<PAGE> 1
SUPPLEMENT DATED DECEMBER 31, 1996 TO PROSPECTUS DATED MAY 1, 1996
FOR NASL VARIABLE LIFE ACCOUNT
NEW INVESTMENT PORTFOLIOS
Effective January 15, 1997, twelve new investment options will be added for the
variable portion of your contract. In addition, effective July 11, 1996 the
Growth portfolio was added as an investment option to the variable portion of
your contract. Each new portfolio is a series of NASL Series Trust (the
"Trust"). Set forth below is the subadviser for each new portfolio as well as a
brief description of the portfolio's investment objective and certain policies
relating to that objective and a schedule of fees applicable to the portfolio.
INVESTMENT OBJECTIVE AND POLICIES
SCIENCE & TECHNOLOGY TRUST. The investment objective of the Science & Technology
Trust is long-term growth of capital. Current income is incidental to the
portfolio's objective. T. Rowe Price Associates, Inc. ("T. Rowe Price") manages
the Science & Technology Trust.
EMERGING GROWTH TRUST. The investment objective of the Emerging Growth Trust is
maximum capital appreciation. Warburg Pincus Counsellors, Inc. ("Warburg
Pincus") manages the Emerging Growth Trust and will pursue this objective by
investing primarily in a portfolio of equity securities of domestic companies.
The Emerging Growth Trust ordinarily will invest at least 65% of its total
assets in common stocks or warrants of emerging growth companies that represent
attractive opportunities for maximum capital appreciation.
PILGRIM BAXTER GROWTH TRUST. The investment objective of the Pilgrim Baxter
Growth Trust is capital appreciation. Pilgrim Baxter & Associates, Ltd. ("PBHG")
manages the Pilgrim Baxter Growth Trust and seeks to achieve its objective by
investing in companies believed by PBHG to have an outlook for strong earnings
growth and the potential for significant capital appreciation.
INTERNATIONAL STOCK TRUST. The investment objective of the International Stock
Trust is long-term growth of capital. Rowe Price-Fleming International, Inc.
("Price-Fleming") manages the International Stock Trust and seeks to attain this
objective by investing primarily in common stocks of established, non-U.S.
companies.
GROWTH TRUST. The investment objective of the Growth Trust is to seek long term
growth of capital. Founders Asset Management, Inc. ("Founders"), the subadviser
to the portfolio, will pursue this objective by investing at least 65% of the
portfolio's total assets in common stocks of well-established, high-quality
growth companies that Founders believes have the potential to increase earnings
faster than the rest of the market.
REAL ESTATE SECURITIES TRUST. The investment objective of the Real Estate
Securities Trust is to achieve a combination of long-term capital appreciation
and satisfactory current income by investing in real estate related equity and
debt securities. Manufacturers Adviser Corporation ("MAC") manages the Real
Estate Securities Trust.
VALUE TRUST. The investment objective of the Value Trust is to realize an
above-average total return over a market cycle of three to five years,
consistent with reasonable risk. Miller Anderson & Sherrerd, LLP ("MAS") manages
the Value Trust and seeks to attain this objective by investing primarily in
common and preferred stocks, convertible securities, rights and warrants to
purchase common stocks, ADRs and other equity securities of companies with
equity capitalizations usually greater than $300 million.
HIGH YIELD TRUST. The investment objective of the High Yield Trust is to realize
an above-average total return over a market cycle of three to five years,
consistent with reasonable risk. MAS manages the High Yield Trust and seeks to
attain this objective by investing primarily in high yield debt securities,
including corporate bonds and other fixed-income securities.
<PAGE> 2
LIFESTYLE AGGRESSIVE 1000 TRUST. The investment objective of the Lifestyle
Aggressive 1000 Trust is to provide long term growth of capital. Current income
is not a consideration. MAC seeks to achieve this objective by investing 100% of
the Lifestyle Trust's assets in other portfolios of the Trust ("Underlying
Portfolios") which invest primarily in equity securities.
LIFESTYLE GROWTH 820 TRUST. The investment objective of the Lifestyle Growth 820
Trust is to provide long term growth of capital with consideration also given to
current income. MAC seeks to achieve this objective by investing approximately
20% of the Lifestyle Trust's assets in Underlying Portfolios which invest
primarily in fixed income securities and approximately 80% of its assets in
Underlying Portfolios which invest primarily in equity securities.
LIFESTYLE BALANCED 640 TRUST. The investment objective of the Lifestyle Balanced
640 Trust is to provide a balance between a high level of current income and
growth of capital with a greater emphasis given to capital growth. MAC seeks to
achieve this objective by investing approximately 40% of the Lifestyle Trust's
assets in Underlying Portfolios which invest primarily in fixed income
securities and approximately 60% of its assets in Underlying Portfolios which
invest primarily in equity securities.
LIFESTYLE MODERATE 460 TRUST. The investment objective of the Lifestyle Moderate
460 Trust is to provide a balance between a high level of current income and
growth of capital with a greater emphasis given to high income. MAC seeks to
achieve this objective by investing approximately 60% of the Lifestyle Trust's
assets in Underlying Portfolios which invest primarily in fixed income
securities and approximately 40% of its assets in Underlying Portfolios which
invest primarily in equity securities.
LIFESTYLE CONSERVATIVE 280 TRUST. The investment objective of the Lifestyle
Conservatiave 280 Trust is to provide a high level of current income with some
consideration also given to growth of capital. MAC seeks to achieve this
objective by investing approximately 80% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 20% of its assets in Underlying Portfolios which invest primarily
in equity securities.
For more information on the new portfolios and their subadvisers, see the NASL
Series Trust prospectus dated December 31, 1996.
SUBADVISORY CHANGES
Effective October 1, 1996, the following changes in subadvisors to
portfolios of NASL Series Trust were effected. These changes were approved by
shareholders of the portfolios at a shareholders meeting held December 20, 1996.
Morgan Stanley Asset Management Inc. ("Morgan Stanley") replaced Oechsle
International Advisors, L.P. as subadviser to the Global Equity Trust. T. Rowe
Price Associates, Inc. ("T. Rowe Price") replaced Roger Engemann Management Co.
("REMC") as subadviser to the Pasadena Growth Portfolio (now named the Blue Chip
Growth Portfolio) and replaced Goldman Sachs Asset Management as the subadviser
to the Value Equity Trust (now named the Equity-Income Trust). Manufacturers
Adviser Corporation replaced Wellington Management Company as the subadviser to
the Money Market Trust.
As a result of these subadvisory changes, the descriptions of the Global
Equity, Blue Chip Growth and Equity-Income Trust have been amended and restated
as follows:
Global Equity Trust. The investment objective of the Global Equity Trust is
long-term capital appreciation. Morgan Stanley manages the Global Equity Trust
and intends to pursue this objective by investing primarily in equity securities
of issuers throughout the world, including U.S. issuers and emerging markets.
<PAGE> 3
Blue Chip Growth Trust - The primary investment objective of the Blue Chip
Growth Trust is to provide long-term growth of capital. Current income is a
secondary objective, and many of the stocks in the portfolio are expected to pay
dividends. T. Rowe Price manages the Blue Chip Growth Trust.
Equity-Income Trust - The investment objective of the Equity-Income Trust
is to provide substantial dividend income and also long term capital
appreciation. T. Rowe Price manages the Equity-Income Trust and seeks to attain
this objective by investing primarily in dividend-paying common stocks,
particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
Contract Illustrations
- ----------------------
The Contract Illustrations contained in the Prospectus have been revised to
reflect the estimated average expenses of the new portfolios.
Loans
- -----
The "Loans" section of the Prospectus is amended to clarify that additional
payments are first applied to the amount of any debt under any outstanding loan.
SEC Web Site
- ------------
The Securities and Exchange Commission ("Commission") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference, and other
information regarding registrants that file electronically with the Commission.
SUPPLEMENT DATED DECEMBER 31, 1996
VL.SUPP1296
<PAGE> 4
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 the ultimate parent of which is The Manufacturers Life
Insurance Company ("Manulife"). 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 sixteen
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
sixteen 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 sixteen investment portfolios: the Small/Mid Cap Trust, the
International Small Cap Trust, the Global Equity Trust, Pasadena Growth Trust,
Equity Trust, Value Equity Trust, Growth and Income Trust, International Growth
and Income Trust, Strategic Bond Trust, Global Government Bond Trust, Investment
Quality Bond Trust, U.S. Government Securities Trust, Money Market Trust, and
three Automatic Asset Allocation Trusts (Aggressive, Moderate and Conservative).
See the accompanying Prospectus of the Trust. 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.
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 May 1, 1996,
as supplemented December 31, 1996.
<PAGE> 5
TABLE OF CONTENTS
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
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 ..................................................29
Legal Matters ......................................................29
Independent Accountants ............................................29
Safekeeping of Variable Account Assets .............................29
Other Information ..................................................29
Contract Owner Inquiries ...........................................29
CONTRACT ILLUSTRATIONS ......................................................29
FINANCIAL STATEMENTS ........................................................37
SPECIAL TERMS
2
<PAGE> 6
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 beneficiary if the 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.
3
<PAGE> 7
Investment Options The fixed and variable investments available to
contract owners. Currently, one fixed and sixteen
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
Contract Owner ownership rights under the contract.
Payment or An amount paid by a contract owner to the Company as
Premium Payment consideration for the benefits provided by the
contract.
Portfolio or The registered management investment companies (or
Trust Portfolio any successor 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
Payments sum of 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.
4
<PAGE> 8
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 seventeen investment options
currently available under the contract: sixteen 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 sixteen variable investment options are
the sixteen sub-accounts of the Variable Account, a separate account established
by the Company. The sub-accounts invest in corresponding portfolios of the
Trust: the Small/Mid Cap Trust, the International Small Cap Trust, the Global
Equity Trust, Pasadena Growth Trust, Equity Trust, Value Equity Trust, Growth
and Income Trust, International Growth and Income Trust, Strategic Bond Trust,
Global Government Bond Trust, Investment Quality Bond Trust, U.S. Government
Securities Trust, Money Market Trust, and three Automatic Asset Allocation
Trusts (Aggressive, Moderate and Conservative) (see the accompanying Prospectus
of the Trust). The portion of the contract value in the Variable Account 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> 9
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
<PAGE> 10
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> 11
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 also the depositor of NASL Variable Account,
a separate account of the Company that issues variable annuity contracts. The
ultimate parent of the Company is The Manufacturers Life Insurance Company
("Manulife"), a Canadian mutual life insurance company based in Toronto, Canada.
Prior to January 1, 1996, the Company was a wholly owned subsidiary of North
American Life Assurance Company ("North American Life"), a Canadian mutual life
insurance company. On January 1, 1996 North American Life and Manulife merged
with the combined company retaining the name Manulife.
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 sixteen Sub-Accounts within the Variable Account,
one for each of the sixteen 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 Small/Mid Cap Trust, the International Small Cap
Trust, the Global Equity Trust, the Pasadena Growth Trust, the Equity Trust, the
Value Equity Trust, the Growth and Income Trust, the International Growth and
Income Trust, the Strategic Bond Trust, the Global Government Bond Trust, the
Investment Quality Bond Trust, the U.S. Government Securities Trust, the Money
Market Trust, and three Automatic Asset Allocation Trusts (Aggressive, Moderate
and Conservative). The Trust is registered under the 1940 Act as an open-end
management investment company. Each 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.
The Trust currently has nine subadvisers. Oechsle International
Advisors, L.P., provides investment sub-advisory services to the Global Equity
and Global Government Bond Trusts. Roger Engemann Management Co., Inc., provides
investment subadvisory services to the Pasadena Growth Trust. Fidelity
Management Trust Company provides investment subadvisory services to the Equity,
Aggressive Asset Allocation, Moderate Asset Allocation and Conservative Asset
Allocation Trusts. Goldman Sachs Asset Management provides investment
subadvisory services to the Value Equity Trust. Wellington Management Company
provides investment subadvisory services to the Growth and Income, Investment
Quality Bond and Money Market Trusts. Salomon Brothers Asset Management Inc
provides investment subadvisory services to the Strategic Bond and U.S.
Government Securities Trusts. J.P. Morgan Investment Management Inc. provides
investment subadvisory services to the International Growth and Income Trust.
Fred Alger
8
<PAGE> 12
Management, Inc. provides investment subadvisory services to the Small/Mid Cap
Trust and Founders Asset Management, Inc. provides investment subadvisory
services to the International Small Cap Trust.
The following is a brief description of each Trust portfolio:
THE SMALL/MID CAP TRUST seeks long term capital appreciation by
investing at least 65% of its total assets (except during temporary defensive
periods) in small/mid cap equity securities. As used herein small/mid cap equity
securities are equity securities of companies that, at the time of purchase,
have total market capitalization between $500 million and $5 billion.
THE INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by
investing primarily in securities issued by foreign companies which have total
market capitalization or annual revenues of $1 billion or less. These securities
may represent companies in both established and emerging economies throughout
the world.
THE GLOBAL EQUITY TRUST seeks long-term capital appreciation, by
investing primarily in a globally diversified portfolio of common stocks and
securities convertible into or exercisable for common stocks.
THE PASADENA GROWTH TRUST seeks to achieve long-term growth of capital
by emphasizing investments in companies with rapidly growing earnings per share,
some of which may be smaller emerging growth companies.
THE EQUITY TRUST seeks growth of capital, by investing primarily in
common stocks of United States issuers and securities convertible into or
carrying the right to buy common stocks.
THE VALUE EQUITY TRUST seeks long-term growth of capital by investing
primarily in common stocks and securities convertible into or carrying the right
to buy common stocks.
THE GROWTH AND INCOME TRUST seeks long-term growth of capital and
income, consistent with prudent investment risk, by investing primarily in a
diversified portfolio of common stocks of United States issuers which 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.
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
9
<PAGE> 13
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.
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.
10
<PAGE> 14
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:
SIMPLIFIED UNDERWRITING
ISSUE AGE MAXIMUM INITIAL PAYMENT
20-39 Not available
40-44 $20,000
45-54 $30,000
55-64 $50,000
65-80 $100,000
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.
11
<PAGE> 15
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 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
12
<PAGE> 16
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.
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.
13
<PAGE> 17
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> 18
<TABLE>
<CAPTION>
Death Death
Attained Benefit Attained Benefit
Age Factor Age Factor
-------- ------- -------- -------
<S> <C> <C> <C>
40 or 250% 130%
younger 243% 60 128%
41 236% 61 126%
42 229% 62 124%
43 222% 63 122%
44 215% 64 120%
45 209% 65 119%
46 203% 66 118%
47 197% 67 117%
48 191% 68 116%
49 185% 69 115%
50 178% 70 113%
51 171% 71 111%
52 164% 72 109%
53 157% 73 107%
54 150% 74 105%
55 146% 75-90 104%
56 142% 91 103%
57 138% 92 102%
58 134% 93 101%
59 94-99
</TABLE>
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.
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 payee
15
<PAGE> 19
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").
16
<PAGE> 20
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, (originally
entered into by North American Life and assumed by Manulife in the merger),
Manulife, the ultimate parent of the Company, unconditionally guarantees to the
Company on behalf of and for the benefit of the Company and owners of fixed
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 Manulife on notice to the
Company. Termination will not affect Manulife'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 "pursuant to
the Dollar Cost Averaging program."
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 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).
17
<PAGE> 21
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.
18
<PAGE> 22
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.
CHARGES AND DEDUCTIONS
19
<PAGE> 23
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
processing 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> 24
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 administration 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.
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:
<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, Manulife, the Trust or any of their affiliates.
21
<PAGE> 25
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 existing on the
date of this Prospectus. These authorities, however, are subject to change by
Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences
associated with the purchase of 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 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
22
<PAGE> 26
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 investments 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
purposes 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> 27
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" generally 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> 28
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 which would be
25
<PAGE> 29
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 held in the
Variable Account that are beneficially owned by the Company will be voted by the
Company in proportion to the instructions received.
Prior to the maturity date, the person having the voting interest under
a contract is the contract owner and the number of votes as to each portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the Sub-Account in which such
portfolio shares are held by the net asset value per share of that portfolio.
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> 30
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 a non-exclusive promotional agent agreement with Wood Logan Associates,
Inc. ("Wood Logan"). Wood Logan is a wholly owned subsidiary of a holding
company that is 85% owned by Manulife and approximately 15% owned by the
principals of Wood Logan. Wood Logan 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.
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:
<TABLE>
<CAPTION>
NAME POSITION WITH THE PRINCIPAL OCCUPATION
COMPANY
<S> <C> <C>
William J. Atherton Director and President Vice President, U.S. Annuities, of
Manulife January 1, 1996 to present,
Director and President of the Company.
Peter S. Hutchinson Director Senior Vice President, Corporate
Taxation, of Manulife, January 1, 1996 to
present; Executive Vice President and
Chief Financial Officer of North American
Life, September 1994 to December 1995;
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.
Brian L. Moore Director and Chairman of Executive Vice President, Canadian
the Board of Directors Insurance Operations, of Manulife,
January 1996 to present; Chief Executive
Officer and President, The North American
Group Inc., and Chief Executive Officer,
North American Life, January 1995 to
December, 1995; President, The North
American Group Inc. and Vice-Chairman and
Director, North American Life, October
1993 to December 1994, President, North
American Life Financial Services, Inc.,
July 1992 to October 1993, Executive Vice
President and C.F.O., North American
Life, prior to October 1988.
James D. Gallagher Vice President, Secretary Vice President, Legal Services U.S.
and General Counsel Operations, of Manulife, January 1996 to
present; Vice President, Secretary and
General
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
NAME POSITION WITH THE PRINCIPAL OCCUPATION
COMPANY
<S> <C> <C>
Counsel of the Company, June 1994 to
present; Vice President and Associate
General Counsel, The Prudential Insurance
Company of America, 1990-1994.
Richard C. Hirtle Senior Vice President, Vice President, Chief Financial Officer,
Treasurer, Chief Financial Annuities, of Manulife, January 1996 to
Officer and Chief Operating present; Senior Vice President,
Officer Treasurer, Chief Financial Officer and
Chief Operating Officer of the Company,
November 1988 to present.
Hugh C. McHaffie Vice President and Product Vice President, Product Management, of
Actuary Manulife, January 1996 to present; Vice
President and Product Actuary of the
Company, August 1994 to present; Product
Development Executive of the Company,
August 1990 to August 1994.
Iain W. Scott Vice President, Life Vice President, Single Premium Variable
Products Life, of Manulife, January 1996 to
present; 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, Human Vice President, Human Resources, of
Resources Manulife, January, 1996 to present; Vice
President, Corporate Services of the
Company, January, 1995 to January 1996;
Executive, Corporate Services of the
Company, July, 1989 to December 1994.
Scott L. Stolz Vice President, Annuity Vice President, Annuity Customer Service,
Administration and Systems of Manulife, January 1996 to present;
Vice President, Annuity 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 Chief Vice President and Chief Financial
Actuary Officer, U.S. Operations, of Manulife,
January, 1996 to present; Vice President
and Chief Actuary of the Company, January
1986 to present.
</TABLE>
LEGAL PROCEEDINGS
28
<PAGE> 32
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 L.L.P., Washington, D.C.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company and the Variable Account
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.
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 $85,564 and
$51,179, 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 $79,644.
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)
29
<PAGE> 33
current and guaranteed cost of insurance charges, and (8) any withdrawal charge
which may be applicable in the first nine contract years. An asset-weighted
average of total trust expenses for the twenty-nine investment portfolios, an
average expense of 0.89%, is also reflected in the tables. 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 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> 34
$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 $24,185 $22,233 $51,179 $25,637 $23,555 $51,179 $ 27,089 $ 24,876 $ 51,179
2 27,563 23,396 21,619 51,179 26,291 24,269 51,179 29,356 27,231 51,179
3 28,941 22,631 21,020 51,179 26,963 25,006 51,179 31,814 29,814 51,179
4 30,388 21,890 20,533 51,179 27,652 25,902 51,179 34,481 32,731 51,179
5 31,907 21,173 20,053 51,179 28,360 26,860 51,179 37,375 35,875 51,179
6 33,502 20,478 19,579 51,179 29,087 27,837 51,179 40,514 39,264 51,179
7 35,178 19,805 19,113 51,179 29,833 28,833 51,179 43,919 42,919 51,179
8 36,936 19,154 18,654 51,179 30,599 29,849 51,179 47,612 46,862 52,850
9 38,783 18,522 18,202 51,179 31,386 30,886 51,179 51,620 51,120 56,265
10 40,722 17,911 17,911 51,179 32,193 32,193 51,179 55,966 55,966 59,884
15 51,973 15,476 15,476 51,179 37,402 37,402 51,179 86,504 86,504 90,829
20 66,332 13,353 13,353 51,179 43,479 43,479 51,179 132,787 132,787 139,426
25 84,659 11,503 11,503 51,179 50,570 50,570 53,099 203,857 203,857 214,049
30 108,049 9,889 9,889 51,179 58,954 58,954 59,543 313,645 313,645 316,781
</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 0.89%.
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: $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 $24,185 $22,233 $85,564 $25,637 $23,555 $85,564 $ 27,089 $ 24,876 $ 85,564
2 27,563 23,396 21,619 85,564 26,291 24,269 85,564 29,356 27,231 85,564
3 28,941 22,631 21,020 85,564 26,963 25,006 85,564 31,814 29,814 85,564
4 30,388 21,890 20,533 85,564 27,652 25,902 85,564 34,481 32,731 85,564
5 31,907 21,173 20,053 85,564 28,360 26,860 85,564 37,375 35,875 85,564
6 33,502 20,478 19,579 85,564 29,087 27,837 85,564 40,514 39,264 85,564
7 35,178 19,805 19,113 85,564 29,833 28,833 85,564 43,919 42,919 85,564
8 36,936 19,154 18,654 85,564 30,599 29,849 85,564 47,612 46,862 85,564
9 38,783 18,522 18,202 85,564 31,386 30,886 85,564 51,620 51,120 85,564
10 40,722 17,911 17,911 85,564 32,193 32,193 85,564 55,966 55,966 85,564
15 51,973 15,476 15,476 85,564 37,402 37,402 85,564 86,363 86,363 100,181
20 66,332 13,353 13,353 85,564 43,479 43,479 85,564 134,189 134,189 143,582
25 84,659 11,503 11,503 85,564 50,570 50,570 85,564 209,059 209,059 219,512
30 108,049 9,889 9,889 85,564 58,844 58,844 85,564 322,631 322,631 338,762
</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 0.89%.
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: $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 $ 26,250 $24,255 $22,297 $79,644 $25,712 $23,623 $79,644 $ 27,169 $ 24,948 $ 79,644
2 27,563 23,522 21,735 79,644 26,434 24,399 79,644 29,516 27,391 79,644
3 28,941 22,810 21,186 79,644 27,177 25,203 79,644 32,068 30,068 79,644
4 30,388 22,120 20,746 79,644 27,942 26,192 79,644 34,844 33,094 79,644
5 31,907 21,449 20,312 79,644 28,730 27,230 79,644 37,863 36,363 79,644
6 33,502 20,797 19,882 79,644 29,541 28,291 79,644 41,146 39,896 79,644
7 35,178 20,165 19,458 79,644 30,375 29,375 79,644 44,717 43,717 79,644
8 36,936 19,551 19,039 79,644 31,234 30,484 79,644 48,600 47,850 79,644
9 38,783 18,954 18,625 79,644 32,118 31,618 79,644 52,823 52,323 79,644
10 40,722 18,375 18,375 79,644 33,027 33,027 79,644 57,415 57,415 79,644
15 51,973 16,082 16,082 79,644 38,859 38,859 79,644 89,410 89,410 93,880
20 66,332 14,058 14,058 79,644 45,750 45,750 79,644 139,158 139,158 146,116
25 84,659 12,270 12,270 79,644 53,891 53,891 79,644 216,338 216,338 227,155
30 108,049 10,692 10,692 79,644 63,510 63,510 79,644 336,860 336,860 340,229
</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 0.89%.
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: $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 $23,674 $21,769 $51,179 $25,133 $23,096 $51,179 $ 26,593 $ 24,425 $ 51,179
2 27,563 22,288 20,606 51,179 25,209 23,279 51,179 28,307 26,182 51,179
3 28,941 20,830 19,364 51,179 25,221 23,403 51,179 30,159 28,159 51,179
4 30,388 19,285 18,110 51,179 25,157 23,571 51,179 32,172 30,422 51,179
5 31,907 17,634 16,726 51,179 25,005 23,655 51,179 34,372 32,872 51,179
6 33,502 15,852 15,184 51,179 24,747 23,635 51,179 36,790 35,540 51,179
7 35,178 13,905 13,449 51,179 24,359 23,484 51,179 39,466 38,466 51,179
8 36,936 11,751 11,473 51,179 23,810 23,170 51,179 42,450 41,700 51,179
9 38,783 9,338 9,201 51,179 23,063 22,651 51,179 45,810 45,310 51,179
10 40,722 6,610 6,610 51,179 22,076 22,076 51,179 49,609 49,609 53,082
15 51,973 * * * 12,239 12,239 51,179 76,656 76,656 80,489
20 66,332 * * * * * * 117,135 117,135 122,992
25 84,659 * * * * * * 175,755 175,755 184,543
30 108,049 * * * * * * 265,763 265,763 268,421
</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 0.89%.
* 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: $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 $23,885 $21,960 $85,564 $25,337 $23,282 $85,564 $ 26,789 $ 24,603 $ 85,564
2 27,563 22,766 21,043 85,564 25,658 23,690 85,564 28,721 26,596 85,564
3 28,941 21,642 20,111 85,564 25,964 24,086 85,564 30,813 28,813 85,564
4 30,388 20,513 19,252 85,564 26,253 24,591 85,564 33,081 31,331 85,564
5 31,907 19,373 18,361 85,564 26,523 25,082 85,564 35,543 34,043 85,564
6 33,502 18,217 17,431 85,564 26,768 25,554 85,564 38,213 36,963 85,564
7 35,178 17,032 16,451 85,564 26,977 25,998 85,564 41,111 40,111 85,564
8 36,936 15,806 15,407 85,564 27,140 26,400 85,564 44,255 43,505 85,564
9 38,783 14,522 14,281 85,564 27,241 26,746 85,564 47,666 47,166 85,564
10 40,722 13,168 13,168 85,564 27,270 27,270 85,564 51,375 51,375 85,564
15 51,973 5,357 5,357 85,564 27,060 27,060 85,564 78,590 78,590 91,165
20 66,332 * * * 22,992 22,992 85,564 122,096 122,096 130,642
25 84,659 * * * 8,167 8,167 85,564 190,201 190,201 199,711
30 108,049 * * * * * * 293,444 293,444 308,116
</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 0.89%.
* 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> 39
$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 $ 26,250 $24,255 $22,297 $79,644 $25,712 $23,623 $79,644 $ 27,169 $ 24,948 $ 79,644
2 27,563 23,493 21,709 79,644 26,409 24,377 79,644 29,495 27,370 79,644
3 28,941 22,707 21,090 79,644 27,084 25,117 79,644 31,988 29,988 79,644
4 30,388 21,884 20,527 79,644 27,728 25,978 79,644 34,658 32,908 79,644
5 31,907 21,012 19,901 79,644 28,329 26,829 79,644 37,518 36,018 79,644
6 33,502 20,074 19,195 79,644 28,874 27,624 79,644 40,581 39,331 79,644
7 35,178 19,050 18,388 79,644 29,345 28,345 79,644 43,864 42,864 79,644
8 36,936 17,917 17,454 79,644 29,725 28,975 79,644 47,388 46,638 79,644
9 38,783 16,652 16,369 79,644 29,995 29,495 79,644 51,182 50,682 79,644
10 40,722 15,217 15,217 79,644 30,124 30,124 79,644 55,278 55,278 79,644
15 51,973 4,401 4,401 79,644 28,645 28,645 79,644 85,294 85,294 89,559
20 66,332 * * * 17,648 17,648 79,644 132,704 132,704 139,339
25 84,659 * * * * * * 204,924 204,924 215,170
30 108,049 * * * * * * 317,114 317,114 320,285
</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 0.89%.
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.
