<PAGE> 1
As filed with the Securities and Exchange Commission on April 29, 1997
Registration No. 33-92466
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 3
UNDER THE
SECURITIES ACT OF 1933
NASL VARIABLE LIFE ACCOUNT
(Exact name of trust)
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(Name of depositor)
116 Huntington Avenue
Boston, MA 02116
(Address of Depositor's Principal Executive Offices)
James D. Gallagher, Esq.
Vice President, Secretary
and General Counsel Copy to:
North American Security Life J. Sumner Jones, Esq.
Insurance Company Jones & Blouch L.L.P.
116 Huntington Avenue Suite 405 West
Boston, MA 02116 1025 Thomas Jefferson Street
(Name and Address of Agent for Service) Washington, DC 20007-0805
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) of Rule
485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485 -
____
____ 60 days after filing pursuant to paragraph (a)(1) of Rule
485
___ on _______ pursuant to paragraph (a)(1) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite amount of securities. Registrant filed the 24f-2
Notice for the fiscal year ended December 31, 1996 on February 27, 1997.
<PAGE> 2
RECONCILIATION AND THE TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
ITEM NO. OF CAPTION IN
FORM N-8B-2 PROSPECTUS
- ------------------------------- ------------------------------------------------
1. Cover Page
2. Cover Page
3. Not Applicable
4. OTHER MATTERS: Distribution of the Contract
5. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: NASL
Variable Life Account , North American Security Life Insurance Company
6. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: NASL
Variable Life Account
7. Not Applicable
8. Not Required
9. OTHER MATTERS: Legal Proceedings
10. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: North
American Security Life Insurance Company, NASL Series Trust; OTHER
MATTERS: Voting Rights; CHARGES AND DEDUCTIONS; DESCRIPTION OF THE
CONTRACT
11. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: NASL Series
Trust
12. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: NASL Series
Trust
13. CHARGES AND DEDUCTIONS; FEDERAL TAX MATTERS; OTHER MATTERS:
Distribution of the Contract
14. DESCRIPTION OF THE CONTRACT: Application for a Contract
15. DESCRIPTION OF THE CONTRACT: Allocation of Payments
16. DESCRIPTION OF THE CONTRACT: Payments; GENERAL INFORMATION ABOUT NORTH
AMERICAN SECURITY LIFE INSURANCE COMPANY, NASL VARIABLE LIFE ACCOUNT
AND NASL SERIES TRUST: NASL Series Trust
17. DESCRIPTION OF THE CONTRACT: Withdrawals; CHARGES AND DEDUCTIONS:
Withdrawal Charge
18. DESCRIPTION OF THE CONTRACT; CHARGES AND DEDUCTIONS; FEDERAL TAX
MATTERS
19. OTHER MATTERS: Notices and Reports to Contract Holders
20. Not Applicable
21. DESCRIPTION OF THE CONTRACT: Loans
22. Not Applicable
23. OTHER MATTERS: Safekeeping of Separate Account Assets
24. DESCRIPTION OF THE CONTRACT
25. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: North
American Security Life Insurance Company
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26. Not Applicable
27. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: North
American Security Life Insurance Company
28. OTHER MATTERS: Officers and Directors of the Company
29. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: North
American Security Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. OTHER MATTERS: Distribution of the Contract
36. Not Required
37. Not Applicable
38. OTHER MATTERS: Distribution of the Contract
39. OTHER MATTERS: Distribution of the Contract
40. Not Applicable
41. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: North
American Security Life Insurance Company; OTHER MATTERS: Distribution
of the Contract
42. Not Applicable
43. Not Applicable
44. DESCRIPTION OF THE CONTRACT: Allocation of Payments
45. Not Applicable
46. DESCRIPTION OF THE CONTRACT; CHARGES AND DEDUCTIONS
47. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: NASL Series
Trust, NASL Variable Life Account
48. Not Applicable
49. Not Applicable
50. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: NASL
Variable Life Account
51. Cover Page; DESCRIPTION OF THE CONTRACT; CHARGES AND DEDUCTIONS
52. GENERAL INFORMATION ABOUT NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE LIFE ACCOUNT AND NASL SERIES TRUST: NASL
Variable Life Account, NASL Series Trust
53. FEDERAL TAX MATTERS
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. FINANCIAL STATEMENTS
<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 twenty-nine
currently available variable investment options and held in the 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
twenty-nine 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 an investment Portfolio for each Sub-Account of
the Variable Account. 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. IN ADDITION,
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.
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, 1997
VENLIFE.597
<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 ........................................ 7
North American Security Life Insurance Company ................... 7
NASL Variable Life Account ....................................... 7
NASL Series Trust ................................................ 8
DESCRIPTION OF THE CONTRACT ............................................... 11
Application for a Contract ....................................... 11
Payments ......................................................... 12
Allocation of Payments ........................................... 13
Variable Investment Options ...................................... 13
Transfers Among Investment Options ............................... 13
Telephone Transactions ........................................... 13
Dollar Cost Averaging ............................................ 14
Asset Rebalancing Program ........................................ 14
Loans ............................................................ 14
Withdrawals ...................................................... 15
Death Benefit .................................................... 16
Annuity Payment Options .......................................... 16
Termination ...................................................... 17
Reinstatement .................................................... 18
Fixed Investment Option .......................................... 18
Ten Day Right to Review .......................................... 19
Ownership ........................................................ 19
Beneficiary ...................................................... 19
Miscellaneous Contract Provisions ................................ 20
CHARGES AND DEDUCTIONS .................................................... 21
Monthly Deduction ................................................ 21
Distribution Charge .............................................. 21
2
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Premium Tax Charge ............................................... 21
Federal Tax Charge ............................................... 21
Administration Charge ............................................ 21
Cost of Insurance Charge ......................................... 21
Mortality and Expense Risk Charge ................................ 22
Withdrawal Charge ................................................ 22
Other Taxes ...................................................... 22
FEDERAL TAX MATTERS ....................................................... 23
Introduction ..................................................... 23
Tax Status of the Company ........................................ 23
Taxation of Life Insurance Contracts in General .................. 23
Federal Income Tax Withholding ................................... 27
OTHER MATTERS ............................................................. 27
Voting Rights .................................................... 27
Notices and Reports to Contract Owners ........................... 27
Distribution of the Contract ..................................... 28
Officers and Directors of the Company ............................ 28
Legal Proceedings ................................................ 30
Legal Matters .................................................... 30
Independent Auditors ............................................. 30
Safekeeping of Variable Account Assets ........................... 30
Other Information ................................................ 30
Contract Owner Inquiries ......................................... 30
CONTRACT ILLUSTRATIONS .................................................... 31
FINANCIAL STATEMENTS ...................................................... 39
3
<PAGE> 7
SPECIAL TERMS
Age and Attained Age The age of 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.
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<PAGE> 8
Investment Options The fixed and variable investments available to
contract owners. Currently, one fixed and twenty-nine
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.
5
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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 thirty investment options currently
available under the contract: twenty-nine 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 twenty-nine variable investment options
are the twenty-nine Sub-Accounts of the Variable Account, a separate account
established by the Company. The Sub-Accounts invest in corresponding Portfolios
of the Trust: Science and Technology Trust, International Small Cap Trust,
Emerging Growth Trust, Pilgrim Baxter Growth Trust, Small/Mid Cap Trust,
International Stock Trust, Global Equity Trust, Growth Trust, Equity Trust, Blue
Chip Growth Trust, Real Estate Securities Trust, Value Trust, International
Growth and Income Trust, Growth and Income Trust, Equity-Income Trust,
Aggressive Asset Allocation Trust, High Yield Trust, Moderate Asset Allocation
Trust, Conservative Asset Allocation Trust, Strategic Bond Trust, Global
Government Bond Trust, Investment Quality Bond Trust, U.S. Government Securities
Trust, Money Market Trust, Lifestyle Aggressive 1000 Trust, Lifestyle Growth 820
Trust, Lifestyle Balanced 640 Trust, Lifestyle Moderate 460 Trust and the
Lifestyle Conservative 280 Trust.(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
6
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be used under a special service offered by the Company to dollar cost average an
investment in the contract. (See "DOLLAR COST AVERAGING")
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")
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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.
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")
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.
8
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There are currently twenty-nine Sub-Accounts within the Variable
Account, one for each of the twenty-nine 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 of the Trust. A description of each Portfolio is set
forth below. 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, Emerging Growth Trust and
the five Lifestyle Trusts, which are non-diversified. 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 fourteen Subadvisers who manage all of the Portfolios:
<TABLE>
<CAPTION>
SUBADVISER SUBADVISER TO
- -----------------------------------------------------------------------------------------------
<S> <C>
Fred Alger Management, Inc. Small/Mid Cap Trust
("Alger")
Founders Asset Management, Inc. Growth Trust
("Founders") International Small Cap Trust
Oechsle International Advisors, L.P. Global Government Bond Trust
("Oechsle International")
Fidelity Management Trust Company Equity Trust
("FMTC") Conservative Asset Allocation Trust
Moderate Asset Allocation Trust
Aggressive Asset Allocation Trust
Wellington Management Company, LLP Growth and Income Trust
("Wellington Management") Investment Quality Bond Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
("SBAM") Strategic Bond Trust
J.P. Morgan Investment Management Inc. International Growth and Income Trust
("J.P. Morgan")
T. Rowe Price Associates, Inc. Science & Technology Trust
("T. Rowe Price") Blue Chip Growth Trust
Equity-Income Trust
Rowe Price-Fleming International, Inc. International Stock Trust
("Price-Fleming")
Morgan Stanley Asset Management Inc. Global Equity Trust
("Morgan Stanley")
Miller Anderson & Sherrerd, LLP Value Trust
("MAS") High Yield Trust
</TABLE>
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<TABLE>
<CAPTION>
SUBADVISER SUBADVISER TO
- -----------------------------------------------------------------------------------------------
<S> <C>
Warburg, Pincus Counsellors, Inc. Emerging Growth Trust
("Warburg")
Pilgrim Baxter & Associates Pilgrim Baxter Growth Trust
("PBHG")
Manufacturers Adviser Corporation Real Estate Securities Trust
("MAC") Money Market Trust
Lifestyle Trusts
</TABLE>
The following is a brief description of each Portfolio:
THE SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital.
Current income is incidental to the Portfolio's objective.
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 EMERGING GROWTH TRUST seeks maximum capital appreciation 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.
THE PILGRIM BAXTER GROWTH TRUST seeks capital appreciation by investing
in companies believed by the Subadviser to have an outlook for strong
earnings growth and the potential for significant capital appreciation.
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 STOCK TRUST seeks long-term growth of capital by
investing primarily in common stocks of established, non-U.S.
companies.
THE GLOBAL EQUITY TRUST seeks long-term capital appreciation by
investing primarily in equity securities throughout the world,
including U.S. issuers and emerging markets.
THE GROWTH TRUST seeks long term growth of capital by investing at
least 65% of the Portfolio's total assets in common stocks of
well-established, high-quality growth companies that the Subadviser
believes have the potential to increase earnings faster than the rest
of the market.
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 BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital
(current income is a secondary objective) and many of the stocks in the
Portfolio are expected to pay dividends.
THE REAL ESTATE SECURITIES TRUST seeks to achieve a combination of
long-term capital appreciation and satisfactory current income by
investing in real estate related equity and debt securities.
THE VALUE TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk 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.
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<PAGE> 14
THE INTERNATIONAL GROWTH AND INCOME TRUST seeks long-term growth of
capital and income by investing, under normal circumstances, at least
65% of its total assets in equity securities of foreign issuers. The
Portfolio may also invest in debt securities of corporate or sovereign
issuers rated A or higher by Moody's or S&P or, if unrated, of
equivalent credit quality as determined by the Subadviser. Under normal
circumstances, the Portfolio will be invested approximately 85% in
equity securities and 15% in fixed income securities.
THE GROWTH AND INCOME TRUST seeks long-term growth of capital and
income, consistent with prudent investment risk, by investing primarily
in a diversified Portfolio of common stocks of United States issuers
which the Subadviser believes are of high quality.
THE EQUITY-INCOME TRUST seeks to provide substantial dividend income
and also long-term capital appreciation by investing primarily in
dividend-paying common stocks, particularly of established companies
with favorable prospects for both increasing dividends and capital
appreciation.
THE HIGH YIELD TRUST seeks to realize an above-average total return
over a market cycle of three to five years, consistent with reasonable
risk, by investing primarily in high yield debt securities, including
corporate bonds and other fixed-income securities.
THE AUTOMATIC ASSET ALLOCATION TRUSTS seek the highest potential total
return consistent with a specified level of risk tolerance --
conservative, moderate or aggressive -- by investing primarily in the
kinds of securities in which the Equity, Investment Quality Bond, U.S.
Government Securities and Money Market Trusts may invest.
* THE AGGRESSIVE ASSET ALLOCATION TRUST seeks the highest total return
consistent with an aggressive level of risk tolerance. This Portfolio
attempts to limit the decline in Portfolio value in very adverse market
conditions to 15% over any three year 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 three year 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 three year period.
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.
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<PAGE> 15
THE MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity by investing in high quality
money market instruments with maturities of 397 days or less issued
primarily by United States entities.
THE LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth
of capital (current income is not a consideration) by investing 100% of
the Lifestyle Trust's assets in other Portfolios of the Trust
("Underlying Portfolios") which invest primarily in equity securities.
THE LIFESTYLE GROWTH 820 TRUST seeks to provide long term growth of
capital with consideration also given to current income 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.
THE LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater
emphasis given to capital growth 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.
THE LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater
emphasis given to high income 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.
THE LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of
current income with some consideration also given to growth of capital
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.
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
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<PAGE> 16
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.
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.
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<PAGE> 17
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 are first applied to the
amount of any debt under any outstanding loan. Thereafter, 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.
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
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<PAGE> 18
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
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. In addition,
any additional payments are first applied to the amount of any debt under any
outstanding loan.
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.
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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.
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.
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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:
<TABLE>
<CAPTION>
Death Death
Attained Benefit Attained Benefit
Age Factor Age Factor
--- ------ --- ------
<S> <C> <C> <C>
40 or
younger 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75-90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94-99 101%
</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
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<PAGE> 21
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
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.
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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").
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
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<PAGE> 23
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).
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
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<PAGE> 24
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.
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.
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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
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.
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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.
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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 under a contract. The Company does not anticipate
that it will incur any federal income tax liability attributable to such income
and gains of the Variable Account, and therefore the Company does not intend to
make any provision for such taxes. If the Company is taxed on investment income
or capital gains of the Variable Account, then the Company may impose a charge
against the Variable Account to make 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
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<PAGE> 28
beneficiary's gross income, and interest and other income credited under the
contract will not be taxable unless certain withdrawals are made (or are deemed
to be made) from the contract prior to the insured's death, as discussed below.
This tax treatment will only apply, however, if (1) the investments of the
Variable Account are "adequately diversified" in accordance with Treasury
Department regulations, and (2) the Company, rather than the contract owner, is
considered the owner of the assets of the Variable Account for federal income
tax purposes.
Diversification Requirements. The Code and Treasury Department
regulations prescribe the manner in which the 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). 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 many
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 and thus subject to current taxation on the income and gains
from those assets . 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.
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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 treated
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 amount of a withdrawal (or a deemed
withdrawal) that 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
treated first a non-taxable recovery of premium payments and then as income from
the contract. Thus, a withdrawal from 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
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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.
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.
27
<PAGE> 31
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 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
28
<PAGE> 32
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
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 COMPANY PRINCIPAL OCCUPATION
- ---- ------------------------- --------------------
<S> <C> <C>
John D. DesPrez III Director* and President Vice President, U.S. Annuities, of Manulife,
Age: 40 September 1996 to present; Director and
President of the Company, September 1996 to
present; Vice President, Mutual Funds, of
Manulife, January, 1995 to September 1996,
President and Chief Executive Officer of the
North American Funds, March 1993 to September
1996; Vice President and General Counsel of
the Company, January 1991 to June 1994.
Peter S. Hutchison Director* Senior Vice President, Corporate Taxation of
Age:47 Manulife, January 1996 to present; Executive
Vice President and Chief Financial Officer of
North American Life, September 1994 to
December 31, 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.
John D. Richardson Director* and Chairman of the Board Senior Vice President & General Manager, U.S.
Age: 59 of Directors Operations, of Manulife, January 1995 to the
present;
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY PRINCIPAL OCCUPATION
- ---- ------------------------- --------------------
<S> <C> <C>
Senior Vice President, and General Manager,
Canadian Operations, of Manulife, 1992 - 1994;
Senior Vice President, Financial Services, of
Manulife, 1992.
James D. Gallagher Vice President, Secretary and Vice President, Legal Services U.S.
Age: 42 General Counsel Operations, of Manulife, January 1996 to
present; Vice President, Secretary and General
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 Vice President, Treasurer, Chief Vice President, Chief Financial Officer,
Age: 41 Financial Officer Annuities, of Manulife, January 1996 to
present; Vice President, Treasurer, Chief
Financial Officer and of the Company, November
1988 to January 1996.
Hugh C. McHaffie Vice President, Product Management Vice President, Annuities and Product
Age: 39 Development, of 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.
Joseph Scott Vice President, Life Products Vice President, Accumulation Life Products, of
Age: 48 Manulife, March 6, 1996 to present; President,
First North American Life November 1996 to
present; President, North American Funds,
September 1996 to present.
Janet Sweeney Vice President, Human Resources Vice President, Human Resources, U.S.
Age: 46 Operations, of 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.
John G. Vrysen Vice President and Chief Actuary Vice President and Chief Financial Officer,
Age: 41 U.S. Operations, of Manulife, January 1996 to
present; Vice President and Chief Actuary of
the Company, January 1986 to present.
Robert Boyda Vice President, Investment Vice President, Investment Management
Age: 40 Management Services Services, January 1997 to the present
Assistant Vice President, Investment
Marketing, of Manulife, July 1994 to January
1997.
James R. Boyle Vice President and Chief Vice President, Administration, of Manulife,
Age: 37 Administrative Officer Vice President and Chief Administrative
Officer of the Company, September 1996 to
present; Vice President, Treasurer and Chief
Administrative Officer, June 1994 to
</TABLE>
30
<PAGE> 34
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY PRINCIPAL OCCUPATION
- ---- ------------------------- --------------------
<S> <C> <C>
September 1996, the North American Funds;
Corporate Controller of the Company, July 1993 to
June 1994; Mutual Fund Accounting Executive of the
Company, June 1992 to July 1993; Audit Manager,
1990 to June 1992, Coopers & Lybrand L.L.P.
</TABLE>
31
<PAGE> 35
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to which the assets of the Variable Account are subject. Neither the Company
nor NASL Financial are involved in any litigation that is of material importance
in relation to their total assets or that relates to the Variable Account.
LEGAL MATTERS
All matters of applicable state law pertaining to the contract,
including the Company's right to issue the contract thereunder, have been passed
upon by James D. Gallagher, Esq., Vice President, Secretary and General Counsel
of the Company. Certain matters relating to the federal securities laws have
been passed upon by Jones & Blouch L.L.P., Washington, D.C.
INDEPENDENT AUDITORS
The financial statements of the Company and the Variable Account at
December 31, 1996 and for the year ended appearing in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and is included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The statutory balance sheet of the Company as of December 31, 1995 and
the related statutory statements of operations, changes in capital and deficit,
and cash flows for each of the two years in the period ended December 31, 1995,
appearing in this Prospectus have been included herein in reliance on the
report (which report includes an adverse opinion as to generally accepted
accounting principles and an unqualified opinion as to statutory accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware), of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The statement of operations and changes in net assets of the Variable
Account for the year ended December 31, 1995, appearing in this Prospectus has
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm 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.
32
<PAGE> 36
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) current and guaranteed cost of
insurance charges, and (8) any withdrawal charge which may be applicable in the
first nine contract years. A simple average of total trust expenses for the
twenty-nine investment Portfolios of 0.95% 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.
33
<PAGE> 37
$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> <C>
1 $26,250 $24,170 $22,220 $51,179 $25,622 $23,541 $51,179 $27,073 $24,861 $51,179
2 27,563 23,367 21,594 51,179 26,260 24,240 51,179 29,320 27,195 51,179
3 28,941 22,590 20,983 51,179 26,914 24,961 51,179 31,757 29,757 51,179
4 30,388 21,838 20,484 51,179 27,586 25,836 51,179 34,399 32,649 51,179
5 31,907 21,109 19,993 51,179 28,275 26,775 51,179 37,263 35,763 51,179
6 33,502 20,404 19,509 51,179 28,982 27,732 51,179 40,368 39,118 51,179
7 35,178 19,722 19,033 51,179 29,708 28,708 51,179 43,734 42,734 51,179
8 36,936 19,061 18,564 51,179 30,452 29,702 51,179 47,384 46,634 52,596
9 38,783 18,422 18,103 51,179 31,216 30,716 51,179 51,341 50,841 55,961
10 40,722 17,803 17,803 51,179 32,000 32,000 51,179 55,631 55,631 59,525
15 51,973 15,336 15,336 51,179 37,064 37,064 51,179 85,726 85,726 90,012
20 66,332 13,191 13,191 51,179 42,956 42,956 51,179 131,197 131,197 137,757
25 84,659 11,327 11,327 51,179 49,810 49,810 52,301 200,809 200,809 210,850
30 108,049 9,706 9,706 51,179 57,891 57,891 58,470 308,028 308,028 311,109
</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 0.95%.
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
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> <C>
1 $26,250 $24,170 $22,220 $85,564 $25,622 $23,541 $85,564 $27,073 $24,861 $85,564
2 27,563 23,367 21,594 85,564 26,260 24,240 85,564 29,320 27,195 85,564
3 28,941 22,590 20,983 85,564 26,914 24,961 85,564 31,757 29,757 85,564
4 30,388 21,838 20,484 85,564 27,586 25,836 85,564 34,399 32,649 85,564
5 31,907 21,109 19,993 85,564 28,275 26,775 85,564 37,263 35,763 85,564
6 33,502 20,404 19,509 85,564 28,982 27,732 85,564 40,368 39,118 85,564
7 35,178 19,722 19,033 85,564 29,708 28,708 85,564 43,734 42,734 85,564
8 36,936 19,061 18,564 85,564 30,452 29,702 85,564 47,384 46,634 85,564
9 38,783 18,422 18,103 85,564 31,216 30,716 85,564 51,341 50,841 85,564
10 40,722 17,803 17,803 85,564 32,000 32,000 85,564 55,631 55,631 85,564
15 51,973 15,336 15,336 85,564 37,064 37,064 85,564 85,563 85,563 99,254
20 66,332 13,191 13,191 85,564 42,956 42,956 85,564 132,547 132,547 141,825
25 84,659 11,327 11,327 85,564 49,810 49,810 85,564 205,879 205,879 216,173
30 108,049 9,706 9,706 85,564 57,784 57,784 85,564 316,770 316,770 332,608
</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 0.95%.
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
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> <C>
1 $26,250 $24,240 $22,283 $79,644 $25,696 $23,609 $79,644 $27,152 $24,934 $79,644
2 27,563 23,494 21,709 79,644 26,402 24,370 79,644 29,480 27,355 79,644
3 28,941 22,769 21,148 79,644 27,128 25,158 79,644 32,010 30,010 79,644
4 30,388 22,066 20,697 79,644 27,875 26,125 79,644 34,760 33,010 79,644
5 31,907 21,384 20,251 79,644 28,644 27,144 79,644 37,749 36,249 79,644
6 33,502 20,722 19,811 79,644 29,434 28,184 79,644 40,998 39,748 79,644
7 35,178 20,080 19,377 79,644 30,247 29,247 79,644 44,529 43,529 79,644
8 36,936 19,457 18,948 79,644 31,084 30,334 79,644 48,366 47,616 79,644
9 38,783 18,852 18,525 79,644 31,944 31,444 79,644 52,537 52,037 79,644
10 40,722 18,265 18,265 79,644 32,829 32,829 79,644 57,071 57,071 79,644
15 51,973 15,936 15,936 79,644 38,509 38,509 79,644 88,592 88,592 93,022
20 66,332 13,887 13,887 79,644 45,200 45,200 79,644 137,470 137,470 144,343
25 84,659 12,083 12,083 79,644 53,081 53,081 79,644 213,072 213,072 223,725
30 108,049 10,495 10,495 79,644 62,366 62,366 79,644 330,777 330,777 334,085
</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 0.95%.
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> 40
$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> <C>
1 $26,250 $23,660 $21,755 $51,179 $25,118 $23,082 $51,179 $26,577 $24,410 $51,179
2 27,563 22,260 20,580 51,179 25,178 23,250 51,179 28,271 26,146 51,179
3 28,941 20,789 19,326 51,179 25,171 23,358 51,179 30,101 28,101 51,179
4 30,388 19,232 18,061 51,179 25,089 23,508 51,179 32,087 30,337 51,179
5 31,907 17,570 16,665 51,179 24,917 23,572 51,179 34,255 32,755 51,179
6 33,502 15,776 15,113 51,179 24,637 23,531 51,179 36,635 35,385 51,179
7 35,178 13,820 13,367 51,179 24,226 23,357 51,179 39,266 38,266 51,179
8 36,936 11,656 11,381 51,179 23,651 23,017 51,179 42,195 41,445 51,179
9 38,783 9,235 9,100 51,179 22,877 22,469 51,179 45,491 44,991 51,179
10 40,722 6,499 6,499 51,179 21,859 21,859 51,179 49,221 49,221 52,666
15 51,973 * * * 11,779 11,779 51,179 75,827 75,827 79,618
20 66,332 * * * * * * 115,519 115,519 121,295
25 84,659 * * * * * * 172,808 172,808 181,449
30 108,049 * * * * * * 260,522 260,522 263,127
</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 0.95%.
* Unless additional payment is made, the contract will not stay inforce
resulting i 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> 41
$25,000INITIAL 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 $23,870 $21,947 $85,564 $25,322 $23,268 $85,564 $26,773 $24,588 $85,564
2 27,563 22,738 21,018 85,564 25,626 23,661 85,564 28,686 26,561 85,564
3 28,941 21,601 20,073 85,564 25,915 24,042 85,564 30,756 28,756 85,564
4 30,388 20,461 19,203 85,564 26,187 24,529 85,564 32,998 31,248 85,564
5 31,907 19,310 18,302 85,564 26,438 25,002 85,564 35,430 33,930 85,564
6 33,502 18,144 17,362 85,564 26,663 25,455 85,564 38,067 36,817 85,564
7 35,178 16,950 16,372 85,564 26,852 25,878 85,564 40,925 39,925 85,564
8 36,936 15,716 15,319 85,564 26,993 26,258 85,564 44,023 43,273 85,564
9 38,783 14,424 14,186 85,564 27,071 26,580 85,564 47,382 46,882 85,564
10 40,722 13,063 13,063 85,564 27,077 27,077 85,564 51,031 51,031 85,564
15 51,973 5,227 5,227 85,564 26,713 26,713 85,564 77,764 77,764 90,206
20 66,332 * * * 22,422 22,422 85,564 120,447 120,447 128,878
25 84,659 * * * 7,218 7,218 85,564 187,068 187,068 196,421
30 108,049 * * * * * * 287,743 287,743 302,130
</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 0.95%.
* 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> 42
$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> <C>
1 $26,250 $24,240 $22,283 $79,644 $25,696 $23,609 $79,644 $27,152 $24,934 $79,644
2 27,563 23,465 21,683 79,644 26,377 24,348 79,644 29,459 27,334 79,644
3 28,941 22,666 21,052 79,644 27,035 25,072 79,644 31,930 29,930 79,644
4 30,388 21,831 20,478 79,644 27,661 25,911 79,644 34,574 32,824 79,644
5 31,907 20,947 19,841 79,644 28,242 26,742 79,644 37,404 35,904 79,644
6 33,502 19,998 19,123 79,644 28,766 27,516 79,644 40,432 39,182 79,644
7 35,178 18,964 18,306 79,644 29,216 28,216 79,644 43,673 42,673 79,644
8 36,936 17,822 17,362 79,644 29,573 28,823 79,644 47,150 46,400 79,644
9 38,783 16,549 16,268 79,644 29,818 29,318 79,644 50,889 50,389 79,644
10 40,722 15,105 15,105 79,644 29,921 29,921 79,644 54,921 54,921 79,644
15 51,973 4,254 4,254 79,644 28,259 28,259 79,644 84,414 84,414 88,635
20 66,332 * * * 16,948 16,948 79,644 130,939 130,939 137,486
25 84,659 * * * * * * 201,589 201,589 211,669
30 108,049 * * * * * * 311,016 311,016 314,127
</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 0.95%.
* 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> 43
AUDITED STATUTORY-BASIS
FINANCIAL STATEMENTS
NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NAWL HOLDING COMPANY, INC.)
Years ended December 31, 1996, 1995
and 1994
<PAGE> 44
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Audited Statutory-Basis Financial Statements
Years ended December 31, 1996, 1995 and 1994
CONTENTS
Report of Independent Auditors.................................................1
Audited Statutory-Basis Financial Statements
Balance Sheets-Statutory-Basis.................................................2
Statements of Operations-Statutory-Basis.......................................3
Statement of Changes in Capital and Deficit-Statutory-Basis....................4
Statements of Cash Flows-Statutory-Basis.......................................5
Notes to Statutory-Basis Financial Statements..................................6
<PAGE> 45
Report of Independent Auditors
Board of Directors and Shareholder
North American Security Life Insurance Company
We have audited the accompanying statutory-basis balance sheet of North American
Security Life Insurance Company (a wholly-owned subsidiary of NAWL Holding
Company, Inc.) as of December 31, 1996, and the related statutory-basis
statements of operations, changes in capital and deficit and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The variances between such
practices and generally accepted accounting principles are also described in
Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of North American Security Life Insurance Company at December 31, 1996, or the
results of its operations or its cash flows for the year then ended.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North American Security Life
Insurance Company at December 31, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware.
Ernst & Young LLP
Boston, Massachusetts
February 25, 1997
<PAGE> 46
[Coopers & Lybrand Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
North American Security Life Insurance Company:
We have audited the accompanying statutory balance sheets of North American
Security Life Insurance Company (a wholly-owned subsidiary of North American
Life Assurance Company of North York, Canada) as of December 31, 1995 and the
related statutory statements of operations, changes in capital and deficit, and
cash flows for each of the two years in the period ended December 31, 1995.
These statutory financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware (SAP), which
practices after 1996 (upon issuance of 1996 financial statements) differ from
generally accepted accounting principles (GAAP). The effects on the financial
statements of the variances between SAP and GAAP are not currently determinable.
In our report dated February 23, 1996, we expressed our opinion that the 1995
and 1994 financial statements, prepared using SAP, presented fairly, in all
material respects, the financial position of North American Security Life
Insurance Company as of December 31, 1995 and the results of its operations, and
its cash flows for each of the two years in the period ended December 31, 1995
in conformity with GAAP. As described in Note 1 to the financial statements,
financial statements of wholly-owned stock life subsidiaries of mutual life
insurance enterprises prepared in accordance with SAP are no longer considered
to be presented in conformity with GAAP. Accordingly, our present opinion on the
1995 and 1994 financial statements as presented herein is different from that
expressed in our previous report.
<PAGE> 47
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above do not present
fairly in conformity with GAAP, the financial position of North American
Security Life Insurance Company as of December 31, 1995, or the results of its
operations or its cash flows for each of the two years in the period ended
December 31, 1995.
In our opinion, the statutory financial statements referred to above present
fairly, in all material respects, the financial condition of North American
Security Life Insurance Company as of December 31, 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995, on the basis of accounting described in Note 1.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 23, 1996, except for the information
in the second paragraph of Note 1 - "Basis of
Presentation," for which the date is
February 25, 1997
<PAGE> 48
<TABLE>
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Balance Sheets--Statutory-Basis
<CAPTION>
DECEMBER 31
1996 1995
---------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds $ 13,848,316 $ 16,281,452
Common stocks 30,305,498 20,097,789
Real estate 2,268,120 4,847,164
Cash and short-term investments 7,321,515 1,797,230
Policy loans 454,026
---------------------------------
Total investments 54,197,475 43,023,635
Accrued investment income 278,106 431,415
Other assets 4,008,003 4,320,909
Separate account assets 6,459,289,860 4,914,727,917
---------------------------------
Total admitted assets $6,517,773,444 $4,962,503,876
=================================
LIABILITIES, CAPITAL AND DEFICIT
Liabilities:
Aggregate reserves $ 3,674,617 $ 1,931,894
Payable to parent, subsidiaries and affiliates 405,711 3,033,665
Funds held account from reinsurers 6,000,000 9,000,000
Amount payable on reinsurance ceded 8,122,060 7,256,229
Transfers from separate accounts, net (188,238,440) (156,458,903)
Borrowed money 138,200,680 107,865,148
Accrued interest on surplus note 1,591,232 3,248,219
Asset valuation reserve 2,089,490 2,895,914
Bank overdraft 7,598,444 8,606,730
Other liabilities 9,486,084 10,239,069
Separate account liabilities 6,459,289,860 4,914,727,917
---------------------------------
Total liabilities 6,448,219,738 4,912,345,882
Capital and deficit:
Surplus note payable to Parent 20,000,000 20,000,000
Common stock (par value $1,000 per share--authorized,
3,000 shares; issued and outstanding, 2,600 shares) 2,600,000 2,600,000
Paid-in capital in excess of par value 128,633,000 110,633,000
Unassigned deficit (81,679,294) (83,075,006)
---------------------------------
Total capital and deficit 69,553,706 50,157,994
---------------------------------
Total liabilities, capital and deficit $6,517,773,444 $4,962,503,876
=================================
</TABLE>
See accompanying notes.
2
<PAGE> 49
<TABLE>
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Statements of Operations--Statutory-Basis
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums, annuity considerations and
deposits
$1,027,373,531 $ 991,551,945 $1,139,953,302
Net investment income 5,172,160 35,909,722 30,559,559
Commissions and expense allowances on
reinsurance ceded 25,222,953 14,676,544 7,019,266
Experience refunds on reinsurance ceded 3,880,075 3,901,633 4,967,753
Reserve adjustments on reinsurance (16,460,475) (48,222,552) (6,023,746)
-------------------------------------------------------
Total revenues 1,045,188,244 997,817,292 1,176,476,134
Expenses:
Annuity benefits 381,764,918 269,688,906 206,710,232
Increase (decrease) in reserves 1,742,723 (517,160,712) 146,552,124
Increase in separate account liability 525,172,444 415,529,185 732,768,257
Commissions 82,257,073 73,593,478 81,981,046
General expenses 27,587,265 22,872,812 19,253,764
Interest expense 9,822,477 8,980,132 4,599,441
Recapture fee on reinsurance ceded 11,160,053 1,445,889 8,029,909
Initial consideration on reinsurance ceded 3,204,498 727,522,634
-------------------------------------------------------
Total expenses 1,042,711,451 1,002,472,324 1,199,894,773
Gain (loss) before federal income tax provision
and realized capital gains (losses) 2,476,793 (4,655,032) (23,418,639)
Federal income tax provision 85,252 6,415
-------------------------------------------------------
Gain (loss) after federal income tax provision 2,391,541 (4,655,032) (23,425,054)
Net realized capital gains (losses) 675,367 (2,632,953) (7,029,018)
-------------------------------------------------------
Net income (loss) $ 3,066,908 $ (7,287,985) $ (30,454,072)
=======================================================
</TABLE>
See accompanying notes.
3
<PAGE> 50
<TABLE>
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Statements of Changes in Capital and Deficit--Statutory-Basis
<CAPTION>
PAID-IN
CAPITAL IN
SURPLUS EXCESS OF PAR UNASSIGNED TOTAL CAPITAL
NOTE COMMON STOCK VALUE DEFICIT AND DEFICIT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $20,000,000 $2,000,000 $ 81,233,000 $(51,510,475) $ 51,722,525
Net loss (30,454,072) (30,454,072)
Issuance of common stock 600,000 600,000
Paid-in capital in excess of par 29,400,000 29,400,000
Increase in non-admitted assets (1,859,181) (1,859,181)
Initial commission allowance on
reinsurance ceded 4,508,719 4,508,719
Decrease in asset valuation
reserves 1,976,033 1,976,033
Change in net realized gains and
losses 3,514,108 3,514,108
------------------------------------------------------------------------------
Balances at December 31, 1994 20,000,000 2,600,000 110,633,000 (73,824,868) 59,408,132
Net loss (7,287,985) (7,287,985)
Increase in non-admitted assets (958,941) (958,941)
Initial commission allowance on
reinsurance ceded (3,007,823) (3,007,823)
Decrease in asset valuation
reserves 2,640,946 2,640,946
Change in net realized gains and
losses (636,335) (636,335)
------------------------------------------------------------------------------
Balances at December 31, 1995 20,000,000 2,600,000 110,633,000 (83,075,006) 50,157,994
Net income 3,066,908 3,066,908
Paid-in capital in excess of par 18,000,000 18,000,000
Decrease in non-admitted assets 1,619,796 1,619,796
Initial commission allowance on
reinsurance ceded (3,280,000) (3,280,000)
Decrease in asset valuation
reserves 806,424 806,424
Change in net realized gains and
losses (817,416) (817,416)
------------------------------------------------------------------------------
Balances at December 31, 1996 $20,000,000 $2,600,000 $128,633,000 $(81,679,294) $ 69,553,706
==============================================================================
</TABLE>
4
<PAGE> 51
<TABLE>
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc
Statements of Cash Flows--Statutory-Basis
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Annuity considerations and deposits $1,027,373,531 $ 991,551,945 $1,139,953,302
Net investment income 2,264,748 32,128,833 28,230,341
Allowances and reserve adjustments on
reinsurance ceded 8,762,478 (33,546,008) 1,140,018
Experience refund on reinsurance ceded 3,880,075 3,901,633 4,967,753
Surrender benefits and other fund withdrawals paid (350,317,143) (232,650,150) (175,523,156)
Other benefits paid to policyholders (32,009,867) (36,860,052) (30,555,923)
Commissions, other expenses and taxes paid (109,382,073) (97,024,418) (100,210,171)
Net transfers to separate account (556,059,964) (423,952,090) (768,208,239)
Other operating expenses paid (25,079,045) (737,948,655) (12,780,263)
-----------------------------------------------------
Net cash (used for) provided by operating
activities (30,567,260) (534,398,962) 87,013,662
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 9,607,009 763,005,273 112,385,919
Stocks 12,737,781 5,080,010 5,805,050
Mortgage loans 110,791,047 14,076,659
Real estate 1,602,063 860,375 5,950,412
Net gains on cash and short term investments 408
Cost of investments acquired:
Bonds (6,890,585) (441,405,890) (232,208,934)
Stocks (19,333,533) (10,137,862) (488,212)
Mortgage loans (136,101) (4,301,717)
Policy loans (454,026) 2,579,308 (791,723)
-----------------------------------------------------
Net cash (used for) provided by investing
activities (2,730,883) 430,636,160 (99,572,546)
OTHER CASH PROVIDED (APPLIED)
Capital and surplus paid-in 18,000,000 30,000,000
Borrowed money 30,864,052 7,000,000 70,000,000
Other sources 4,194,113 11,380,829 17,892,210
Other applications (14,235,737) (14,398,973) (103,250,950)
-----------------------------------------------------
Net other cash provided 38,822,428 3,981,856 14,641,260
-----------------------------------------------------
Net increase (decrease) in cash and short-term
investments 5,524,285 (99,780,946) 2,082,376
Cash and short-term investments at beginning of
year 1,797,230 101,578,176 99,495,800
-----------------------------------------------------
Cash and short-term investments at end of year $ 7,321,515 $ 1,797,230 $ 101,578,176
=====================================================
</TABLE>
See accompanying notes.
5
<PAGE> 52
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
North American Security Life Insurance Company (the Company) is a wholly-owned
subsidiary of NAWL Holding Company Inc. (NAWL). NAWL holds all the outstanding
shares of the Company and Wood Logan Associates, Inc. (WLA). Manufacturers Life
Insurance Company (MLI) owns all Class A shares of NAWL, representing 85% of the
voting shares of NAWL. Certain employees of WLA own all Class B shares, which
represent the remaining 15% voting interest in NAWL.
On January 1, 1996, North American Life Assurance Company, (NAL), the Company's
previous owner, merged with MLI. Effective January 1, 1996, immediately
following the merger, the Company's Parent went through a corporate
restructuring which resulted in the formation of a newly organized holding
corporation, NAWL.
The Company issues fixed and variable annuity contracts (the contracts). Amounts
invested in the fixed portion of the contracts are allocated to the General
Account of the Company (see Note 6 on fixed annuity reinsurance). Amounts
invested in the variable portion of the contracts are allocated to the separate
accounts of the Company. The separate account assets are invested in shares of
the NASL Series Trust, a no-load, open-end management investment company
organized as a Massachusetts business trust.
On June 19, 1992, the Company formed First North American Life Assurance Company
(FNA). Subsequently, on July 22, 1992, FNA was granted a license by the New York
State Insurance Department. FNA issues variable and fixed annuity contracts in
the State of New York.
NASL Financial Services Inc. (NASL Financial), a wholly-owned subsidiary of the
Company, acts as investment adviser to the NASL Series Trust and as principal
underwriter of the annuity and variable life contracts issued by the Company
and annuity contracts issued by FNA. NASL Financial has a promotional agreement
with WLA to act as the promotional agent for the sale of annuity and variable
life contracts.
6
<PAGE> 53
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known which would impact the amounts reported and
disclosed herein.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Delaware, which practices differ from generally accepted accounting
principals (GAAP).
The 1995 financial statements presented for comparative purposes were previously
described as being prepared in accordance with GAAP for stock life insurance
subsidiaries of a mutual life parent. Pursuant to FASB Interpretation 40,
Applicability of Generally Accepted Accounting Principals to Mutual Life
Insurance and Other Enterprises (FIN 40), as amended, which is effective for
1996 annual financial statements, financial statements based on statutory
accounting practices can no longer be described as prepared in conformity with
GAAP. Furthermore, financial statements prepared in conformity with statutory
accounting practices for periods prior to the effective date of FIN 40 are not
considered GAAP presentations when presented in comparative form with the
financial statements for periods subsequent to the effective date. Accordingly,
the 1995 financial statements are no longer considered to be presented in
conformity with GAAP.
The more significant variances from GAAP are as follows:
Investments: Investments in bonds are reported at amortized cost based on their
National Association of Insurance Commissioners (NAIC) rating; for GAAP, such
fixed maturity investments would be designated at purchase as held-to-maturity,
trading, or available-for-sale. Held-to-maturity fixed investments would be
reported at amortized cost, and the remaining fixed maturity investments are
reported at fair value with unrealized holding gains and losses reported in
operations for those designated as trading and as a separate component of
shareholders' equity for those designated as available-for-sale.
7
<PAGE> 54
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments in real estate are reported net of related obligations rather than
on a gross basis. Changes between cost and admitted asset investment amounts are
credited or charged directly to unassigned surplus rather than to a separate
surplus account.
The "asset valuation reserve" is determined by an NAIC prescribed formula and is
reported as a liability rather than unassigned surplus. Under GAAP, realized
capital gains and losses would be reported in the income statement on a pretax
basis in the period that the asset giving rise to the gain or loss is sold and
valuation allowances would be provided when there has been a decline in value
deemed other than temporary, in which case, the provision for such declines
would be charged to earnings.
Subsidiaries: The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required under GAAP.
Policy Acquisition Costs: The costs of acquiring and renewing business are
expensed when incurred. Under GAAP, acquisition costs related to investment
products, to the extent recoverable from future gross profits, are amortized
generally in proportion to the present value of expected gross profits from
surrender charges and investment, mortality, and expense margins.
Nonadmitted Assets: Certain assets designated as "nonadmitted," principally
agents' debit balances and furniture and equipment, are excluded from the
accompanying balance sheets and are charged directly to unassigned surplus.
Annuity Considerations and Deposits: Revenues for annuity considerations and
deposits consist of the entire premium received and annuity benefits represent
the death benefits, annuitizations and withdrawals and surrenders paid and the
change in policy reserves. Under GAAP, annuity considerations and deposits
received in excess of policy charges would not be recognized as premium revenue
and annuity benefits would represent the excess of benefits paid over the policy
account value and interest credited to the account values.
Aggregate Reserves: Certain policy reserves are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
8
<PAGE> 55
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reinsurance: Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than as assets as would be
required under GAAP.
Commissions allowed by reinsurers on business ceded are reported as income when
received rather than being deferred and amortized with deferred policy
acquisition costs.
Federal Income Taxes: Deferred federal income taxes are not provided for
differences between the financial statement amounts and tax bases of assets and
liabilities.
Surplus Notes: Surplus notes are reported as surplus rather than as liabilities.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined, but are presumed
to be material.
Other significant accounting policies are as follows:
INVESTMENTS AND INVESTMENT INCOME
Investments are valued in accordance with rules promulgated by the National
Association of Insurance Commissioners (NAIC). Bonds not backed by loans are
valued at amortized cost using the constant yield method.
Loan-backed bonds and structured securities are valued at amortized cost using
the constant yield method including anticipated prepayments. Prepayment
assumptions are obtained from broker dealer survey values. These assumptions are
consistent with the current interest rate and economic environment. The
retrospective method is being used to value all securities.
Investment income is recognized on the accrual basis. Unrealized gains or losses
on investments are recorded in unassigned deficit. Realized gains or losses on
investments sold are determined on the basis of the specific identification
method.
Common stocks, excluding investments in subsidiaries, are valued at market
value. The Company's insurance subsidiary is reported at equity in the
underlying statutory-basis of its net assets, and the Company's noninsurance
subsidiary is reported at the GAAP-basis of its net assets. Real estate acquired
in satisfaction of debt is stated at the lower of the appraised market value or
the outstanding principal loan balance plus accrued interest and foreclosed
costs.
9
<PAGE> 56
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1996, 1995 and 1994, the Company transferred, in satisfaction of debt,
mortgages with statement values of $0, $2,405,052 and $6,407,174, respectively,
to foreclosed real estate. Subsequently, in 1996, 1995 and 1994, the Company
wrote-down $929,713, $1,360,620, and $0, respectively, on these properties to
reflect the carrying value at the lower of the current market valuation or the
value transferred at the time of foreclosure. At year end, the Company held
$2,268,120 of foreclosed real estate at adjusted book value which approximates
market value.
SHORT-TERM INVESTMENTS
Short-term investments generally consist of treasury bills, commercial paper and
money market instruments whose maturities at the time of acquisition are one
year or less. Short-term instruments are valued at cost, which approximates
market value.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit related losses on all invested assets with risk of loss
including mortgages, real estate, fixed income securities, and common stocks.
Changes in the AVR are accounted for as a direct increase or decrease in
unassigned surplus.
The Interest Maintenance Reserve (IMR) captures realized capital gains and
losses which result from changes in interest rate for all fixed income
securities and amortizes these capital gains and losses into investment income
over the original life of the investments sold. During 1995, the cumulative net
gains were released from IMR in connection with a reinsurance treaty whereby the
Company reinsured all of its fixed annuity business (see Note 6). This
accounting was approved by the State of Delaware Department of Insurance as a
permitted practice. Total net gains (losses) of $(59,933) were transferred into
IMR and $541,484 was amortized and included in net investment income in 1994.
10
<PAGE> 57
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMIUMS, ANNUITY CONSIDERATIONS AND DEPOSITS AND RELATED EXPENSES
Premiums, annuity considerations and deposits are recognized as revenue when
received. Expenses, including acquisition costs such as commissions and other
costs in connection with acquiring new business, are charged to operations as
incurred.
AGGREGATE RESERVES
The reserves, developed using accepted actuarial methods, have been established
and maintained on the basis of published mortality tables and prescribed
interest rates per the National Association of Insurance Commissioners' standard
valuation law, as adopted by the State of Delaware. The method used for the
valuation of annuities is the Commissioner's Annuity Reserve Valuation Method
(CARVM). Under this method the reserve is the highest present value of all
future guaranteed cash surrender values.
Surrender values on policies do not exceed the corresponding reserves.
Additional reserves are established when the results of cash flow testing under
various interest rate scenarios indicate the need for such reserves.
SEPARATE ACCOUNT
Separate account assets and liabilities reported in the accompanying balance
sheets represent mutual funds that are separately administered for the
exclusive benefit of variable annuity and variable life contractholders and are
reported at fair market value. Since the contractholders receive the full
benefit and bear the full risk of the separate account investments, the income,
realized and unrealized gains and losses from such investments, is offset by an
equivalent change in the liabilities related to the separate accounts.
Transfers from separate account, net, primarily represents the difference
between the contract owner's account value and the CARVM reserve. There are no
reconciling items between the increase in separate account liability as shown
on the statement of operations and the transfers as reported in the Summary of
Operations of the Separate Account Statement. Fees charged on separate account
deposits are included in other income.
11
<PAGE> 58
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Annuity and variable life premiums, considerations and deposits for the separate
accounts, net of reinsurance, are $1,027,373,531, $728,682,163 and $975,538,582
for 1996, 1995 and 1994, respectively.
UNCONSOLIDATED SUBSIDIARIES
The Company records its equity in the earnings of unconsolidated subsidiaries as
net investment income. The Company owns 100% of the outstanding common stock of
First North American Life Assurance Company and NASL Financial Services, Inc.
<TABLE>
Summarized financial data for unconsolidated subsidiaries at December 31, 1996
and 1995 is shown below:
<CAPTION>
1996 1995
----------------------
(In thousands)
<S> <C> <C>
Total assets at year end $471,166 $318,326
Total liabilities at year end 440,862 304,409
Net income 3,175 1,220
</TABLE>
FEDERAL INCOME TAXES
The Company will participate as a member of the NAWL affiliated group, filing a
consolidated federal income tax return. The Company will file separate state
returns.
The method of allocation between companies is subject to a tax sharing
agreement. The tax liability is allocated to each member on a pro rata basis
based on the relationship the member's tax liability (computed on a separate
return basis) bears to the tax liability of the consolidated group. The tax
charge to the Company shall not be more than the Company would have paid on a
separate return basis.
Income before federal income taxes differs from taxable income principally due
to policy acquisition costs, differences in annuity reserves for tax and
financial reporting purposes, the equity earnings of unconsolidated subsidiaries
and reinsurance allowances.
12
<PAGE> 59
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware. "Prescribed" statutory accounting practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed, such practices may differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Accordingly,
that project, which is expected to be completed in 1997, will likely change, to
some extent, prescribed statutory accounting practices, and may result in
changes to the accounting practices that the Company uses to prepare its
statutory financial statements. The impact of any such changes on the Company's
statutory-surplus cannot be determined at this time and could be material.
3. INVESTMENTS
<TABLE>
The major components of investment income are as follows:
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Amortization of IMR $11,040,025 $ 541,484
Equity in undistributed income
(loss) of subsidiaries $ 3,086,798 (482,580) 737,688
Bonds 719,462 18,046,504 16,182,157
Common stock 34,993 137,862 498,222
Short-term investments 199,114 2,642,678 1,664,563
Mortgage loans 5,420,613 12,026,724
Real estate 774,673 1,071,080 1,248,043
Policy loan interest (32,300) 10,658
Interest rate swap 1,632,000
Investment expenses (1,274,880) (1,934,160) (2,349,980)
-------------------------------------------
Net investment income $ 5,172,160 $35,909,722 $30,559,559
===========================================
</TABLE>
13
<PAGE> 60
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
The amortized and estimated fair value of investments in debt securities at
December 31, 1996 and 1995 are as follows:
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996:
U.S. Treasury securities and
obligations of U.S. Government
agencies
$ 6,916 $144 $ 27 $ 7,033
Corporate debt securities 6,009 2 17 5,994
Mortgage-backed securities 923 19 4 938
-------------------------------------------
Totals $13,848 $165 $ 48 $13,965
===========================================
DECEMBER 31, 1995:
U.S. Treasury securities and
obligations of U.S. Government
agencies
$ 8,998 $362 $ 3 $ 9,357
Corporate debt securities 3,672 125 3 3,794
Mortgage-backed securities 3,611 195 3,806
-------------------------------------------
Totals $16,281 $682 $ 6 $16,957
===========================================
</TABLE>
14
<PAGE> 61
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1996 by the contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers or lenders may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------------------
(In thousands)
<S> <C> <C>
Due in one year or less $ 7,136 $ 7,156
Due after one year through five years 3,494 3,539
Due after five years through ten years 1,938 1,914
Due after ten years 357 418
Mortgage-backed securities 923 938
---------------------------
Total $13,848 $13,965
===========================
</TABLE>
The proceeds from sales of debt securities for the years ended December 31,
1996, 1995 and 1994 were $8,593,009, $743,955,966 and $74,622,566, respectively.
In 1996, gross gains and losses recognized on the sales were $338,975 and
$1,775, respectively. In 1995, gross gains and losses on the sales were
$10,452,916 and $2,035,657, respectively. In 1994, gross gains and losses on the
sales were $1,600,852 and $1,660,785, respectively. Net realized gains (losses)
of $0, $8,417,259 and $(59,933) for the years ended December 31, 1996, 1995 and
1994, respectively, were transferred to IMR.
Debt securities with a carrying value of $5,458,635 and $5,600,444 at December
31, 1996 and 1995, respectively, were on deposit with, or in custody accounts on
behalf of certain state insurance departments.
4. FEDERAL INCOME TAXES
At December 31, 1996 and 1995, the Company had operating loss carryforwards of
approximately $32,000,000 and $36,000,000, respectively, which expire between
2007 and 2010. During 1996, the Company utilized approximately $4,000,000 in net
operating loss carryforwards to reduce taxable income.
15
<PAGE> 62
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
5. LIFE AND ANNUITY ACTUARIAL RESERVES
The Company issues flexible premium deferred combination fixed and variable
annuity contracts and variable life insurance contracts. Reserves for these
contracts are established using the Commissioners Annuity Reserve Valuation
Method (CARVM) and the Commissioner's Reserve Valuation Method (CRVM) as
adopted by the State of Delaware Insurance Department. The reserves for the
fixed portion of the contracts are subject to an indemnity reinsurance
agreement and the reserves for the variable portion of the contracts are held
in the separate account. The Company has reinsured its Minimum Guaranteed Death
Benefit risks, and accordingly, is holding no reserve for this risk, which
relates to the excess of Death Benefit over policyholder Account Value. The
Company does not offer surrender values in excess of the reserves.
<TABLE>
Withdrawal characteristics of Annuity Actuarial Reserves and Deposit Liabilities
are as follows:
<S> <C> <C>
Subject to discretionary withdrawal with market
value adjustment
$ 385,506,134 5.64%
Subject to discretionary withdrawal at book value
less surrender charge (5% or more) 139,439,719 2.04
Subject to discretionary withdrawal at market value 6,269,263,219 91.75
Subject to discretionary withdrawal at book value 18,704,535 .27
------------------------
Subtotal 6,812,913,607 99.70
Not subject to discretionary withdrawal provision 20,342,476 .30
------------------------
Total annuity actuarial reserve and deposit fund
liabilities
6,833,256,083 100%
Expense gap reserve 1,298,797
Reinsurance ceded (559,828,843)
------------------------
Total net annuity actuarial reserves and deposit
funds liabilities $6,274,726,037
========================
</TABLE>
6. REINSURANCE
Reinsurance premiums and benefits paid or provided are accounted for on bases
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Reinsurance transactions have been
entered into primarily to improve cash flow and statutory capital.
16
<PAGE> 63
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective June 30, 1995, an indemnity coinsurance agreement was entered into
between the Company and Peoples Security Life Insurance Company (Peoples or the
Reinsurer), a AAA rated subsidiary of the Providian Corporation, to reinsure
both in force and new fixed annuity business written by the Company.
The indemnity aspects of the agreement provide that the Company remains liable
for the contractual obligations whereas the Reinsurer agrees to indemnify the
Company for any contractual claims incurred. The coinsurance aspects of the
agreement require the Company to transfer all assets backing the fixed annuity
obligations to the Reinsurer together with all future fixed premiums received by
the Company for fixed annuity contracts. Once transferred, the assets belong to
the Reinsurer. In exchange, the Reinsurer reimburses the Company for all claims
and provides expense allowances to cover commissions and other costs associated
with the fixed annuity business.
The Reinsurer is responsible for investing the asset and is at risk for any
potential investment gains and losses. There is no recourse back to the Company
if investment losses are incurred. Under this agreement, the Company will
continue to administer the fixed annuity business for which it will earn an
expense allowance. The Company has set up a reserve of $1,298,797 and $1,931,894
at December 31, 1996 and 1995, respectively, to recognize that expense
allowances received from Providian under this indemnity coinsurance agreement do
not fully reimburse the Company for overhead expenses allocated to the fixed
annuity line of business.
The reinsurance agreement required the Company to transfer to the Reinsurer a
consideration of $726.7 million in cash or securities, to cover all in force
business as of June 30, 1995.
<TABLE>
The financial impact of the reinsurance agreement was as follows (in millions):
<S> <C>
Net loss from operations:
Consideration paid to reinsurer $(726.7)
Net reserves reinsured 725.1
Expense gap reserve (1.9)
-------
(3.5)
Capital and surplus adjustments:
Release of IMR 11.0
Market loss on sale of mortgages (2.2)
Release of bond and mortgage asset valuation reserve 4.7
-------
Net impact on surplus $ 10.0
=======
</TABLE>
17
<PAGE> 64
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective July 1, 1995 and August 1, 1995, the Company entered into treaties
with the Connecticut General Life Insurance Company (CIGNA) and Swiss Re Life
Insurance Company, respectively, to reinsure its Minimum Death Benefit Guarantee
risks. Each company has assumed 50% of the risk. In addition, the Company
reinsured 50% of its risk related to the waiving of surrender charges at death
with CIGNA. The Company is paying the reinsurers an asset based premium, the
level of which varies with both the amount of exposure to this risk and the
realized experience.
Effective November 1, 1995, the Company entered into a treaty with Transamerica
Occidential Life Insurance Company. Transamerica will reinsure a 50% quota share
of the variable portion of the Company's VLI contracts. In addition,
Transamerica will also reinsure 80% of this product's net amount at risk in
excess of the Company's retention limit of $100,000 on a YRT basis.
During 1984, the Company assumed from its Parent, NAL, approximately 26% of
NAL's ordinary and group vested annuity contracts issued in the United States
prior to 1983. In December 1989, the percentage assumed was increased to 90%. On
March 31, 1995, this agreement was 100% recaptured. To effect this recapture,
the Company paid NAL $1,445,889. At December 31, 1996 and 1995, the Company had
no liability for future policy benefits under this contract.
Effective October 1, 1988, the Company ceded 18% of its variable annuity
contracts (policy from 203-VA) to its parent NAL under a modified coinsurance
agreement. Under this agreement, NAL provides the Company with an expense
allowance on reinsured premiums which is repaid out of a portion of future
profits on the business reinsured. The agreement provides full risk transfer of
mortality, persistency and investment performance to the reinsurer with respect
to the portion reinsured. Effective July 1, 1992, the quota share percentage was
increased to 36%.
On December 31, 1993, the Company entered into a modified coinsurance agreement
with an ITT Lyndon Life, a non-related third party to cede the remaining 64% of
the Company's variable annuity contracts (policy form 203-VA) and 95% of the
Company's new variable annuity contract series issued in 1994 (policy form Ven
10). The Company received approximately $25 million in cash representing
withheld premiums of $15 million and $10 million ceding commission. The amounts
of withheld premiums will be repaid with interest over five years. The ceding
commission is payable out of future profits generated by the business reinsured.
18
<PAGE> 65
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective December 31, 1994, the Company recaptured its reinsurance with NAL.
Upon recapture, 1994 operating results were negatively impacted by a one-time
recapture fee of approximately $6.5 million. Concurrent with this transaction,
the Company ceded 31% of the recaptured contracts (policy form 203-VA) to ITT
Lyndon Life bringing the portion of these contracts reinsured by ITT Lyndon to
95%. In return, the Company received consideration of $5.2 million which is
reflected as a surplus adjustment to be amortized into income in future years.
During 1996, $3.0 million was amortized into income.
Effective December 31, 1994, the Company entered into an indemnity reinsurance
agreement with Paine Webber Life to reinsure a portion of its policy forms
207-VA, VFA, VENTURE.001, and VENTURE.003. The quota share percentage varies
between 15% and 35% depending on the policy form. The form of reinsurance is
modified coinsurance and only covers the variable portion of contracts written
by Paine Webber brokers. The Company received an allowance of $1,580,896 to
complete this transaction. All elements of risk (including mortality,
persistency, investment performance) have been transferred with the exception of
the minimum death benefit guarantee. The Company receives an allowance to cover
the expected cost of the minimum death benefit guarantee.
In the event of insolvency of a reinsurer, the Company remains primarily liable
to its policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company and, accordingly, the Company periodically
monitors the financial condition of its reinsurers.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits or a significant change in the
ownership of the Company. The Company does not have any reinsurance agreements
in effect in which the amount of losses paid or accrued through December 31,
1996 would result in a payment to the reinsurer of amounts which, in the
aggregate and allowing for offset of mutual credits from other reinsurance
agreements with the same reinsurer, exceed the total direct premiums collected
under the reinsured policies.
The Company has estimated that the aggregate reduction in surplus that would
occur if all reinsurance agreements currently in effect were terminated would be
$14,178,002 at December 31, 1996.
19
<PAGE> 66
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
7. RELATED-PARTY TRANSACTIONS
In connection with the fixed annuity indemnity coinsurance agreement entered
into in 1995 (see Note 6), the Company pooled its mortgage portfolio (book value
of approximately $106 million) and transferred a senior participation interest
to an affiliate of the reinsurer. The senior interest was transferred for a
purchase price of approximately $72 million and entitles an affiliate of the
reinsurer to 100% of the cash flows produced by the portfolio until they recover
in full the purchase price with interest at a rate of 7.52%. The remaining
residual interest was transferred to First North American Realty, Inc., a
wholly-owned subsidiary of the former Parent for a purchase price of $33
million. As a result of the sale of the senior and residual interests in the
Company's mortgages, the Company has no further economic interest in any
mortgages and hence has reported zero mortgage loan assets on its balance sheet
as of December 31, 1995.
The Company utilizes various services administered by MLI in 1996 and NAL for
1995 and 1994, such as payroll and investment accounting. The charges for these
services were approximately $6,053,000, $295,000 and $234,000 in 1996, 1995 and
1994, respectively. During 1996, MLI changed the allocation method of expenses
subsequent to the merger with NAL. At December 31, 1996 and 1995, the Company
had a net liability to MLI of $4,348,511 and NAL of $5,928,889, respectively.
The Company's annuity and insurance contracts are distributed through NASL
Financial pursuant to an underwriting agreement. NASL Financial has entered into
an agreement with Wood Logan Associates, an affiliate, to act as the promotional
agent for the sale of annuity and variable life contracts. At December 31, 1996,
the Company had a payable to NASL Financial for $999,328 and at December 31,
1995, the Company had a receivable from NASL Financial for $881,119.
The Company provides various services and personnel to FNA for accounting,
actuarial, administration and systems support. These services are allocated on a
pro rata basis and charged as incurred. The total costs allocated for these
services in 1996, 1995 and 1994 were approximately $661,000, $456,000 and
$418,000, respectively. At December 31, 1996, the Company had a net receivable
from FNA for $1,336,725.
The financial statements have been prepared from the records maintained by the
Company and may not necessarily be indicative of the financial conditions or
results of operations that would have occurred if the Company had been operated
as an unaffiliated corporation (see also Notes 1, 3, 6, 8, 9 and 12 for
additional related-party transactions).
20
<PAGE> 67
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
8. BORROWED MONEY
The Company has an unsecured line of credit with State Street Bank and Trust in
the amount of $10,000,000, bearing interest based on the bank's money market
rate plus 50 basis points. There were no outstanding balances at December 31,
1996 and December 31, 1995. Interest expense was approximately $244,000,
$76,000 and $81,600 in 1996, 1995 and 1994, respectively.
The Company has a revolving credit line with MLI. The original term of the
agreement was seven years. Each additional borrowing under the agreement has a
seven year term from the date of each additional borrowing. The balance
outstanding at December 31, 1996 is $137,864,052. Principal and interest is
payable in quarterly installments. The interest rate is Libor plus 32.5 basis
points. Accrued interest at December 31, 1996 is $336,627.
During 1995, the Company had a $150 million revolving credit and term loan
agreement (the Loan) with the Canadian Imperial Bank of Commerce and Deutsche
Bank AG. The amount outstanding at December 31, 1995 was in the form of a term
loan of $107 million. In April of 1996, the loan was paid in full and the credit
line with MLI described above was established.
On December 20, 1994, the Company received $20,000,000 from its former Parent in
the form of a surplus note agreement with interest at 8%. This surplus note
agreement was assumed by the Parent upon the merger described in Note 1. The
note and accrued interest are subordinated to payments due to policyholders and
other claimants. Principal and interest payments can be made only upon prior
approval of the Insurance Department of the State of Delaware. Interest accrued
at December 31, 1996 and 1995 was $1,591,232 and $3,248,219, respectively.
Interest accrued at December 31, 1995 was paid during 1996.
9. DEFERRED COMPENSATION AND RETIREMENT PLANS
Prior to December 31, 1995, NAL maintained the NALACO Pension Plan (the Plan), a
defined benefit pension plan for all U.S. employees which vests at five years of
service. Sponsorship of this plan was assumed by MLI at the time of the merger.
Benefit payout is a function of years of service and average earnings during the
employee's last five years of service. MLI's funding policy is to contribute
annually the normal cost up to the maximum amount that can be deducted for
federal income tax purposes and to charge each subsidiary for its allocable
share of such contributions based on a percentage of payroll. No pension cost
was allocated to the Company in 1996 or 1995 as the plan was subject to the full
funding limitation under the Internal Revenue Code. At December 31,
21
<PAGE> 68
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
9. DEFERRED COMPENSATION AND RETIREMENT PLANS (CONTINUED)
1996, the Plan's total accumulated benefit obligation determined in accordance
with SFAS No. 87 and valued at January 1, 1996 based on an assumed interest rate
of 7% was $10,183,862, including vested benefits of $10,094,294 and fair value
of assets of $24,427,811.
The Company sponsors a defined contribution retirement plan pursuant to
regulation 401(k) of the Internal Revenue Code. All employees on September 1,
1990 were eligible to participate. Employees hired after September 1, 1990 will
be eligible after one year of service and attaining age 21. The Company
contributes two percent of base pay plus fifty percent of the employee savings
contribution. The employee savings contribution is limited to six percent of
base pay. The Company contributed $298,997, $203,248 and $167,148 in 1996, 1995
and 1994, respectively.
10. LEASES
The Company leases its office space and various office equipment under operating
lease agreements. For the years ended December 31, 1996, 1995 and 1994, the
Company incurred rent expense of $1,144,402, $1,388,780 and $840,233,
respectively. The Company negotiated a ten-year lease for new office space which
commenced in March 1992. In connection with the lease, the Company was required
to deposit $1,500,000 in an escrow account as security toward fulfilling the
future lease commitment. The balance of the escrow at December 31, 1996 is
$900,000.
<TABLE>
The minimum lease payments associated with the office space and various office
equipment under operating lease agreements is as follows:
<CAPTION>
MINIMUM
LEASE
PAYMENTS
----------
<S> <C>
Year ended:
1997 $1,180,993
1998 1,204,160
1999 1,199,923
2000 1,197,368
2001 1,197,368
Remaining years 1,185,908
----------
Total $7,165,720
==========
</TABLE>
22
<PAGE> 69
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
10. LEASES (CONTINUED)
The Company also guarantees FNA's office space lease which has an annual cost to
FNA of approximately $80,000.
11. INTEREST RATE SWAP
The Company entered into an interest rate swap in 1995 with Canadian Imperial
Bank of Commerce and Deutsche AG for the purpose of minimizing exposure to
fluctuations in interest rates on a portion of the debt outstanding at that
time. During 1996, the Company terminated this agreement and recognized a gain
of $1.6 million which is recorded as a component of investment income.
12. GUARANTEE AGREEMENT
A guarantee agreement continues in effect, whereby the Parent has agreed to
unconditionally guarantee that it will, on demand, make funds available to the
Company for the timely payment of contractual claims made under fixed annuity
and variable life contracts issued by the Company. The guarantee covers all
outstanding fixed annuity contracts, including those issued prior to the date
of the guarantee agreement.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
"fair value" disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Cash and Short-term investments: The carrying amounts reported in the
accompanying balance sheets for these financial instruments approximate their
fair values.
Bonds: Fair values for bonds are based on quoted market prices or dealer quotes,
where applicable. For bonds not actively traded, fair values are estimated using
values obtained from independent pricing services.
Assets and Liabilities of Separate Accounts: Separate account assets and
liabilities are reported at estimated fair value in the Company's balance
sheets.
23
<PAGE> 70
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
13. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Aggregate Reserves: Fair values of the Company's liabilities under contracts not
involving significant mortality risk (deferred annuities) are stated at the cost
the Company would incur to extinguish the liability, i.e., the cash surrender
value.
<TABLE>
The following sets forth a comparison of the carrying values and fair values of
the Company's financial instruments at December 31, 1996 and 1995:
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Bonds $ 13,848,316 $ 13,965,000 $ 16,281,452 $ 16,957,000
Common stocks 30,305,498 30,305,498 20,097,789 20,097,789
Cash and short-term investments 7,321,515 7,321,515 1,797,230 1,797,230
Assets held in separate accounts 6,459,289,860 6,459,289,860 4,914,727,917 4,914,727,917
LIABILITIES:
Aggregate reserves for deferred
annuities 3,674,617 3,674,617 1,931,894 1,931,894
Borrowed money 138,200,680 138,200,680 107,865,148 107,865,148
Liabilities held in separate
accounts 6,271,051,420 6,459,289,860 4,758,269,014 4,914,727,917
</TABLE>
24
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
To the Contract Owners of
NASL Variable Life Account of North American Security Life Insurance Company:
We have audited the accompanying statement of assets and contract owners' equity
of NASL Variable Life Account of North American Security Life Insurance Company
(the Company) as of December 31, 1996, and the related statement of operations
and changes in net assets for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NASL Variable Life Account of
North American Security Life Insurance Company at December 31, 1996, and the
results of its operations and the changes in its net assets for the year then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 14, 1997
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
NASL Variable Life Account:
We have audited the accompanying statement of operations and changes in net
assets of the sub-accounts comprising NASL Variable Life Account (consisting of
the Equity, Investment Quality Bond, Growth and Income, Pasadena Growth, Money
Market, Global Equity, Global Government Bond, U.S. Government Securities,
Conservative Asset Allocation, Moderate Asset Allocation, Aggressive Asset
Allocation, Value Equity, and Strategic Bond sub-accounts) for the year ended
December 31, 1995, and the statement of operations and changes in net assets of
the International Growth and Income sub-account for the period January 9, 1995
(commencement of operations) to December 31, 1995, of North American Security
Life Insurance Company. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of operations and changes in net assets
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of operations
and changes in net assets. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement of operations and changes
in net assets. We believe that our audit of the statement of operations and
changes in net assets provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the results of operations and changes in net assets of
the aforementioned sub-accounts comprising NASL Variable Life Account of North
American Security Life Insurance Company for the year or indicated period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 23, 1996
<PAGE> 73
<TABLE>
NASL VARIABLE LIFE ACCOUNT
STATEMENT OF ASSETS AND CONTRACT OWNERS' EQUITY-- December 31, 1996
<S> <C>
ASSETS
Investments at market value:
Sub-accounts:
Equity Portfolio - 101,974 Shares (Cost $2,161,901) $ 2,306,652
Investment Quality Bond Portfolio - 41,406 Shares (Cost $478,520) 492,320
Growth and Income Portfolio - 132,846 Shares (Cost $2,374,476) 2,574,547
Blue Chip Growth Portfolio - 101,743 Shares (Cost $1,344,465) 1,455,947
Money Market Portfolio - 213,891 Shares (Cost ($2,138,908) 2,138,908
Global Equity Portfolio - 49,424 Shares (Cost $833,502) 881,720
Global Government Bond Portfolio - 16,536 Shares (Cost $235,126) 247,539
U.S. Government Securities Portfolio - 29,721 Shares (Cost $382,089) 395,890
Conservative Asset Allocation Portfolio - 4,221 Shares (Cost $46,636) 49,130
Moderate Asset Allocation Portfolio - 18,299 Shares (Cost $219,027) 228,560
Aggressive Asset Allocation Portfolio - 8,995 Shares (Cost $113,875) 120,986
Equity-Income Equity Portfolio - 90,497 Shares (Cost $1,310,262) 1,394,555
Strategic Bond Portfolio - 69,898 Shares (Cost $800,987) 835,278
International Growth and Income Portfolio - 79,649 Shares (Cost $887,909) 937,470
Growth Portfolio - 36,086 Shares (Cost $496,356) 495,454
Small/Mid Cap Portfolio - 108,070 Shares (Cost $1,410,907) 1,444,890
International Small Cap Portfolio - 60,111 Shares (Cost $792,310) 817,508
-----------
Total assets............................................................. $16,817,354
===========
CONTRACT OWNERS' EQUITY
Variable life contracts.................................................. $16,817,354
-----------
Total contract owners' equity....................................... $16,817,354
===========
</TABLE>
See accompanying notes.
2
<PAGE> 74
<TABLE>
NASL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------
Investment
Equity Quality Bond Growth and Income
------------------------- ------------------------ -------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
------------------------- ------------------------ -------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend Income ...................... $ 28,154 $ 0 $ 1,295 $0 $ 7,243 $ 0
Net realized gain (loss) ............. 2,428 0 (6) 0 1,877 0
Unrealized appreciation (depreciation)
during the period ................ 144,611 140 13,800 0 199,709 362
---------- ------- -------- -- ---------- -------
Net increase in net assets
from operations .................. 175,193 140 15,089 0 208,829 362
---------- ------- -------- -- ---------- -------
Changes from principal transactions:
Purchase payments .................. 0 0 0 0 0 0
Transfers between sub-accounts
and the Company .................. 2,128,334 37,594 481,362 0 2,333,367 62,660
Withdrawals ........................ (12,213) 0 0 0 (11,518) 0
Annual contract fee ................ (22,396) 0 (4,131) 0 (19,153) 0
---------- ------- -------- -- ---------- -------
Net increase (decrease) in net assets
from principal transactions ...... 2,093,725 37,594 477,231 0 2,302,696 62,660
---------- ------- -------- -- ---------- -------
Total increase in net assets ......... 2,268,918 37,734 492,320 0 2,511,525 63,022
Net assets at beginning of period .... 37,734 0 0 0 63,022 0
---------- ------- -------- -- ---------- -------
Net assets at end of period .......... $2,306,652 $37,734 $492,320 $0 $2,574,547 $63,022
========== ======= ======== == ========== =======
</TABLE>
See accompanying notes.
3
<PAGE> 75
<TABLE>
NASL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------
Blue Chip Growth Money Market Global Equity
------------------------- ------------------------ -------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
------------------------- ------------------------ -------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend Income......................... $ 143 $ 0 $ 53,005 $ 326 $ 1,350 $ 0
Net realized gain (loss)................ 3,632 0 0 0 270 0
Unrealized appreciation (depreciation)
during the period................... 111,393 89 0 0 48,218 0
---------- ------- ------------ --------- --------- --------
Net increase in net assets
from operations..................... 115,168 89 53,005 326 49,838 0
---------- ------- ------------ --------- --------- --------
Changes from principal transactions:
Purchase payments..................... 0 0 18,413,863 150,051 (9,883) 0
Transfers between sub-accounts
and the Company..................... 1,349,571 12,529 (15,915,805) (150,377) 848,441 0
Withdrawals........................... (10,595) 0 (404,608) 0 (152) 0
Annual contract fee................... (10,815) 0 (7,547) 0 (6,524) 0
---------- ------- ------------ --------- --------- --------
Net increase (decrease) in net assets
from principal transactions......... 1,328,161 12,529 2,085,903 (326) 831,882 0
---------- ------- ------------ --------- --------- --------
Total increase in net assets............ 1,443,329 12,618 2,138,908 0 881,720 0
Net assets at beginning of period....... 12,618 0 0 0 0 0
---------- ------- ------------ --------- --------- --------
Net assets at end of period............. $1,455,947 $12,618 $ 2,138,908 $ 0 $ 881,720 $ 0
========== ======= ============ ========= ========= ========
</TABLE>
See accompanying notes.
4
<PAGE> 76
<TABLE>
NASL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------
Global U.S. Conservative
Government Bond Government Securities Asset Allocation
------------------------- ------------------------ -------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
------------------------- ------------------------ -------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend Income ...................... $ 2,225 $0 $ 14,096 $ 0 $ 62 $0
Net realized gain (loss) ............. (391) 0 (11,342) 0 (23) 0
Unrealized appreciation (depreciation)
during the period ................ 12,413 0 13,783 18 2,494 0
-------- -- -------- ------- ------- --
Net increase in net assets
from operations .................. 14,247 0 16,537 18 2,533 0
-------- -- -------- ------- ------- --
Changes from principal transactions:
Purchase payments .................. 0 0 0 0 0 0
Transfers between sub-accounts
and the Company .................. 235,194 0 373,224 12,529 47,181 0
Withdrawals ........................ 0 0 0 0 0 0
Annual contract fee ................ (1,902) 0 (6,418) 0 (584) 0
-------- -- -------- ------- ------- --
Net increase (decrease) in net assets
from principal transactions ...... 233,292 0 366,806 12,529 46,597 0
-------- -- -------- ------- ------- --
Total increase in net assets ......... 247,539 0 383,343 12,547 49,130 0
Net assets at beginning of period .... 0 0 12,547 0 0 0
-------- -- -------- ------- ------- --
Net assets at end of period .......... $247,539 $0 $395,890 $12,547 $49,130 $0
======== == ======== ======= ======= ==
</TABLE>
See accompanying notes.
5
<PAGE> 77
<TABLE>
NASL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------
Moderate Aggressive Equity-
Asset Allocation Asset Allocation Income
------------------------- ------------------------ -------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
------------------------- ------------------------ -------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend Income ...................... $ 0 $0 $ 1,890 $ 0 $ 2,648 $0
Net realized gain (loss) ............. 30 0 0 0 720 0
Unrealized appreciation (depreciation)
during the period ................ 9,533 0 6,993 118 84,293 0
-------- -- -------- ------- ---------- --
Net increase in net assets
from operations .................. 9,563 0 8,883 118 87,661 0
-------- -- -------- ------- ---------- --
Changes from principal transactions:
Purchase payments .................. 0 0 0 0 0 0
Transfers between sub-accounts
and the Company .................. 220,908 0 88,581 25,065 1,322,582 0
Withdrawals ........................ 0 0 0 0 (5,643) 0
Annual contract fee ................ (1,911) 0 (1,661) 0 (10,045) 0
-------- -- -------- ------- ---------- --
Net increase (decrease) in net assets
from principal transactions ...... 218,997 0 86,920 25,065 1,306,894 0
-------- -- -------- ------- ---------- --
Total increase in net assets ......... 228,560 0 95,803 25,183 1,394,555 0
Net assets at beginning of period .... 0 0 25,183 0 0 0
-------- -- -------- ------- ---------- --
Net assets at end of period .......... $228,560 $0 $120,986 $25,183 $1,394,555 $0
======== == ======== ======= ========== ==
</TABLE>
See accompanying notes.
6
<PAGE> 78
<TABLE>
NASL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------
Strategic International
Bond Growth and Income Growth(1)
------------------------- ------------------------ -------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
------------------------- ------------------------ -------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend Income ...................... $ 3,068 $0 $ 48 $0 $ 3,100 $0
Net realized gain (loss) ............. 9,899 0 78 0 302 0
Unrealized appreciation (depreciation)
during the period ................ 34,291 0 49,561 0 (902) 0
-------- -- -------- -- -------- --
Net increase in net assets
from operations .................. 47,258 0 49,687 0 2,500 0
-------- -- -------- -- -------- --
Changes from principal transactions:
Purchase payments .................. 16,511 0 0 0 0 0
Transfers between sub-accounts
and the Company .................. 790,429 0 895,937 0 500,520 0
Withdrawals ........................ (12,323) 0 0 0 (5,675) 0
Annual contract fee ................ (6,597) 0 (8,154) 0 (1,891) 0
-------- -- -------- -- -------- --
Net increase (decrease) in net assets
from principal transactions ...... 788,020 0 887,783 0 492,954 0
-------- -- -------- -- -------- --
Total increase in net assets ......... 835,278 0 937,470 0 495,454 0
Net assets at beginning of period .... 0 0 0 0 0 0
-------- -- -------- -- -------- --
Net assets at end of period .......... $835,278 $0 $937,470 $0 $495,454 $0
======== == ======== == ======== ==
<FN>
(1) From commencement of operations July 15, 1996
</TABLE>
See accompanying notes.
7
<PAGE> 79
<TABLE>
NASL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
-------------------------------------------------------
Small/Mid International
Cap Small Cap(2) Total Total
------------------------- ------------------------ ------------ ------------
Period Ended December 31 Period Ended December 31 Period Ended Period Ended
------------------------ ------------------------ December 31, December 31,
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dividend Income ...................... $ 0 $0 $ 2,976 $0 $ 121,303 $ 326
Net realized gain (loss) ............. (33) 0 3 0 7,444 0
Unrealized appreciation (depreciation)
during the period ................ 33,983 0 25,198 0 789,371 727
---------- -- -------- -- ----------- --------
Net increase in net assets
from operations .................. 33,950 0 28,177 0 918,118 1,053
---------- -- -------- -- ----------- --------
Changes from principal transactions:
Purchase payments .................. 0 0 0 0 18,420,491 150,051
Transfers between sub-accounts
and the Company .................. 1,420,092 0 793,633 0 (2,086,449) 0
Withdrawals ........................ (97) 0 (100) 0 (462,924) 0
Annual contract fee ................ (9,055) 0 (4,202) 0 (122,986) 0
---------- -- -------- -- ----------- --------
Net increase (decrease) in net assets
from principal transactions ...... 1,410,940 0 789,331 0 15,748,132 150,051
---------- -- -------- -- ----------- --------
Total increase in net assets ......... 1,444,890 0 817,508 0 16,666,250 151,104
Net assets at beginning of period .... 0 0 0 0 151,104 0
---------- -- -------- -- ----------- --------
Net assets at end of period .......... $1,444,890 $0 $817,508 $0 $16,817,354 $151,104
========== == ======== == =========== ========
<FN>
(2) From commencement of operations March 4, 1996
</TABLE>
See accompanying notes.
8
<PAGE> 80
NASL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION:
The NASL Variable Life Account (the "Account") is a separate account established
by North American Security Life Insurance Company (the "Company"). The Account
became effective at the commencement of operations on November 1, 1995, as a
separate account under Delaware law. The Account operates as a Unit Investment
Trust under the Investment Company Act of 1940, as amended, and invests in the
NASL Series Trust (the "Trust") which currently consists of seventeen
sub-accounts. The Account is a funding vehicle for variable life contracts (the
"Contracts") issued by the Company. The Company is a wholly-owned subsidiary of
NAWL Holding Company, Inc. ("NAWL"). NAWL holds all the outstanding shares of
the Company and Wood Logan Associates, Inc. ("WLA"). Manufacturers Life
Insurance Company ("MLI") owns all class A shares of NAWL, representing 85% of
the voting shares of NAWL. Certain employees of WLA own all class B shares,
which represent the remaining 15% voting interest in NAWL. Prior to January 1,
1996, The Company was a wholly-owned subsidiary of North American Life Assurance
Company (NAL), a Canadian mutual life insurance company. NAL merged with the
Manufacturers Life Insurance Company of Canada effective January 1, 1996. The
surviving company will conduct business under the name "Manufacturers Life
Insurance Company."
On March 4, 1996, two new sub-accounts, Small/Mid Cap and International Small
Cap, commenced operations. On July 15, 1996, the Growth sub-account commenced
operations. Effective October 1, 1996, the name of Pasadena Growth was changed
to Blue Chip Growth. Effective December 31, 1996, the name of Value Equity was
changed to Equity-Income.
Effective after the close of business on December 31, 1996, the portfolios of
the Manulife Series Funds, Inc. (a series trust of MLI) were merged with the
NASL Series Trust. As a result of this merger, eight additional sub-accounts
will be available as investment options to the contract owners of the Account
beginning in 1997. Also, effective after the close of business on December 31,
1996, ten new sub-accounts were created which will be available as investment
options for contract owners in 1997. The merger and the creation of the new
funds had no effect on the statement of assets and contract owners' equity as of
December 31, 1996 nor the statement of operations and changes in net assets for
the year then ended.
2. SIGNIFICANT ACCOUNTING POLICIES:
Investments are made in the portfolios of the Trust and are valued at the
reported net asset values of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933 and the Company's general
account has not been registered as an investment company under the Investment
Company act of 1940.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a Life Insurance Company under the provisions of
the Internal Revenue Code (the "Code"). Under the current provisions of the
Code, the Company does not expect to incur federal income taxes on the earnings
of the Account to the extent the earnings are credited under the contracts.
Based on this, no charge is being made currently to the Account for federal
income taxes. The Company will review periodically the status of such decision
based on changes in the tax law. Such a charge may be made in future years for
any federal income taxes that would be attributable to the contract.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
9
<PAGE> 81
NASL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1996
3. AFFILIATED COMPANY TRANSACTIONS:
Administrative services necessary for the operation of the Account are borne by
the Company. The Company has an underwriting agreement with its wholly-owned
subsidiary, NASL Financial Services, Inc. ("NASL Financial"). NASL Financial has
a promotional agent agreement with Wood Logan Associates, Inc., an affiliate of
the Company, to promote the sales of annuity contracts. Certain officers of the
Account are officers and directors of the Company or the Trust.
4. CONTRACT CHARGES:
There are no deductions made from purchase payments for sales charges at the
time of purchase. In the event of a surrender, a contingent deferred sales
charge may be charged by the Company to cover sales expenses. A monthly
administrative charge of $2.50 per month is imposed upon contracts with less
than $100,000 of total premium payments.
On each monthly contract anniversary day, 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:
(i) 0.25% for distribution cost incurred by the Company.
(ii) 0.25% for state premium taxes to be paid by the Company as a
result of receipt of premium payments.
(iii) 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:
(i) 0.40% charge for contract administration
(ii) 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).
(iii) 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.
10
<PAGE> 82
NASL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1996
5. PURCHASES AND SALES OF INVESTMENTS:
<TABLE>
The following table shows aggregate cost of shares purchased and proceeds from
sales of each sub-account for the year ended December 31, 1996.
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Equity Portfolio $ 2,481,250 $ 359,371
Investment Quality Bond Portfolio 582,388 103,862
Growth and Income Portfolio 2,326,281 16,342
Blue Chip Growth Portfolio 1,355,488 27,184
Money Market Portfolio 12,718,574 10,579,666
Global Equity Portfolio 881,023 47,791
Global Government Bond Portfolio 241,414 5,897
U.S. Government Securities Portfolio 679,377 298,475
Conservative Asset Allocation Portfolio 47,143 484
Moderate Asset Allocation Portfolio 220,045 1,048
Aggressive Asset Allocation Portfolio 90,539 1,729
Equity-Income Portfolio 1,354,157 44,615
Strategic Bond Portfolio 1,212,083 420,995
International Growth and Income Portfolio 890,404 2,573
Growth Portfolio 500,584 4,530
Small/Mid Cap Portfolio 1,429,154 18,214
International Small Cap Portfolio 792,600 293
----------- -----------
Total $27,802,504 $11,933,069
=========== ===========
</TABLE>
11
<PAGE> 83
6. UNIT VALUES:
<TABLE>
A summary of the accumulated unit values at December 31, 1995 and 1996 and
the accumulation of units and dollar value outstanding at December 31, 1996
are as follows:
<CAPTION>
1995 1996
----------- -----------------------------------------------------
Unit Unit
Value Value Units Dollars
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equity sub-account $105.747711 $127.042679 18,157 $ 2,306,652
Investment Quality Bond 104.142012 106.831619 4,608 492,320
sub-account
Growth and Income sub-account 105.681085 129.813549 19,833 2,574,547
Blue Chip Growth sub-account 104.300091 131.314663 11,087 1,455,947
Money Market sub-account 101.201673 106.319450 20,118 2,138,908
Global Equity sub-account 102.678571 115.632438 7,625 881,720
Global Government Bond 105.660377 119.411568 2,073 247,539
sub-account
U.S. Government Securities 102.941176 106.417541 3,720 395,890
sub-account
Conservative Asset Allocation 104.132974 111.458090 441 49,130
sub-account
Moderate Asset Allocation 104.733728 115.168639 1,985 228,560
sub-account
Aggressive Asset Allocation 105.069501 118.726211 1,019 120,986
sub-account
Equity-Income sub-account 103.756574 124.357387 11,214 1,394,555
Strategic Bond sub-account 104.646840 120.025315 6,959 835,278
International Growth and Income 104.887082 118.110145 7,937 937,470
sub-account
Growth sub-account -------- 110.532600 4,482 495,454
Small Mid/Cap sub-account -------- 106.960000 13,509 1,444,890
International Small Cap -------- 109.201969 7,486 817,508
sub-account
-----------
$16,817,354
===========
</TABLE>
12
<PAGE> 84
NASL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1996
7. DIVERSIFICATION REQUIREMENTS:
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
life contract will not be treated as a life contract for federal tax purposes
for any period for which the investments of the segregated asset account on
which the contract is based are not adequately diversified. The Code provides
that the "adequately diversified" requirement may be met if the underlying
investments satisfy either a statutory safe harbor test or diversification
requirements set forth in regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. The Company believes that the Account satisfies the current requirements
of the regulations, and it intends that the Account will continue to meet such
requirements.
13
<PAGE> 85
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION OF INSURER PURSUANT TO SECTION 26 OF THE INVESTMENT
COMPANY ACT OF 1940
North American Security Life Insurance Company (the "Company") hereby represents
that the fees and charges deducted under the contracts issued pursuant to this
registration statement in the aggregate are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
RULE 484 UNDERTAKING
Section IX, paragraph D of the Promotional Agent Agreement among the North
American Security Life Insurance Company (referred to therein as "Security
Life"), NASL Financial Services, Inc. ("NASL Financial") and Wood Logan
Associates, Inc. (referred to therein as "Promotional Agent") provides as
follows:
a. NASL Financial and Security Life agree to indemnify and hold harmless
Promotional Agent, its officers, directors and employees against any
and all losses, claims, damages or liabilities to which they may become
subject under the Securities Act of 1933 ("1933 Act"), the 1934 Act or
other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact or any
omission or alleged omission to state a material fact required to be
stated or necessary to make the statements made not misleading in any
registration statement for the Contracts filed pursuant to the 1933 Act
or any prospectus included as a part thereof, as from time to time
amended and supplemented, or any advertisement or sales literature
approved in writing by NASL Financial or Security Life pursuant to
Section VI, paragraph B of this Agreement.
b. Promotional Agent agrees to indemnify and hold harmless NASL Financial
and Security Life, their officers, directors and employees against any
and all losses, claims, damages or liabilities to which they may become
subject under the 1933 Act, the 1934 Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon: (i) any oral or written
misrepresentation by Promotional Agent or its officers, directors,
employees or
1
<PAGE> 86
agents unless such misrepresentation is contained in any registration
statement for the Contracts or Fund shares, any prospectus included as
a part thereof, as from time to time amended and supplemented, or any
advertisement or sales literature approved in writing by NASL Financial
pursuant to Section VI, paragraph B of this Agreement or, (ii) the
failure of Promotional Agent or its officers, directors, employees or
agents to comply with any applicable provisions of this Agreement.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risks charge is within the
range of industry practice for comparable contracts.
(3) North American Security Life Insurance Company has concluded that
there is a reasonable likelihood that the distribution financing arrangements
for NASL Variable Life Account (the "Account") will benefit the Account and
contract owners, and that it will keep and make available to the Commission on
request a memorandum setting forth the basis for this representation.
(4)The Account will invest only in management investment companies
which have undertaken to have a board of directors or trustees, a majority of
whom are not interested persons of the company, formulate and approve any plan
under Rule 12b-1 to finance distribution expenses.
2
<PAGE> 87
The methodology used to support the representation made in paragraph
(2) above will be based upon an analysis of the mortality and expense risks
charges contained in other variable life insurance contracts, including flexible
premium products. Registrant undertakes to keep and make available to the
Commission on request the documents used to support the representation in
paragraph (2) above.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
The cross-reference sheet
The Prospectus consisting of 30 pages
The undertaking required by Section 15(d) of the Securities Exchange
Act of 1934
The undertaking pursuant to Rule 484
The representations pursuant to Rule 6e-3(T)
The signatures Written consents of the following persons:
(a) Hugh McHaffie, FSA, MAAA.1/
(b) Coopers & Lybrand, L.P.P., certified public
accountants.1/
(c) Ernst & Young LLP, certified public accountants. 1/
(d) James D. Gallagher, Esq.1/
(e) Jones & Blouch L.L.P.1/
The following exhibits:
3
<PAGE> 88
EXHIBITS
1. The following exhibits correspond to those required by the instructions to
Form S-6:
(A)(1)(a)(i) Resolution of the Board of Directors of North American
Security Life Insurance Company establishing the NASL Variable
Life Account.5/
(A)(1)(a)(ii) Resolution of the Board of Directors of North American
Security Life Insurance Company amending the terms of the NASL
Variable Life Account.6/
(A)(1)(a)(iii) Resolution of the Board of Directors of North American
Security Life Insurance Company amending the terms of the NASL
Variable Life Account.1/
(A)(2) Not Applicable
(A)(3)(a)(i) Underwriting Agreement.6/
(A)(3)(a)(ii) Promotional Agent Agreement.6/
(A)(3)(b) Form of Broker-dealer Agreement.6/
(A)(3)(c) Schedule of Sales Commission.7/
(A)(4) Not Applicable
(A)(5) Form of Modified Single Premium Variable Life Insurance
Policy.6/
(A)(6)(a) Certificate of Incorporation of North American Security Life
Insurance Company.2/
(A)(6)(b) (A)(6)(b) By-Laws of North American Security Life Insurance
Company.3/
(A)(7) (A)(&) Not Applicable
(A)(8) Not Applicable
(A)(9) Not Applicable
(A)(10) Form of Application for Modified Single Premium Variable Life
Insurance Policies.6/
(2) Opinion and Consent of James D. Gallagher,Esq.1/
4
<PAGE> 89
(6) Memorandum describing Issuance, Transfer, Redemption and
Exchange Procedures for the Policy.6/
(7)(a) Power of Attorney - North American Security Life Insurance
Company Directors.5/
(7)(b) Power of Attorney - North American Security Life Insurance
Company Treasurer (Principal Financial and Accounting
Officer).4/
(7)(c) Power of Attorney- John D. Richardson, Director and Chairman 1/
of North American Security Life Insurance Company
(27) Financial Data Schedule, NASL Variable Life Account 1/
2. Consents of the following:
(a) Hugh McHaffie, FSA,MAAA.1/
(b) Jones & Blouch L.L.P.1/
(c) Ernst & Young LLP 1/
(d) Coopers & Lybrand, L.L.P.1/
(e) James D. Gallagher, Esq.1/
3. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I.
- ---------------------
1/ Filed herewith.
2/ Incorporated by reference to Registration Statement on Form S-6 for NASL
Variable Account, filed with the SEC on September 24, 1984, File No. 2-93435.
3/ Incorporated by reference to Registration Statement on Form N-4 for NASL
Variable Account, filed with the SEC on November 4, 1986, File No. 33-9960.
4/ Incorporated by reference to Registration Statement on Form N-4 for NASL
Variable Account, filed with the SEC on April 2, 1993, File No. 33-28455.
5/ Incorporated by reference to Registration Statement on Form S-6 for NASL
Variable Life Account, filed with the SEC on May 18, 1995, File No. 33-92466.
6/ Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form S-6 for NASL Variable Life Account, filed with the SEC on
August 22, 1995, File No. 33-92466.
5
<PAGE> 90
7/ Incorporated by reference to Pre-Effective Amendment No. 2 to Registration
Statement on Form S-6 for NASL Variable Life Account, filed with the SEC on
September 26, 1995, File No. 33-92466.
6
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, NASL Variable Life Account, certifies that it meets all of the
requirements for effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, and Commonwealth of
Massachusetts on the 24th day of April, 1997.
NASL VARIABLE LIFE ACCOUNT
(Registrant)
By: NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John D. DesPrez III
-------------------------------
John D. DesPrez III, President
Attest:
/s/ James D. Gallagher
- -----------------------------
James D. Gallagher, Secretary
Pursuant to the requirements of the Securities Act of 1933, the Depositor has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned on the 24th day of April, 1996 in the city of Boston,
and Commonwealth of Massachusetts.
NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John D. DesPrez III
------------------------------
John D. DesPrez III, President
Attest:
/s/ James D. Gallagher
- ------------------------------
James D. Gallagher, Secretary
<PAGE> 92
Pursuant to the requirements of the Securities Act of 1933, this
amended Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John D. DesPrez III Director and President April 24, 1997
- -------------------------- (Date)
John D. DesPrez III
* Director April 24, 1997
- -------------------------- (Date)
Peter S. Hutchison
* Director and Chairman April 24, 1997
- -------------------------- of the Board of Directors (Date)
John D. Richardson
/s/ Richard C. Hirtle Vice President and April 24, 1997
- -------------------------- Treasurer (Principal (Date)
Richard C. Hirtle Financial and Officer)
*By: /s/ Richard C. Hirtle April 24, 1997
----------------------- (Date)
Richard C. Hirtle
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
(A)(1)(a)(iii) Resolution of the Board of Directors of North American
Security Life Insurance Company amending the
terms of the NASL Variable Life Account.
7(c) Power of Attorney - John D. Richardson
Consent:
2(a) Hugh McHaffie,FSA,MAAA
2(b) Jones & Blouch L.L.P.
2(c) Ernst & Young LLP
2(d) Coopers & Lybrand, L.L.P.
2(e) James. D. Gallagher
27 Financial Data Schedule, NASL Variable Life Account
</TABLE>
7
<PAGE> 1
Exhibit (A)(1)(a)(iii)
8
<PAGE> 2
ACTION BY UNANIMOUS CONSENT OF THE
BOARD OF DIRECTORS OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
Pursuant to the authority of Section 141(f) of the General Corporation Law of
the State of Delaware, the undersigned, being all of the directors of North
American Security Life Insurance Company ("the Company"), do take and adopt the
following action by their written consent:
Authorization for Additional Sub-Accounts of Variable Separate Accounts
VARIABLE LIFE
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code Annotated,
as amended, the Company, pursuant to a resolution dated April 30, 1986,
established a separate account, designated the NASL Variable Life Account, and
WHEREAS, the separate account is currently separated into seventeen sub-accounts
designated the "International Small Cap Trust," the "Small/Mid Cap Trust," the
"Growth Trust," the "Equity Trust," the "Investment Quality Bond Trust," the
"Money Market Trust," the "Global Equity Trust," the "Pasadena Growth Trust,"
the "Value Equity Trust," the "Growth and Income Trust," the "Strategic Bond
Trust," the "Global Government Bond Trust," the "International Growth and Income
Trust," the "U.S. Government Securities Trust," the "Aggressive Asset Allocation
Trust," the "Moderate Asset Allocation Trust" and the "Conservative Asset
Allocation Trust"; be it
RESOLVED, that the Pasadena Growth Trust is hereby renamed as the Blue Chip
Growth Trust and the Value Equity Trust is hereby renamed as the Equity-Income
Trust to continue to have the same relative rights and preferences accorded
sub-accounts in said Variable Life Account; and it is
FURTHER RESOLVED, that the Company does hereby divide the separate account to
create eighteen additional sub-accounts designated the "Pacific Rim Emerging
Markets Trust," the "Science & Technology Trust," the "Emerging Growth Trust,"
the "Pilgrim Baxter Growth Trust," the "International Stock Trust," the
"Worldwide Growth Trust," the "Quantitative Equity Trust," the "Equity Index
Trust," the "Real Estate Securities Trust," the "Value Trust," the "Balanced
Trust," the "High Yield Trust," the "Capital Growth Bond Trust," the "Lifestyle
Aggressive 1000 Trust," the "Lifestyle Growth 820 Trust," the "Lifestyle
Balanced 640 Trust," the "Lifestyle Moderate 460 Trust" and the "Lifestyle
Conservative 280 Trust"; and it is
FURTHER RESOLVED, that, from time to time, the sub-accounts may be redesignated
and the separate account divided to create additional sub-accounts without
further action by the Board of Directors of the Company.
9
<PAGE> 3
VARIABLE ACCOUNT
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code Annotated,
as amended, the Company, pursuant to a resolution dated August 24, 1984,
established a separate account, designated the NASL Variable Account, and
WHEREAS, the separate account is currently separated into seventeen sub-accounts
designated "International Small Cap Trust," the "Small/Mid Cap Trust," the
"Growth Trust," the "Equity Trust," the "Investment Quality Bond Trust," the
"Money Market Trust," the "Global Equity Trust," the "Pasadena Growth Trust,"
the "Value Equity Trust," the "Growth and Income Trust," the "Strategic Bond
Trust," the "Global Government Bond Trust," the "International Growth and Income
Trust," the "U.S. Government Securities Trust," the "Aggressive Asset Allocation
Trust," the "Moderate Asset Allocation Trust" and the "Conservative Asset
Allocation Trust"; be it
RESOLVED, that the Pasadena Growth Trust is hereby renamed as the Blue Chip
Growth Trust and the Value Equity Trust is hereby renamed as the Equity-Income
Trust to continue to have the same relative rights and preferences accorded
sub-accounts in said Variable Account; and it is
FURTHER RESOLVED, that the Company does hereby divide the separate account to
create eighteen additional sub-accounts designated the "Pacific Rim Emerging
Markets Trust," the "Science & Technology Trust," the "Emerging Growth Trust,"
the "Pilgrim Baxter Growth Trust," the "International Stock Trust," the
"Worldwide Growth Trust," the "Quantitative Equity Trust," the "Equity Index
Trust," the "Real Estate Securities Trust," the "Value Trust," the "Balanced
Trust," the "High Yield Trust," the "Capital Growth Bond Trust," the "Lifestyle
Aggressive 1000 Trust," the "Lifestyle Growth 820 Trust," the "Lifestyle
Balanced 640 Trust," the "Lifestyle Moderate 460 Trust" and the "Lifestyle
Conservative 280 Trust"; and it is
FURTHER RESOLVED, that, from time to time, the sub-accounts may be redesignated
and the separate account divided to create additional sub-accounts without
further action by the Board of Directors of the Company.
DATED as of the 30th day of September 1996.
/s/ Brian L. Moore
---------------------------
Brian L. Moore
/s/ Peter S. Hutchison
---------------------------
Peter S. Hutchison
/s/ John DesPrez III
---------------------------
John DesPrez III
1
<PAGE> 4
ACTION BY UNANIMOUS CONSENT OF THE
BOARD OF DIRECTORS OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
Pursuant to the authority of Section 141(f) of the General Corporation Law of
the State of Delaware, the undersigned, being all of the directors of North
American Security Life Insurance Company ("the Company"), do take and adopt the
following action by their written consent effective February 1, 1996:
Authorization for Additional Sub-Accounts of Variable Separate Accounts
VARIABLE LIFE
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code Annotated,
as amended, the Company, pursuant to a resolution dated April 30, 1986,
established a separate account, designated the NASL Variable Life Account, and
WHEREAS, the separate account is currently separated in fourteen sub-accounts
designated the "Equity Trust," the "Investment Quality Bond Trust," the "Money
Market Trust," the "Global Equity Trust," the "Pasadena Growth Trust," the
"Value Equity Trust," the "Growth and Income Trust," the "Strategic Bond Trust,"
the "Global Government Bond Trust," the "International Growth and Income Trust,"
the "U.S. Government Securities Trust," the "Aggressive Asset Allocation Trust,"
the "Moderate Asset Allocation Trust" and the "Conservative Asset Allocation
Trust"; be it
RESOLVED, that the Company does hereby divide the separate account to create
three additional sub-accounts designated the "International Small Cap Trust,"
the "Small/Mid Cap Trust" and the "Growth Trust"; and it is
FURTHER RESOLVED, that, from time to time, the sub-accounts may be redesignated
and the separate account divided to create additional sub-accounts without
further action by the Board of Directors of the Company.
1
<PAGE> 5
VARIABLE ACCOUNT
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code Annotated,
as amended, the Company, pursuant to a resolution dated August 24, 1984,
established a separate account, designated the NASL Variable Account, and
WHEREAS, the separate account is currently separated in fourteen sub-accounts
designated the "Equity Trust," the "Investment Quality Bond Trust," the "Money
Market Trust," the "Global Equity Trust," the "Pasadena Growth Trust," the
"Value Equity Trust," the "Growth and Income Trust," the "Strategic Bond Trust,"
the "Global Government Bond Trust," the "International Growth and Income Trust,"
the "U.S. Government Securities Trust," the "Aggressive Asset Allocation Trust,"
the "Moderate Asset Allocation Trust" and the "Conservative Asset Allocation
Trust"; be it
RESOLVED, that the Company does hereby divide the separate account to create
three additional sub-accounts designated the "International Small Cap Trust,"
the "Small/Mid Cap Trust"and the "Growth Trust"; and it is
FURTHER RESOLVED, that, from time to time, the sub-accounts may be redesignated
and the separate account divided to create additional sub-accounts without
further action by the Board of Directors of the Company.
DATED as of the 30th day of September 1996.
/s/ Brian L. Moore
-------------------------------
Brian L. Moore
/s/ Peter S. Hutchison
-------------------------------
Peter S. Hutchison
/s/ John DesPrez III
-------------------------------
John DesPrez III
1
<PAGE> 1
Exhibit 7(c)
1
<PAGE> 2
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
POWER OF ATTORNEY
I, John D. Richardson, Director of North American Security Life
Insurance Company (the "Company") do hereby constitute and appoint James. D.
Gallagher, Richard C. Hirtle, John G. Vyrsen, Hugh McHaffie and James Boyle, or
any one of them, my true and lawful attorneys to sign or execute (i)
registration statements and reports and other filings to be filed with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "1933 Act") and/or the Investment Company Act of 1940, as amended
(the "1940 Act") and (ii) reports and other filings to be filed with the SEC (or
any other regulatory entity) pursuant to the Securities Exchange Act of 1934
(the "1934 Act") and to do any and all acts and things and to sign or execute
any and all instruments for me, in my name, in the capacities indicated below,
which said attorney, may deem necessary or advisable to enable the Company to
comply with the 1933 Act, the 1940 Act and the 1934 Act, and any rules,
regulations and requirements of the SEC, in connection with such registration
statements, reports and filings made under the 1933 Act, the 1940 Act and the
1934 Act, including specifically, but without limitation, power and authority to
sign or execute for me, in my name, and in the capacities indicated below, (i)
any and all amendments (including post-effective amendments) to such
registration statements and (ii) Form 10-Ks and Form 10-Qs filed under the 1934
Act; and I do hereby ratify and confirm all that the said attorneys, or any of
them, shall do or cause to be done by virtue of this power of attorney.
Dated as of this 27th day of March, 1997.
Signature Title
/s/ John D. Richardson Director
- ------------------------
John D. Richardson
1
<PAGE> 1
Exhibit 2(a)
1
<PAGE> 2
April 24, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Actuarial Opinion on Illustrations in Registration Statement
Dear Sirs:
This opinion is furnished in connection with post effective amendment No. 3 (the
"Amendment") to the registration statement under the Securities Act of 1933, as
amended, (file No. 33-92466) of a modified single premium variable life
insurance contract (the "Contract") that will be offered and sold by North
American Security Life Insurance Company.
The hypothetical illustrations of death benefits, contract values and surrender
values used in this registration statement are consistent with the provisions of
the Contract and the Company's administrative procedures. The rate structure of
the contract has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear disproportionately
more favorable to a prospective purchaser of the contract for the age and risk
class illustrated than for any other prospective purchaser. The particular
illustrations shown are for a commonly used risk class and for premium amounts
and ages appropriate to the markets in which the contract is sold.
I hereby consent to the use of this opinion as an exhibit to the Amendment and
to the reference to my name under the heading "Experts" in the Prospectus
included in the Amendment.
Sincerely,
/s/ Hugh McHaffie
Hugh McHaffie, FSA, MAAA
Vice President and Product Actuary
1
<PAGE> 1
Exhibit 2(b)
1
<PAGE> 2
April 24, 1997
North American Security Life
Insurance Company
116 Huntington Avenue
Boston, MA 02116
Dear Sirs:
We hereby consent to the reference to this firm under the
caption "Legal Matters" in the prospectus contained in Post-Effective Amendment
No. 3 to the registration statement on Form S-6 of NASL Variable Life Account,
File No. 33-92466, to be filed with the Securities and Exchange Commission.
Very Truly Yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
1
<PAGE> 1
Exhibit 2(c)
1
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 25, 1997 with respect to the
financial statements of North American Security Life Insurance Company and
February 14, 1997 with respect to the financial statements of NASL Variable Life
Account, in Post Effective Amendment No. 3 to this Registration Statement (Form
S-6, File No. 33-92466) in the Financial Statement section of the Registration
Statement.
Ernst & Young LLP
Boston, Massachusetts
April 25, 1997
2
<PAGE> 1
Exhibit 2(d)
2
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 3 to this
Registration Statement under the Securities Act of 1933 on Form S-6 (File No.
33-92466) of (i) our report which includes an adverse opinion as to generally
accepted accounting principles and an unqualified opinion as to statutory
accounting practices prescribed or permitted by the Insurance Department of the
State of Delaware, dated February 23, 1996, except for the information in the
second paragraph of Note 1 - "Basis of Presentation," for which the date is
February 25, 1997, on our audit of the statutory financial statements of North
American Security Life Insurance Company and (ii) our report dated February 23,
1996, on our audit of the financial statements of NASL Variable Life Account. We
also consent to the reference to our firm under the caption "Independent
Auditors."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 25, 1997
<PAGE> 1
Exhibit 2(e)
2
<PAGE> 2
April 24, 1997
To whom it may concern,
I consent to the reference to my name in the prospectus included as part of this
post-effective amendment no. 3 to the Registration Statement of NASL Variable
Life Account on Form S-6 (file No. 33-92466).
Very Truly Yours,
/s/ James D. Gallagher
James D. Gallagher
Vice President, Secretary and
General Counsel
2
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL
VARIABLE LIFE ACCOUNT AND IS QUALIFIED IN ITS ENTIRETY.
</LEGEND>
<CIK> 0000817980
<NAME> NASL VARIABLE LIFE ACCOUNT
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 16,027,256
<INVESTMENTS-AT-VALUE> 16,817,354
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,817,354
<PAYABLE-FOR-SECURITIES> 42,147
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,775,207
<TOTAL-LIABILITIES> 16,817,354
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,163,366
<SHARES-COMMON-PRIOR> 9,650
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 16,817,354
<DIVIDEND-INCOME> 121,303
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 121,303
<REALIZED-GAINS-CURRENT> 7,444
<APPREC-INCREASE-CURRENT> 789,371
<NET-CHANGE-FROM-OPS> 918,118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,865
<NUMBER-OF-SHARES-REDEEMED> 1,150,457
<SHARES-REINVESTED> 2,309,038
<NET-CHANGE-IN-ASSETS> 16,666,250
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
