "Company"), a
stock life insurance company that is a wholly-owned subsidiary of North
American Life Assurance Company ("North American Life"). The contract is
designed primarily for use in estate planning. The contract requires the
contract owner to make an initial premium payment of at least $10,000 and,
subject to certain restrictions, permits additional premium payments.
The contract provides for a face amount which is the minimum death
benefit while the contract is in force. The contract can be issued on either a
single life or last survivor basis. At the death of the insured while the
contract is in force, the Company will pay the death benefit (minus any
indebtedness) to the beneficiary.
Values under the contract may be allocated to a fixed investment option
and held in the Company's general account, or to one or more of fourteen
currently available variable investment options and held in NASL Variable Life
Account (the "Variable Account"), a separate account of the Company. Except as
specifically noted herein and as set forth in the caption "FIXED INVESTMENT
OPTION" below, this Prospectus describes only the variable portion of the
contract.
Assets allocated to the Variable Account will be held in one or more of
fourteen sub-accounts of the Variable Account (the "Sub-Accounts"). The assets
of each Sub-Account are invested in shares of NASL Series Trust (the "Trust"),
a mutual fund having fourteen investment portfolios: 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 value of a contract owner's interest in the
Variable Account will, and a contract's death benefit may, vary with the
investment performance of the portfolios underlying the Sub-Accounts to which
values are allocated. The Company does not guarantee the performance of any
portfolio.
BECAUSE THE CONTRACT WILL TYPICALLY BE TREATED AS A MODIFIED ENDOWMENT
CONTRACT FOR FEDERAL INCOME TAX PURPOSES, LOANS, PARTIAL WITHDRAWALS OR
SURRENDER OF THE CONTRACT MAY BE SUBJECT TO INCOME TAX AND A 10% PENALTY TAX.
It may not be advantageous to purchase variable life insurance as a
replacement for existing insurance.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
IT CONTAINS INFORMATION ABOUT THE VARIABLE ACCOUNT AND THE VARIABLE PORTION OF
THE CONTRACT THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE INVESTING. IT
SHOULD BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of the Prospectus is October 16, 1995,
as amended February 12, 1996.
<PAGE> 4
<TABLE>
TABLE OF CONTENTS
<S> <C>
SPECIAL TERMS.................................................................................. 3
SUMMARY........................................................................................ 5
GENERAL INFORMATION ABOUT NORTH AMERICAN
SECURITY LIFE INSURANCE COMPANY, NASL VARIABLE
LIFE ACCOUNT AND NASL SERIES TRUST............................................................. 8
North American Security Life Insurance Company.............................................. 8
NASL Variable Life Account.................................................................. 8
NASL Series Trust........................................................................... 8
DESCRIPTION OF THE CONTRACT.................................................................... 10
Application for a Contract.................................................................. 10
Payments.................................................................................... 11
Allocation of Payments...................................................................... 11
Variable Investment Options................................................................. 12
Transfers Among Investment Options.......................................................... 12
Telephone Transactions...................................................................... 12
Dollar Cost Averaging ...................................................................... 12
Asset Rebalancing Program................................................................... 13
Loans....................................................................................... 13
Withdrawals................................................................................. 14
Death Benefit............................................................................... 14
Annuity Payment Options..................................................................... 15
Termination................................................................................. 16
Reinstatement............................................................................... 17
Fixed Investment Option..................................................................... 17
Ten Day Right to Review..................................................................... 18
Ownership................................................................................... 18
Beneficiary................................................................................. 18
Miscellaneous Contract Provisions........................................................... 19
CHARGES AND DEDUCTIONS......................................................................... 20
Monthly Deduction........................................................................... 20
Distribution Charge......................................................................... 20
Premium Tax Charge.......................................................................... 20
Federal Tax Charge.......................................................................... 20
Administration Charge....................................................................... 20
Cost of Insurance Charge.................................................................... 21
Mortality and Expense Risk Charge........................................................... 21
Withdrawal Charge........................................................................... 21
Other Taxes................................................................................. 22
FEDERAL TAX MATTERS............................................................................ 22
Introduction................................................................................ 22
Tax Status of the Company................................................................... 22
Taxation of Life Insurance Contracts in General............................................. 22
Federal Income Tax Withholding.............................................................. 26
OTHER MATTERS.................................................................................. 26
Voting Rights............................................................................... 26
Notices and Reports to Contract Owners...................................................... 26
Distribution of the Contract................................................................ 27
Officers and Directors of the Company....................................................... 27
Legal Proceedings........................................................................... 28
Legal Matters............................................................................... 28
Independent Accountants..................................................................... 28
Safekeeping of Variable Account Assets...................................................... 28
Other Information........................................................................... 29
Contract Owner Inquiries.................................................................... 29
CONTRACT ILLUSTRATIONS......................................................................... 29
FINANCIAL STATEMENTS........................................................................... 37
</TABLE>
2
<PAGE> 5
<TABLE>
SPECIAL TERMS
<S> <C>
Age and Attained Age The age at the insured's last birthday on the contract date. If the insured
is more than one person, "age" is the joint equivalent age specified on the
contract specifications page. "Attained age" is age plus the number of complete
contract years.
Annuity Option One of several alternative methods by which payment of the proceeds may be
made. If no annuity option is specified, then proceeds will be paid in a lump-sum.
Beneficiary The person, persons, or entity to whom the death benefit proceeds are
payable following the death of the insured.
Cash Value The contract value minus any applicable withdrawal charge.
Company North American Security Life Insurance Company.
Contingent The person, persons or entity who becomes the beneficiary if the beneficiary
Beneficiary is not alive.
Contract The anniversary of the contract date.
Anniversary
Code The Internal Revenue Code of 1986, as amended.
Contract Date The date from which contract anniversary, contract year and monthly
anniversary day are determined. The contract date is specified on the contract
specifications page.
Contract Value The total of the investment account values and, if applicable, any amount in
the loan account attributable to the contract.
Contract Year The period of twelve consecutive months beginning on the contract date or
any contract anniversary thereafter.
Death Benefit The death benefit is determined on the date of the insured's death and will
be the greater of (a) the face amount or (b) the contract value multiplied by the
death benefit factor stated in the contract.
Debt Any amounts in the loan account attributable to the contract plus any
accrued loan interest.
Face Amount The minimum death benefit provided by the contract. The initial face amount
is shown on the contract specifications page. The face amount may be reduced as a
result of partial withdrawals and may be increased as the result of additional
premium payments.
General Account All of the assets of the Company other than assets in separate accounts.
In Force The contract is in effect, beginning on the later of the issue date or receipt of
the initial payment, until the contract is terminated.
Insured The person whose life is covered by the contract, as specified on the
contract specifications page. If more than one person is so named, all provisions
of the contract which are based on the death of the insured will be based on the
date of the death of the last survivor of those persons.
Investment Account An account the Company establishes for the owner which represents the
owner's interest in an investment option.
Investment Account Value The value of the owner's investment in an investment account.
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C>
Investment Options The fixed and variable investments available to contract owners. Currently,
one fixed and fourteen variable investment options are available under the
contract. The Company currently limits the number of investment options to which
an owner may allocate contract value to ten.
Issue Date The date the application is approved and the contract is issued, as specified
on the contract specification page.
Loan Account The portion of the assets held in the Company's general account that is used
as collateral when a loan is taken.
Maturity Date The date on which proceeds are payable if the insured is living, and the
contract has not been surrendered for payment of its surrender value, as specified
on the contract specifications page (the contract anniversary when the insured has
attained age 100, unless the extended maturity option is elected).
Monthly Anniversary Day The same day each month as the contract date. If there is no monthly
anniversary day in a calendar month, the monthly anniversary day will be the last
day of the current calendar month.
Owner or The person, persons or entity entitled to the ownership rights under the
Contract Owner contract.
Payment or An amount paid by a contract owner to the Company as consideration for
Premium Payment the benefits provided by the contract.
Portfolio or The registered management investment companies (or any successor
Trust Portfolio companies offered under the contract) in which the separate account may
invest.
Proceeds Upon the death of the insured while the contract is in force prior to the
maturity date, the amount to be paid to the beneficiary (the death benefit minus
any debt). Upon surrender of the contract or on the maturity date, the surrender
value to be paid to the contract owner.
Separate Account A segregated account of the Company that is not commingled with the
Company's general assets and obligations.
Service Office Any office the Company designates for the receipt of payments and
processing of contract owner requests.
Sub-Account(s) The subdivisions of the separate account used to permit a contract owner's
contract value, less indebtedness, to be allocated among the portfolios.
Surrender Value The cash value less any debt.
Trust NASL Series Trust.
Unliquidated The sum of all payments under the contract, minus the sum of payments
Payments liquidated, if any, due to partial withdrawals.
Valuation Date Any date on which the New York Stock Exchange is open for business and
the net asset value of a portfolio is determined.
Valuation Period Any period from one valuation date to the next, measured from the time on
each valuation date that the net asset value of each portfolio is determined.
Variable Account NASL Variable Life Account, which is a separate account of the Company.
</TABLE>
4
<PAGE> 7
SUMMARY
THE CONTRACT
The contract is a modified single payment variable life insurance
contract. The contract provides a death benefit and is designed for use in
estate planning. During the insured's life, the contract provides that the
contract value will accumulate on a fixed and/or variable basis. The variable
portion of the contract will vary with the investment performance of an owner's
variable investment accounts. Any portion of contract value allocated to the
fixed investment option will accumulate based on the interest rate(s) credited
by the Company.
PAYMENTS
The contract requires the contract owner to make an initial payment of
at least $10,000 and, subject to certain restrictions, permits additional
payments. After the first contract anniversary, one additional premium payment
of at least $1,000 may be made at any time during each contract year. Provided
that the insured is between ages 40 and 70, up to the lesser of $5,000 or 5% of
the initial payment may be paid without submitting new evidence of
insurability. Additional payments may or may not increase the contract's face
amount. (See "PAYMENTS")
INVESTMENT OPTIONS
Payments may be allocated among the fifteen investment options
currently available under the contract: fourteen variable investment options
and one fixed investment option. Contract value may be allocated to a maximum
of ten investment options at any one time. The fourteen variable investment
options are the fourteen sub-accounts of the Variable Account, a separate
account established by the Company. The sub-accounts invest in corresponding
portfolios of the Trust: the Global Equity Trust, Pasadena Growth Trust,
Equity Trust, Value Equity Trust, Growth and Income Trust, International Growth
and Income Trust, Strategic Bond Trust, Global Government Bond Trust,
Investment Quality Bond Trust, U.S. Government Securities Trust, Money Market
Trust, and three Automatic Asset Allocation Trusts (Aggressive, Moderate and
Conservative) (see the accompanying Prospectus of the Trust). The portion of
the contract value in the Variable Account will reflect the investment
performance of the Sub-Accounts selected. (See "NASL VARIABLE LIFE ACCOUNT")
Premium payments may also be allocated to the fixed investment option. Under
the fixed investment option, the Company guarantees the principal value of
payments and the rate of interest credited to the investment account until the
next contract anniversary. The portion of the contract value in the fixed
investment option will reflect such interest and principal guarantees. (See
"FIXED INVESTMENT OPTION") Subject to certain regulatory limitations, the
Company may elect to add, subtract or substitute investment options.
If the initial payment is received at the Service Office prior to the
issue date, the entire payment will be allocated to the Company's General
Account. This amount will be allocated to the Money Market Sub-Account as of
the issue date of the contract. The contract value will then be allocated
among the investment accounts in accordance with the applicant's instructions
on the later of (a) fifteen days after the issue date of the contract or (b)
the date the initial payment is received at the Service Office.
TRANSFERS
Prior to the maturity date, amounts may be transferred among the
variable investment options and from the variable investment options to the
fixed investment option without charge. In addition, amounts may be
transferred prior to the maturity date from the fixed investment option to the
variable investment options within 30 days of each contract anniversary (and in
other limited circumstances). (See "FIXED INVESTMENT OPTION") After the
maturity date, transfers are not permitted. Transfers from any investment
account must be at least $300 or, if less, the entire balance in the investment
account. If after the transfer the amount remaining in the investment account
of the contract from which the transfer is made is less than $100, then the
Company will transfer the entire amount instead of the requested amount. The
Company may impose certain additional limitations on transfers. (See
"TRANSFERS AMONG INVESTMENT OPTIONS") Transfer privileges may also be used
under a special service offered by the Company to dollar cost average an
investment in the contract. (See "DOLLAR COST AVERAGING")
5
<PAGE> 8
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the insured,
the owner may withdraw all or a portion of the contract value. The amount
withdrawn from any investment account must be at least $300 or, if less, the
entire balance of the investment account. If a partial withdrawal plus any
applicable withdrawal charge would reduce the contract value to less than $300,
the withdrawal request will be treated as a request to withdraw the entire
contract value. A withdrawal charge may be imposed. (See "WITHDRAWALS") A
withdrawal may be subject to income tax and a 10% penalty tax. (See "FEDERAL
TAX MATTERS")
LOANS
A owner may obtain one or both of two types of loans using the contract
as the sole security for the loan. At the time a loan is requested, the
aggregate amount of all loans (including the currently applied for loan) may
not exceed 90% of the cash value. (See "LOANS") A loan may be subject to
income tax and a 10% penalty tax. (See "FEDERAL TAX MATTERS")
CHARGES AND DEDUCTIONS
Contract Charges
No deduction is made from premium payments under the contract. On each
monthly anniversary day (or, if the monthly anniversary is not a valuation
date, the next valuation date after the monthly anniversary), charges are
deducted proportionately from all investment accounts.
Certain charges are expressed as an annual percentage of the owner's
contract value:
Three of these charges are deducted only during the first ten
contract years:
* 0.25% for distribution costs incurred by the Company,
* 0.25% for state premium taxes to be paid by the
Company as a result of receipt of premium payments, and
* 0.15% for the Company's increased federal taxes
caused by its receipt of premium payments.
Two of these charges are deducted for all contract years:
* A 0.40% charge for contract administration, and
* A 0.35% charge for the death benefit provided by the
contract (0.55% after the first ten contract years).
If there is more than one insured, this charge is
0.10% (0.30% after the first ten contract years).
This cost of insurance charge may vary; however, it
is guaranteed not to exceed charges based upon the
Commissioner's 1980 Standard Ordinary Mortality Table
(the "1980 CSO Table").
In addition, there are two other contract charges:
* A charge at an annual rate of 0.90% of the value of each
variable investment account is deducted monthly for the
mortality and expense risks assumed by the Company in
connection with the contract.
* A monthly administrative charge of $2.50 per month will be
imposed upon contracts with less than $100,000 of total
premium payments. (See "CHARGES AND DEDUCTIONS")
Trust Charges
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.
6
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DEATH BENEFIT
The contract provides for a face amount which is the minimum death
benefit under the contract. The death benefit may be greater than the face
amount as a result of favorable investment performance. At the death of the
insured, the Company will pay the proceeds to the beneficiary. The proceeds
equal the death benefit less any debt under the contract. (See "DEATH
BENEFIT")
TEN DAY REVIEW
Within 10 days of receipt of a contract, the contract owner may cancel
the contract by returning it to the Company. (See "TEN DAY RIGHT TO REVIEW")
TERMINATION
The contract will terminate and life insurance coverage will cease if
the owner surrenders the contract, or if the insured dies. It also will
terminate 61 days after a monthly anniversary day when the contract surrender
value is less than zero unless the owner makes payments within the 61 day grace
period sufficient to prevent the termination. Unless the owner elects the
extended maturity option, the contract will also terminate on the maturity date
specified on the contract specifications page (the contract anniversary when
the attained age of the insured is 100). (See "TERMINATION")
7
<PAGE> 10
GENERAL INFORMATION ABOUT
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY,
NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST
North American Security Life Insurance Company
North American Security Life Insurance Company ("the Company") is a
stock life insurance company organized under the laws of Delaware in 1979. The
Company's principal office is located at 116 Huntington Avenue, Boston,
Massachusetts 02116. The Company is a wholly-owned subsidiary of North
American Life, 5650 Yonge Street, North York, Ontario M2M 4G4, a mutual life
insurance company established in 1881 in Canada. The Company is also the
depositor of NASL Variable Account, a separate account of the Company that
issues variable annuity contracts.
On September 7, 1995, North American Life and The Manufacturers Life
Insurance Company ("Manulife") signed an agreement to merge the companies
effective on or about January 1, 1996, subject to regulatory approval and the
approval of the policyholders of North American Life and Manulife. In
addition, in the event the merger is not effected, Manulife and North American
Life have also agreed that under certain circumstances, North American Life can
require Manulife, and under certain other circumstances, Manulife has the
right, to purchase a controlling interest in the Company. Manulife, like North
American Life, is a Canadian mutual life insurance company based in Toronto,
Canada.
NASL VARIABLE LIFE ACCOUNT
The Company established the Variable Account in 1986, 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
contract, 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 contract 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 Securities and Exchange
Commission (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
contract, the Variable Account may be operated as a management company under
the 1940 Act or it may be deregistered if registration under that Act is no
longer required.
There are currently fourteen Sub-Accounts within the Variable Account,
one for each of the fourteen portfolios described below. 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 are invested in shares of a
corresponding portfolio: 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 portfolio 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. NASL Financial
Services, Inc. is also the investment adviser and distributor of the North
American Funds, a publicly offered management investment company.
8
<PAGE> 11
The Trust currently has seven subadvisers. Oechsle International
Advisors, L.P., provides investment subadvisory services to the Global Equity
and Global Government Bond Trusts. Roger Engemann Management Co., Inc.,
provides investment subadvisory services to the Pasadena Growth Trust.
Fidelity Management Trust Company provides investment subadvisory services to
the Equity, Aggressive Asset Allocation, Moderate Asset Allocation and
Conservative Asset Allocation Trusts. Goldman Sachs Asset Management provides
investment subadvisory services to the Value Equity Trust. Wellington
Management Company provides investment subadvisory services to the Growth and
Income, Investment Quality Bond and Money Market Trusts. Salomon Brothers
Asset Management Inc provides investment subadvisory services to the Strategic
Bond and U.S. Government Securities Trusts. J.P. Morgan Investment Management
Inc. provides investment subadvisory services to the International Growth and
Income Trust.
The following is a brief description of each Trust portfolio:
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 that
portfolio's 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 STRATEGIC BOND TRUST seeks a high level of total return consistent
with preservation of capital by giving its subadviser broad discretion to
deploy the portfolio's assets among certain segments of the fixed-income market
as the subadviser believes will best contribute to achievement of the
portfolio's investment objective.
THE GLOBAL GOVERNMENT BOND TRUST seeks a high level of total return by
placing primary emphasis on high current income and the preservation of
capital, by investing primarily in a global portfolio of high-quality,
fixed-income securities of foreign and United States governmental entities and
supranational issuers.
THE INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The
portfolio may also invest up to 20% of its assets in non-investment grade fixed
income securities.
THE U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current
income consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by
such securities.
THE MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity by investing in high quality money
market instruments with maturities of thirteen months or less issued primarily
by United States entities.
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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 portfolio 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 portfolio 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 portfolio
attempts to limit the decline in portfolio value in very adverse market
conditions to 5% over any twelve month period.
If the shares of any portfolio are no longer available for investment
or in the Company's judgment, investment in a 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 or another
open-end registered investment company. Substitution may be made with respect
to both existing investments and the investment of future payments. However,
no substitution will be made without notice to contract owners and prior
approval of the Commission to the extent required by the 1940 Act. The
Variable Account may purchase other securities for additional Sub-Accounts or
to fund classes of contract not offered through this Prospectus without giving
such notice or seeking Commission approval.
A full description of the Trust, including the investment objectives,
policies and restrictions and expenses of each of the portfolios and a
description of procedures for handling potential conflicts of interest arising
from the use of the Trust to fund both variable annuity and variable life
insurance contracts, 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
APPLICATION FOR A CONTRACT
To purchase a contract a prospective contract owner must submit an
application to the Company. A contract will be issued only on the lives of
insureds from ages 20 through 80 who supply evidence of insurability
satisfactory to the Company. Contracts insuring more than one person will only
be issued to a male life/female life combination where the difference in their
"adjusted ages" (age last birthday plus three years if tobacco user) is not
more than 15 years. Acceptance is subject to the Company's underwriting rules.
The Company reserves the right to reject an application for any lawful reason
provided similarly-situated risks are treated in a consistent manner and unfair
discrimination is avoided. IF A CONTRACT IS NOT ISSUED, THE PREMIUM PAYMENTS
WILL BE RETURNED WITHOUT INTEREST. No change in the terms or conditions of a
contract will be made without the consent of the owner.
The contract will be effective on the contract date only after the
Company has received all outstanding delivery requirements and received the
initial payment. The contract date is the date used to determine all future
cyclical transactions on the contract, e.g., monthly anniversary day and
contract years. The contract date may be prior to, or the same as, the date
the contract is issued.
If the face amount exceeds current limits established by the Company,
the initial payment will not be accepted with the application. In other cases
where an initial payment is received with the application, the Company will
provide conditional insurance during underwriting according to the terms of a
prepayment receipt and temporary life insurance agreement. The conditional
insurance will be the insurance applied for, up to a maximum of $100,000. If
no payment was submitted with the application, on contract delivery we will
require sufficient payment to place the insurance in force.
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<PAGE> 13
PAYMENTS
The contract is designed to permit an initial payment and, subject to
certain conditions, additional payments. The initial payment purchases a death
benefit initially equal to the contract's face amount. The minimum initial
payment is $10,000.
<TABLE>
Under current underwriting rules, which are subject to change, proposed
insureds are eligible for simplified underwriting without a medical examination
if their application responses and initial payment meet simplified underwriting
standards. Customary underwriting standards will apply to all other proposed
insureds. The maximum initial premium currently permitted on a simplified
underwriting basis varies with the issue age of the insured according to the
following table:
<CAPTION>
SIMPLIFIED UNDERWRITING
ISSUE AGE MAXIMUM INITIAL PAYMENT
<S> <C>
20-39 Not available
40-44 $ 20,000
45-54 $ 30,000
55-64 $ 50,000
65-80 $100,000
</TABLE>
If the additional payment is greater than the Guaranteed Additional
Payment (as defined below) and is not made to avoid termination of the contract,
new evidence of insurability of the insured will be required. No additional
payment will be accepted until evidence of insurability is provided to the
Company.
Additional payments may be made at any time and in any amount necessary
to avoid termination of the contract. Other additional payments may be made at
any time after the first contract anniversary, subject to the following
conditions:
(1) each additional payment must be at least $1,000;
(2) only one payment may be paid in any contract year;
(3) the attained age of the insured must be less than 81; and
(4) absent submission of new evidence of insurability of the insured,
the maximum additional payment permitted in a contract year is
the "Guaranteed Additional Payment." The Guaranteed Additional
Payment is the lesser of $5,000 or a percentage of the initial
payment (5% for attained ages 40-70, and 0% for attained ages
20-39 and 71-80).
An additional payment may result in an increase in the face amount of
insurance. If necessary, the Company will increase the face amount by an amount
sufficient to permit the contract to remain within the definition of a "life
insurance contract" under section 7702 of the Code.
ALLOCATION OF PAYMENTS
The Company will establish an investment account for the contract owner
for each variable investment option to which the contract owner allocates
payments. The contract owner may allocate contract value to a maximum of ten
investment options at any one time.
If the initial payment is received at the Service Office prior to the
issue date, the entire payment will be allocated to the Company's General
Account. On the issue date, this amount will be allocated to the Money Market
Sub-Account as of the date the initial payment is received at the Service
Office. The contract value will then be allocated among the investment accounts
in accordance with the applicant's instructions on the later of (a) fifteen days
after the issue date of the contract or (b) the date the initial payment is
received at the Service Office. Additional payments will be allocated among
investment options in accordance with the contract owner's instructions as of
the date the payment is received at the Service Office.
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<PAGE> 14
VARIABLE INVESTMENT OPTIONS
The investment account for a variable investment option represents the
contract owner's interest in that investment option. The value of a variable
investment account may increase or decrease daily depending on the net
investment experience (described below) for a Sub-Account. The investment
account value reflects payments, amounts transferred to the investment account,
the net investment experience of the Sub-Account, and any withdrawals, loans,
transfers and charges taken from the investment account.
The net investment experience for a variable investment account is the
investment performance of the underlying Trust portfolio of a Sub-Account from
one valuation period to the next. The net investment experience for any
valuation period is determined by dividing (a) by (b):
Where (a) is:
(1) the net asset value 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 of a portfolio share held in the Sub-Account
determined as of the end of the immediately preceding valuation period.
TRANSFERS AMONG INVESTMENT OPTIONS
Before the maturity date the contract owner may transfer amounts among
the variable investment options and from such investment options to the fixed
investment option at any time and without charge upon written notice to the
Company or by telephone if the contract owner authorizes the Company in writing
to accept telephone transfer requests. Amounts may only be transferred from the
fixed investment option to the variable investment options within 30 days of the
contract anniversary. The Company will effect such transfers so that the
contract value on the date of the transfer will not be affected by the transfer.
The contract owner must transfer at least $300 or, if less, the entire value of
the investment account. If after the transfer the amount remaining in the
investment account is less than $100, then the Company will transfer the entire
amount instead of the requested amount. The Company reserves the right to
limit, upon notice, the maximum number of transfers a contract owner may make to
one per month or six at any time within a contract year. In addition, the
Company reserves the right to defer the transfer privilege at any time that the
Company is unable to purchase or redeem shares of the Trust portfolios. The
Company also reserves the right to modify or terminate the transfer privilege at
any time in accordance with applicable law.
TELEPHONE TRANSACTIONS
Contract owners are permitted to request transfers or withdrawals 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 transfers or withdrawals by telephone, a contract owner
must elect the option on an appropriate authorization form provided by the
Company. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and may only be liable for
any losses due to unauthorized or fraudulent instructions where it fails to
employ its procedures properly. Such procedures include the following: Upon
telephoning a request, contract owners will be asked to provide certain
identifying information. For the contract owner's and Company's protection, all
conversations with contract owners will be tape recorded. All telephone
transactions will be followed by a confirmation statement of the transaction.
DOLLAR COST AVERAGING
The Company administers a Dollar Cost Averaging ("DCA") program which
enables a contract owner to pre-authorize a periodic exercise of the contractual
transfer rights described above. Contract owners entering into a DCA agreement
instruct the Company to transfer monthly a predetermined dollar amount from any
Sub-Account or the fixed investment option to other Sub-Accounts until the
amount in the Sub-Account from which the transfer is made or the fixed
investment option is exhausted. The DCA program is generally suitable for
contract owners
12
<PAGE> 15
making a substantial deposit to the contract and who desire to control
the risk of investing at the top of a market cycle. The DCA program allows such
investments to be made in equal installments over time in an effort to reduce
such risk. Contract owners interested in the DCA program may obtain a separate
application and full information concerning the program and its restrictions
from their securities dealer or the Service Office.
ASSET REBALANCING PROGRAM
The Company administers an Asset Rebalancing Program which enables a
contract owner to indicate to the Company the percentage levels he or she would
like to maintain in particular Trust portfolios. On the last business day of
every calendar quarter, the contract owner's contract value will be
automatically rebalanced to maintain the indicated percentages by transfers
among the portfolios. (The fixed investment option is not eligible for
participation in the Asset Rebalancing Program.) The entire value of the
contract owners' variable investment accounts must be included in the Asset
Rebalancing Program. Other investment programs, such as the DCA program, or
other transfers or withdrawals may not work in concert with the Asset
Rebalancing Program. Therefore, contract owners should monitor their use of
these programs and other transfers or withdrawals while the Asset Rebalancing
Program is being used. Contract owners interested in the Asset Rebalancing
Program may obtain a separate application and full information concerning the
program from their securities dealer or the Service Office.
LOANS
While the contract is in force, the owner may obtain loans using the
owner's contract as the sole security for the loan. The maximum loan amount is
90% of cash value at the time of the loan; the minimum loan amount is $1,000.
Contract loans may be subject to income tax and a 10% penalty tax. (See
"FEDERAL TAX MATTERS") When an owner requests a loan, the Company will reduce
the owner's investment in the investment accounts and transfer the amount of the
loan to the loan account, a part of the Company's general account. The owner
may designate the investment accounts from which the loan is to be withdrawn.
Absent such a designation, the amount of the loan will be withdrawn from the
investment accounts on a pro rata basis. On each contract anniversary, the
Company will transfer from the investment accounts to the loan account the
amount by which the debt on the contract exceeds the balance in the loan
account.
The Company charges interest of 6% per year on contract loans. Loan
interest is payable in arrears and, unless paid in cash, the accrued loan
interest is added to the amount of the debt and bears interest at 6% as well.
Except for the target loan amount described below, the loan account will be
credited interest at the rate of 4% per year.
The target loan amount is equal to the greater of:
(a) the excess of the contract value over the unliquidated payments, or
(b) 10% of total payments made under the contract.
The amount of the loan account that is less than or equal to the target
loan amount will be credited interest at the rate of 6% per year (unless a lower
rate becomes necessary in order to maintain the tax status of the contract).
The portion of the loan account that qualifies as target loan amount is
determined on the contract date and each monthly anniversary day.
If on any date debt under a contract exceeds the contract value, the
contract will be in default. In such case, the owner will receive a notice
indicating the payment needed to bring the contract out of default and will have
a sixty-one day grace period within which to pay that amount. If the required
payment is not made within the grace period, the contract will be terminated.
The amount of any debt will be deducted from the death benefit otherwise
payable under the contract. (See "DEATH BENEFIT") In addition, debt, whether
or not repaid, will have a permanent effect on the contract value because the
investment results of the investment accounts will apply only to the unborrowed
portion of the contract value. The longer debt is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
investment results are greater than the rate being credited on amounts held in
the loan account while the debt is outstanding, the contract value will not
increase as rapidly as it would have if no debt were outstanding. If investment
results are below that rate, the contract value will be higher than it would
have been had no debt been outstanding.
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<PAGE> 16
The owner may repay any debt in whole or in part at any time while the
contract is in force. An amount equal to the amount of the loan repayment will
be transferred from the loan account and allocated among the investment accounts
in the same percentage as additional payments are allocated, unless the owner
requests otherwise.
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the insured,
the owner may withdraw all or a portion of the contract value upon written
request, complete with all necessary information to the Service Office. In the
case of a total withdrawal, the Company will pay the surrender value as of the
date of receipt of the request at the Service Office, and the contract will
terminate. In the case of a partial withdrawal from an investment account, the
Company will pay the amount requested and deduct that amount plus any applicable
withdrawal charge from such investment account. (See "CHARGES AND DEDUCTIONS")
When making a partial withdrawal, the contract owner should specify the
investment accounts from which the withdrawal is to be made. The amount
requested from an investment account may not exceed the value of that investment
account less any applicable withdrawal charge. If the contract owner does not
specify the investment account from which a partial withdrawal is to be taken, a
partial withdrawal will be taken from all the investment accounts. The face
amount will be reduced proportionally to the reduction in the contract value due
to the partial withdrawal.
For the rules governing the order and manner of withdrawals from the
fixed investment option, see "FIXED INVESTMENT OPTION."
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 account. If after the withdrawal (and deduction of any withdrawal
charge) the amount remaining in the investment account is less than $100, the
Company will treat the partial withdrawal as a withdrawal of the entire amount
held in the investment account. If a partial withdrawal plus any applicable
withdrawal charge would reduce the contract value to less than $300, the Company
will treat the partial withdrawal as a total withdrawal of the contract value.
The amount of any withdrawal from the variable 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 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. (See "FEDERAL TAX MATTERS")
TELEPHONE WITHDRAWALS
The contract owner may request the option to withdraw a portion of the
contract value by telephone by completing the application described under
"Telephone Transactions" above. The Company reserves the right to impose
maximum withdrawal amounts and procedural requirements regarding this privilege.
See "TELEPHONE TRANSACTIONS"
DEATH BENEFIT
Upon receipt of proof of the death of the insured while the contract is
in force, the Company will pay the death benefit proceeds to the beneficiary.
The amount of the death benefit is determined on the date the Company receives
proof of the insured's death and will be the greater of (a) the face amount or
(b) the contract value times the death benefit factor from the following table:
14
<PAGE> 17
<TABLE>
<CAPTION>
Death Death
Attained Benefit Attained Benefit
Age Factor Age Factor
- -------- ------- -------- -------
<S> <C> <C> <C>
40 or
younger 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75-90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94-99 101%
<FN>
Proof of death is received when one of the following is received at the
Service Office:
(a) A certified copy of a death certificate; or
(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 the Company.
</TABLE>
All or part of the death benefit proceeds may be paid in cash or applied
under an annuity option. (See "ANNUITY PAYMENT OPTIONS") If there is any debt
under the contract, the death benefit proceeds equal the death benefit, as
described above, less such debt.
ANNUITY PAYMENT OPTIONS
Proceeds payable under the contract are payable either in a lump sum or in
accordance with one or more annuity options. If no annuity option is
specified, then proceeds will be paid in a lump sum. The person to receive
payments under an option is called the payee and for joint and survivor
annuities, the second person named is called the co-payee. An annuity option
may be chosen only if the amount to be applied for any payee is at least
$2,000. Each periodic payment must be at least $25. In addition to the
annuity options described below, the owner may choose any form of settlement
acceptable to the Company.
The following options are guaranteed in the contract.
Option 1(a): Non-Refund Life Annuity - An annuity with payments
during the lifetime of the payee. No payments are due after the death
of the payee. Since there is no guarantee that any minimum number of
payments will be made, an annuitant may receive only one payment if the
annuitant dies prior to the date the second payment is due.
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years
- An annuity with payments guaranteed for 10 years and continuing
thereafter during the lifetime of the payee. Since payments are
guaranteed for 10 years, annuity payments will be made to the end of
such period if the payee 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 payee and a designated
co-payee. No Payments are due after the death of the last survivor of
the
15
<PAGE> 18
payee and co-payee. Since there is no guarantee that any
minimum number of payments will be made, a payee or co-payee may receive
only one payment if the payee and co-payee 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 payee and a
designated co-payee. Since payments are guaranteed for 10 years,
annuity payments will be made to the end of that period if both the
payee and the co-payee 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 payee. 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 No-Refund Life Annuity -
An annuity with full payments during the joint lifetime of the payee and
a designated co-payee and two-thirds payments during the lifetime of the
survivor. Since there is no guarantee that any minimum number of
payments will be made, a payee or co-payee may receive only one payment
if the payee and co-payee die prior to the date the second payment is
due.
Death Benefit under Annuity Payment Options
If annuity payments have been selected based on an annuity option
providing for payments for a guaranteed period, and the payee(s) dies, the
Company will make the remaining guaranteed payments to the payee's named
beneficiary. 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 payee.
TERMINATION
The contract will terminate and life insurance coverage will cease on
the earliest of the following:
(a) the date the owner surrenders the contract; or
(b) the maturity date of the contract; or
(c) the end of the grace period described below; or
(d) the death of the insured.
A grace period of 61 days commences on a monthly anniversary day on
which the contract's surrender value is less than zero. If sufficient payment
is not made by the end of the grace period, the contract will terminate without
value. The Company will mail the owner and any assignee written notice of the
amount of payment that will be required to continue the contact in force at
least 61 days before the end of the grace period. The payment required will be
no greater than the amount required to pay the monthly deduction for three
months as of the day the grace period began. If payment is not made by the end
of the grace period, the owner's contract will terminate without value.
Termination on the maturity date may be avoided if the insured is living
on that date and if the owner sends the Company written notice that the owner
elects the contract's extended maturity option prior to the maturity date. If
the extended maturity option is elected, the entire contract value will be
transferred to the fixed investment account on the maturity date and no further
cost of insurance charges will be incurred. Death benefit proceeds will then be
equal to the surrender value. A decision to elect, or not to elect, the
extended maturity option will have income tax consequences. (See "FEDERAL TAX
MATTERS").
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<PAGE> 19
REINSTATEMENT
During the life of the insured, this contract may be reinstated within
two years from the end of the grace period unless it was surrendered for payment
of its surrender value. To reinstate, the Company must receive satisfactory
proof of the insurability of the insured, and any debt must be repaid or
reinstated. Sufficient payment must be made to cover:
(a) all monthly deductions that are due and unpaid during the grace
period, and
(b) three months of the guaranteed maximum cost of insurance as of the
date of reinstatement.
The contract value on the reinstated date will reflect:
(a) the contract value at the time of termination; plus
(b) payments made at the time of reinstatement.
The withdrawal charge will be based on the number of contract years from
the original contract date.
FIXED INVESTMENT OPTION
Investment Option. A one year fixed investment option is available
under the contract. Under the one year fixed investment option, the Company
guarantees the principal value of payments and the rate of interest credited to
the investment account until the next contract anniversary. The portion of the
contract value in the one year fixed investment option will reflect such
interest and principal guarantees. The guaranteed interest rates on new amounts
allocated or transferred to the fixed investment account are determined from
time-to-time by the Company in accordance with market conditions. The effective
interest rate credited at any time to the fixed investment account of a contract
is the weighted average of all guaranteed rates for the contract. In no event
will the guaranteed rate of interest be less than 3%. Once an interest rate is
guaranteed for an amount in the fixed investment account, it is guaranteed until
the next contract anniversary and may not be changed by the Company.
Pursuant to a Guarantee Agreement dated November 19, 1993, North
American Life, parent of the Company, unconditionally guarantees to the Company
on behalf of and for the benefit of the Company and owners of fixed 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 contracts.
This Guarantee covers the fixed portion of the contracts described in this
Prospectus. This Guarantee may be terminated by North American Life on notice
to the Company. Termination will not affect North American Life's continuing
liability with respect to all fixed contracts issued prior to the termination of
the Guarantee.
Investment Account. Contract owners may allocate payments, or make
transfers from the variable investment options, to the fixed investment option
at any time prior to the maturity date. The Company will establish an
investment account when amounts are allocated to the fixed investment option.
Renewals. At the end of a guarantee period, the contract owner may
establish a new investment account with a one year guarantee period at the then
current interest rate or transfer the amounts to a variable investment option,
all without the imposition of any charge. If the contract owner does not
specify the renewal option desired, the Company will select the fixed investment
option.
Transfers. Prior to the maturity date, the contract owner may transfer
amounts from the fixed investment account to the variable investment options
within 30 days of the contract anniversary. Amounts in the fixed investment
account may be transferred prior to the end of the contract year as follows:
(i) transfers may be made pursuant to the Dollar Cost Averaging program and (ii)
transfers may be made from the fixed investment account to the variable
investment options if, at the time of the transfer, the guaranteed interest rate
for the funds to be transferred is equal to or greater than the then current
guaranteed rate for funds being transferred into the fixed investment account.
The Company may withdraw its permission to make the transfers described in (ii)
above at any time after April 30, 1996.
Withdrawals. The contract owner may make total and partial withdrawals
of amounts held in the fixed investment account at any time prior to the
maturity date or his or her death. Withdrawals from the fixed investment
account will be made in the same manner and be subject to the same limitations
as set forth under "WITHDRAWALS." The Company reserves the right to defer
payment of amounts withdrawn from the fixed
17
<PAGE> 20
investment account for up to six months from the date it receives the
written withdrawal request (if a withdrawal is deferred for more than 30 days
pursuant to this right, the Company will pay interest on the amount deferred at
a rate not less than 3% per year or such higher rate as may be required by the
applicable state or jurisdiction).
Withdrawals allocated to the free withdrawal amount may be withdrawn
without the imposition of a withdrawal charge. If withdrawals are taken from
more than one investment account, the free withdrawal amount will be applied to
all investment accounts on a pro rata basis.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. (See "FEDERAL TAX MATTERS" in the Prospectus)
Securities Registration. Due to certain exemptive and exclusionary
provisions, interests in the fixed investment account 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 investment account
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 the Prospectus relating thereto. Disclosures relating to
interests in the fixed investment account 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.
TEN DAY RIGHT TO REVIEW
The contract owner may cancel the contract by returning it to the
Service Office or agent at any time within 10 days after receipt of the
contract. Within 7 days of receipt of the contract by the Company, the Company
will refund the payment made for the contract, less any debt or partial
withdrawals.
No withdrawal charge is imposed upon return of the contract within the
ten day right to review period. The ten day right to review may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states.
OWNERSHIP
The contract owner is the person entitled to exercise all rights under
the contract and is the person designated in the contract specifications page or
as subsequently named. If amounts become payable to any beneficiary under the
contract, the beneficiary is the contract owner.
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
the 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.
BENEFICIARY
The beneficiary is the person, persons or entity designated in the
contract specifications page or as subsequently named. 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 revocable beneficiary is subject to that of any assignee. If no beneficiary
or contingent beneficiary is living, the beneficiary is the owner or the owner's
estate.
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<PAGE> 21
MISCELLANEOUS CONTRACT PROVISIONS
Limit on Right to Contest
With regard to the life of each insured, the contract will be
incontestable after it has been in force during the lifetime of the insured for
two years from the issue date. Any increase in face amount for which evidence
of insurability was obtained will be incontestable only after the increase has
been in force, during the insured's lifetime, for two years from the effective
date of the increase. The two year incontestability period may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states.
In issuing the contract, the Company has relied upon the application.
The statements in that application, in the absence of fraud, are considered
representations and not warranties. No statement made in connection with the
contract application will be used by the Company to void the contract or to deny
a claim unless that statement is a part of the contract application or any
amendments thereof.
Suicide Exclusion
If any insured commits suicide, while sane or insane, within two years
of the issue date, the Company will return payments made, less any debt and any
partial withdrawals. If any insured commits suicide, while sane or insane,
within two years from the effective date of any increase in face amount for
which evidence of insurability was established, the Company will return the
additional payment which increased the face amount.
Misrepresentation of Age or Sex
If the age or sex of any insured has been misstated, the death benefit
proceeds will be limited to those which would have been appropriate for the
insured's correct age and sex.
Assignment
While the insured is alive, the owner may assign the contract. No
assignment will be binding on the Company unless it is written in a form
acceptable to the Company and received at the Service Office. The Company will
not be liable for any payments made or actions taken before the Company accepts
the assignment. An absolute assignment will revoke the interest of any
revocable beneficiary. The Company will not be responsible for the validity of
any assignment. An assignment may result in income tax and a 10% penalty tax.
(See "FEDERAL TAX MATTERS")
Creditors' Claims
To the extent permitted by law, no benefits payable under this contract
will be subject to the claims of the contract owner's or the beneficiary's
creditors.
Non-Participation
The contract is non-participating and will not share in the Company's
profits or surplus earnings. The Company will pay no dividends on the contract.
Notices and Elections
To be effective, all notices and elections made under the contract must
be in writing, signed by the owner and received by the Company at the Service
Office. Certain exceptions may apply. See "Telephone Transactions" Unless
otherwise provided in the contract, all notices, requests and elections will be
effective when received at the Service Office, complete with all necessary
information.
Modification
The Company will not change or modify the contract without the owner's
consent except to the extent necessary to conform to any applicable law or
regulation or any ruling issued by a government agency. The provisions of the
contract shall be interpreted so as to comply with the requirements of Section
7702 of the Internal Revenue Code.
19
<PAGE> 22
CHARGES AND DEDUCTIONS
Charges and deductions under the contracts are assessed against contract
values. 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.
MONTHLY DEDUCTION
On each monthly anniversary day, a deduction is made from contract value
to compensate the Company for the cost of insurance and certain other expenses
incurred in connection with the contract. The monthly deduction amount is
determined as of that valuation date, or if the monthly anniversary day is not a
valuation date, the immediately following valuation date is used. The monthly
deduction will be allocated among the investment accounts on a pro rata basis.
The monthly deduction will vary from month to month. If the surrender value is
insufficient to cover the monthly deduction due on any monthly anniversary day,
the contract may terminate without value. (See "TERMINATION")
DISTRIBUTION CHARGE
During the first ten contract years, a distribution charge equal to an
annual rate of 0.25% of contract value will be deducted monthly as compensation
for a portion of the sales expenses the Company incurs with respect to the
contract (See "DISTRIBUTION OF THE CONTRACT"). The Company will monitor
distribution charges, federal tax charges and contingent deferred sale charges
deducted under a contract to ensure that the sum of these charges will never
exceed 9% of aggregate payments made under that contract.
PREMIUM TAX CHARGE
During the first ten contract years, a premium tax charge equal to an
annual rate of 0.25% of contract value will be deducted monthly to defray
premium taxes the Company pays to state and local governments in connection with
the contract. This charge is designed to offset the average premium tax the
Company expects to pay with respect to a contract (approximately 2.50% of
premium payments received), but will not necessarily equal the premium tax paid
by the Company with respect to a particular contract.
FEDERAL TAX CHARGE
During the first ten contract years, a federal tax charge equal to an
annual rate of 0.15% of contract value will be deducted monthly to defray an
increased federal tax liability resulting from the application of Section 848 of
the Code. The Company currently treats this federal tax charge as if it were
sales load for purposes of determining compliance with maximum sales loads
permitted under Commission rules.
ADMINISTRATION CHARGE
An administration charge equal to an annual rate of 0.40% of contract
value will be deducted monthly as compensation for administrative expenses,
including those for insurance underwriting and contract issuance, establishing
and maintaining contract records, calculating contract values, providing reports
to contract owners, preparation and filing of tax records and forms and process-
ing contract transactions such as transfers, contract loans, partial withdrawals
and surrenders. The administration charge is guaranteed never to increase over
the life of the contract, and was established to cover average anticipated
administrative expenses to be incurred over the period this class of contract
will be in force.
An administrative charge of $2.50 per month will be imposed upon
contracts with less than $100,000 of total premium payments. This charge,
when imposed, offsets the lower asset base from which the Company can recover
its costs of contract administration through the asset-based administrative
charge described above.
20
<PAGE> 23
COST OF INSURANCE CHARGE
The Company will make a monthly deduction for the cost of providing life
insurance coverage for the insured. This charge is guaranteed not to exceed the
maximum cost of insurance charge determined on the basis of the mortality table
guaranteed in the contract, calculated using the 1980 CSO Table. Currently, a
cost of insurance charge equal to an annual rate of 0.35% of contract value
(0.55% of contract value after the first ten contract years) will be deducted
monthly. If there is more than one insured, a cost of insurance charge equal to
an annual rate of 0.10% of contract value (0.30% of contract value after the
first ten contract years). The Company reserves the right to increase or
decrease this current cost of insurance charge so long as the maximum charges
guaranteed in the contract are not exceeded.
MORTALITY AND EXPENSE RISK CHARGE
A mortality and expense risk charge equal to an annual rate of 0.90% of
the value of variable investment accounts will be deducted monthly for assuming
the mortality and expense risks under the contract. The mortality risk assumed
under the contract is the risk that the cost of providing the death benefit will
exceed the maximum guaranteed cost of insurance charge. The expense risk
assumed under the contract is the risk that the cost of providing administrative
services will exceed the revenues from the adminis- tration charges.
WITHDRAWAL CHARGE
If the contract owner makes a partial withdrawal or surrenders the
contract during the first nine contract years, the Company will impose a
withdrawal charge which declines during that nine-year period, however, no
withdrawal charges will be imposed upon death of the insured. The withdrawal
charge consists of two components: a contingent deferred sales charge and an
unrecovered premium tax charge. The withdrawal charge is applicable only to
that portion of the proceeds of a surrender or partial withdrawal that exceeds
the "free withdrawal amount." The free withdrawal amount is the greater of (a)
or (b) as defined below; however, the free withdrawal amount may never exceed
the surrender value.
(a) the excess of the contract value on the date of withdrawal or
surrender over the unliquidated payments; or
(b) 10% of total payments less all prior partial withdrawals in that
contract year.
<TABLE>
The total amount of the withdrawal charge is determined by multiplying
the amount withdrawn or surrendered in excess of the free withdrawal amount by
the applicable total withdrawal charge percentage shown in the following table:
<CAPTION>
Total
Contract Unrecovered Withdrawal
Year CDSC Premium Tax Charge
------- ---- ----------- ----------
<S> <C> <C> <C>
1 6.75% 2.25% 9.00%
2 6.50% 2.00% 8.50%
3 6.25% 1.75% 8.00%
4 5.50% 1.50% 7.00%
5 4.75% 1.25% 6.00%
6 4.00% 1.00% 5.00%
7 3.25% 0.75% 4.00%
8 2.50% 0.50% 3.00%
9 1.75% 0.25% 2.00%
10+ 0% 0% 0%
</TABLE>
The Company will monitor distribution charges, federal tax charge and
contingent deferred sale charges deducted under a contract to ensure that the
sum of these charges will never exceed 9% of aggregate payments made under that
contract.
The total withdrawal charge will be eliminated when a contract is issued
to an officer, director or employee (or a relative thereof) of the Company,
North American Life, the Trust or any of their affiliates.
21
<PAGE> 24
The revenues from the contingent deferred sales charge and the
distribution charge may be insufficient to defray all distribution expenses. If
there is a shortfall, the Company will bear the expense from its general account
assets. Such assets may include profits, if any, from the cost of insurance and
mortality and expense risk charges described above.
The unrecovered premium tax charge is designed to reimburse the Company
upon a surrender or partial withdrawal during the first nine contract years for
state premium taxes it will have paid in connection with receipt of contract
payments. The amounts deducted pursuant to the asset-based charge for premium
taxes prior to withdrawal, plus the deferred premium tax charges deducted upon
the amounts surrendered or withdrawn, will approximately equal the Company's
expected state premium tax obligations as a result of its receipt of contract
payments, based upon an estimated 2.5% average premium tax obligation.
OTHER TAXES
The Company reserves the right to make charges for any additional tax
obligations that may be incurred in the future as a result of establishing or
maintaining the Variable Account, issuing a contract,receiving payments under a
contract, or from commencing or continuing annuity option payments under a
contract.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the
contract is not exhaustive, does not purport to cover all situations, and is
not intended as tax advice. The federal income tax treatment of the 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 Department regulations, and interpretations exist- ing 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 the contract. In addition, THE COMPANY MAKES
NO GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
TAX STATUS OF THE COMPANY
The Company is taxed as a life insurance company under 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 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 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 any
provision for such taxes. The Company's federal tax liability is increased,
however, in respect of the contracts because of the federal tax law's treatment
of deferred acquisition costs (for which the Company imposes a federal tax
charge). (See "CHARGES AND DEDUCTIONS")
TAXATION OF LIFE INSURANCE CONTRACTS IN GENERAL
Tax Status of the Contract
Section 7702 of the Code establishes a statutory definition of life
insurance for federal tax purposes. The Company believes that the contract will
meet the statutory definition of life insurance, which places limitations on the
amount of premium payments that may be made and the contract values that can
accumulate relative to the
22
<PAGE> 25
death benefit. As a result, the death benefit payable under the
contract will generally be excludable from the beneficiary's gross income, and
interest and other income credited under the contract will not be taxable unless
certain withdrawals are made (or are deemed to be made) from the contract prior
to the insured's death, as discussed below. This tax treatment will only apply,
however, if (1) the investments of the Variable Account are "adequately
diversified" in accordance with Treasury Department regulations, and (2) the
Company, rather than the contract owner, is considered the owner of the assets
of the Variable Account for federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department
regulations prescribe the manner in which the invest- ments of a segregated
asset account, such as the Variable Account, are to be "adequately diversified."
If the Variable Account fails to comply with these diversification standards,
the contract will not be treated as a life insurance contract for federal income
tax pur- poses and the owner would generally be taxable currently on the income
on the contract (as defined in the tax law) beginning with the period or periods
of non-diversification. The Company expects that the Variable Account, through
the Trust, will comply with these diversification requirements. Although the
investment adviser of the Trust is an affiliate of the Company, the Company does
not have control over the Trust or its investments. Nonetheless, the Company
believes that each Trust portfolio in which the Variable Account owns shares
will be operated in compliance with the diversification requirements prescribed
by the Code and Treasury Department regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable life insurance
contract owners may be considered the owners, for federal income tax purposes,
of the assets of a segregated asset account, such as the Variable Account, used
to support their contracts. In those circumstances, income and gains from the
segregated asset account would be includible in the contract owners' gross
income. The Internal Revenue Service (the "IRS") has stated in published
rulings that a variable contract owner will be considered the owner of the
assets of a segregated asset account 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 segregated 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 segregated asset
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 the contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the owner of this contract has the choice of more
investment options to which to allocate premium payments and variable investment
account values, and may be able to transfer among investment options more
frequently, than in such rulings. These differences could result in the
contract owner being treated as the owner of a portion 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 contract owners from being
considered the owners of the assets of the Variable Account. However, there is
no assurance that such efforts would be successful.
The remainder of this discussion assumes that the contract will be
treated as a life insurance contract for federal tax purposes.
Tax Treatment of Life Insurance Death Benefit Proceeds
In general, the amount of the death benefit payable from a contract by
reason of the death of the insured is excludable from gross income under section
101 of the Code. Certain transfers of the contract for valuable consideration,
however, may result in a portion of the death benefit being taxable.
If the death benefit is not received in a lump sum and is, instead,
applied under one of the settlement options, payments generally will be prorated
between amounts attributable to the death benefit which will be excludable from
the beneficiary's income and amounts attributable to interest (accruing after
the insured's death) which will be includible in the beneficiary's income.
23
<PAGE> 26
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
unless amounts are received (or are deemed to be received) from the contract
prior to the insured's death. If there is a total withdrawal from the contract,
the surrender value will be includible in the owner's income to the extent the
amount received exceeds the "investment in the contract." (If there is any debt
at the time of a total withdrawal, such debt will be treated as an amount
received by the owner.) The "investment in the contract" is the aggregate
amount of premium payments and other consideration paid for the contract, less
the aggregate amount received under the contract previously to the extent such
amounts received were excludable from gross income. Whether partial withdrawals
(or other amounts deemed to be distributed) from the contract constitute income
to the owner depends, in part, upon whether the contract is considered a
"modified endowment contract" ("MEC") for federal income tax purposes.
Contracts Which Are MECs
------------------------
Characterization of a Contract as a MEC. In general, this contract will
constitute a MEC unless (1) it was received in exchange for another life
insurance contract which was not a MEC, (2) no premium payments or other
consideration (other than the exchanged contract) are paid into the contract
during the first 7 contract years, and (3) there is no withdrawal or reduction
in the death benefit during the first 7 contract years. In addition, even if
the contract initially is not a MEC, it may, in certain circumstances, become a
MEC if there is a later increase in benefits or any other "material change" of
the contract, within the meaning of the tax law.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under
MECs. If the contract is a MEC, withdrawals from the contract will be
considered first as withdrawals of income and then as a recovery of premium
payments. Thus, withdrawals will be includible in income to the extent the
contract value exceeds the investment in the contract. The amount of any loan
(including unpaid interest thereon) under the contract will be treated as a
withdrawal from the contract for tax purposes. In addition, if the owner
assigns or pledges any portion of the value of a contract (or agrees to assign
or pledge any portion), such portion will be treated as a withdrawal from the
contract for tax purposes. The owner's investment in the contract is increased
by the amount includible in income with respect to such assignment, pledge,
or loan, though it is not affected by any other aspect of the assignment,
pledge, or loan (including its release or repayment). Before assigning,
pledging, or requesting a loan under a contract which is a MEC, an owner should
consult a qualified tax advisor.
Penalty Tax. Generally, withdrawals (or the amount of any deemed withdrawals)
from a MEC are subject to a penalty tax equal to 10% of the portion of the
withdrawal that is includible in income, unless the withdrawals are made
(1) after the owner attains age 59 1/2, (2) because the owner has become
disabled (as defined in the tax law), or (3) as substantially equal periodic
payments over the life or life expectancy of the owner (or the joint lives or
life expectancies of the owner and his or her beneficiary, as defined in the
tax law).
Aggregation of Contracts. All life insurance contracts which are MECs and
which are purchased by the same person from the Company or any of its
affiliates within the same calendar year will be aggregated and treated as one
contract for purposes of determining the amount of a withdrawal (including a
deemed withdrawal) that is includible in income. 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.
Contracts Which Are Not MECs
----------------------------
Tax Treatment of Withdrawals Generally. If the contract is not a MEC
(described above), the amount of any withdrawal from the contract will be
considered first a non-taxable recovery of premium payments and then income from
the contract. Thus, a withdrawal under a contract that is not a MEC will not be
includible in income except to the extent it exceeds the investment in the
contract immediately before the withdrawal.
Certain Distributions Required by the Tax Law in the First 15 Contract
Years. As indicated above, section 7702 places limitations on the amount of
premium payments that may be made and the contract values that can accumulate
relative to the death benefit. Where cash distributions are required under
section 7702 in connection with a reduction in benefits during the first 15
years after the contract is issued (or if withdrawals are made in anticipation
of a reduction in benefits, within the meaning of the tax law, during this
period), some or all of such amounts may be includible in income.
24
<PAGE> 27
Tax Treatment of Loans. If a contract is not a MEC, a loan received
under the contract generally will be treated as indebtedness of the owner. As a
result, no part of any loan under such a contract will constitute income to the
owner so long as the contract remains in force. Nevertheless, in those
situations where the interest rate credited to the loan account equals the
interest rate charged for the loan, it is possible that some or all of the loan
proceeds may be includible in income. Generally, interest paid on any loans
under this contract will not be tax deductible, regardless of whether such
interest is incurred in connection with a taxpayer's trade or business.
Last Survivor Contracts
Although the Company believes that the contract, when issued as a last
survivor contract, complies with section 7702 of the Code, the manner in which
section 7702 should be applied to last survivor contracts is not directly
addressed by section 7702. In the absence of final regulations or other
guidance issued under section 7702 regarding this form of contract, there is
necessarily some uncertainty whether a last survivor contract will meet the
section 7702 definition of a life insurance contract. Prospective owners
considering purchase of the contract as a last survivor contract should consult
a qualified tax advisor.
Where the owner of the contract is the last surviving insured, the death
proceeds will generally be includible in the contract owner's estate on his or
her death for purposes of the federal estate tax. If the contract owner dies
and was not the last surviving insured, the fair market value of the contract
would be included in the contract owner's estate. In general, nothing would be
includible in the last surviving insured's estate if he or she neither retained
incidents of ownership at death nor had given up ownership within three years
before death.
Treatment of Maturity Benefits and Extension of Maturity Date
At the maturity date, the surrender value will be paid to the contract
owner, and this amount will be includible in income to the extent the amount
received exceeds the investment in the contract. If the contract owner elects
to extend the maturity date past the year in which the insured attains age 100
(which must be done prior to the original maturity date), the Company believes
the contract will continue to qualify as a life insurance contract for Federal
tax purposes. However, there is some uncertainty regarding this treatment, and
it is possible that the contract owner would be viewed as constructively
receiving the cash value in the year the insured attains age 100. If this were
the case, an amount equal to the excess of the cash value over the investment in
the contract would be includible in the contract owner's income at that time.
Actions to Ensure Compliance with the Tax Law
The Company believes that the maximum amount of premium payments it has
determined for the contracts will comply with the federal tax definition of life
insurance. The Company will monitor the amount of premium payments, and, if the
premium payments during a contract year exceed those permitted by the tax law,
the Company will refund the excess premiums within 60 days of the end of the
contract year and will pay interest and other earnings (which will be includible
in income subject to tax) as required by law on the amount refunded. The
Company also reserves the right to increase the death benefit (which may result
in larger charges under a contract) or to take any other action deemed necessary
to ensure the compliance of the contract with the federal tax definition of life
insurance.
Other Considerations
Changing the owner, exchanging the contract, and other changes under the
contract may have tax consequences (in addition to those discussed herein)
depending on the circumstances of such change.
Federal estate tax, state and local estate and inheritance tax, and
other tax consequences of ownership or receipt of contract proceeds depend on
the circumstances of each contract owner or beneficiary. Federal estate tax is
integrated with federal gift tax under a unified rate schedule. In general,
estates less than $600,000 will not incur a federal estate tax liability. In
addition, an unlimited marital deduction may be available for federal estate and
gift tax purposes.
If the contract owner (whether or not he or she is an insured) transfers
ownership of the contract to someone two or more generations younger, the
transfer may be subject to the generation-skipping tax, the amount subject to
tax being the value of the contract. The generation-skipping tax provisions
generally apply to transfers
25
<PAGE> 28
which would be subject to the gift or estate tax rules. Individuals are
generally allowed an aggregate generation-skipping tax exemption of $1 million.
Because the federal estate tax, gift tax, and generation skipping tax
rules are complex, prospective contract owners should consult a qualified tax
advisor before using this contract for estate planning purposes.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the federal government a part of
the taxable portion of withdrawals made under a contract unless the owner
notifies the Company in writing at or before the time of the withdrawal that he
or she elects not to have any amounts withheld. Regardless of whether the owner
requests that no taxes be withheld or whether the Company withholds a sufficient
amount of taxes, the owner will be responsible for the payment of any taxes and
early distribution penalties that may be due on the amounts received. The owner
may also be required to pay penalties under the estimated tax rules, if the
owner's withholding and estimated tax payments are insufficient to satisfy the
owner's total tax liability.
OTHER MATTERS
VOTING RIGHTS
The Company will vote shares of the Trust portfolios held in the
Variable Account at meetings of shareholders of the Trust in accordance with
voting instructions received from the persons having the voting interest under
the contracts. The number of portfolio shares for which voting instructions may
be given will be determined by the Company in the manner described below, not
more than 90 days prior to the meeting of the Trust. Trust proxy material will
be distributed to each person having the voting interest under the contract
together with appropriate forms for giving voting instructions. Portfolio
shares held in the Variable Account that are attributable to contract owners and
as to which no timely instructions are received and portfolio shares that are
not attributable to contract owners will be voted by the Company in proportion
to the instructions received.
Prior to the maturity date, the person having the voting interest under
a contract is the contract owner and the number of votes as to each portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the Sub-Account in which such
portfolio shares are held by the net asset value per share of that portfolio.
The Company may, if required by state insurance officials, disregard
voting instructions that would require shares to be voted to change the
sub-classification or investment policies of a portfolio or to approve or
disapprove an investment advisory contract for a portfolio. In addition, the
Company may disregard voting instructions that would require changes in the
investment policies or investment adviser or subadviser of a portfolio if the
Company reasonably disapproves of these changes in accordance with applicable
federal regulations. If the Company disregards any voting instructions, it will
advise contract owners of that action, and its reasons therefore, in its next
communication to contract owners.
The Company reserves the right to make any changes in the voting rights
described above that may be permitted by the securities laws or regulations or
interpretations of these laws or regulations. In particular, if applicable
securities laws or regulations are amended or present interpretations of them
change, and, as a result, the Company determines that it is permitted to vote in
its own right shares of the portfolios held in the Variable Account, the Company
may elect to do so.
NOTICES AND REPORTS TO CONTRACT OWNERS
Within 30 days after each calendar quarter, the Company will send the
owner a statement showing, among other things, the contract value and
information concerning any loans. Within 10 days after any transaction
involving purchase, sale or transfer of amounts allocated to the Variable
Account, the owner will be sent a confirmation statement. The owner also will
be sent an annual and semi-annual report for the Variable Account and each
portfolio, which will include a list of the securities held in each portfolio.
At least once each contract year, the Company will send to contract
owners a statement showing the face amount and the contract value of the
contract and any outstanding loan secured by the contract as of the date of the
26
<PAGE> 29
statement. The statement will also show premium payments, and monthly
deductions under the contract since the last statement, and any other
information required by any applicable law or regulation.
DISTRIBUTION OF THE CONTRACT
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 contract 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. (the "NASD"). NASL Financial has entered into an
exclusive promotional agent agreement with Wood Logan Associates, Inc. ("Wood
Logan"). Wood Logan, approximately 20% owned by North American Life and its
affili- ates, is a broker-dealer registered under the 1934 Act and a member of
the NASD. Sales of the contract will be made by registered representatives of
broker-dealers authorized by NASL Financial to sell the contracts. Such
registered representatives will also be licensed insurance agents of the
Company. Under the promotional agent agreement, Wood Logan will recruit and
provide sales training and licensing assistance to such registered
representatives. In addition, Wood Logan will prepare sales and promotional
materials for the Company's approval. NASL Financial will pay distribution
compensation to selling brokers in varying amounts which under normal
circumstances are not expected to exceed 7% of purchase payments. 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 Wood Logan for providing marketing support for the distribution of the
contract.
<TABLE>
OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers of the Company, together with their
principal occupations during the past five years, are as follows:
<CAPTION>
POSITION WITH THE
NAME COMPANY PRINCIPAL OCCUPATION
<S> <C> <C>
William J. Atherton Director and President Director and President
of the Company
Peter S. Hutchinson Director Executive Vice
President and Chief
Financial Officer of
North American Life,
September 1994 to
present; Senior Vice
President and Chief
Actuary, North
American Life,
April 1992 to August
1994; Vice President
and Chief Actuary,
North American Life,
September 1990 to
March 1992; Vice
President and
Corporate Actuary,
North American Life,
September 1988 to
September 1990.
Brian L. Moore Director and Chairman of Chief Executive Officer,
Board of Directors The North American
Group, October 1993
to date; Executive Vice
President and Chief
Financial Officer, North
American Life,
September 1988 to
October, 1993.
James D. Gallagher Vice President, Secretary Vice President,
and General Counsel and General Counsel of
the Company, June 1994
to date; Vice President
and Associate General
Counsel, The Prudential
Insurance Company of
America, 1990-1994.
Richard C. Hirtle Vice President, Treasurer Vice President,
and Chief Financial Officer Treasurer and Chief
Financial Officer
of the Company,
November 1988 to date.
</TABLE>
27
<PAGE> 30
<TABLE>
<S> <C> <C>
Hugh C. McHaffie Vice President and Product Vice President and
Actuary Product Actary of the
Company, August 1994
to present; Product
Development Executive
of the Company, August
1990 to August 1994.
Iain W. Scott Vice President, Life Products Vice President, Life
Products of the Company
1994 to present; Vice
President of U.S.
Distribution, North
American Life, 1992 to
1994; Vice President,
Marketing, M Financial
Group of Portland,
Oregon, 1990 to 1992.
Janet Sweeney Vice President, Corporate Vice President,
Services Corporate Services of
the Company, January,
1995 to date; Executive,
Corporate Services of
the Company, July,
1989 to December 1994.
Scott L. Stolz Vice President, Annuity Vice President, Annuity
Administration and Systems Administration and
Systems of the Company,
November, 1994 to date;
Senior Vice President
of Annuity
Administration and
Corporate Services,
SunAmerica Inc.,
October 1991 to October
1994; Senior Vice
President and National
Sales Manager,
SunAmerica Inc.,
August 1990 to October
1991.
John G. Vrysen Vice President and Actuary Vice President and
Actuary of the Company,
January 1986 to date.
</TABLE>
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.
LEGAL MATTERS
All matters of applicable state law pertaining to the contract,
including the Company's right to issue the contract thereunder, have been passed
upon by James D. Gallagher, Esq., Vice President, Secretary and General Counsel
of the Company. Certain matters relating to the federal securities laws have
been passed upon by Jones & Blouch, Washington, D.C.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company included in this Prospectus have
been examined by Coopers & Lybrand, L.L.P., certified public accountants, as
indicated in their report in this Prospectus, and are included herein in
reliance upon that report and upon the authority of those accountants as experts
in accounting and auditing.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
The assets of the Variable Account are held by the Company. The assets
of the Variable Account are kept physically segregated and held separate and
apart from the general account of the Company. The Company maintains records of
all purchases and redemptions of shares of each Trust portfolio. Additional
protection for the assets of the Variable Account is afforded by the Company's
blanket fidelity bond issued by American Home Assurance Company, in the
aggregate amount of $50 million ($25 million for any one claim) , covering all
of the officers and employees of the Company.
28
<PAGE> 31
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 the 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 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.
CONTRACT OWNER INQUIRIES
All contract owner inquiries should be directed to the Service Office.
CONTRACT ILLUSTRATIONS
The following tables have been prepared to illustrate the way in which a
contract operates. The tables assume that an initial premium payment of $25,000
is allocated equally among the Sub-Accounts of the Variable Account, with no
allocation to the fixed investment account, and that no subsequent payments,
transfers, partial withdrawals, or loans have been made. A female nonsmoker age
55 and a male nonsmoker age 65 with face amounts of $84,176 and $49,801,
respectively, are illustrated for an individual insured. The illustration for a
contract with two insureds assumes a joint equal age of 65 with a face amount of
$73,965.
The tables illustrate how the contract value, the surrender value and
the death benefit of a contract would vary over time if the investment return on
the assets of each portfolio were a uniform, gross (i.e., before taking into
consideration fees or expenses incurred by each portfolio, other than
transaction expenses such as brokerage commissions) after-tax annual rates of
0%, 6% or 12%. The contract value, surrender value and death benefit would be
different from those shown if the returns averaged 0%, 6% or 12%, but fluctuated
over and under those averages throughout the years.
The charges reflected in the tables include the (1) distribution charge
equal to an annual rate of 0.25% of contract value for the first ten contract
years, (2) premium tax charge equal to an annual rate of 0.25% of contract value
for the first ten contract years, (3) federal tax charge equal to an annual rate
of 0.15% of contract value for the first ten contract years, (4) administration
charge equal to an annual rate of 0.40% of contract value, (5) mortality and
expense charge equal to an annual rate of 0.90% of variable investment account
values, (6) $2.50 monthly maintenance fee, (7) current and guaranteed cost of
insurance charges, and (8) any withdrawal charge which may be applicable in the
first nine contract years. A simple average of the total expenses of the
fourteen portfolios also is reflected in the tables. That average expense
figure is 0.93%, based upon the 1994 expense ratios of the portfolios and
estimated expense ratio of 1.25%, 1.25% and 1.40% for the International Growth
and Income Trust, Small/Mid Cap Trust and the International Small Cap Trust,
respectively. The expenses of the portfolios may fluctuate from year to year,
but are assumed to remain constant for purposes of these tables.
The tables reflect the fact that no charges (other than those described
above) for federal, state or local taxes are currently made against the Variable
Account. If such a charge is made in the future, it would take a higher gross
rate of return to produce after-tax returns of 0%, 6% and 12% than it does
now.
Surrender values in the tables do not reflect any tax consequences of a
surrender, as those consequences would vary according to the individual
circumstances of the contract owner. It should be noted that surrenders of the
contract may be subject to income tax and a 10% penalty tax. (See "FEDERAL TAX
MATTERS")
Upon request, the Company will furnish comparable illustrations based on
the insured's age, gender, smoking status, risk class, the initial premium
payment, and the investment option selected by the contract owner or prospective
owner.
From time to time, in supplemental sales literature for the contract
that quotes performance data for one or more of the Trust portfolios, the
Company may include surrender values and death benefit figures computed using
the same methodology as that used in the following illustrations, but with the
average annual total return of the portfolio for which performance data is shown
in the sales literature replacing the hypothetical rates of return in the
following tables. This information may be shown in the form of graphs, charts,
tables and examples. The contract will be offered to the public only on or
after the date of this Prospectus. However, total return data may be
29
<PAGE> 32
used in sales literature for as long a period as a portfolio has been in
existence. The results for any period prior to the contract being offered would
be calculated as if the contract had been offered during that period of time,
with all charges assumed to be those applicable to the contract.
30
<PAGE> 33
$25,000 INITIAL PAYMENT: $51,179 FACE AMOUNT
MALE NONSMOKER : AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
---------------------------- ---------------------------- -----------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $24,175 $21,925 $51,179 $25,627 $23,377 $51,179 $ 27,078 $ 24,828 $ 51,179
2 27,563 23,377 21,252 51,179 26,270 24,145 51,179 29,332 27,207 51,179
3 28,941 22,604 20,854 51,179 26,930 25,180 51,179 31,776 30,026 51,179
4 30,388 21,855 20,355 51,179 27,608 26,108 51,179 34,426 32,926 51,179
5 31,907 21,131 19,881 51,179 28,303 27,053 51,179 37,300 36,050 51,179
6 33,502 20,429 19,429 51,179 29,017 28,017 51,179 40,416 39,416 51,179
7 35,178 19,750 19,000 51,179 29,749 28,999 51,179 43,796 43,046 51,179
8 36,936 19,092 18,592 51,179 30,501 30,001 51,179 47,460 46,960 52,680
9 38,783 18,455 18,205 51,179 31,273 31,023 51,179 51,433 51,183 56,062
10 40,722 17,839 17,839 51,179 32,064 32,064 51,179 55,742 55,742 59,644
15 51,973 15,382 15,382 51,179 37,177 37,177 51,179 85,984 85,984 90,284
20 66,332 13,245 13,245 51,179 43,130 43,130 51,179 131,725 131,725 138,311
25 84,659 11,385 11,385 51,179 50,062 50,062 52,565 201,820 201,820 211,911
30 108,049 9,767 9,767 51,179 58,243 58,243 58,825 309,889 309,889 312,988
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Current
values reflect current cost of insurance charges and a $2.50 monthly maintenance
fee. (3) Net investment returns are calculated as the hypothetical gross
investment return less all current contract charges and deductions shown in the
prospectus and current average fund expense of 0.93%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by North
American Security Life or the Trust that these hypothetical rates of return can
be achieved for any one year or sustained over any period of time.
<PAGE> 34
$25,000 INITIAL PAYMENT: $85,564 FACE AMOUNT
FEMALE NONSMOKER : AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------ ------------------------------- ------------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $24,175 $21,925 $85,564 $25,627 $23,377 $85,564 $ 27,078 $ 24,828 $ 85,564
2 27,563 23,377 21,252 85,564 26,270 24,145 85,564 29,332 27,207 85,564
3 28,941 22,604 20,854 85,564 26,930 25,180 85,564 31,776 30,026 85,564
4 30,388 21,855 20,355 85,564 27,608 26,108 85,564 34,426 32,926 85,564
5 31,907 21,131 19,881 85,564 28,303 27,053 85,564 37,300 36,050 85,564
6 33,502 20,429 19,429 85,564 29,017 28,017 85,564 40,416 39,416 85,564
7 35,178 19,750 19,000 85,564 29,749 28,999 85,564 43,796 43,046 85,564
8 36,936 19,092 18,592 85,564 30,501 30,001 85,564 47,460 46,960 85,564
9 38,783 18,455 18,205 85,564 31,273 31,023 85,564 51,433 51,183 85,564
10 40,722 17,839 17,839 85,564 32,064 32,064 85,564 55,742 55,742 85,564
15 51,973 15,382 15,382 85,564 37,177 37,177 85,564 85,829 85,829 99,562
20 66,332 13,245 13,245 85,564 43,130 43,130 85,564 133,092 133,092 142,409
25 84,659 11,385 11,385 85,564 50,062 50,062 85,564 206,934 206,934 217,281
30 108,049 9,767 9,767 85,564 58,135 58,135 85,564 318,712 318,712 334,647
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Current
values reflect current cost of insurance charges and a $2.50 monthly maintenance
fee. (3) Net investment returns are calculated as the hypothetical gross
investment return less all current contract charges and deductions shown in the
prospectus and current average fund expense of 0.93%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by North
American Security Life or the Trust that these hypothetical rates of return can
be achieved for any one year or sustained over any period of time.
<PAGE> 35
$25,000 INITIAL PAYMENT: $79,644 FACE AMOUNT
LAST SURVIVOR : JOINT EQUIVALENT AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------ ------------------------------- -------------------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 25,000 $24,245 $21,995 $79,644 $25,701 $23,451 $79,644 $ 27,158 $ 24,908 $ 79,644
2 26,250 23,503 21,378 79,644 26,413 24,288 79,644 29,492 27,367 79,644
3 27,563 22,783 21,033 79,644 27,145 25,395 79,644 32,030 30,280 79,644
4 28,941 22,084 20,584 79,644 27,898 26,398 79,644 34,788 33,288 79,644
5 30,388 21,406 20,156 79,644 28,672 27,422 79,644 37,787 36,537 79,644
6 31,907 20,747 19,747 79,644 29,470 28,470 79,644 41,047 40,047 79,644
7 33,502 20,108 19,358 79,644 30,290 29,540 79,644 44,591 43,841 79,644
8 35,178 19,488 18,988 79,644 31,134 30,634 79,644 48,444 47,944 79,644
9 36,936 18,886 18,636 79,644 32,002 31,752 79,644 52,632 52,382 79,644
10 38,783 18,301 18,301 79,644 32,895 32,895 79,644 57,185 57,185 79,644
15 49,498 15,985 15,985 79,644 38,625 38,625 79,644 88,864 88,864 93,307
20 63,174 13,944 13,944 79,644 45,382 45,382 79,644 138,030 138,030 144,932
25 80,628 12,145 12,145 79,644 53,350 53,350 79,644 214,155 214,155 224,863
30 102,903 10,560 10,560 79,644 62,745 62,745 79,644 332,793 332,793 336,121
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Current
values reflect current cost of insurance charges and a $2.50 monthly maintenance
fee. (3) Net investment returns are calculated as the hypothetical gross
investment return less all current contract charges and deductions shown in the
prospectus and current average fund expense of 0.93%.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by North
American Security Life or the Trust that these hypothetical rates of return can
be achieved for any one year or sustained over any period of time.
<PAGE> 36
$25,000 INITIAL PAYMENT: $51,179 FACE AMOUNT
MALE NONSMOKER : AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $ 23,664 $ 21,414 $ 51,179 $ 25,123 $ 22,873 $ 51,179 $ 26,582 $ 24,332 $ 51,179
2 27,563 22,269 20,144 51,179 25,188 23,063 51,179 28,283 26,158 51,179
3 28,941 20,803 19,053 51,179 25,188 23,438 51,179 30,120 28,370 51,179
4 30,388 19,250 17,750 51,179 25,112 23,612 51,179 32,115 30,615 51,179
5 31,907 17,591 16,341 51,179 24,947 23,697 51,179 34,294 33,044 51,179
6 33,502 15,802 14,802 51,179 24,674 23,674 51,179 36,687 35,687 51,179
7 35,178 13,848 13,098 51,179 24,270 23,520 51,179 39,332 38,582 51,179
8 36,936 11,687 11,187 51,179 23,704 23,204 51,179 42,280 41,780 51,179
9 38,783 9,269 9,019 51,179 22,938 22,688 51,179 45,597 45,347 51,179
10 40,722 6,536 6,536 51,179 21,932 21,932 51,179 49,350 49,350 52,805
15 51,973 * * * 11,932 11,932 51,179 76,103 76,103 79,908
20 66,332 * * * * * * 116,056 116,056 121,859
25 84,659 * * * * * * 173,786 173,786 182,475
30 108,049 * * * * * * 262,259 262,259 264,882
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Guaranteed
values reflect guaranteed cost of insurance charges and a $2.50 monthly
maintenance fee. (3) Net investment returns are calculated as the hypothetical
gross investment return less all guaranteed contract charges and deductions
shown in the prospectus and current average fund expense of 0.93%.
* Unless additional payment is made, the contract will not stay inforce
resulting in loss of insurance coverage. See "TERMINATION" and "REINSTATEMENT".
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by North
American Security Life or the Trust that these hypothetical rates of return can
be achieved for any one year or sustained over any period of time.
<PAGE> 37
$25,000 INITIAL PAYMENT: $85,564 FACE AMOUNT
FEMALE NONSMOKER : AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $ 23,875 $ 21,625 $ 85,564 $ 25,327 $ 23,077 $ 85,564 $ 26,778 $ 24,528 $ 85,564
2 27,563 22,747 20,622 85,564 25,637 23,512 85,564 28,698 26,573 85,564
3 28,941 21,615 19,865 85,564 25,931 24,181 85,564 30,775 29,025 85,564
4 30,388 20,478 18,978 85,564 26,209 24,709 85,564 33,026 31,526 85,564
5 31,907 19,331 18,081 85,564 26,467 25,217 85,564 35,468 34,218 85,564
6 33,502 18,168 17,168 85,564 26,698 25,698 85,564 38,116 37,116 85,564
7 35,178 16,977 16,227 85,564 26,893 26,143 85,564 40,987 40,237 85,564
8 36,936 15,746 15,246 85,564 27,042 26,542 85,564 44,100 43,600 85,564
9 38,783 14,457 14,207 85,564 27,128 26,878 85,564 47,477 47,227 85,564
10 40,722 13,098 13,098 85,564 27,141 27,141 85,564 51,146 51,146 85,564
15 51,973 5,270 5,270 85,564 26,828 26,828 85,564 78,039 78,039 90,525
20 66,332 * * * 22,611 22,611 85,564 120,995 120,995 129,464
25 84,659 * * * 7,532 7,532 85,564 188,107 188,107 197,513
30 108,049 * * * * * * 289,632 289,632 304,114
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Guaranteed
values reflect guaranteed cost of insurance charges and a $2.50 monthly
maintenance fee. (3) Net investment returns are calculated as the hypothetical
gross investment return less all guaranteed contract charges and deductions
shown in the prospectus and current average fund expense of 0.93%.
* Unless additional payment is made, the contract will not stay inforce
resulting in loss of insurance coverage. See "TERMINATION" and "REINSTATEMENT".
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by North
American Security Life or the Trust that these hypothetical rates of return can
be achieved for any one year or sustained over any period of time.
<PAGE> 38
$25,000 INITIAL PAYMENT: $79,644 FACE AMOUNT
LAST SURVIVOR : JOINT EQUIVALENT AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Payment
Plus Contract Contract Contract
Policy Interest Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 25,000 $ 24,245 $ 21,995 $ 79,644 $ 25,701 $ 23,451 $ 79,644 $ 27,158 $ 24,908 $ 79,644
2 26,250 23,474 21,349 79,644 26,388 24,263 79,644 29,471 27,346 79,644
3 27,563 22,679 20,929 79,644 27,051 25,301 79,644 31,949 30,199 79,644
4 28,941 21,849 20,349 79,644 27,683 26,183 79,644 34,602 33,102 79,644
5 30,388 20,969 19,719 79,644 28,271 27,021 79,644 37,442 36,192 79,644
6 31,907 20,023 19,023 79,644 28,802 27,802 79,644 40,481 39,481 79,644
7 33,502 18,993 18,243 79,644 29,259 28,509 79,644 43,737 42,987 79,644
8 35,178 17,854 17,354 79,644 29,624 29,124 79,644 47,229 46,729 79,644
9 36,936 16,583 16,333 79,644 29,877 29,627 79,644 50,986 50,736 79,644
10 38,783 15,143 15,143 79,644 29,988 29,988 79,644 55,040 55,040 79,644
15 49,498 4,303 4,303 79,644 28,387 28,387 79,644 84,707 84,707 88,942
20 63,174 * * * 17,180 17,180 79,644 131,526 131,526 138,102
25 80,628 * * * * * * 202,696 202,696 212,831
30 102,903 * * * * * * 313,038 313,038 316,168
</TABLE>
ASSUMPTIONS : (1) No loans or partial withdrawals have been made. (2) Guaranteed
values reflect guaranteed cost of insurance charges and a $2.50 monthly
maintenance fee. (3) Net investment returns are calculated as the hypothetical
gross investment return less all guaranteed contract charges and deductions
shown in the prospectus and current average fund expense of 0.93%.
* Unless additional payment is made, the contract will not stay inforce
resulting in loss of insurance coverage. See "TERMINATION" and "REINSTATEMENT".
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing economic conditions,
prevailing rates and rates of inflation. The death benefit and contract value
would be different from those shown if the actual rates of return averaged 0%,
6%, and 12% over a period of years but also fluctuated above or below those
averages for individual contract years. No representation can be made by North
American Security Life or the Trust that these hypothetical rates of return can
be achieved for any one year or sustained over any period of time.
