<PAGE> 1
Registration No. 33-46217
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 5
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6
FNAL VARIABLE ACCOUNT
(Exact name of Registrant)
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(Name of Depositor)
International Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, New York 10580
(Address of Depositor's Principal Executive Offices)
(914) 921-1020
(Depositor's Telephone Number Including Area Code)
H. Bruce Gordon
President Copy to:
First North American Life J. Sumner Jones, Esq.
Assurance Company Jones & Blouch, L.L.P.
International Corporate Center 1025 Thomas Jefferson Street N.W.
at Rye Suite 405 West
555 Theodore Fremd Avenue Washington, D.C. 20007-0805
Rye, New York 10580
(Name and Address of Agent for Service)
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. The notice required pursuant to
Rule 24f-2 for the year ended December 31, 1995 was filed on February 28, 1996.
-----------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
X on May 1, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ 75 days after filing pursuant to paragraph (a)
___on (date) pursuant to paragraph (a) of Rule 486
<PAGE> 2
FNAL VARIABLE ACCOUNT
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-4
N-4 Item Caption in Prospectus
Part A
1..................................Cover Page
2..................................Special Terms
3..................................Summary
4..................................Performance Data;
Financial Statements
5..................................General Information about
First North American Life
Assurance Company, FNAL
Variable Account and NASL
Series Trust
6..................................Charges and Deductions;
Withdrawal Charge;
Administration Fees;
Mortality and Expense Risk
Charge; Taxes; Appendix A;
Appendix B
7..................................Accumulation Provisions;
Company Approval;
Purchase Payments;
Accumulation Units;
Net Investment Factor;
Transfers Among
Investment Options;
Special Transfer Services -
Dollar Cost Averaging;
Withdrawals;
Special Withdrawal Services -
Systematic Withdrawal Plan;
Contract Owner Inquiries;
Other Contract Provisions;
Ownership; Beneficiary;
Modification;
8..................................Annuity Provisions; General;
Annuity Options; Determination
of Amount of the First
Variable Annuity Payment;
Annuity Units and the Deter-
mination of Subsequent
Variable Annuity Payments;
Transfers After Maturity Date
9..................................Accumulation Provisions;
Death Benefit Before
Maturity Date; Annuity
Provisions; Death Benefit
After Maturity Date
10.................................Accumulation Provisions;
Purchase Payments; Accumula-
<PAGE> 3
tion Units; Value of Accumula-
tion Units; Net Investment
Factor; Distribution of
Contracts
11 ............................... Withdrawals; Accumula-
tion Provisions; Purchase
Payments; Other Contract
Provisions; Ten Day Right to
Review
12.................................Federal Tax Matters; Intro-
duction; The Company's Tax
Status; Taxation of Annuities
in General; Diversification
Requirements; Qualified
Retirement Plans
13.................................Legal Proceedings
14.................................Statement of Additional
Information - Table of Contents
Part B Caption in Statement of
Additional Information
15.................................Cover Page
16.................................Table of Contents
17.................................General History and
Information.
18.................................Services-Accountants;
Services-Servicing Agent
19.................................Not Applicable
20.................................Principal Underwriter
21.................................Performance Data
22.................................Not Applicable
23.................................Financial Statements
<PAGE> 4
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 5
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
Annuity Service Office and Mailing Address
International Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, New York 10580
- --------------------------------------------------------------------------------
FNAL VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
OF
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
This Prospectus describes a flexible purchase payment individual
deferred combination fixed and variable annuity contract (the "contract") issued
by First North American Life Assurance Company ("the Company"), a stock life
insurance company organized under the laws of the state of New York. The
contract is designed for use in connection with retirement plans which may or
may not qualify for special federal income tax treatment.
The contract provides for the accumulation of contract values and the
payment of annuity benefits on a variable and/or fixed basis. The contract
offers nineteen investment options: sixteen variable and three fixed. The
variable portion of the contract value and annuity payments, if selected on a
variable basis, will vary according to the investment performance of the
sub-accounts of FNAL Variable Account (the "Variable Account"). The Variable
Account is a separate account established by the Company. Purchase payments and
earnings on those purchase payments may be allocated to and transferred among
one or more of sixteen sub-accounts of the Variable Account. The assets of each
sub-account are invested in shares of NASL Series Trust (the "Trust"), a mutual
fund having sixteen investment portfolios: the Small/Mid Cap Trust,
International Small Cap Trust, Global Equity Trust, Pasadena Growth Trust,
Equity Trust, Value Equity Trust, Growth and Income Trust, International Growth
and Income Trust, Strategic Bond Trust, Global Government Bond Trust, Investment
Quality Bond Trust, U.S. Government Securities Trust, Money Market Trust, and
three Automatic Asset Allocation Trusts (Aggressive, Moderate and Conservative)
(see the accompanying Prospectus of the Trust). Fixed contract values may be
accumulated under one, three and six year fixed account investment options.
Except as specifically noted herein and as set forth under the caption "FIXED
ACCOUNT INVESTMENT OPTIONS" below, this Prospectus describes only the variable
portion of the contract.
Additional information about the variable portion of the contract and
Variable Account is contained in a Statement of Additional Information, dated
the same date as this Prospectus, which has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available without charge upon request by writing the
Company at the above address or telephoning (914) 921-1020. The table of
contents for the Statement of Additional Information is included on page 32 of
this Prospectus.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE VARIABLE ACCOUNT AND THE VARIABLE PORTION OF THE
CONTRACT THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE INVESTING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1996.
<PAGE> 6
TABLE OF CONTENTS
SPECIAL TERMS........................................ 3
SUMMARY ............................................. 5
GENERAL INFORMATION ABOUT FIRST NORTH
AMERICAN LIFE ASSURANCE COMPANY,
FNAL VARIABLE ACCOUNT AND NASL SERIES TRUST.......... 10
First North American Life Assurance Company....... 10
FNAL Variable Account............................. 10
NASL Series Trust................................. 11
DESCRIPTION OF THE CONTRACT.......................... 13
ACCUMULATION PROVISIONS .......................... 13
Purchase Payments ........................... 13
Accumulation Units .......................... 14
Value of Accumulation Units ................. 14
Net Investment Factor ....................... 14
Transfers Among Investment Options .......... 15
Maximum Number of Investment Options......... 15
Special Transfer Services -
Dollar Cost Averaging..................... 15
Asset Rebalancing Program.................... 15
Withdrawals.................................. 16
Special Withdrawal Services -
Systematic Withdrawal Plan................ 16
Loans........................................ 17
Death Benefit Before Maturity Date........... 17
ANNUITY PROVISIONS ............................... 19
General ..................................... 19
Annuity Options ............................. 19
Determination of Amount of the First Variable
Annuity Payment.............................. 20
Annuity Units and the Determination of
Subsequent Variable Annuity Payments ........ 20
Transfers After Maturity Date ............... 20
Death Benefit on or After Maturity Date...... 21
OTHER CONTRACT PROVISIONS ........................ 21
Ten Day Right to Review ..................... 21
Ownership ................................... 21
Beneficiary ................................. 21
Modification ................................ 21
Company Approval ............................ 22
Misstatement and Proof of Age, Sex or Survival 22
FIXED ACCOUNT INVESTMENT OPTIONS.................. 22
CHARGES AND DEDUCTIONS .............................. 24
Withdrawal Charges................................ 24
Administration Fees.............................. 25
Mortality and Expense Risk Charge ................ 25
Taxes ............................................ 26
FEDERAL TAX MATTERS ................................. 26
Introduction ..................................... 26
The Company's Tax Status ......................... 26
Taxation of Annuities in General ................. 26
Tax Deferral During Accumulation Period...... 26
Taxation of Partial and Full Withdrawals..... 27
Taxation of Annuity Payments................. 28
Taxation of Death Benefit Proceeds........... 28
Penalty Tax on Premature Distributions....... 28
Aggregation of Contracts..................... 29
Qualified Retirement Plans........................ 29
Qualified Plan Types......................... 29
Direct Rollovers............................. 30
Federal Income Tax Withholding.................... 30
GENERAL MATTERS...................................... 31
Performance Data.................................. 31
Financial Statements.............................. 31
Asset Allocation and Timing Services.............. 31
Distribution of Contracts ........................ 31
Contract Owner Inquiries.......................... 32
Legal Proceedings ................................ 32
Other Information ................................ 32
STATEMENT OF ADDITIONAL INFORMATION -
Table of Contents.................................. 32
APPENDIX A:
Examples of Calculation of Withdrawal Charge...... 33
2
<PAGE> 7
SPECIAL TERMS
The following terms as used in this Prospectus have the indicated
meanings:
Accumulation Unit - A unit of measure that is used to calculate the
value of the variable portion of the contract before the maturity date.
Annuitant - Any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
contract owner names more than one person as an "Annuitant," the second person
named shall be referred to as "Co-Annuitant." The "Annuitant" is as specified in
the application, unless changed. All provisions based on the date of the death
of the "Annuitant" will be based on the date of death of the last to survive of
the "Annuitant" or "Co-Annuitant." In the event of the death of the "Annuitant"
or "Co-Annuitant" who is also a contract owner, a death benefit is payable under
the Death of Owner provision. The "Annuitant" and "Co-Annuitant" will be
referred to collectively as "Annuitant."
Annuity Option - The method selected by the contract owner for annuity
payments made by the Company.
Annuity Service Office - The service office of the Company is
International Corporate Center at Rye, 555 Theodore Fremd Avenue, Rye, New York
10580.
Annuity Unit - A unit of measure that is used after the maturity date
to calculate variable annuity payments.
Beneficiary - The person, persons or entity entitled to the death
benefit under the contract upon the death of the annuitant. The beneficiary is
as specified in the application, unless changed. (See also "Successor Owner").
Contingent Beneficiary - The person, persons or entity to become the
beneficiary if the beneficiary is not alive. The contingent beneficiary is as
specified in the application, unless changed.
Contract Anniversary - The anniversary of the contract date.
Contract Date - The date of issue of the contract.
Contract Value - The total of the investment account values and, if
applicable, any amount in the loan account attributable to the contract.
Contract Year - The period of twelve consecutive months beginning on
the contract date or any anniversary thereof.
Debt - Any amounts in the loan account attributable to the contract
plus any accrued loan interest. The loan provision is applicable to certain
qualified contracts only.
Due Proof of Death - Due Proof of Death is required upon the death of
the Annuitant or the Owner. One of the following must be received at the Annuity
Service Office within one year of the date of death:
(a) A certified copy of a death certificate;
(b) A certified copy of a decree of a court of competent jurisdiction
as to the finding of death; or
(c) Any other proof satisfactory to us.
Death benefits will be paid within 7 days of receipt of due proof of death and
all required claim forms by the Annuity Service Office.
Fixed Annuity - An annuity option with payments which are predetermined
and guaranteed as to dollar amount.
General Account - All the assets of the Company other than assets in
separate accounts.
Investment Account - An account established by the Company which
represents a contract owner's interest in an investment option prior to the
maturity date.
3
<PAGE> 8
Investment Account Value - The value of a contract owner's investment
in an investment account.
Investment Options - The investment choices available to contract
owners. There are fourteen variable and three fixed investment options under the
contract.
Loan Account - The portion of the general account that is used for
collateral when a loan is taken.
Market Value Charge - A charge that may be assessed if amounts are
withdrawn or transferred from the three or six year investment options prior to
the end of the interest rate guarantee period.
Maturity Date - The date on which annuity benefits commence. The
maturity date is the date specified on the contract specifications page and is
generally the first day of the month following the annuitant's 85th birthday.
Net Purchase Payment - The purchase payment less the amount of premium
tax, if any.
Non-Qualified Contracts - Contracts which are not issued under
qualified plans.
Owner or Contract Owner - The person, persons (co-owner) or entity
entitled to all of the ownership rights under the contract. The owner has the
legal right to make all changes in contractual designations where specifically
permitted by the contract. The owner is as specified in the application, unless
changed.
Portfolio or Trust Portfolio - A separate investment portfolio of the
Trust, a mutual fund in which the Variable Account invests, or of any successor
mutual fund.
Purchase Payment - An amount paid by a contract owner to the Company as
consideration for the benefits provided by the contract.
Qualified Contracts - Contracts issued under qualified plans.
Qualified Plans - Retirement plans which receive favorable tax
treatment under Section 401, 403, or 408 of the Internal Revenue Code of 1986,
as amended.
Separate Account - A segregated account of the Company that is not
commingled with the Company's general assets and obligations.
Sub-Account(s) - One or more of the sub-accounts of the Variable
Account. Each sub-account is invested in shares of a different Trust portfolio.
Successor Owner - The person, persons or entity to become the owner if
the owner dies prior to the Maturity Date. The successor owner is as specified
in the application, unless changed. If no Successor Owner is designated or the
Successor Owner dies before the Owner, the Owner's estate is the Successor
Owner. (See also "Beneficiary").
Valuation Date - Any date on which the New York Stock Exchange is open
for business and the net asset value of a Trust portfolio is determined.
Valuation Period - Any period from one valuation date to the next,
measured from the time on each such date that the net asset value of each
portfolio is determined.
Variable Account - The FNAL Variable Account, which is a separate
account of the Company.
Variable Annuity - An annuity option with payments which: (1) are not
predetermined or guaranteed as to dollar amount, and (2) vary in relation to the
investment experience of one or more specified sub-accounts.
4
<PAGE> 9
SUMMARY
The Contract. The contract offered by this Prospectus is flexible
purchase payment individual deferred combination fixed and variable annuity
contract. The contract provides for the accumulation of contract values and the
payment of annuity benefits on a variable and/or fixed basis. Except as
specifically noted herein and as set forth under the caption "FIXED ACCOUNT
INVESTMENT OPTIONS" below, this Prospectus describes only the variable portion
of the contract.
Retirement Plans. The contract may be issued pursuant to either
non-qualified retirement plans or plans qualifying for special income tax
treatment under the Internal Revenue Code, such as individual retirement
accounts and annuities, pension and profit-sharing plans for corporations and
sole proprietorships/partnerships ("H.R. 10" and "Keogh" plans), and
tax-sheltered annuities for tax-exempt organizations. (See "QUALIFIED RETIREMENT
PLANS".)
Purchase Payments. A contract may be issued upon the making of an
initial purchase payment of as little as $30. A minimum of $300 must be paid
during the first contract year. Purchase payments may be made at any time,
except that if a purchase payment would cause the contract value to exceed
$1,000,000, or the contract value already exceeds $1,000,000, additional
purchase payments will be accepted only with the prior approval of the Company.
(See "PURCHASE PAYMENTS".)
Investment Options. Purchase payments may be allocated among the
nineteen investment options currently available under the contract: sixteen
variable account investment options and three fixed account investment options.
Due to current administrative capabilities, a contract owner is limited to a
maximum of 17 investment options (including all fixed account investment
options) during the period prior to the maturity date of the contract. The
sixteen variable account investment options are the sixteen sub-accounts of the
Variable Account, a separate account established by the Company. The
sub-accounts invest in corresponding portfolios of the Trust: the Small/Mid Cap
Trust, the International Small Cap Trust, the Global Equity Trust, Pasadena
Growth Trust, Equity Trust, Value Equity Trust, Growth and Income Trust,
International Growth and Income Trust, Strategic Bond Trust, Global Government
Bond Trust, Investment Quality Bond Trust, U.S. Government Securities Trust,
Money Market Trust, and three Automatic Asset Allocation Trusts (Aggressive,
Moderate and Conservative) (see the accompanying Prospectus of the Trust). The
portion of the contract value in the Variable Account and monthly annuity
payments, if selected on a variable basis, will reflect the investment
performance of the sub-accounts selected. (See "FNAL VARIABLE ACCOUNT".)
Purchase payments may also be allocated to the three fixed account investment
options: one, three and six year guaranteed investment accounts. Under the fixed
account investment options, the Company guarantees the principal value of
purchase payments and the rate of interest credited to the investment account
for the term of the guarantee period. The portion of the contract value in the
fixed account investment options and monthly annuity payments, if selected on a
fixed basis, will reflect such interest and principal guarantees. (See "FIXED
ACCOUNT INVESTMENT OPTIONS".) Subject to certain regulatory limitations, the
Company may elect to add, subtract or substitute investment options.
Transfers. Prior to the maturity date, amounts may be transferred among
the variable account investment options and from the variable account investment
options to the fixed account investment options without charge. In addition,
amounts may be transferred prior to the maturity date among the fixed account
investment options and from the fixed account investment options to the variable
account investment options, subject to a one year holding period requirement
(with certain exceptions) and a market value charge which may apply to such a
transfer. (See "FIXED ACCOUNT INVESTMENT OPTIONS".) After the maturity date,
transfers are not permitted from variable annuity options to fixed annuity
options or from fixed annuity options to variable annuity options. Transfers
from any investment account must be at least $300 or, if less, the entire
balance in the investment account. If, after the transfer the amount remaining
in the investment account of the contract from which the transfer is made is
less than $100, then we will transfer the entire amount instead of the requested
amount. The Company may impose certain additional limitations on transfers. (See
"TRANSFERS AMONG INVESTMENT OPTIONS" and "TRANSFERS AFTER MATURITY DATE".)
Transfer privileges may also be used under a special service offered by the
Company to dollar cost average an investment in the contract. (See "SPECIAL
TRANSFER SERVICES - DOLLAR COST AVERAGING".)
Withdrawals. Prior to the earlier of the maturity date or the death of
the annuitant, the contract owner may withdraw all or a portion of the contract
value. The amount withdrawn from any investment account must be at least $300
or, if less, the entire balance of the investment account. If a partial
withdrawal plus any applicable withdrawal charge would reduce the contract value
to less than $300, the withdrawal request will be treated as a request to
withdraw the entire contract value. A withdrawal charge and an administration
fee may be imposed. (See "WITHDRAWALS".) A withdrawal may be subject to a
penalty tax. (See "FEDERAL TAX MATTERS".) Withdrawal privileges may also be
exercised pursuant to the Company's systematic withdrawal plan service. (See
"SPECIAL WITHDRAWAL SERVICES - SYSTEMATIC WITHDRAWAL PLAN".)
5
<PAGE> 10
Loans. The Company offers a loan privilege to owners of contracts
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA. Owners of such contracts may obtain loans using the contract
as the only security for the loan. The effective cost of a contract loan is 2%
per year of the amount borrowed. (See "LOANS".)
Death Benefit Before Maturity Date. Generally, if the annuitant dies
before the maturity date, the Company will pay to the beneficiary the minimum
death benefit less any debt. During the first contract year, the minimum death
benefit is the greater of (a) the contract value on the date due proof of death
and all required claim forms are received at the Company's Annuity Service
Office, or (b) the sum of all purchase payments made, less any amount deducted
in connection with partial withdrawals. During any subsequent contract year, the
minimum death benefit will be the greater of (a) the contract value on the date
due proof of death and all required claim forms are received at the Company's
Annuity Service Office, or (b) the minimum death benefit determined in
accordance with these provisions as of the last day of the previous contract
year plus any purchase payments made and less any amount deducted in connection
with partial withdrawals since then. In certain other cases, an amount equal to
the owner's interest will be distributed when the owner dies before the maturity
date. (See "DEATH BENEFIT BEFORE MATURITY DATE".) If the annuitant dies after
the maturity date and annuity payments have been selected based on an annuity
option providing for payments for a guaranteed period, the Company will make the
remaining guaranteed payments to the beneficiary. (See "DEATH BENEFIT ON OR
AFTER MATURITY DATE".)
Annuity Payments. The Company offers a variety of fixed and variable
annuity options. Periodic annuity payments will begin on the maturity date. The
contract owner selects the maturity date, frequency of payment and annuity
option. (See "ANNUITY PROVISIONS".)
Ten Day Review. Within 10 days of receipt of a contract, the contract
owner may cancel the contract by returning it to the Company. (See "TEN DAY
RIGHT TO REVIEW".)
Charges and Deductions. The following table and Example are designed to
assist contract owners in understanding the various costs and expenses that
contract owners bear directly and indirectly. The table reflects expenses of the
Variable Account and the Trust. The items listed under "Contract Owner
Transaction Expenses" and "Separate Account Annual Expenses" are more completely
described in this Prospectus (see "CHARGES AND DEDUCTIONS"). The items listed
under "Trust Annual Expenses" are described in detail in the accompanying Trust
Prospectus to which reference should be made.
CONTRACT OWNER TRANSACTION EXPENSES
Deferred sales load (as percentage of purchase payments)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN PERCENTAGE
CONTRACT
- --------------------------------------------------------------------------------
<C> <C>
0 6%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
</TABLE>
Annual Contract Fee.......................................... $30
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and expense risk fees.............................. 1.25%
Administration fee - asset based............................ 0.15%
6
<PAGE> 11
Total Separate Account Annual Expenses ...................... 1.40%
Trust Annual Expenses
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small/Mid Cap....................... 1.000% .250%* 1.25%
International Small Cap............. 1.100% .300%* 1.400%
Global Equity....................... 0.900% .150% 1.050%
Pasadena Growth..................... 0.975% .000% .975%
Equity.............................. 0.750% .050% .800%
Value Equity........................ 0.800% .050% .850%
Growth and Income................... 0.750% .050% .800%
International Growth and Income..... 0.950% .520% 1.470%
Strategic Bond...................... 0.775% .145% .920%
Global Government Bond.............. 0.800% .130% .930%
Investment Quality Bond............. 0.650% .090% .740%
U.S. Government Securities.......... 0.650% .060% .710%
Money Market ....................... 0.500% .040% .540%
Aggressive Asset Allocation......... 0.750% .160% .910%
Moderate Asset Allocation........... 0.750% .090% .840%
Conservative Asset Allocation....... 0.750% .120% .870%
</TABLE>
* Based on estimates of payments to be made during current fiscal year.
Example
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner surrendered the
contract at the end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap....................... $83 $133
International Small Cap............. $84 $138
Global Equity....................... $81 $128 $165 $288
Pasadena Growth..................... $80 $126 $161 $280
Equity.............................. $79 $121 $152 $262
Value Equity........................ $79 $122 $155 $268
Growth and Income................... $79 $121 $152 $262
International Growth and Income..... $85 $139 $184 $325
Strategic Bond...................... $80 $124 $158 $275
Global Government Bond.............. $80 $124 $159 $276
Investment Quality Bond............. $78 $119 $150 $256
U.S. Government Securities......... $78 $118 $148 $253
Money Market........................ $76 $113 $139 $236
Aggressive Asset Allocation......... $80 $124 $158 $274
Moderate Asset Allocation........... $79 $122 $154 $267
Conservative Asset Allocation....... $79 $123 $156 $270
</TABLE>
7
<PAGE> 12
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner annuitized as
provided in the contract or did not surrender the contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small/Mid Cap....................... $28 $85
International Small Cap............. $29 $89
Global Equity....................... $26 $79 $135 $288
Pasadena Growth..................... $25 $77 $131 $280
Equity ............................. $23 $71 $122 $262
Value Equity........................ $24 $73 $125 $268
Growth and Income................... $23 $71 $122 $262
International Growth and Income..... $30 $91 $154 $325
Strategic Bond...................... $24 $75 $128 $275
Global Government Bond.............. $24 $75 $129 $276
Investment Quality Bond............. $23 $70 $119 $256
U.S. Government Securities.......... $22 $69 $118 $253
Money Market........................ $21 $64 $109 $236
Aggressive Asset Allocation......... $24 $75 $128 $274
Moderate Asset Allocation........... $24 $73 $124 $267
Conservative Asset Allocation....... $24 $74 $126 $270
</TABLE>
For purposes of presenting the foregoing Example, the Company has made certain
assumptions mandated by the Securities and Exchange Commission (the
"Commission"). The Company has assumed that, where applicable, the maximum sales
load is deducted, that there are no exchanges or other transactions and that the
"Other Expenses" line item under "Trust Annual Expenses" will remain the same.
Such assumptions, which are mandated by the Commission in an attempt to provide
prospective investors with standardized data with which to compare various
annuity contracts, do not take into account certain features of the contract and
prospective changes in the size of the Trust which may operate to change the
expenses borne by contract owners. Consequently, the amounts listed in the
Example above should not be considered a representation of past or future
expenses and actual expenses borne by contract owners may be greater or lesser
than those shown.
In addition, for purposes of calculating the values in the above
Example, the Company has translated the $30 annual administration charge listed
under "Annual Contract Fee" to a .086% annual asset charge based on the $35,000
approximate average size during 1995 of contracts of the series offered. So
translated, such charge would be higher for smaller contracts and lower for
larger contracts. The example for the Small/Mid Cap and International Small Cap
Trusts do not include 5 and 10 year figures because they are newly formed
portfolios. Amounts listed under "Other Expenses" for the Small/Mid Cap and
International Small Cap Trusts are based on estimates for current year expenses.
* * * * * * * *
The above summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and Statement of Additional
Information and the Prospectus and Statement of Additional Information for the
Trust, to which reference should be made. This Prospectus generally describes
only the variable aspects of the contract, except where fixed aspects are
specifically mentioned.
8
<PAGE> 13
TABLE OF ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
UNIT VALUE
AT START UNIT VALUE AT NUMBER OF UNITS
SUB-ACCOUNT OF YEAR END OF YEAR AT END OF YEAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity
1992 $12.003976 $11.790318 21,242.936
1993 11.790318 15.450341 701,425.817
1994 15.450341 15.500933 1,612,831.628
1995 15.500933 16.459655 1,679,042.917
- ------------------------------------------------------------------------------------------------------
Pasadena Growth
1992* $10.000000 $9.923524 105,743.980
1993 9.923524 9.413546 605,012.548
1994 9.413546 8.837480 1,049,124.977
1995 8.837480 11.026969 1,318,608.463
- ------------------------------------------------------------------------------------------------------
Equity
1992 $12.386657 $13.143309 17,805.389
1993 13.143309 15.075040 532,797.733
1994 15.075040 14.786831 1,212,483.594
1995 14.786831 20.821819 1,680,197.930
- ------------------------------------------------------------------------------------------------------
Value Equity**
1993 $10.000000 $11.175534 1,087,538.574
1994 11.175534 11.107620 2,147,059.046
1995 11.107620 13.548849 2,700,623.434
- ------------------------------------------------------------------------------------------------------
Growth and Income
1992 $10.942947 $11.927411 33,716.020
1993 11.927411 12.893007 753,734.211
1994 12.893007 13.076664 1,298,075.564
1995 13.076664 16.660889 1,702,726.488
- ------------------------------------------------------------------------------------------------------
International Growth and Income***
1995 $10.000000 $10.554228 419,354.257
- ------------------------------------------------------------------------------------------------------
Strategic Bond**
1993 $10.000000 $10.750617 414,573.339
1994 10.750617 9.965972 737,151.981
1995 9.965972 11.716972 878,455.666
- ------------------------------------------------------------------------------------------------------
Global Government Bond
1992 $13.322602 $13.415849 7,122.534
1993 13.415849 15.741586 299,274.049
1994 15.741586 14.630721 463,867.775
1995 14.630721 17.772344 417,838.308
- ------------------------------------------------------------------------------------------------------
Investment Quality Bond (formerly called Bond Sub-account)
1992 $13.147350 $13.936240 1,442.768
1993 13.936240 15.118716 209,360.256
1994 15.118716 14.216516 309,793.553
1995 14.216516 16.751499 305,028.908
- ------------------------------------------------------------------------------------------------------
U.S. Gov. Securities (formerly called U.S. Gov. Bond Sub-account)
1992 $13.015785 $13.651495 13,906.158
1993 13.651495 14.490734 546,010.063
1994 14.490734 14.111357 652,508.827
1995 14.111357 16.083213 696,869.324
- ------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 14
<TABLE>
<CAPTION>
Money Market
<S> <C> <C> <C>
1992 $12.892485 $13.137257 11.495
1993 13.137257 13.303085 141,771.056
1994 13.303085 13.623292 464,720.715
1995 13.623292 14.190910 639,836.317
- ------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation
1992 $10.880194 $11.623893 6,314.930
1993 11.623893 12.642493 220,581.039
1994 12.642493 12.381395 395,570.370
1995 12.381395 14.990551 463,740.240
- ------------------------------------------------------------------------------------------------------
Moderate Asset Allocation
1992 $11.012835 $11.772128 31,652.055
1993 11.772128 12.775798 526,706.519
1994 12.775798 12.396295 994,126.229
1995 12.396295 14.752561 1,070,866.388
- ------------------------------------------------------------------------------------------------------
Conservative Asset Allocation
1992 $11.102574 $11.821212 3,884.882
1993 11.821212 12.705196 176,613.459
1994 12.705196 12.298940 267,695.021
1995 12.298940 14.320582 306,895.403
- ------------------------------------------------------------------------------------------------------
</TABLE>
* This Sub-account commenced operations on December 11, 1992.
** This Sub-account commenced operations on February 19, 1993.
*** This Sub-account commenced operations on January 9, 1995.
GENERAL INFORMATION ABOUT FIRST NORTH AMERICAN LIFE ASSURANCE
COMPANY, FNAL VARIABLE ACCOUNT AND NASL SERIES TRUST
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
First North American Life Assurance Company ("the Company") is a stock
life insurance company organized in 1992 under the laws of the state of New
York. The Company's principal office is located at International Corporate
Center at Rye, 555 Theodore Fremd Avenue, Rye, New York 10580.
The Company is a wholly-owned subsidiary of North American Security
Life Insurance Company, ("Security Life"). Security Life is a stock life
insurance company organized under the laws of Delaware in 1979 with its
principal office located at 116 Huntington Avenue, Boston, Massachusetts 02116.
Security Life's principal business is offering a variable annuity contract,
similar to that offered by the Company in New York, in 46 other states and the
District of Columbia.
The ultimate parent of Security Life is The Manufacturers Life
Insurance Company ("Manulife"), a Canadian mutual life insurance company based
in Toronto, Canada. Prior to January 1, 1996, Security Life was a wholly owned
subsidiary of North American Life Assurance Company ("NAL"), a Canadian mutual
life insurance company. On January 1, 1996, NAL and Manulife merged with the
combined company retaining the name Manulife.
FNAL VARIABLE ACCOUNT
The Company established the Variable Account on March 4, 1992 as a
separate account under the laws of New York. The income, gains and losses,
whether or not realized, from assets of the Variable Account are, in accordance
with the contracts, credited to or charged against the Variable Account without
regard to other income, gains or losses of the Company. Nevertheless, all
obligations arising under the contracts are general corporate obligations of the
Company. Assets of the Variable Account may not be charged with liabilities
arising out of any other business of the Company.
The Variable Account is registered with the Commission under the
Investment Company Act of 1940 ("1940 Act") as a unit investment trust. A unit
investment trust is a type of investment company which invests its assets in
specified securities, such as the shares of one
10
<PAGE> 15
or more investment companies. Registration under the 1940 Act does not
involve supervision by the Commission of the management or investment policies
or practices of the Variable Account.
There are currently sixteen sub-accounts within the Variable Account:
the Small/Mid Cap Sub-Account, the International Small Cap Sub-Account, the
Global Equity Sub-Account, the Pasadena Sub-Account, the Equity Sub-Account, the
Value Equity Sub-Account, the Growth and Income Sub-Account, the International
Growth and Income Sub-Account, the Strategic Bond Sub-Account, the Global
Government Bond Sub-Account, the Investment Quality Bond Sub-Account, the U.S.
Government Securities Sub-Account, the Money Market Sub-Account, and three
Automatic Asset Allocation Sub-Accounts (Aggressive, Moderate and Conservative).
The Company reserves the right, subject to prior approval of the New York
Superintendent of Insurance and compliance with applicable law, 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.
NASL SERIES TRUST
The assets of each sub-account of the Variable Account are invested in
shares of a corresponding portfolio of the Trust: the Small/Mid Cap Trust, the
International Small Cap Trust, the Global Equity Trust, the Pasadena Growth
Trust, the Equity Trust, the Value Equity Trust, the Growth and Income Trust,
the International Growth and Income Trust, the Strategic Bond Trust, the Global
Government Bond Trust, the Investment Quality Bond Trust, the U.S. Government
Securities Trust, the Money Market Trust and three Automatic Asset Allocation
Trusts (Aggressive, Moderate and Conservative). The Trust is registered under
the 1940 Act as an open-end management investment company. Each of the
portfolios is diversified for purposes of the 1940 Act, except for the Global
Government Bond Trust which is non-diversified so that it may invest more than
5% of its assets in securities issued by a foreign government. The Trust
receives investment advisory services from NASL Financial Services, Inc.
The Trust currently has nine subadvisers. Oechsle International
Advisors, L.P. provides investment subadvisory services to the Global Equity and
Global Government Bond Trusts. Roger Engemann Management Co, Inc., provides
investment subadvisory services to the Pasadena Growth Trust. Fidelity
Management Trust Company provides investment subadvisory services to the Equity,
Aggressive Asset Allocation, Moderate Asset Allocation and Conservative Asset
Allocation Trusts. Goldman Sachs Asset Management provides investment
subadvisory services to the Value Equity Trust. Wellington Management Company
provides investment subadvisory services to the Growth and Income, Investment
Quality Bond and Money Market Trusts. Salomon Brothers Asset Management Inc.
provides investment subadvisory services to the Strategic Bond and U.S.
Government Securities Trusts. J.P. Morgan Investment Management Inc. provides
investment subadvisory services to the International Growth and Income Trust.
Fred Alger Management, Inc. provides investment subadvisory services to the
Small/Mid Cap Trust and Founders Asset Management, Inc. provides investment
subadvisory services to the International Small Cap Trust.
The following is a brief description of each portfolio:
THE SMALL/MID CAP TRUST seeks long term capital appreciation by
investing at least 65% of its total assets (except during temporary
defensive periods) in small/mid cap equity securities. As used herein
small/mid cap equity securities are equity securities of companies
that, at the time of purchase, have total market capitalization between
$500 million and $5 billion.
THE INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by
investing primarily in securities issued by foreign companies which
have total market capitalization or annual revenues of $1 billion or
less. These securities may represent companies in both established and
emerging economies throughout the world.
THE GLOBAL EQUITY TRUST seeks long-term capital appreciation, by
investing primarily in a globally diversified portfolio of common
stocks and securities convertible into or exercisable for common
stocks.
THE PASADENA GROWTH TRUST seeks to achieve long-term growth of capital
by emphasizing investments in companies with rapidly growing earnings
per share, some of which may be smaller emerging growth companies.
THE EQUITY TRUST seeks growth of capital, by investing primarily in
common stocks of United States issuers and securities convertible into
or carrying the right to buy common stocks.
11
<PAGE> 16
THE VALUE EQUITY TRUST seeks long-term growth of capital by investing
primarily in common stocks and securities convertible into or carrying
the right to buy common stocks.
THE GROWTH AND INCOME TRUST seeks long-term growth of capital and
income, consistent with prudent investment risk, by investing primarily
in a diversified portfolio of common stocks of United States issuers
which the Subadviser believes are of high quality.
THE INTERNATIONAL GROWTH AND INCOME TRUST seeks long-term growth of
capital and income by investing, under normal circumstances, at least
65% of its total assets in equity securities of foreign issuers. The
Portfolio may also invest in debt securities of corporate or sovereign
issuers rated A or higher by Moody's or S&P or, if unrated, of
equivalent credit quality as determined by J.P. Morgan. Under normal
circumstances, the Portfolio will be invested approximately 85% in
equity securities and 15% in fixed income securities.
THE STRATEGIC BOND TRUST seeks a high level of total return consistent
with preservation of capital by giving its Subadviser broad discretion
to deploy the portfolio's assets among certain segments of the
fixed-income market as the Subadviser believes will best contribute to
achievement of the portfolio's investment objective.
THE GLOBAL GOVERNMENT BOND TRUST seeks a high level of total return by
placing primary emphasis on high current income and the preservation of
capital, by investing primarily in a global portfolio of high-quality,
fixed-income securities of foreign and United States governmental
entities and supranational issuers.
THE INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by
investing primarily in a diversified portfolio of investment grade
corporate bonds and U.S. Government bonds with intermediate to longer
term maturities. The portfolio may also invest up to 20% of its assets
in non-investment grade fixed income securities.
THE U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current
income consistent with preservation of capital and maintenance of
liquidity, by investing in debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and derivative securities such as collateralized
mortgage obligations backed by such securities.
THE MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity, by investing in high quality
money market instruments with maturities of 397 days or less issued
primarily by United States entities.
THE AUTOMATIC ASSET ALLOCATION TRUSTS seek the highest potential total
return consistent with a specified level of risk tolerance --
conservative, moderate or aggressive -- by investing primarily in the
kinds of securities in which the Equity, Investment Quality Bond, U.S.
Government Securities and Money Market Trusts may invest.
* THE AGGRESSIVE ASSET ALLOCATION TRUST seeks the highest total return
consistent with an aggressive level of risk tolerance. This Trust
attempts to limit the decline in portfolio value in very adverse market
conditions to 15% over any twelve month period.
* THE MODERATE ASSET ALLOCATION TRUST seeks the highest total return
consistent with a moderate level of risk tolerance. This Trust attempts
to limit the decline in portfolio value in very adverse market
conditions to 10% over any twelve month period.
* THE CONSERVATIVE ASSET ALLOCATION TRUST seeks the highest total
return consistent with a conservative level of risk tolerance. This
Trust attempts to limit the decline in portfolio value in very adverse
market conditions to 5% over any twelve month period.
In pursuing the Strategic Bond Trust and Investment Quality Bond
Trusts' investment objective, each portfolio expects to invest a portion of its
assets in high yield securities, commonly known as "junk bonds" which also
present a high degree of risk. The risks of these securities include price
volatility and risk of default in the payment of interest and principal. See
"Risk Factors Relating to High Yield Securities" contained in the NASL Series
Trust prospectus before investing in either Trust. In pursuing the International
Small Cap, Global Equity, Strategic Bond Trust and International Growth and
Income and Global Government Bond Trusts' investment objective, each
12
<PAGE> 17
portfolio may invest up to 100% of its assets in foreign securities which may
present additional risks. See "Foreign Securities" contained in the NASL Series
Trust prospectus before investing in any of these Trusts.
If the shares of a Trust portfolio are no longer available for
investment or in the Company's judgment investment in a Trust portfolio becomes
inappropriate in view of the purposes of the Variable Account, the Company may
eliminate the shares of a portfolio and substitute shares of another portfolio
of the Trust or another open-end registered investment company. Substitution may
be made with respect to both existing investments and the investment of future
purchase payments. However, no such substitution will be made without notice to
the contract owner and prior approval of the Commission to the extent required
by the 1940 Act.
The Company will vote shares of the Trust portfolios held in the
Variable Account at meetings of shareholders of the Trust in accordance with
voting instructions received from the persons having the voting interest under
the contracts. The number of portfolio shares for which voting instructions may
be given will be determined by the Company in the manner described below, not
more than 90 days prior to the meeting of the Trust. Trust proxy material will
be distributed to each person having the voting interest under the contract
together with appropriate forms for giving voting instructions. Portfolio shares
held in the Variable Account that are attributable to contract owners and as to
which no timely instructions are received and portfolio shares held in the
Variable Account that are beneficially owned by the Company will be voted by the
Company in proportion to the instructions received.
Prior to the maturity date, the person having the voting interest under
a contract is the contract owner and the number of votes as to each portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the sub-account in which such
portfolio shares are held by the net asset value per share of that portfolio.
After the maturity date, the person having the voting interest under a contract
is the annuitant and the number of votes as to each portfolio for which voting
instructions may be given is determined by dividing the reserve for the contract
allocated to the sub-account in which such portfolio shares are held by the net
asset value per share of that portfolio. Generally, the number of votes tends to
decrease as annuity payments progress since the amount of reserves attributable
to a contract will usually decrease after commencement of annuity payments. The
Company reserves the right to make any changes in the voting rights described
above that may be permitted by the federal securities laws or regulations or
interpretations of these laws or regulations.
A full description of the Trust, including the investment objectives,
policies and restrictions of each of the portfolios is contained in the
Prospectus for the Trust and should be read by a prospective purchaser before
investing.
DESCRIPTION OF THE CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service
Office. The minimum purchase payment is $30; however, at least $300 must be paid
during the first contract year. Purchase payments may be made at any time. The
Company may provide by separate agreement for purchase payments to be
automatically withdrawn from a contract owner's bank account on a periodic
basis. If a purchase payment would cause the contract value to exceed $1,000,000
or the contract value already exceeds $1,000,000, additional purchase payments
will be accepted only with the prior approval of the Company.
The Company may, at its option, cancel a contract at the end of any
three consecutive contract years in which no purchase payments have been made,
if both (i) the total purchase payments made over the life of the contract, less
any withdrawals, are less than $2,000; and (ii) the contract value at the end of
such three year period is less than $2,000. Upon cancellation the Company will
pay the contract owner the contract value computed as of the valuation period
during which the cancellation occurs less the annual $30 administration fee and
less any debt. The amounts paid will be treated as withdrawals for federal tax
purposes and, thus, may be subject to income tax and to a 10% penalty tax. (See
"FEDERAL TAX MATTERS".)
Purchase payments are allocated among the investment options in
accordance with the percentages designated by the contract owner in the
application. In addition, contract owners have the option to participate in the
Guarantee Plus Program administered by the Company. Under the Guarantee Plus
Program the initial purchase payment is split between the fixed and variable
investment options. A percentage of the initial purchase payment is allocated to
the chosen fixed account, such that, at the end of the guaranteed period the
fixed account will have grown to an amount at least equal to the total initial
purchase pyament. The percent depends upon the current interest
13
<PAGE> 18
rate of the fixed investment option. The balance of the initial purchase payment
is allocated among the variable investment options as indicated on the contract
application. Contract owners may elect to participate in the Guarantee Plus
Program on the contract application and may obtain full information concerning
the program and its restrictions from their securities dealers or the Annuity
Service Office. The contract owner may change the allocation of subsequent
purchase payments at any time upon written notice to the Company.
ACCUMULATION UNITS
The Company will establish an investment account for the contract owner
for each variable account investment option to which such contract owner
allocates purchase payments. Purchase payments are credited to such investment
accounts in the form of accumulation units. The following discussion of
accumulation units, the value of accumulation units and the net investment
factor formula pertains only to the accumulations in the variable account
investment options. The parallel discussion regarding accumulations in the fixed
account investment options appears elsewhere in this Prospectus. (See "FIXED
ACCOUNT INVESTMENT OPTIONS".)
The number of accumulation units to be credited to each investment
account is determined by dividing the net purchase payment allocated to that
investment account by the value of an accumulation unit for that investment
account for the valuation period during which the purchase payment is received
at the Company's Annuity Service Office complete with all necessary information
or, in the case of the first purchase payment, pursuant to the procedures
described below.
Initial purchase payments received by mail will usually be credited in
the valuation period during which received at the Annuity Service Office, and in
any event not later than two business days after receipt of a properly completed
application and all information necessary for processing of the application. The
applicant will be informed of any deficiencies in an application if it cannot be
processed and the purchase payment credited within two business days after
receipt. If the deficiencies are not remedied within five business days, the
purchase payment will be returned promptly to the applicant, unless the
applicant specifically consents to the Company's retaining the purchase payment
until all necessary information is received. Initial purchase payments received
by wire transfer from broker-dealers will be credited in the valuation period
during which received where such broker-dealers have made special arrangements
with the Company for the collection and forwarding of contract applications.
VALUE OF ACCUMULATION UNITS
The value of accumulation units will vary from one valuation period to
the next depending upon the investment results of the particular sub-accounts to
which purchase payments are allocated. The value of an accumulation unit for
each sub-account was arbitrarily set at $10 for the first valuation period. The
value of an accumulation unit for any subsequent valuation period is determined
by multiplying the value of an accumulation unit for the immediately preceding
valuation period by the net investment factor for such sub-account (described
below) for the valuation period for which the value is being determined.
NET INVESTMENT FACTOR
The net investment factor is an index used to measure the investment
performance of a sub-account from one valuation period to the next. The net
investment factor for each sub-account for any valuation period is determined by
dividing (a) by (b) and subtracting (c) from the result:
Where (a) is:
(1) the net asset value per share of a portfolio share held in the
sub-account determined at the end of the current valuation period, plus
(2) the per share amount of any dividend or capital gain distributions
made by the portfolio on shares held in the sub-account if the "ex-dividend"
date occurs during the current valuation period.
Where (b) is:
the net asset value per share of a portfolio share held in the
sub-account determined as of the end of the immediately preceding valuation
period.
14
<PAGE> 19
Where (c) is:
a factor representing the charges deducted from the sub-account on a
daily basis for administrative expenses and mortality and expense risks. Such
factor is equal on an annual basis to 1.40%: (0.15% for administrative expenses
and 1.25% for mortality and expense risks).
The net investment factor may be greater or less than or equal to one;
therefore, the value of an accumulation unit may increase, decrease or remain
the same.
TRANSFERS AMONG INVESTMENT OPTIONS
Before the maturity date the contract owner may transfer amounts among
the variable account investment options and from such investment options to the
fixed account investment options at any time and without charge upon written
notice to the Company. Accumulation units will be canceled from the investment
account from which amounts are transferred and credited to the investment
account to which amounts are transferred. The Company will effect such transfers
so that the contract value on the date of the transfer will not be affected by
the transfer. The contract owner must transfer at least $300 or, if less, the
entire value of the investment account. If after the transfer the amount
remaining in the investment account is less than $100, then the Company will
transfer the entire amount instead of the requested amount. The Company reserves
the right to limit, upon notice, the maximum number of transfers a contract
owner may make to one per month or six at any time within a contract year. 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. In
addition, in accordance with applicable law, the Company reserves the right to
modify or terminate the transfer privilege at any time.
MAXIMUM NUMBER OF INVESTMENT OPTIONS
Due to current administrative capabilities, a contract owner is limited
to a maximum of 17 investment options (including all fixed account investment
options) during the period prior to the maturity date of the contract (the
"Contract Period"). In calculating this limit for each contract owner,
investment options to which the contract owner has allocated purchased payments
at any time during the Contract Period will be counted toward the 17 maximum
even if the contract owner no longer has contract value allocated to these
investment options.
SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING
The Company administers a Dollar Cost Averaging ("DCA") program which
enables a contract owner to pre-authorize a periodic exercise of the contractual
transfer rights described above. Contract owners entering into a DCA agreement
instruct the Company to transfer monthly a predetermined dollar amount from any
sub-account or the one year fixed account investment option to other
sub-accounts until the amount in the sub-account from which the transfer is made
or one year fixed account investment option is exhausted. The DCA program is
generally suitable for contract owners making a substantial deposit to the
contract and who desire to control the risk of investing at the top of a market
cycle. The DCA program allows such investments to be made in equal installments
over time in an effort to reduce such risk. Contract owners interested in the
DCA program may elect to participate in the program on the contract application
or by separate application. Contract owners may obtain a separate application
and full information concerning the program and its restrictions from their
securities dealer or the Annuity Service Office.
ASSET REBALANCING PROGRAM
The Company administers an Asset Rebalancing Program which enables a contract
owner to indicate to the Company the percentage levels he or she would like to
maintain in particular portfolios. On the last business day of every calendar
quarter, the contract owner's contract value will be automatically rebalanced to
maintain the indicated percentages by transfers among the portfolios. (Fixed
Account Investment Options are not eligible for participation in the Asset
Rebalancing Program). The entire value of the variable investment accounts must
be included in the Asset Rebalancing Program. Other investment programs, such as
the DCA Program, or other transfers or withdrawals may not work in concert with
the Asset Rebalancing Program. Therefore, contract owners should monitor their
use of other programs and any other transfers or withdrawals while the Asset
Rebalancing Program is being used. Contract owners interested in the Asset
Rebalancing Program may obtain a separate application and full information
concerning the program and its restrictions from their securities dealer or the
Annuity Service Office.
15
<PAGE> 20
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the
annuitant, the contract owner may withdraw all or a portion of the contract
value upon written request, complete with all necessary information to the
Company's Annuity Service Office. For certain qualified contracts, exercise of
the withdrawal right may require the consent of the qualified plan participant's
spouse under the Internal Revenue Code and regulations promulgated by the
Treasury Department. In the case of a total withdrawal, the Company will pay the
contract value as of the date of receipt of the request at its Annuity Service
Office, less the annual $30 administration fee, any debt and any applicable
withdrawal charge, and the contract will be canceled. In the case of a partial
withdrawal, the Company will pay the amount requested and cancel that number of
accumulation units credited to each investment account necessary to equal the
amount withdrawn from each investment account plus any applicable withdrawal
charge deducted from such investment account. (See "CHARGES AND DEDUCTIONS".)
When making a partial withdrawal, the contract owner should specify the
investment options from which the withdrawal is to be made. The amount requested
from an investment option may not exceed the value of that investment option
less any applicable withdrawal charge. If the contract owner does not specify
the investment options from which a partial withdrawal is to be taken, a partial
withdrawal will be taken from the variable account investment options until
exhausted and then from the fixed account investment options. If the partial
withdrawal is less than the total value in the variable account investment
options, the withdrawal will be taken pro rata from the variable account
investment options: taking from each such variable account investment option an
amount which bears the same relationship to the total amount withdrawn as the
value of such variable account investment option bears to the total value of all
the contract owner's investments in variable account investment options.
For the rules governing the order and manner of withdrawals from the
fixed account investment options, see "FIXED ACCOUNT INVESTMENT OPTIONS".
There is no limit on the frequency of partial withdrawals; however, the
amount withdrawn must be at least $300 or, if less, the entire balance in the
investment option. If after the withdrawal (and deduction of any withdrawal
charge) the amount remaining in the investment option is less than $100, the
Company will treat the partial withdrawal as a withdrawal of the entire amount
held in the investment option. If a partial withdrawal plus any applicable
withdrawal charge would reduce the contract value to less than $300, the Company
will treat the partial withdrawal as a total withdrawal of the contract value.
The amount of any withdrawal from the variable account investment
options will be paid promptly, and in any event within seven days of receipt of
the request, complete with all necessary information at the Company's Annuity
Service Office, except that the Company reserves the right to defer the right of
withdrawal or postpone payments for any period when: (1) the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (2)
trading on the New York Stock Exchange is restricted, (3) an emergency exists as
a result of which disposal of securities held in the Variable Account is not
reasonably practicable or it is not reasonably practicable to determine the
value of the Variable Account's net assets, or (4) the Commission, by order, so
permits for the protection of security holders; provided that applicable rules
and regulations of the Commission shall govern as to whether the conditions
described in (2) and (3) exist.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances. (See "FEDERAL
TAX MATTERS".)
SPECIAL WITHDRAWAL SERVICES - SYSTEMATIC WITHDRAWAL PLAN
The Company administers a Systematic Withdrawal Plan ("SWP") which
enables a contract owner to pre-authorize a periodic exercise of the contractual
withdrawal rights described above. Contract owners entering into a SWP agreement
instruct the Company to withdraw a level dollar amount from specified investment
options on a periodic basis. The total of SWP withdrawals in a contract year is
limited to not more than 10% of the purchase payments made to ensure that no
withdrawal or market value charge will ever apply to a SWP withdrawal. If an
additional withdrawal is made from a contract participating in SWP, the SWP will
terminate automatically and may be reinstated only on or after the next contract
anniversary pursuant to a new application. SWP is not available to contracts
participating in the dollar cost averaging program or for which purchase
payments are being automatically deducted from a bank account on a periodic
basis. SWP withdrawals will be withdrawn without withdrawal and market value
charges. SWP withdrawals may, however, be subject to income tax and a 10%
penalty tax. (See "FEDERAL TAX MATTERS".) Contract owners interested in SWP
may elect to participate
16
<PAGE> 21
in this program on the contract application or by separate application.
Contract owners may obtain a separate application and full information
concerning the program and its restrictions from their securities dealer
or the Annuity Service Office.
LOANS
The Company offers a loan privilege only to owners of contracts issued
in connection with Section 403(b) qualified plans that are not subject to Title
I of ERISA. Owners of such contracts may obtain loans using the contract as the
only security for the loan. Loans are subject to provisions of the Code and to
applicable retirement program rules (collectively, "loan rules"). Tax advisers
and retirement plan fiduciaries should be consulted prior to exercising loan
privileges.
Under the terms of the contract, the maximum loan value is equal to 80%
of the contract value, although loan rules may serve to reduce such maximum loan
value in some cases. The amount available for a loan at any given time is the
loan value less any outstanding debt. Debt equals the amount of any loans plus
accrued interest. Loans will be made only upon written request from the owner.
The Company will make loans within seven days of receiving a properly completed
loan application (applications are available from the Annuity Service Office),
subject to postponement under the same circumstances that payment of withdrawals
may be postponed. (See "WITHDRAWALS".)
When an owner requests a loan, the Company will reduce the owner's
investment in the investment accounts and transfer the amount of the loan to the
loan account, a part of the Company's general account. The owner may designate
the investment accounts from which the loan is to be withdrawn. Absent such a
designation, the amount of the loan will be withdrawn from the investment
accounts in accordance with the rules for making partial withdrawals. (See
"WITHDRAWALS".) The contract provides that owners may repay contract debt at any
time. Under applicable loan rules, loans generally must be repaid within five
years, repayments must be made at least quarterly and repayments must be made in
substantially equal amounts. When a loan is repaid, the amount of the repayment
will be transferred from the loan account to the investment accounts. The owner
may designate the investment accounts to which a repayment is to be allocated.
Otherwise, the repayment will be allocated in the same manner as the owner's
most recent purchase payment. On each contract anniversary, the Company will
transfer from the investment accounts to the loan account the amount by which
the debt on the contract exceeds the balance in the loan account.
The Company charges interest of 6% per year on contract loans. Loan
interest is payable in arrears and, unless paid in cash, the accrued loan
interest is added to the amount of the debt and bears interest at 6% as well.
The Company credits interest with respect to amounts held in the loan account at
a rate of 4% per year. Consequently, the net cost of loans under the contract is
2%. If on any date debt under a contract exceeds the contract value, the
contract will be in default. In such case the owner will receive a notice
indicating the payment needed to bring the contract out of default and will have
a thirty-one day grace period within which to pay the default amount. If the
required payment is not made within the grace period, the contract may be
foreclosed (terminated without value).
The amount of any debt will be deducted from the minimum death benefit.
(See "DEATH BENEFIT BEFORE THE MATURITY DATE".) In addition, debt, whether or
not repaid, will have a permanent effect on the contract value because the
investment results of the investment accounts will apply only to the unborrowed
portion of the contract value. The longer debt is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
investment results are greater than the rate being credited on amounts held in
the loan account while the debt is outstanding, the contract value will not
increase as rapidly as it would have if no debt were outstanding. If investment
results are below that rate, the contract value will be higher than it would
have been had no debt been outstanding.
DEATH BENEFIT BEFORE MATURITY DATE
The following discussion applies principally to contracts that are not
issued in connection with qualified plans, i.e., a "non-qualified contract." The
requirements of the tax law applicable to qualified plans, and the tax treatment
of amounts held and distributed under such plans, are quite complex.
Accordingly, a prospective purchaser of the contract to be used in connection
with a qualified plan should seek competent legal and tax advice regarding the
suitability of the contract for the situation involved and the requirements
governing the distribution of benefits, including death benefits, from a
contract used in the plan. In particular, a prospective purchaser who intends to
use the contract in connection with a qualified plan should consider that the
contract provides a minimum death benefit (described below) that could be
characterized as an incidental death benefit. There are limits on the amount of
incidental benefits that may be provided under certain qualified plans and the
provision of such benefits may result in currently taxable income to plan
participants. (See "FEDERAL TAX MATTERS".)
17
<PAGE> 22
Death of Annuitant who is not the Contract Owner. The Company will pay
the minimum death benefit, less any debt, to the beneficiary if the contract
owner is not the annuitant and the annuitant dies before the contract owner and
before the maturity date. If there is more than one such annuitant, the minimum
death benefit will be paid on the death of the last surviving co-annuitant. The
minimum death benefit will be paid either as a lump sum or in accordance with
any of the annuity options available under the contract. An election to receive
the death benefit under an annuity option must be made within 60 days after the
date on which the death benefit first becomes payable. (See "ANNUITY OPTIONS".)
Rather than receiving the minimum death benefit, the beneficiary may elect to
continue the contract as the new contract owner. (In general, a beneficiary who
makes such an election will nonetheless be treated for federal income tax
purposes as if he had received the minimum death benefit.)
Death of Annuitant who is the Contract Owner. The Company will pay the
minimum death benefit, less any debt, to the beneficiary if the contract owner
is the annuitant, dies before the maturity date and is not survived by a
co-annuitant. If the contract is a non-qualified contract, the contract owner is
the annuitant and the contract owner dies before the maturity date survived by a
co-annuitant, the Company, instead of paying the minimum death benefit to the
beneficiary, will pay to the successor owner an amount equal to the amount
payable on total withdrawal without reduction for any withdrawal charge. (See
"WITHDRAWALS".) If the contract is a non-qualified contract, distribution of the
minimum death benefit to the beneficiary (or of the amount payable to the
successor owner) must be made within five years after the owner's death. If the
beneficiary or successor owner, as appropriate, is an individual, in lieu of
distribution within five years of the owner's death, distribution may be made as
an annuity which begins within one year of the owner's death and is payable over
the life of the beneficiary (or the successor owner) or over a period not in
excess of the life expectancy of the beneficiary (or the successor owner). If
the owner's spouse is the beneficiary (or the successor owner, as appropriate)
that spouse may elect to continue the contract as the new owner in lieu of
receiving the distribution. In such a case, the distribution rules applicable
when a contract owner dies generally will apply when that spouse, as the owner,
dies.
Death of Owner who is not the Annuitant. If the owner is not the
annuitant and dies before the maturity date and before the annuitant, the
successor owner will become the owner of the contract. If the contract is a
non-qualified contract, an amount equal to the amount payable on total
withdrawal, without reduction for any withdrawal charge, will be paid to the
successor owner. (See "WITHDRAWALS".) Distribution of that amount to the
successor owner must be made within five years of the owner's death. If the
successor owner is an individual, in lieu of distribution within five years of
the owner's death, distribution may be made as an annuity which begins within
one year of the owner's death and is payable over the life of the successor
owner (or over a period not greater than the successor owner's life expectancy).
If the owner's spouse is the successor owner, that spouse may elect to continue
the contract as the new contract owner in lieu of receiving the distribution. In
such a case, the distribution rules applicable when a contract owner dies
generally will apply when that spouse, as the owner, dies. If there is more than
one owner, distribution will occur upon the death of any owner. If both owners
are individuals, distribution will be made to the remaining owner rather than to
the successor owner.
Entity as Owner. In the case of a non-qualified contract which is not
owned by an individual (for example, a non-qualified contract owned by a
corporation or a trust), the special rules stated in this paragraph apply. For
purposes of distributions of death benefits before the maturity date, any
annuitant will be treated as the owner of the contract, and a change in the
annuitant or any co-annuitant shall be treated as the death of the owner. In the
case of distributions which result from a change in an annuitant when the
annuitant does not actually die, the amount distributed will be reduced by
charges which would otherwise apply upon withdrawal. (See "WITHDRAWALS".)
If the contract is a non-qualified contract and there is both an
individual and a non-individual contract owner, death benefits must be paid as
provided in the contract upon the death of any annuitant, a change in any
annuitant, or the death of any individual contract owner, whichever occurs
earlier.
If the annuitant dies on or prior to the first month following his or
her 85th birthday, the minimum death benefit is as follows: during the first
contract year, the minimum death benefit is the greater of: (a) the contract
value on the date due proof of death and all required claim forms are received
at the Company's Annuity Service Office, or (b) the sum of all purchase payments
made, less any amount deducted in connection with partial withdrawals. During
any subsequent contract year, the minimum death benefit will be the greater of:
(a) the contract value on the date due proof of death and all required claim
forms are received at the Company's Annuity Service Office, or (b) the minimum
death benefit determined in accordance with these provisions as of the last day
of the previous contract year plus any purchase payments made and less any
amount deducted in connection with partial withdrawals since then.
Death benefits will be paid within seven days of receipt of due proof
of death and all required claim forms at the Company's Annuity Service Office,
subject to postponement under the same circumstances that payment of withdrawals
may be postponed. (See "WITHDRAWALS".)
18
<PAGE> 23
ANNUITY PROVISIONS
GENERAL
The proceeds of the contract payable on death, withdrawal or the
contract maturity date may be applied to the annuity options described below,
subject to the distribution of death benefits provisions. (See "DEATH BENEFIT
BEFORE MATURITY DATE".)
Generally, annuity benefits under the contract will begin on the
maturity date. The maturity date is the date specified on the contract
specifications page, unless changed. If no date is specified, the maturity date
is the maximum maturity date described below. The maximum maturity date is the
first day of the month following the 85th birthday of the annuitant. The
contract owner may specify a different maturity date at any time by written
request at least one month before both the previously specified and the new
maturity date. The new maturity date must be the first day of a month no later
than the first day of the month following the 85th birthday of the annuitant.
Distributions from qualified contracts may be required before the maturity date.
See "FEDERAL TAX MATTERS.""
The contract owner may select the frequency of annuity payments.
However, if the contract value at the maturity date is such that a monthly
payment would be less than $20, the Company may pay the contract value, less any
debt, in one lump sum to the annuitant on the maturity date.
ANNUITY OPTIONS
Annuity benefits are available under the contract on a fixed or
variable basis, or any combination of fixed and variable bases. Upon purchase of
the contract, and on or before the maturity date, the contract owner may select
one or more of the annuity options described below on a fixed and/or variable
basis (except Option 5 which is available on a fixed basis only) or choose an
alternate form of settlement acceptable to the Company. If an annuity option is
not selected, we will provide either variable or fixed, or a combination
variable and fixed, annuity payments in proportion to the Investment Account
Value of each Investment Option at the Maturity Date. Annuity payments will
continue for 10 years or the life of the Annuitant, if longer. Treasury
Department regulations may preclude the availability of certain annuity options
in connection with certain qualified contracts.
The following annuity options are guaranteed in the contract.
Option 1(a): Non-Refund Life Annuity - An annuity with payments during
the lifetime of the annuitant. No payments are due after the death of the
annuitant. Since there is no guarantee that any minimum number of payments will
be made, an annuitant may receive only one payment if the annuitant dies prior
to the date the second payment is due.
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years - An
annuity with payments guaranteed for 10 years and continuing thereafter during
the lifetime of the annuitant. Since payments are guaranteed for 10 years,
annuity payments will be made to the end of such period if the annuitant dies
prior to the end of the tenth year.
Option 2(a): Joint & Survivor Non-Refund Life Annuity - An annuity with
payments during the lifetimes of the annuitant and a designated co-annuitant. No
payments are due after the death of the last survivor of the annuitant and
co-annuitant. Since there is no guarantee that any minimum number of payments
will be made, an annuitant or co-annuitant may receive only one payment if the
annuitant and co-annuitant die prior to the date the second payment is due.
Option 2(b): Joint & Survivor Life Annuity with Payments Guaranteed for
10 Years - An annuity with payments guaranteed for 10 years and continuing
thereafter during the lifetimes of the annuitant and a designated co-annuitant.
Since payments are guaranteed for 10 years, annuity payments will be made to the
end of such period if both the annuitant and the co-annuitant die prior to the
end of the tenth year.
In addition to the foregoing annuity options which the Company is
contractually obligated to offer at all times, the Company currently offers the
following annuity options. The Company may cease offering the following annuity
options at any time and may offer other annuity options in the future.
Option 3: Life annuity with Payments Guaranteed for 5, 15 or 20 Years -
An Annuity with payments guaranteed for 5, 15 or 20 years and continuing
thereafter during the lifetime of the annuitant. Since payments are guaranteed
for the specific number of years, annuity payments will be made to the end of
the last year of the 5, 15 or 20 year period.
19
<PAGE> 24
Option 4: Joint & Two-Thirds Survivor Non-Refund Life Annuity - An
annuity with full payments during the joint lifetime of the annuitant and a
designated co-annuitant and two-thirds payments during the lifetime of the
survivor. Since there is no guarantee that any minimum number of payments will
be made, an annuitant or co-annuitant may receive only one payment if the
annuitant and co-annuitant die prior to the date the second payment is due.
Option 5: Period Certain Only Annuity for 5, 10, 15 or 20 years - An
annuity with payments for a 5, 10, 15 or 20 year period and no payments
thereafter.
DETERMINATION OF AMOUNT OF THE FIRST VARIABLE ANNUITY PAYMENT
The first variable annuity payment is determined by applying that
portion of the contract value used to purchase a variable annuity, measured as
of a date not more than ten business days prior to the maturity date (minus any
applicable premium taxes), to the annuity tables contained in the contract. The
rates contained in such tables depend upon the annuitant's age, sex and annuity
option selected, except for contracts issued in connection with certain employer
sponsored plans where sex-based tables may not be used. Under such tables, the
longer the life expectancy of the annuitant under any life annuity option or the
duration of any period for which payments are guaranteed under the option, the
smaller will be the amount of the first monthly variable annuity payment. The
tables are based on the 1983-a Individual Annuitant Mortality Table projected at
Scale G, and reflect an assumed interest rate of 4% per year.
ANNUITY UNITS AND THE DETERMINATION OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS
Variable annuity payments subsequent to the first will be based on the
investment performance of the sub-accounts selected. The amount of such
subsequent payments is determined by dividing the amount of the first annuity
payment from each sub-account by the annuity unit value of such sub-account (as
of the same date the contract value to effect the annuity was determined) to
establish the number of annuity units which will thereafter be used to determine
payments. This number of annuity units for each sub-account is then multiplied
by the appropriate annuity unit value as of a uniformly applied date not more
than ten business days before the annuity payment is due, and the resulting
amounts for each sub-account are then totaled to arrive at the amount of the
payment to be made. The number of annuity units remains constant during the
annuity payment period. A pro-rata portion of the administration fee will be
deducted from each annuity payment.
The value of an annuity unit for each sub-account for any valuation
period is determined by multiplying the annuity unit value for the immediately
preceding valuation period by the net investment factor for that sub-account
(see "NET INVESTMENT FACTOR") for the valuation period for which the annuity
unit value is being calculated and by a factor to neutralize the assumed
interest rate.
A 4% assumed interest rate is built into the annuity tables in the
contract used to determine the first variable annuity payment. A higher
assumption would mean a larger first annuity payment, but more slowly rising
subsequent payments when actual investment performance exceeds the assumed rate,
and more rapidly falling subsequent payments when actual investment performance
is less than the assumed rate. A lower assumption would have the opposite
effect. If the actual net investment performance is 4% annually, annuity
payments will be level.
TRANSFERS AFTER MATURITY DATE
Once variable annuity payments have begun, the contract owner may
transfer all or part of the investment upon which such payments are based from
one sub-account to another. Transfers will be made upon notice to the Company at
least 30 days before the due date of the first annuity payment to which the
change will apply. Transfers after the maturity date will be made by converting
the number of annuity units being transferred to the number of annuity units of
the sub-account to which the transfer is made, so that the next annuity payment
if it were made at that time would be the same amount that it would have been
without the transfer. Thereafter, annuity payments will reflect changes in the
value of the new annuity units. The Company reserves the right to limit, upon
notice, the maximum number of transfers a contract owner may make per contract
year to four. 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. In addition, in accordance with applicable law, the Company reserves
the right to modify or terminate the transfer privilege at any time. Once
annuity payments have commenced, no transfers may be made from a fixed annuity
option to a variable annuity option or from a variable annuity option to a fixed
annuity option.
20
<PAGE> 25
DEATH BENEFIT ON OR AFTER MATURITY DATE
If annuity payments have been selected based on an Annuity Option
providing for payments for a guaranteed period, and the Annuitant dies on or
after the Maturity Date, we will make the remaining guaranteed payments to the
Beneficiary. Any remaining payments will be made as rapidly as under the method
of distribution being used as of the date of the Annuitant's death. If no
Beneficiary is living, we will commute any unpaid guaranteed payments to a
single sum (on the basis of the interest rate used in determining the payments)
and pay that single sum to the estate of the last to die of the Annuitant and
the Beneficiary.
OTHER CONTRACT PROVISIONS
TEN DAY RIGHT TO REVIEW
The contract owner may cancel the contract by returning it to the
Company's Annuity Service Office or agent at any time within 10 days after
receipt of the contract. Within 7 days of receipt of the contract by the
Company, the Company will pay to the contract owner an amount equal to the
contract value computed at the end of the valuation period on the date of
surrender. When the contract is issued as an individual retirement annuity under
Internal Revenue Code Section 408, during the first 7 days of the 10 day period,
the Company will return all purchase payments if this is greater than the amount
otherwise payable.
No withdrawal charge is imposed upon return of the contract within the
ten day right to review period.
OWNERSHIP
The contract owner is the person entitled to exercise all rights under
the contract. Prior to the maturity date, the contract owner is the person
designated in the application or as subsequently named. On and after the
maturity date, the annuitant is the contract owner and after the death of the
annuitant, the beneficiary is the contract owner.
In the case of non-qualified contracts, ownership of the contract may
be changed or the contract collaterally assigned at any time during the lifetime
of the annuitant prior to the maturity date, subject to the rights of any
irrevocable beneficiary. Assigning a contract, or changing the ownership of a
contract, may be treated as a distribution of the contract value for Federal tax
purposes. (See "FEDERAL TAX MATTERS".) Any change of ownership or assignment
must be made in writing. Any change must be approved by the Company. Any
assignment and any change, if approved, will be effective as of the date on
which written. The Company assumes no liability for any payments made or actions
taken before a change is approved or assignment is accepted or responsibility
for the validity or sufficiency of any assignment.
In the case of qualified contracts, ownership of the contract generally
may not be transferred except by the trustee of an exempt employees' trust which
is part of a retirement plan qualified under Section 401 of the Internal Revenue
Code. Subject to the foregoing, a qualified contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than the Company.
BENEFICIARY
The beneficiary is the person, persons, or entity designated in the
application or as subsequently named. The beneficiary may be changed during the
lifetime of the annuitant subject to the rights of any irrevocable beneficiary.
Any change must be made in writing, approved by the Company and if approved,
will be effective as of the date on which written. The Company assumes no
liability for any payments made or actions taken before the change is approved.
Prior to the maturity date, if no beneficiary survives the annuitant, the
contract owner or the contract owner's estate will be the beneficiary. The
interest of any beneficiary is subject to that of any assignee. In the case of
certain qualified contracts, regulations promulgated by the Treasury Department
prescribe certain limitations on the designation of a beneficiary.
MODIFICATION
The contract may not be modified by the Company without the consent of
the contract owner, except as may be required to make it conform to any law or
regulation or ruling issued by a governmental agency or to improve the rights
and/or benefits under the contract.
21
<PAGE> 26
COMPANY APPROVAL
The Company reserves the right to accept or reject any contract
application at its sole discretion.
MISSTATEMENT AND PROOF OF AGE, SEX OR SURVIVAL
The Company may require proof of age, sex or survival of any person
upon whose age, sex or survival any payment depends. If the age or sex of the
annuitant has been misstated, the benefits will be those that would have been
provided for the annuitant's correct age and sex. If the Company has made
incorrect annuity payments, the amount of any underpayment will be paid
immediately and the amount of any overpayment will be deducted from future
annuity payments.
FIXED ACCOUNT INVESTMENT OPTIONS
Due to certain exemptive and exclusionary provisions, interests in the
fixed account investment options are not registered under the Securities Act of
1933 ("1933 Act") and the Company's general account is not registered as an
investment company under the Investment Company Act of 1940 ("1940 Act").
Accordingly, neither interests in the fixed account investment options nor the
general account are subject to the provisions or restrictions of the 1933 Act or
the 1940 Act and the staff of the Commission has not reviewed the disclosures in
this Prospectus relating thereto. Disclosures relating to interests in the fixed
account investment options and the general account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy of statements made in a registration statement.
Investment Options. There are three fixed account investment options
under the contract: one, three and six year investment accounts. Fixed
investment accounts provide for the accumulation of interest on purchase
payments at guaranteed rates for the duration of the one, three or six year
guarantee period. The guaranteed interest rates on new amounts allocated or
transferred to a fixed investment account are determined from time-to-time by
the Company in accordance with market conditions. In no event will the
guaranteed rate of interest be less than 4%. Once an interest rate is guaranteed
for a fixed investment account, it is guaranteed for the duration of the
guarantee period and may not be changed by the Company.
Investment Accounts. Contract owners may allocate purchase payments, or
make transfers from the variable investment options, to the fixed account
investment options at any time prior to the maturity date. The Company
establishes a separate investment account each time the contract owner allocates
or transfers amounts to a fixed account investment option, except that amounts
allocated or transferred to the same fixed account investment option on the same
day will establish a single investment account. Amounts may not be allocated to
a fixed account investment option that would extend the guarantee period beyond
the maturity date.
Renewals. At the end of a guarantee period, the contract owner may
establish a new investment account with the same guarantee period at the then
current interest rate, select a different fixed account investment option or
transfer the amounts to a variable account investment option, all without the
imposition of any charge. The contract owner may not select a guarantee period
that would extend beyond the maturity date. In the case of renewals within one
year of the maturity date, the only fixed account investment option available is
to have interest accrued up to the maturity date at the then current interest
rate for one year guarantee periods.
If the contract owner does not specify the renewal option desired, the
Company will select the same guarantee period as has just expired, so long as
such period does not extend beyond the maturity date. In the event a renewal
would extend beyond the maturity date, the Company will select the longest
period that will not extend beyond such date, except in the case of a renewal
within one year of the maturity date in which case the Company will credit
interest up to the maturity date at the then current interest rate for one year
guarantee periods.
Market Value Charge. Any amount withdrawn, transferred or borrowed from
a three or six year investment account prior to the end of the guarantee period
may be subject to a market value charge. A market value charge will be
calculated separately for each investment account affected by a transaction to
which a market value charge may apply. The market value charge for an investment
account will be calculated by multiplying the amount withdrawn or transferred
from the investment account by the adjustment factor described below.
The adjustment factor is determined by the following formula:
0.75x(B-A)xC/12 where:
A - The guaranteed interest rate on the investment account.
B - The guaranteed interest rate available, on the date the request is
processed, for amounts allocated to a new investment account with the same
length of guarantee period as the investment account from which the amounts are
being withdrawn.
22
<PAGE> 27
C - The number of complete months remaining to the end of the guarantee
period.
For purposes of applying this calculation, the maximum difference
between "B" and "A" will be 3%. The adjustment factor will never be greater than
2x(A-4%) and never less than zero.
The total market value charge will be the sum of the market value
charges for each investment account being withdrawn. Where the guaranteed rate
available on the date of the request is less than the rate guaranteed on the
investment account from which the amounts are being withdrawn (B-A in the
adjustment factor is negative), there is no market value charge. There is only a
market value charge when interest rates have increased (B-A in the adjustment
factor is positive).
There will be no market value charge on withdrawals from the fixed
account investment options in the following situations: (a) death of the
annuitant; (b) amounts withdrawn to pay fees or charges; (c) amounts withdrawn
from three and six year investment accounts within one month prior to the end of
the guarantee period; and (d) amounts withdrawn in any year that do not exceed
10% of total purchase payments less any prior partial withdrawals in that year.
Notwithstanding application of the foregoing formula, in no event will
the market value charge (i) exceed the earnings attributable to the amount
withdrawn from an investment account, (ii) together with any withdrawal charges
for an investment account be greater than 10% of the amount transferred or
withdrawn, or (iii) reduce the amount payable on withdrawal or transfer below
the amount required under the non-forfeiture laws of the state with jurisdiction
over the contract. The cumulative effect of the market value and withdrawal
charges (or the effect of the withdrawal charge itself) could, however, result
in a contract owner receiving total withdrawal proceeds of less than the
contract owner's investment in the contract.
Transfers. Prior to the maturity date, the contract owner may transfer
amounts among the fixed account investment options and from the fixed account
investment options to the variable account investment options, subject to the
following conditions. An amount in a fixed investment account may not be
transferred until held in such account for at least one year, except transfers
may be made pursuant to the Dollar Cost Averaging program. Consequently, except
as noted above, amounts in one year investment accounts effectively may not be
transferred prior to the end of the guarantee period. Amounts in three and six
year investment accounts may be transferred, after the one year holding period
has been satisfied, but the market value charge described above may apply to
such a transfer. The market value charge, if applicable, will be deducted from
the amount transferred.
The contract owner must specify the fixed account investment option
from or to which a transfer is to be made. Where there are multiple investment
accounts within a fixed account investment option, the contract owner may
designate the particular investment accounts from which a transfer is to be
taken. Absent such a designation, amounts will be withdrawn from the fixed
account investment options on a first-in-first-out basis.
Withdrawals. Prior to the earlier of the maturity date or the death of
the annuitant, the contract owner may make total and partial withdrawals of
amounts held in fixed account investment options. Withdrawals from fixed account
investment options will be made in the same manner and be subject to the same
limitations as set forth under "WITHDRAWALS", plus the following provisions also
apply to withdrawals from fixed account investment options: (1) the Company
reserves the right to defer payment of amounts withdrawn from fixed account
investment options for up to six months from the date it receives the written
withdrawal request (if a withdrawal is deferred for more than 10 days pursuant
to this right, the Company will pay interest on the amount deferred at a rate
not less than 4% per year); (2) if there are multiple investment accounts under
a fixed account investment option, amounts must be withdrawn from such accounts
on a first-in-first-out basis; and (3) the market value charge described above
may apply to withdrawals from the three and six year investment options. In the
event a market value charge applies to a withdrawal from a fixed investment
account, it will be calculated with respect to the full amount in the investment
account and deducted from the amount payable in the case of a total withdrawal.
In the case of a partial withdrawal, the market value charge will be calculated
on the amount requested and deducted, if applicable, from the remaining
investment account value.
Where a contract owner requests a partial withdrawal from a contract in
excess of the amounts in the variable account investment options and does not
specify the fixed account investment options from which the withdrawal is to be
made, such withdrawal will be made from the one, three and six year investment
options in that order. Within such sequence, where there are multiple investment
accounts within a fixed account investment option, withdrawals will be made on a
first-in-first-out basis.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances. (See "FEDERAL
TAX MATTERS".)
23
<PAGE> 28
Loans. The Company offers a loan privilege only to owners of contracts
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA. Owners of such contracts may obtain loans using the contract
as the only security for the loan. Owners of such contracts may borrow amounts
allocated to fixed investment accounts in the same manner and subject to the
same limitations as set forth under "LOANS". The market value charge described
above may apply to amounts transferred from three and six year investment
accounts to the loan account in connection with such loans and, if applicable,
will be deducted from the amount so transferred.
Fixed Annuity Options. Subject to the distribution of death benefits
provisions (see "DEATH BENEFIT BEFORE THE MATURITY DATE"), on death, withdrawal
or the maturity date of the contract, the proceeds may be applied to a fixed
annuity option. (See "ANNUITY OPTIONS".) The amount of each fixed annuity
payment is determined by applying the portion of the proceeds applied to
purchase the fixed annuity (less any applicable premium taxes), to the
appropriate table in the contract. If the table in use by the Company is more
favorable to the contract owner, the Company will substitute that table. The
Company guarantees the dollar amount of fixed annuity payments.
CHARGES AND DEDUCTIONS
Charges and deductions under the contracts are assessed against
contract values or annuity payments. Currently, there are no deductions made
from purchase payments. In addition, there are deductions from and expenses paid
out of the assets of the Trust portfolios that are described in the accompanying
Prospectus of the Trust.
Withdrawal Charges
If a withdrawal is made from the contract before the maturity date, a
withdrawal charge (contingent deferred sales charge) may be assessed against
amounts withdrawn attributable to purchase payments that have been in the
contract less than six complete contract years. There is never a withdrawal
charge with respect to earnings accumulated in the contract, certain other
amounts available without withdrawal charges described below or purchase
payments that have been in the contract more than six complete contract years.
In no event may the total withdrawal charges exceed 6% of the amount invested.
The amount of the withdrawal charge and when it is assessed is discussed below:
1. Each withdrawal from the contract is allocated first to the "amounts
available without withdrawal charges" and second to "unliquidated purchase
payments". In any contract year, the amounts available without withdrawal
charges for that year is the greater of (1) the excess of the contract value on
the date of withdrawal over the unliquidated purchase payments (the accumulated
earnings on the contract) or (2) 10% of total purchase payments less any prior
partial withdrawals in that year. Withdrawals allocated to the amounts available
without withdrawal charges may be withdrawn without the imposition of a
withdrawal charge.
2. If a withdrawal is made for an amount in excess of the amounts
available without withdrawal charges, the excess will be allocated to purchase
payments which will be liquidated on a first-in first-out basis. On any
withdrawal request, the Company will liquidate purchase payments equal to the
amount of the withdrawal request which exceeds the amounts available without
withdrawal charges in the order such purchase payments were made: the oldest
unliquidated purchase payment first, the next purchase payment second, etc...
until all purchase payments have been liquidated.
3. Each purchase payment or portion thereof liquidated in connection
with a withdrawal request is subject to a withdrawal charge based on the length
of time the purchase payment has been in the contract. The amount of the
withdrawal charge is calculated by multiplying the amount of the purchase
payment being liquidated by the applicable withdrawal charge percentage obtained
from the table below.
24
<PAGE> 29
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS WITHDRAWAL CHARGE
PURCHASE PAYMENT IN PERCENTAGE
CONTRACT
- --------------------------------------------------------------------------------
<C> <C>
0 6%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
</TABLE>
The total withdrawal charge will be the sum of the withdrawal charges
for the purchase payments being liquidated.
4. The withdrawal charge is deducted from the contract value remaining
after the contract owner is paid the amount requested, except in the case of a
complete withdrawal when it is deducted from the amount otherwise payable. In
the case of a partial withdrawal, the amount requested from an investment
account may not exceed the value of that investment account less any applicable
withdrawal charge.
5. There is no withdrawal charge on distributions made as a result of
the death of the annuitant or contract owner and no withdrawal charges are
imposed on the maturity date if the contract owner annuitizes as provided in the
contract.
The amount collected from the withdrawal charge will be used to
reimburse the Company for the compensation paid to cover selling concessions to
broker-dealers, preparation of sales literature and other expenses related to
sales activity.
For examples of calculation of the withdrawal charge, see Appendix A.
Withdrawals from the fixed account investment options may be subject to a market
value charge in addition to the withdrawal charge described above. (See "FIXED
ACCOUNT INVESTMENT OPTIONS".)
ADMINISTRATION FEES
Each year the Company will deduct an annual administration fee of $30
as partial compensation for the cost of providing all administrative services
attributable to the contracts and the operations of the Variable Account and the
Company in connection with the contracts. Prior to the maturity date, this
administration fee is deducted on the last day of each contract year. It is
withdrawn from each investment option in the same proportion that the value of
such investment option bears to the contract value. If the entire contract is
withdrawn on other than the last day of any contract year, the $30
administration fee will be deducted from the amount paid. During the annuity
period, the fee is deducted on a pro-rata basis from each annuity payment.
A daily charge in an amount equal to 0.15% of the value of each
variable investment account on an annual basis is also deducted from each
sub-account to reimburse the Company for administrative expenses. This asset
based administrative charge will not be deducted from the fixed account
investment options. The charge will be reflected in the contract value as a
proportionate reduction in the value of each variable investment account.
Because this portion of the administrative fee is a percentage of assets rather
than a flat amount, larger contracts will in effect pay a higher proportion of
this portion of the administrative expense than smaller contracts.
The Company does not expect to recover from such fees any amount in
excess of its accumulated administrative expenses. Even though administrative
expenses may increase, the Company guarantees that it will not increase the
amount of the administration fees. There is no necessary relationship between
the amount of the administrative charge imposed on a given contract and the
amount of the expense that may be attributed to that contract.
MORTALITY AND EXPENSE RISK CHARGE
The mortality risk assumed by the Company is the risk that annuitants
may live for a longer period of time than estimated. The Company assumes this
mortality risk by virtue of annuity rates incorporated into the contract which
cannot be changed. This assures each annuitant that his longevity will not have
an adverse effect on the amount of annuity payments. Also, the Company
guarantees that if the annuitant dies before the maturity date, it will pay a
minimum death benefit. (See "DEATH BENEFIT BEFORE MATURITY DATE".)
25
<PAGE> 30
The expense risk assumed by the Company is the risk that the administration
charges or withdrawal charge may be insufficient to cover actual expenses.
To compensate it for assuming these risks, the Company deducts from
each of the sub-accounts a daily charge in an amount equal to 1.25% of the value
of the variable investment accounts on an annual basis, consisting of .8% for
the mortality risk and .45% for the expense risk. The charge will be reflected
in the contract value as a proportionate reduction in the value of each variable
investment account. The rate of the mortality and expense risk charge cannot be
increased. If the charge is insufficient to cover the actual cost of the
mortality and expense risks undertaken, the Company will bear the loss.
Conversely, if the charge proves more than sufficient, the excess will be profit
to the Company and will be available for any proper corporate purpose including,
among other things, payment of distribution expenses. The mortality and expense
risk charge is not assessed against the fixed account investment options.
TAXES
The Company reserves the right to charge, or provide for, certain taxes
against purchase payments, contract values or annuity payments. Such taxes may
include premium taxes or other taxes levied by any government entity which the
Company determines to have resulted from the (i) establishment or maintenance of
the Variable Account, (ii) receipt by the Company of purchase payments, (iii)
issuance of the contracts, or (iv) commencement or continuance of annuity
payments under the contracts. The State of New York does not currently assess a
premium tax. In the event New York does impose a premium tax, the Company
reserves the right to pass-through such tax to contract owners. For a discussion
on premium taxes which may be applicable to non-New York residents, see "STATE
PREMIUM TAXES" in the Statement of Additional Information. The Company will
withhold taxes to the extent required by applicable law.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the
contract is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. A qualified tax adviser should always be consulted with
regard to the application of law to individual circumstances. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Department regulations, and interpretations existing on the date of this
Prospectus. These authorities, however, are subject to change by Congress, the
Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences
associated with the purchase of a contract. In addition, THE COMPANY MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under Subchapter L of
the Code. Since the operations of the Variable Account are a part of, and are
taxed with, the operations of the Company, the Variable Account is not
separately taxed as a "regulated investment company" under Subchapter M of the
Code. Under existing federal income tax laws, investment income and capital
gains of the Variable Account are not taxed to the extent they are applied to
increase reserves under a contract. Since, under the contracts, investment
income and realized capital gains of the Variable Account are automatically
applied to increase reserves, the Company does not anticipate that it will incur
any federal income tax liability attributable to the Variable Account, and
therefore the Company does not intend to make provision for any such taxes. If
the Company is taxed on investment income or capital gains of the Variable
Account, then the Company may impose a charge against the Variable Account in
order to make provision for such taxes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in the contract value is generally not taxable to the contract owner or
annuitant until received, either in the form of annuity payments, as
contemplated by the contract, or in some other form of distribution. However,
this rule applies only if (1) the owner is an individual, (2) the investments of
the Variable Account are "adequately
26
<PAGE> 31
diversified" in accordance with Treasury Department regulations, and (3) the
Company, rather than the owner, is considered the owner of the assets of the
Variable Account for federal tax purposes.
Non-Natural Owner. As a general rule, deferred annuity contracts held
by "non-natural persons" such as a corporation, trust or other similar entity,
as opposed to a natural person, are not treated as annuity contracts for federal
tax purposes. The investment income on such contracts is taxed as ordinary
income that is received or accrued by the owner of the contract during the
taxable year. There are several exceptions to this general rule for non-natural
contract owners. First, contracts will generally be treated as held by a natural
person if the nominal owner is a trust or other entity which holds the contract
as an agent for a natural person. However, this special exception will not apply
in the case of any employer who is the nominal owner of an annuity contract
under a non-qualified deferred compensation arrangement for its employees.
In addition, exceptions to the general rule for non-natural contract
owners will apply with respect to (1) contracts acquired by an estate of a
decedent by reason of the death of the decedent, (2) certain qualified
contracts, (3) contracts purchased by employers upon the termination of certain
qualified plans, (4) certain contracts used in connection with structured
settlement agreements, and (5) contracts purchased with a single premium when
the annuity starting date is no later than a year from purchase of the annuity
and substantially equal periodic payments are made, not less frequently than
annually, during the annuity period.
Diversification Requirements. For a contract to be treated as an
annuity for federal income tax purposes, the investments of the Variable Account
must be "adequately diversified" in accordance with Treasury Department
regulations. The Secretary of the Treasury has issued regulations which
prescribe standards for determining whether the investments of the Variable
Account are "adequately diversified." If the Variable Account failed to comply
with these diversification standards, a contract would not be treated as an
annuity contract for federal income tax purposes and the contract owner would be
taxable currently on the excess of the contract value over the premiums paid for
the contract.
Although the Company does not control the investments of the NASL
Series Trust, it expects that the Trust will comply with such regulations so
that the Variable Account will be considered "adequately diversified."
Ownership Treatment. In certain circumstances, variable annuity
contract owners may be considered the owners, for federal income tax purposes,
of the assets of the separate account used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includible in the contract owners' gross income. The Internal Revenue Service
(the "Service") has stated in published rulings that a variable contract owner
will be considered the owner of separate account assets if the owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. In addition, the Treasury Department
announced, in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a separate account
may cause the investor, rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that guidance
would be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular sub-accounts [of a
separate account] without being treated as owners of the underlying assets." As
of the date of this Prospectus, no such guidance has been issued.
The ownership rights under this contract are similar to, but different
in certain respects from, those described by the Service in rulings in which it
was determined that contract owners were not owners of separate account assets.
For example, the owner of this contract has the choice of more investment
options to which to allocate premiums and contract values, and may be able to
transfer among investment options more frequently than in such rulings. These
differences could result in the contract owner being treated as the owner of the
assets of the Variable Account. In addition, the Company does not know what
standards will be set forth in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves the
right to modify the contract as necessary to attempt to prevent the contract
owner from being considered the owner of the assets of the Variable Account.
The remainder of this discussion assumes that the contract will be
treated as an annuity contract for federal income tax purposes and that the
Company will be treated as the owner of the Variable Account assets.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal, amounts received are includible in
income to the extent the contract value before the withdrawal exceeds the
"investment in the contract." In the case of a full withdrawal, amounts received
are includible in income to the extent they exceed the "investment in the
contract." For these purposes the investment in the contract at any time equals
the total of the purchase payments made under the contract to that time (to the
extent such payments were neither deductible when made nor excludable from
income
27
<PAGE> 32
as, for example, in the case of certain contributions to qualified plans)
less any amounts previously received from the contract which were not
included in income.
Other than in the case of certain qualified contracts, any amount
received as a loan under a contract, and any assignment or pledge (or agreement
to assign or pledge) any portion of the contract value, is treated as a
withdrawal of such amount or portion. The investment in the contract is
increased by the amount includible as income with respect to such assignment or
pledge, though it is not affected by any other aspect of the assignment or
pledge (including its release). If an individual transfers an annuity contract
without adequate consideration to a person other than the owner's spouse (or to
a former spouse incident to divorce), the owner will be taxed on the difference
between the "contract value" and the "investment in the contract" at the time of
transfer. In such case, the transferee's investment in the contract will be
increased to reflect the increase in the transferor's income.
The contract provides a death benefit that in certain circumstances may
exceed the greater of the purchase payments and the contract value. As described
elsewhere in this prospectus, the Company imposes certain charges with respect
to the death benefit. It is possible that some portion of those charges could be
treated for federal tax purposes as a partial withdrawal from the contract.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. In the
case of variable annuity payments, the exclusion amount is the "investment in
the contract" (defined above) allocated to the variable annuity option, adjusted
for any period certain or refund feature, when payments begin to be made divided
by the number of payments expected to be made (determined by Treasury Department
regulations which take into account the annuitant's life expectancy and the form
of annuity benefit selected). In the case of fixed annuity payments, the
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract allocated to the fixed annuity
option, adjusted for any period certain or refund feature, to the total expected
value of annuity payments for the term of the contract (determined under
Treasury Department regulations).
Once the total amount of the investment in the contract is excluded
using these ratios, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant in his last taxable year.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a contract because of the death of an
owner or an annuitant. In the case of a non-qualified contract, such death
benefit proceeds are includible in income as follows: (1) if distributed in a
lump sum, they are taxed in the same manner as a full withdrawal, as described
above, or (2) if distributed under an annuity option, they are taxed in the same
manner as annuity payments, as described above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any payment from a
non-qualified contract unless the payment is: (a) received on or after the
contract owner reaches age 59 1/2; (b) attributable to the contract owner's
becoming disabled (as defined in the tax law); (c) made to a beneficiary on or
after the death of the contract owner or, if the contract owner is not an
individual, on or after the death of the primary annuitant (as defined in the
tax law); (d) made as a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life expectancy) of the
annuitant or the joint lives (or joint life expectancies) of the annuitant and
"designated beneficiary" (as defined in the tax law); (e) made under an annuity
contract purchased with a single premium when the annuity starting date is no
later than a year from purchase of the annuity and substantially equal periodic
payments are made, not less frequently than annually, during the annuity period;
and (f) made with respect to certain annuities issued in connection with
structured settlement agreements.
There is also a 10% penalty tax on the taxable amount of any payment
from certain qualified contracts (but not section 457 plans). There are
exceptions to this penalty tax which vary depending on the type of qualified
plan. In the case of an "Individual Retirement Annuity" ("IRA"), exceptions
provide that the penalty tax does not apply to a payment (a) received on or
after the contract owner reaches age 59 1/2, (b) received on or after the
owner's death or because of the owner's disability (as defined in the tax law),
or (c) made as a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the owner or the
joint lives (or joint life expectancies) of the owner and "designated
beneficiary" (as defined in the tax
28
<PAGE> 33
law). These exceptions, as well as certain others not described herein,
generally apply to taxable distributions from other qualified plans (although,
in the case of plans qualified under sections 401 and 403, exception "c" above
for substantially equal periodic payments applies only if the owner has
separated from service).
AGGREGATION OF CONTRACTS
In certain circumstances, the Service may determine the amount of an
annuity payment or a withdrawal from a contract that is includible in income by
combining some or all of the non-qualified contracts owned by an individual. For
example, if a person purchases a contract offered by this Prospectus and also
purchases at approximately the same time an immediate annuity, the Service may
treat the two contracts as one contract. In addition, if a person purchases two
or more deferred annuity contracts from the same insurance company (or its
affiliates) during any calendar year, all such contracts will be treated as one
contract. The effects of such aggregation are not clear; however, it could
affect the time when income is taxable and the amount which might be subject to
the 10% penalty tax described above.
QUALIFIED RETIREMENT PLANS
The contracts are also designed for use in connection with certain
types of retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the participants in such qualified plans and
to the contracts used in connection with such qualified plans. These tax rules
vary according to the type of plan and the terms and conditions of the plan
itself. For example, for both withdrawals and annuity payments under certain
qualified contracts, there may be no "investment in the contract" and the total
amount received may be taxable. In addition, loans from qualified contracts,
where allowed, are subject to a variety of limitations, including restrictions
as to the amount that may be borrowed, the duration of the loan, and the manner
in which the loans must be repaid. (Owners should always consult their tax
advisors and retirement plan fiduciaries prior to exercising their loan
privileges.) Also, special rules apply to the time at which distributions must
commence and the form in which the distributions must be paid. For example,
failure to comply with minimum distribution requirements applicable to qualified
plans will result in the imposition of an excise tax. This excise tax generally
equals 50% of the amount by which a minimum required distribution exceeds the
actual distribution from the qualified plan. In the case of IRA's and certain
other qualified plans, distributions of minimum amounts (as specified in the tax
law) must generally commence by April 1 of the calendar year following the
calendar year in which the owner attains age 70 1/2. For these reasons, no
attempt is made to provide more than general information about the use of
contracts with the various types of qualified plans.
When issued in connection with a qualified plan, a contract will be
amended as generally necessary to conform to the requirements of the type of
plan. However, contract owners, annuitants, and beneficiaries are cautioned that
the rights of any person to any benefits under qualified plans may be subject to
the terms and conditions of the plans themselves, regardless of the terms and
conditions of the contract. In addition, the Company shall not be bound by terms
and conditions of qualified plans to the extent such terms and conditions
contradict the contract, unless the Company consents.
QUALIFIED PLAN TYPES
Following are brief descriptions of various types of qualified plans in
connection with which the Company may issue a contract.
Individual Retirement Annuities. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." IRAs are subject to limits on the
amounts that may be contributed, the persons who may be eligible and on the time
when distributions may commence. Also, distributions from certain other types of
qualified retirement plans may be "rolled over" on a tax-deferred basis into an
IRA.
IRAs generally may not provide life insurance, but they may provide a
death benefit that equals the greater of the premiums paid and the contract's
cash value. The contract provides a death benefit that in certain circumstances
may exceed the greater of the purchase payments and the contract value. The
Company intends to ask the Service to approve the use of the contract, as to
form, as an IRA, but there is no assurance that such approval will be granted.
Simplified Employee Pensions (SEP-IRAs). Section 408(k) of the Code
allows employers to establish simplified employee pension plans for their
employees, using the employees' IRAs for such purposes, if certain criteria are
met. Under these plans the employer may, within specified limits, make
deductible contributions on behalf of the employees to IRAs. Employers intending
to use the contract in connection with such plans should seek competent advice.
In particular, employers should consider that IRAs generally may not provide
life insurance, but they may provide a death benefit that equals the greater of
the premiums paid and the contract's cash value. The contract provides a death
benefit that in certain circumstances may exceed the greater of the purchase
payments and the contract value. The
29
<PAGE> 34
Company intends to ask the Service to approve use of the contract, as
to form, as an IRA, but there is no assurance that such approval will be
granted.
Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and
Profit-Sharing Plans. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
contracts in order to provide benefits under the plans. The contract provides a
death benefit that in certain circumstances may exceed the greater of the
purchase payments and the contract value. It is possible that such death benefit
could be characterized as an incidental death benefit. There are limitations on
the amount of incidental benefits that may be provided under pension and profit
sharing plans. In addition, the provision of such benefits may result in
currently taxable income to participants. Employers intending to use the
contract in connection with such plans should seek competent advice.
Tax-Sheltered Annuities. Section 403(b) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. These annuity contracts are commonly referred to as "tax-sheltered
annuities." Purchasers of the contracts for such purposes should seek competent
advice as to eligibility, limitations on permissible amounts of purchase
payments and other tax consequences associated with the contracts. In
particular, purchasers should consider that the contract provides a death
benefit that in certain circumstances may exceed the greater of the purchase
payments and the contract value. It is possible that such death benefit could be
characterized as an incidental death benefit. If the death benefit were so
characterized, this could result in currently taxable income to purchasers. In
addition, there are limitations on the amount of incidental death benefits that
may be provided under a tax-sheltered annuity. Even if the death benefit under
the contract were characterized as an incidental death benefit, it is unlikely
to violate those limits unless the purchaser also purchases a life insurance
contract as part of his or her tax-sheltered annuity plan.
Withdrawals from a tax-sheltered annuity attributable to contributions
made pursuant to a salary reduction agreement in a taxable year beginning after
December 31, 1988, may be paid only if the employee has reached age 59 1/2,
separated from service, died, become disabled, or in the case of hardship.
Amounts permitted to be distributed in the event of hardship are limited to
actual contributions; earnings thereon may not be distributed on account of
hardship. (These limitations on withdrawals do not apply to the extent the
Company is directed to transfer some or all of the contract value to the issuer
of another tax-sheltered annuity or into a Section 403(b)(7) custodial account.)
DIRECT ROLLOVERS
If the contract is used in connection with a pension,
profit-sharing, or annuity plan qualified under sections 401(a) or 403(a) of the
Code, or is a tax-sheltered annuity under section 403(b) of the Code, any
"eligible rollover distribution" from the contract will be subject to the direct
rollover and mandatory withholding requirements enacted by Congress in 1992. An
eligible rollover distribution generally is any taxable distribution from a
qualified pension plan under section 401(a) of the Code, qualified annuity plan
under section 403(a) of the Code, or section 403(b) annuity or custodial
account, excluding certain amounts (such as minimum distributions required under
section 401(a)(9) of the Code and distributions which are part of a "series of
substantially equal periodic payments" made for life or a specified period of 10
years or more).
Under these requirements, federal income tax equal to 20% of the
eligible rollover distribution will be withheld from the amount of the
distribution. Unlike withholding on certain other amounts distributed from the
contract, discussed below, the owner cannot elect out of withholding with
respect to an eligible rollover distribution. However, this 20% withholding will
not apply if, instead of receiving the eligible rollover distribution, the owner
elects to have it directly transferred to certain qualified plans. Prior to
receiving an eligible rollover distribution, the owner will receive a notice
explaining generally the direct rollover and mandatory withholding requirements
and how to avoid the 20% withholding by electing a direct transfer.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the U.S. government a part of
the taxable portion of each distribution made under a contract unless the
distributee notifies the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances, the
Company may be required to withhold tax, as explained above. The withholding
rates applicable to the taxable portion of periodic annuity payments (other than
eligible rollover distributions) are the same as the withholding rates generally
30
<PAGE> 35
applicable to payments of wages. In addition, the withholding rate applicable to
the taxable portion of non-periodic payments (including withdrawals prior to the
maturity date) is 10%. As discussed above, the withholding rate applicable to
eligible rollover distributions is 20%.
GENERAL MATTERS
PERFORMANCE DATA
From time to time the Variable Account may publish advertisements
containing performance data relating to its sub-accounts. For periods prior
October 31, 1992, performance data will be hypothetical figures based on the
assumption that a contract offered by this Prospectus was issued when the
sub-accounts first became available for investment under other contracts offered
by an affiliate of the Company. The sub-accounts may advertise both
"standardized" and "non-standardized" total return figures, although
standardized figures will always accompany non-standardized figures.
Standardized performance data will consist of total return quotations, which
will always include quotations for recent one year and, when applicable, five
and ten year periods and, where less than ten years, for the period subsequent
to the date each sub-account first became available for investment. Such
quotations for such periods will be the average annual rates of return required
for an initial purchase payment of $1,000 to equal the actual contract value
attributable to such purchase payment on the last day of the period, after
reflection of all charges. Standardized total return figures will be quoted
assuming redemption at the end of the period. Such figures may be accompanied by
non-standardized total return figures that are calculated on the same basis as
the standardized returns except that the calculations (i) assume no redemption
at the end of the period and (ii) do not reflect imposition of the $30 per
contract charge inasmuch as the impact of such charge varies by contract size.
In addition to the non-standardized returns, each of the sub-accounts may from
time to time quote aggregate non-standardized total returns for other time
periods. Except as noted above, performance figures used by the Variable Account
are based on the actual historical performance of its sub-accounts for specified
periods, and the figures are not intended to indicate future performance. More
detailed information on the computations is set forth in the Statement of
Additional Information.
FINANCIAL STATEMENTS
Financial Statements for the Variable Account and for the Company are
contained in the Statement of Additional Information.
ASSET ALLOCATION AND TIMING SERVICES
The Company is aware that certain third parties may offer asset
allocation and timing services in connection with the contracts. In certain
cases the Company may agreed to honor transfer instructions from such asset
allocation and timing services where it has received powers of attorney, in a
form acceptable to it, from the contract owners participating in the service.
THE COMPANY DOES NOT ENDORSE, APPROVE OR RECOMMEND SUCH SERVICES IN ANY WAY AND
CONTRACT OWNERS SHOULD BE AWARE THAT FEES PAID FOR SUCH SERVICES ARE SEPARATE
AND IN ADDITION TO FEES PAID UNDER THE CONTRACTS.
DISTRIBUTION OF CONTRACTS
NASL Financial Services, Inc. ("NASL Financial"), 116 Huntington
Avenue, Boston, Massachusetts 02116, a wholly-owned subsidiary of North American
Security Life, the parent of the Company, is the principal underwriter of the
contracts in addition to providing advisory services to the Trust. NASL
Financial is a broker-dealer registered under the Securities Exchange Act of
1934 ("1934 Act") and a member of the National Association of Securities
Dealers, Inc. ("NASD"). NASL Financial has entered into a non-exclusive
promotional agent agreement with Wood Logan Associates, Inc. ("Wood Logan").
Wood Logan, a wholly owned subsidiary of a holding company that is 85% owned by
Manulife and approximately 15% owned by principals of Wood Logan, is a
broker-dealer registered under the 1934 Act and a member of the NASD. Sales of
the contracts will be made by registered representatives of broker-dealers
authorized by NASL Financial to sell the contracts. Such registered
representatives will also be licensed insurance agents of the Company. Under the
promotional agent agreement, Wood Logan will recruit and provide sales training
and licensing assistance to such registered representatives. In addition, Wood
Logan will prepare sales and promotional materials for the Company's approval.
NASL Financial will pay distribution compensation to selling brokers in varying
amounts which under normal circumstances are not expected to exceed 6.00% 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 the promotional agent for providing
marketing support for the distribution of the contracts.
31
<PAGE> 36
CONTRACT OWNER INQUIRIES
All contract owner inquiries should be directed to the Company's
Annuity Service Office at International Corporate Center at Rye, 555 Theodore
Fremd Avenue, Suite C-209, Rye, New York 10580.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to which the assets of the Variable Account are subject. Neither the Company
nor NASL Financial are involved in any litigation that is of material importance
in relation to their total assets or that relates to the Variable Account.
OTHER INFORMATION
A registration statement has been filed with the Commission under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940 with
respect to the variable portion of the contracts discussed in this Prospectus.
Not all the information set forth in the registration statement, amendments and
exhibits thereto has been included in this Prospectus. Statements contained in
this Prospectus or the Statement of Additional Information concerning the
content of the contracts and other legal instruments are only summaries. For a
complete statement of the terms of these documents, reference should be made to
the instruments filed with the Commission.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History.......................................... 3
Performance Data......................................................... 3
State Premium Taxes...................................................... 7
Services ................................................................ 7
Independent Accountants......................................... 8
Servicing Agent................................................. 8
Principal Underwriter........................................... 8
Cancellation of Contract........................................ 8
Appendix A: State Premium Taxes.......................................... 9
Financial Statements..................................................... 10
</TABLE>
32
<PAGE> 37
APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
Example 1 - Assume a single payment of $50,000 is made into the contract, no
transfers are made, no additional payments are made and there are no partial
withdrawals. The table below illustrates four examples of the withdrawal charges
that would be imposed if the contract is completely withdrawn, based on
hypothetical contract values.
<TABLE>
<CAPTION>
CONTRACT HYPOTHETICAL AMOUNT PURCHASE WITHDRAWAL
YEAR CONTRACT AVAILABLE WITHOUT PAYMENTS CHARGE
- ---- VALUE WITHDRAWAL CHARGES LIQUIDATED
----- ----------
PERCENT AMOUNT
------- ------
<S> <C> <C> <C> <C> <C>
1 55,000 5,000(a) 50,000 6% 3,000
3 50,500 5,000(b) 45,500 5% 2,275
5 60,000 10,000(c) 50,000 3% 1,500
7 70,000 20,000(d) 50,000 0% 0
</TABLE>
- ----------
(a) During any contract year the amount that may be withdrawn without
withdrawal charges is the greater of accumulated earnings, or 10% of the total
purchase payments made under the contract less any prior partial withdrawals in
that contract year. In the first contract year the earnings under the contract
and 10% of purchase payments both equal $5,000. Consequently, on total
withdrawal $5,000 is withdrawn without withdrawal charges, the entire $50,000
purchase payment is liquidated and the withdrawal charge is assessed against
such liquidated purchase payment (contract value less withdrawal amount without
charges).
(b) In the example for the third contract year, the accumulated earnings of
$500 is less than 10% of purchase payments, therefore the amount that may be
withdrawn without withdrawal charges is equal to 10% of purchase payments
($50,000 X 10% = $5,000) and the withdrawal charge is only applied to purchase
payments liquidated (contract value less withdrawal amount without charges).
(c) In the example for the fifth contract year, the accumulated earnings of
$10,000 is greater than 10% of purchase payments ($5,000), therefore the amount
that may be withdrawn without withdrawal charges is equal to the accumulated
earnings of $10,000 and the withdrawal charge is applied to the purchase
payments liquidated (contract value less withdrawal amount without charges).
(d) There is no withdrawal charge on any purchase payments liquidated that have
been in the contract for at least 6 years.
Example 2 - Assume a single payment of $50,000 is made into the contract,
no transfers are made, no additional payments are made and there are a series of
four partial withdrawals made during the third contract year of $2,000, $5,000,
$7,000, and $8,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL WITHDRAW WITHDRAWAL PURCHASE WITHDRAWAL
CONTRACT REQUESTED AMOUNT PAYMENTS CHARGE
VALUE WITHOUT CHARGES LIQUIDATED
PERCENT AMOUNT
<S> <C> <C> <C> <C> <C>
65,000 2,000 15,000(a) 0 5% 0
49,000 5,000 3,000(b) 2,000 5% 100
52,000 7,000 4,000(c) 3,000 5% 150
44,000 8,000 0(d) 8,000 5% 400
</TABLE>
- ----------
(a) The amount that can be withdrawn without withdrawal charges during any
contract year is the greater of the contract value less the unliquidated
purchase payments (accumulated earnings), or 10% of purchase payments less 100%
of all prior withdrawals in that contract year. For the first example,
accumulated earnings of $15,000 is the amount that can be withdrawn without
withdrawal charges since it is greater than 10% of purchase payments less prior
withdrawals ($5,000-0). The amount requested ($2,000) is less than the amount
that can be withdrawn without withdrawal charges so no purchase payments are
liquidated and no withdrawal charge applies.
33
<PAGE> 38
(b) The contract has negative accumulated earnings ($49,000-$50,000), so the
amount that can be withdrawn without withdrawal charges is limited to 10% of
purchase payments less all prior withdrawals. Since $2,000 has already been
withdrawn earlier in the current contract year, the remaining amount that can be
withdrawn without withdrawal charges during the third contract year is $3,000.
The $5,000 partial withdrawal will consist of $3,000 amount that can be
withdrawn without withdrawal charge, and the remaining $2,000 will be subject to
a withdrawal charge and result in purchase payments being liquidated. The
remaining unliquidated purchase payments are $48,000.
(c) The contract has increased in value to $52,000. The unliquidated purchase
payments are $48,000 so the accumulated earnings are $4,000, which is greater
than 10% of purchase payments less prior withdrawals ($5,000-$2,000-$5,000 less
than 0). Hence the amount that can be withdrawn without withdrawal charges is
$4,000. Therefore, $3,000 of the $7,000 partial withdrawal will be subject to a
withdrawal charge and result in purchase payments being liquidated. The
remaining unliquidated purchase payments are $45,000.
(d) The amount that can be withdrawn without withdrawal charges is zero since
the contract has negative accumulated earnings ($44,000-$45,000) and the full
10% of purchase payments ($5,000) has already been utilized. The full amount of
$8,000 will result in purchase payments being liquidated subject to a withdrawal
charge. At the beginning of the next contract year the full 10% of purchase
payments would be available again for withdrawal requests during that year.
34
<PAGE> 39
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 40
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
FNAL VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
of
First North American Life
Assurance Company
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
This Statement of Additional Information is not a Prospectus. It
contains information in addition to that described in the Prospectus
and should be read in conjunction with the Prospectus dated the same
date as this Statement of Additional Information. The Prospectus may be
obtained by writing First North American Life Assurance Company ("First
North American") at the Annuity Service Office, International Corporate
Center at Rye, 555 Theodore Fremd Avenue, Rye, New York 10580 or by
telephoning (914) 921-1020.
The date of this Statement of Additional Information is May 1, 1996.
- --------------------------------------------------------------------------------
V9SAI596
1
<PAGE> 41
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General Information and History 3
Performance Data 3
State Premium Taxes 7
Services 7
Independent Accountants 8
Servicing Agent 8
Principal Underwriter 8
Cancellation of Contract 8
Appendix A - State Premium Taxes 9
Financial Statements 10
</TABLE>
2
<PAGE> 42
GENERAL INFORMATION AND HISTORY
The FNAL Variable Account ("Variable Account") is a separate investment
account of First North American Life Assurance Company ("First North American"),
a stock life insurance company organized under the laws of New York in 1992.
First North American is a wholly-owned subsidiary of North American Security
Life Insurance Company ("Security Life"), a stock life insurance company
established in 1979 in Delaware. The ultimate parent of Security Life is The
Manufacturers Life Insurance Company ("Manulife"), a Canadian mutual life
insurance company based in Toronto, Canada. Prior to January 1, 1996, Security
Life was a wholly owned subsidiary of North American Life Assurance Company
("NAL"), a Canadian mutual life insurance company. On January 1, 1996, NAL and
Manulife merged with the combined company retaining the name Manulife.
PERFORMANCE DATA
Each of the sub-accounts may in its advertising and sales materials
quote total return figures. For periods prior to October 31, 1992, performance
data will be hypothetical figures based on the assumption that a contract
offered by the Prospectus was issued when the sub-accounts first became
available for investment under other contracts offered by the Company. The
sub-accounts may advertise both "standardized" and "non-standardized" total
return figures, although standardized figures will always accompany
non-standardized figures. Such figures will always include the average annual
total return for recent one year and, when applicable, five and ten year periods
and the period since the sub-account became available to contract owners. Where
the period since inception is less than one year, the total return quoted will
be the aggregate return for the period. The average annual total return is the
average annual compounded rate of return that equates a purchase payment to the
market value of such purchase payment on the last day of the period for which
such return is calculated. The aggregate total return is the percentage change
(not annualized) that equates a purchase payment to the market value of such
purchase payment on the last day of the period for which such return is
calculated. For purposes of the calculations it is assumed that an initial
payment of $1,000 is made on the first day of the period for which the return is
calculated. In calculating standardized return figures, all recurring charges
are reflected, the asset charges are reflected in changes in unit values and the
$30 administration fee is deducted as a dollar amount based on the $35,000
approximate average contract size during 1995. "Recurring charges" is defined as
all asset charges (mortality and expense risk fees and administration fees) and
the $30 administrative fee. Standardized total return figures will be quoted
assuming redemption at the end of the period. Such figures may be accompanied by
non-standardized total return figures that are calculated on the same basis as
the standardized returns except that the calculations (i) assume no redemption
at the end of the period and (ii) do not reflect imposition of the $30 per
contract charge inasmuch as the impact of such charge varies by contract size.
First North American believes such non-standardized figures are useful to
contract owners who wish to assess the performance of an ongoing contract of the
size that is meaningful to the individual contract owner. In addition, each of
the sub-accounts may from time to time quote aggregate non-standardized total
returns calculated in the same manner as set forth above for other time periods.
3
<PAGE> 43
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
==============================================================================================================
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION OR INCEPTION DATE
10 YEARS, WHICHEVER
SHORTER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Equity 0.32% 8.22% 6.48% 3/18/88
- --------------------------------------------------------------------------------------------------------------
Pasadena Growth 18.68% N/A 1.90% 12/13/92
- --------------------------------------------------------------------------------------------------------------
Equity 34.71% 13.98% *12.09% 6/18/85
- --------------------------------------------------------------------------------------------------------------
Value Equity 15.88% N/A 9.64% 2/19/93
- --------------------------------------------------------------------------------------------------------------
Growth and Income 21.31% N/A 10.97% 4/23/91
- --------------------------------------------------------------------------------------------------------------
International Growth **-.028% N/A N/A 1/09/95
and Income
- --------------------------------------------------------------------------------------------------------------
Strategic Bond 11.47% N/A 3.99% 2/19/93
- --------------------------------------------------------------------------------------------------------------
Global Government Bond 15.37% 8.31% 7.53% 3/18/88
- --------------------------------------------------------------------------------------------------------------
Investment Quality 11.73% N/A 7.36% 4/23/91
BOND***
- --------------------------------------------------------------------------------------------------------------
U.S. Government 7.87% 6.21% 6.95% 5/01/89
Securities****
- --------------------------------------------------------------------------------------------------------------
Money Market -1.58% 2.15% *4.06% 6/18/85
- --------------------------------------------------------------------------------------------------------------
Aggressive Asset 14.97% 10.30% 6.72% 8/03/89
Allocation
- --------------------------------------------------------------------------------------------------------------
Moderate Asset 12.91% 9.36% 6.33% 8/03/89
Allocation
- --------------------------------------------------------------------------------------------------------------
Conservative Asset 10.34% 7.96% 5.73% 8/03/89
Allocation
==============================================================================================================
</TABLE>
* 10 Year Return
** Aggregate total return from January 9, 1995 through December 31, 1995.
*** Because the Investment Quality Bond Trust changed its subadviser and
investment objective effective April 23, 1991, the Company has elected
to quote performance for the Investment Quality Bond Sub-account only
since the date of change in order to quote returns representative of
its current objective and produced by its current portfolio manager.
Per share information concerning the period prior to the change appears
in the Trust's Prospectus. Average annual total rates of return for the
one, five and ten year periods for the sub-account are available upon
request.
4
<PAGE> 44
**** The U.S. Government Securities Sub-account commenced operations on
March 18, 1988 by investing in shares of the Convertible Securities
Trust. That Trust changed its investment objective and its investment
Subadviser effective May 1, 1989, pursuant to a vote of its
shareholders. In view of the change in investment objective and
portfolio manager, the U.S. Government Securities Sub-account has
elected to quote performance only since the date of the change in order
to quote returns representative of its current objective and produced
by its current portfolio manager. Per share information concerning the
period prior to the change appears in the Trust's Prospectus. Average
annual total rates of return for the one, five and ten year periods for
the sub-account are available upon request.
5
<PAGE> 45
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
==============================================================================================================
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION OR INCEPTION DATE
10 YEARS, WHICHEVER
SHORTER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Equity 6.18% 8.74% 6.56% 3/18/88
- --------------------------------------------------------------------------------------------------------------
Pasadena Growth 24.78% N/A 3.25% 12/13/92
- --------------------------------------------------------------------------------------------------------------
Equity 40.81% 14.42% *12.15% 6/18/85
- --------------------------------------------------------------------------------------------------------------
Value Equity 21.98% N/A 11.19% 2/19/93
- --------------------------------------------------------------------------------------------------------------
Growth and Income 27.41% N/A 11.49% 4/23/91
- --------------------------------------------------------------------------------------------------------------
International Growth N/A N/A 1/09/95
and Income **5.54%
- --------------------------------------------------------------------------------------------------------------
Strategic Bond 17.57% N/A 5.69% 2/19/93
- --------------------------------------------------------------------------------------------------------------
Global Government Bond 21.47% 8.83% 7.62% 3/18/88
- --------------------------------------------------------------------------------------------------------------
Investment Quality 17.83% N/A 7.94% 4/23/91
BOND***
- --------------------------------------------------------------------------------------------------------------
U.S. Government 13.97% 6.76% 7.03% 5/01/89
Securities****
- --------------------------------------------------------------------------------------------------------------
Money Market 4.17% 2.79% *4.15% 6/18/85
- --------------------------------------------------------------------------------------------------------------
Aggressive Asset 21.07% 10.79% 6.82% 8/03/89
Allocation
- --------------------------------------------------------------------------------------------------------------
Moderate Asset 19.01% 9.85% 6.43% 8/03/89
Allocation
- --------------------------------------------------------------------------------------------------------------
Conservative Asset 16.44% 8.48% 5.83% 8/03/89
Allocation
==============================================================================================================
</TABLE>
* 10 Year Return
** Aggregate total return from January 9, 1995 through December 31, 1995.
*** Because the Investment Quality Bond Trust changed its subadviser and
investment objective effective April 23, 1991, the Company has elected
to quote performance for the Investment Quality Bond Sub-account only
since the date of change in order to quote returns representative of
its current objective and produced by its current portfolio manager.
Per share information concerning the period prior to the change appears
in the Trust's Prospectus. Average annual total rates of return for the
one, five and ten year periods for the sub-account are available upon
request.
6
<PAGE> 46
**** The U.S. Government Securities Sub-account commenced operations on
March 18, 1988 by investing in shares of the Convertible Securities
Trust. That Trust changed its investment objective and its investment
Subadviser effective May 1, 1989, pursuant to a vote of its
shareholders. In view of the change in investment objective and
portfolio manager, the U.S. Government Securities Sub-account has
elected to quote performance only since the date of the change in order
to quote returns representative of its current objective and produced
by its current portfolio manager. Per share information concerning the
period prior to the change appears in the Trust's Prospectus. Average
annual total rates of return for the one, five and ten year periods for
the sub-account are available upon request.
In addition to the non-standardized returns quoted above, each of the
sub-accounts may from time to time quote aggregate non-standardized total
returns calculated in the same manner as set forth above for other time periods.
From time to time the Trust may include in its advertising and sales literature
general discussions of economic theories, including but not limited to,
discussions on how demographic and political trends can affect the financial
markets. Further, the Trust may also include in its advertising and sales
literature specific information on each of the Trust's subadvisers, including
but not limited to, research capabilities of a subadviser, assets under
management, information relating to other clients of a subadviser, and other
generalized information.
STATE PREMIUM TAXES
New York does not currently assess a premium tax. In the event New York
does impose a premium tax, the Company reserves the right to pass-through such
tax to contract owners. For residents of all other states, except for residents
in Pennsylvania and South Dakota, premium taxes will be deducted from the
contract value used to provide for fixed or variable annuity payments unless
required otherwise by applicable law. The amount deducted will depend on the
premium tax assessed in the applicable state. State premium taxes currently
range from 0% to 3.5% depending on the jurisdiction and the tax status of the
contract and are subject to change by the legislature or other authority. (See
"APPENDIX A: STATE PREMIUM TAXES") FOR RESIDENTS OF SOUTH DAKOTA OR
PENNSYLVANIA, THE FOLLOWING PREMIUM TAX ASSESSMENT WILL APPLY: A premium tax
will be assessed against all non-qualified purchase payments received from
contract owners who are residents of South Dakota. The rate of tax is 1.25% for
South Dakota residents. Purchase payments received for the period October 1,
1992 through September 7, 1995 for non-qualified contracts of Pennsylvania
residents will be assessed a 2.00% premium tax; purchase payments received on or
after September 8, 1995 will not be assessed a premium tax. For purchase
payments received on or after October 1, 1992, the state premium tax will be
collected upon payment of any withdrawal benefits, upon any annuitization or
payment of death benefits. For purchase payments received prior to October 1,
1992 the premium tax will be deducted upon annuitization only. In the states of
Pennsylvania and South Dakota, purchase payments received in connection with the
funding of a qualified plan are exempt from state premium tax.
SERVICES
INDEPENDENT ACCOUNTANTS
The financial statements of First North American included in this
Statement of Additional Information have been examined by Coopers & Lybrand,
L.L.P., certified public accountants, as indicated in their report in this
Statement of Additional Information, and are included herein in reliance upon
such report and upon the authority of such accountants as experts in accounting
and auditing.
7
<PAGE> 47
The financial statements of First North American which are included in
the Statement of Additional Information should be considered only as bearing on
the ability of First North American to meet its obligations under the contracts.
They should not be considered as bearing on the investment performance of the
assets held in the Variable Account.
SERVICING AGENT
Vantage Computer Systems, Inc. ("Vantage") provides to First North
American a computerized data processing recordkeeping system for variable
annuity administration. Vantage provides various daily, semimonthly, monthly,
semiannual and annual reports including: daily updates on accumulation unit
values, variable annuity participants and transactions, and agent production and
commissions; semimonthly commission statements; monthly summaries of agent
production and daily transaction reports; semiannual statements for contract
owners; and annual contract owner tax reports. Vantage receives approximately $7
per policy per year, plus certain other fees paid by First North American for
the services provided.
PRINCIPAL UNDERWRITER
NASL Financial Services, Inc., a wholly-owned subsidiary of Security Life,
serves as principal underwriter of the contracts. Contracts are offered on a
continuous basis. The aggregate dollar amount of underwriting commissions paid
to NASL Financial Services, Inc. was $5,659,896 in 1995, $6,512,457 in 1994 and
$4,400,060 in 1993. The amount retained by NASL Financial Services, Inc. during
1995, 1994 and 1993 was $0, $0 and $0, respectively.
CANCELLATION OF CONTRACT
The Company may, at its option, cancel a contract at the end of any
three consecutive contract years in which no purchase payments by or on behalf
of the contract owner have been made, if both (i) the total purchase payments
made for the contract, less any withdrawals, are less than $2,000; and (ii) the
contract value at the end of such three year period is less than $2,000. The
Company, as a matter of administrative practice, will attempt to notify a
contract owner prior to such cancellation in order to allow the contract owner
to make the necessary purchase payment to keep the contract in force.
8
<PAGE> 48
APPENDIX A
STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In
many jurisdictions there is no tax at all. For current information, a tax
adviser should be consulted.
<TABLE>
<CAPTION>
TAX RATE
--------
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
- --------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA .50% 2.35%
DISTRICT OF COLUMBIA 2.25% 2.25%
KANSAS .00 2.00%
KENTUCKY 2.00% 2.00%
MAINE .00 2.00%
MICHIGAN .00075% .00075%
NEVADA .00 3.50%
PUERTO RICO 1.00% 1.00%
SOUTH DAKOTA .00 1.25%
TEXAS .04% .04%
WEST VIRGINIA 1.00% 1.00%
WYOMING .00 1.00%
</TABLE>
9
<PAGE> 49
FINANCIAL STATEMENTS
10
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
FNAL Variable Account:
We have audited the accompanying statement of assets and liabilities of the
sub-accounts comprising FNAL Variable Account (consisting of the Equity,
Investment Quality Bond, Growth and Income, Pasadena Growth, Money Market,
Global Equity, Global Government Bond, U.S. Government Securities, Conservative
Asset Allocation, Moderate Asset Allocation, Aggressive Asset Allocation, Value
Equity, Strategic Bond and International Growth and Income sub-accounts) of
First North American Life Assurance Company as of December 31, 1995 and the
related statements of operations and changes in net assets of the Equity,
Investment Quality Bond, Growth and Income, Pasadena Growth, Money Market,
Global Equity, Global Government Bond, U.S. Government Securities, Conservative
Asset Allocation, Moderate Asset Allocation, Aggressive Asset Allocation, Value
Equity and Strategic Bond sub-accounts for the two years then ended and the
related statement of operations and changes in net assets of the International
Growth and Income sub-account for the period January 9, 1995 (date of
commencement of operations) to December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the aforementioned sub-accounts
comprising FNAL Variable Account of First North American Life Assurance Company
as of December 31, 1995, and the results of their operations and the changes in
their net assets for the two years then ended or the period indicated, in
conformity with generally accepted accounting principles.
Boston, Massachusetts
February 23, 1996
Coopers & Lybrand L.L.P.
<PAGE> 51
FNAL VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments at market value:
Sub-accounts:
Equity Portfolio - 1,682,769 Shares (Cost $27,734,089) $ 34,984,777
Investment Quality Bond Portfolio - 414,748 Shares (Cost $4,824,859) 5,109,691
Growth and Income Portfolio - 1,732,983 Shares (Cost $23,487,661) 28,368,937
Pasadena Growth Portfolio - 1,275,461 Shares (Cost $12,302,956) 14,540,255
Money Market Portfolio - 907,986 Shares (Cost $9,079,860) 9,079,860
Global Equity Portfolio - 1,716,551 Shares (Cost $27,284,829) 27,636,467
Global Government Bond Portfolio - 510,025 Shares (Cost $6,822,550) 7,425,966
U.S. Government Securities Portfolio - 821,091 Shares (Cost $10,658,949) 11,207,898
Conservative Asset Allocation Portfolio - 379,199 Shares (Cost $4,124,488) 4,394,921
Moderate Asset Allocation Portfolio - 1,275,062 Shares (Cost $14,429,427) 15,798,022
Aggressive Asset Allocation Portfolio - 540,990 Shares (Cost $6,261,759) 6,951,722
Value Equity Portfolio - 2,649,554 Shares (Cost $30,636,428) 36,590,339
Strategic Bond Portfolio - 914,107 Shares (Cost $9,548,892) 10,292,840
International Growth and Income Portfolio - 422,728 Shares (Cost $4,316,495) 4,425,960
------------
Total assets ............................................................. $216,807,655
============
LIABILITIES
0
------------
Total liabilities ........................................................ 0
NET ASSETS
Variable annuity contracts ..................................................... $216,807,655
------------
Total net assets ........................................................ $216,807,655
============
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE> 52
FNAL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Sub-Account
-----------------------------------------------------------------------------------------
Investment
Equity Quality Bond Growth and Income
--------------------------- ------------------------- ---------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
--------------------------- ------------------------- ---------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends .......................... $ 135,620 $ 677,200 $ 271,523 $ 190,700 $ 533,062 $ 353,600
Expenses:
Mortality & expense risk and
administrative charges ........... 360,127 201,506 64,712 62,828 308,504 196,334
----------- ----------- ---------- ---------- ----------- -----------
Net investment income (loss) ......... (224,507) 475,694 206,811 127,872 224,558 157,266
Net realized gain (loss) ............. 611,935 34,201 (32,802) (50,739) 375,818 50,516
Unrealized appreciation (depreciation)
during the period ................ 7,719,374 (822,257) 580,422 (332,611) 4,617,755 (61,321)
----------- ----------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
from operations .................. 8,106,802 (312,362) 754,431 (255,478) 5,218,131 146,461
----------- ----------- ---------- ---------- ----------- -----------
Changes from principal transactions:
Purchase payments .................. 7,577,645 9,440,647 762,664 2,418,934 5,737,087 7,017,772
Transfers between sub-accounts
and the Company .................. 2,720,711 1,229,741 (292,980) (739,193) 1,784,338 980,713
Withdrawals ........................ (1,329,819) (453,243) (515,888) (183,568) (1,330,546) (880,326)
Annual contract fee ................ (19,351) (7,944) (2,721) (1,764) (14,571) (8,020)
----------- ----------- ---------- ---------- ----------- -----------
Net increase in net assets
from principal transactions ...... 8,949,186 10,209,201 (48,925) 1,494,409 6,176,308 7,110,139
---------- ----------- -----------
Total increase in net assets ......... 17,055,987 9,896,839 705,506 1,238,931 11,394,439 7,256,600
Net assets at beginning of period .... 17,928,790 8,031,951 4,404,185 3,165,254 16,974,498 9,717,898
----------- ----------- ---------- ---------- ----------- -----------
Net assets at end of period .......... $34,984,777 $17,928,790 $5,109,691 $4,404,185 $28,368,937 $16,974,498
=========== =========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 53
FNAL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
Sub-Account
----------------------------------------------------------------------------------------
Pasadena Growth Money Market Global Equity
-------------------------- ------------------------- ---------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
-------------------------- ------------------------- ---------------------------
1995 1994 1995 1994 1995 1994
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends .......................... $ 46,242 $ 28,800 $ 387,185 $ 166,100 $ 1,198,967 $ 267,900
Expenses:
Mortality & expense risk and
administrative charges ........... 168,576 104,214 98,890 56,423 352,382 265,221
----------- ---------- ---------- ---------- ----------- -----------
Net investment income (loss) ......... (122,334) (75,414) 288,295 109,677 846,585 2,679
Net realized gain (loss) ............. 193,338 (53,128) 0 0 308,274 104,626
Unrealized appreciation (depreciation)
during the period ................ 2,439,497 (315,931) 0 0 366,727 (712,948)
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
from operations .................. 2,510,501 (444,473) 288,295 109,677 1,521,586 (605,643)
----------- ---------- ---------- ---------- ----------- -----------
Changes from principal transactions:
Purchase payments .................. 2,709,401 3,461,108 8,603,980 7,906,712 3,342,385 12,712,386
Transfers between sub-accounts
and the Company .................. 551,425 829,084 (4,856,654) (3,202,485) (973,974) 2,534,277
Withdrawals ........................ (494,371) (264,292) (1,283,008) (367,864) (1,233,219) (466,897)
Annual contract fee ................ (8,322) (5,124) (3,779) (1,006) (20,706) (10,737)
----------- ---------- ---------- ---------- ----------- -----------
Net increase in net assets
from principal transactions ...... 2,758,133 4,020,776 2,460,539 4,335,357 1,114,486 14,769,030
-------------------------- ------------------------- ---------------------------
Total increase in net assets ......... 5,268,634 3,576,303 2,748,834 4,445,034 2,636,072 14,163,387
Net assets at beginning of period .... 9,271,621 5,695,318 6,331,026 1,885,992 25,000,395 10,837,008
----------- ---------- ---------- ---------- ----------- -----------
Net assets at end of period .......... $14,540,255 $9,271,621 $9,079,860 $6,331,026 $27,636,467 $25,000,395
=========== ========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 54
FNAL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
Sub-Account
----------------------------------------------------------------------------------------
Global U.S. Conservative
Government Bond Government Securities Asset Allocation
-------------------------- ------------------------- ---------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
-------------------------- ------------------------- ---------------------------
1995 1994 1995 1994 1995 1994
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends .......................... $ 346,915 $ 324,400 $ 610,608 $ 435,300 $ 164,851 $ 187,600
Expenses:
Mortality & expense risk and
administrative charges ........... 95,533 99,930 144,558 130,709 50,603 44,647
----------- ---------- ---------- ---------- ----------- -----------
Net investment income (loss) ......... 251,382 224,470 466,050 304,591 114,248 142,953
Net realized gain (loss) ............. (44,507) (27,598) (53,021) (90,353) (27,098) (22,950)
Unrealized appreciation (depreciation)
during the period ................ 1,122,323 (688,200) 900,528 (451,615) 455,530 (217,982)
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
from operations .................. 1,329,198 (491,328) 1,313,557 (237,377) 542,680 (97,979)
----------- ---------- ---------- ---------- ----------- -----------
Changes from principal transactions:
Purchase payments .................. 466,946 3,286,111 3,265,176 4,924,361 852,626 1,741,345
Transfers between sub-accounts
and the Company .................. (587,274) (135,785) (1,111,092) (3,007,796) (113,763) (455,736)
Withdrawals ........................ (564,978) (580,554) (1,461,968) (379,639) (175,896) (137,292)
Annual contract fee ................ (4,646) (2,771) (5,560) (3,851) (3,091) (1,877)
----------- ---------- ---------- ---------- ----------- -----------
Net increase in net assets
from principal transactions ...... (689,952) 2,567,001 686,556 1,533,076 559,876 1,146,441
-------------------------- ------------------------- ---------------------------
Total increase in net assets ......... 639,246 2,075,673 2,000,113 1,295,699 1,102,556 1,048,462
Net assets at beginning of period .... 6,786,720 4,711,047 9,207,785 7,912,086 3,292,365 2,243,903
----------- ---------- ---------- ---------- ----------- -----------
Net assets at end of period .......... $ 7,425,966 $6,786,720 $11,207,898 $9,207,785 $ 4,394,921 $ 3,292,365
=========== ========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 55
FNAL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
Sub-Account
----------------------------------------------------------------------------------------
Moderate Aggressive Value
Asset Allocation Asset Allocation Equity
-------------------------- ------------------------- ---------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
-------------------------- ------------------------- ---------------------------
1995 1994 1995 1994 1995 1994
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends .......................... $ 633,934 $ 621,700 $ 327,033 $ 219,900 $ 391,036 $ 97,500
Expenses:
Mortality & expense risk and
administrative charges ........... 194,902 149,932 81,752 57,805 424,953 256,550
----------- ---------- ---------- ---------- ----------- -----------
Net investment income (loss) ......... 439,032 471,768 245,281 162,095 (33,917) (159,050)
Net realized gain (loss) ............. 18,054 (28,447) 12,887 7,632 270,632 46,867
Unrealized appreciation (depreciation)
during the period ................ 1,958,863 (753,842) 859,164 (255,266) 5,443,860 (218,163)
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
from operations .................. 2,415,949 (310,521) 1,117,332 (85,539) 5,680,575 (330,346)
----------- ---------- ---------- ---------- ----------- -----------
Changes from principal transactions:
Purchase payments .................. 2,265,994 5,713,775 1,235,589 2,115,066 7,132,960 11,229,558
Transfers between sub-accounts
and the Company .................. (175,790) 905,083 152,297 117,741 1,508,346 1,319,962
Withdrawals ........................ (1,021,778) (708,431) (446,461) (35,652) (1,559,771) (514,780)
Annual contract fee ................ (9,835) (5,527) (4,748) (2,597) (20,487) (9,507)
----------- ---------- ---------- ---------- ----------- -----------
Net increase in net assets
from principal transactions ...... 1,058,591 5,904,901 936,677 2,194,558 7,061,048 12,025,233
---------- ----------- -----------
Total increase in net assets ......... 3,474,540 5,594,380 2,054,009 2,109,019 12,741,623 11,694,887
Net assets at beginning of period .... 12,323,482 6,729,102 4,897,713 2,788,694 23,848,716 12,153,829
----------- ---------- ---------- ---------- ----------- -----------
Net assets at end of period .......... $15,798,022 $12,323,482 $6,951,722 $4,897,713 $36,590,339 $23,848,716
=========== ========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE> 56
FNAL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
Sub-Account
-----------------------------------------------------
Strategic International
Bond Growth and Income
------------------------------ -----------------
Year Ended December 31, January 9, 1995
------------------------------
thru
1995 1994 December 31, 1995
------------ ----------- -----------------
<S> <C> <C> <C>
Income:
Dividends .......................... $ 334,831 $ 177,900 $ 94,190
Expenses:
Mortality & expense risk and
administrative charges ........... 115,643 91,321 26,781
------------ ----------- -----------
Net investment income (loss) ......... 219,188 86,579 67,409
Net realized gain (loss) ............. (4,259) 8,087 8,241
Unrealized appreciation (depreciation)
during the period ................ 1,130,052 (569,241) 109,466
------------ ----------- -----------
Net increase (decrease) in net assets
from operations .................. 1,344,981 (474,575) 185,116
------------ ----------- -----------
Changes from principal transactions:
Purchase payments .................. 2,350,168 3,591,940 3,147,804
Transfers between sub-accounts
and the Company .................. (247,803) (83,800) 1,230,469
Withdrawals ........................ (496,216) (141,394) (137,089)
Annual contract fee ................ (4,727) (2,649) (340)
------------ ----------- -----------
Net increase in net assets
from principal transactions ...... 1,601,422 3,364,097 4,240,844
----------- -----------
Total increase in net assets ......... 2,946,403 2,889,522 4,425,960
Net assets at beginning of period .... 7,346,437 4,456,915 0
------------ ----------- -----------
Net assets at end of period .......... $ 10,292,840 $ 7,346,437 $ 4,425,960
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
7
<PAGE> 57
FNAL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
The FNAL Variable Account (the "Account") is a separate account established by
First North American Life Assurance Company (the "Company"). The Company
established the Account on July 22, 1992 as a separate account under New York
law. The Account operates as a Unit Investment Trust under the Investment
Company Act of 1940, as amended, and invests in NASL Series Trust (the "Trust").
The Account is a funding vehicle for variable annuity contracts (the
"Contracts") issued by the Company. The Company is a wholly-owned subsidiary of
North American Security Life Insurance Company ("Security Life"), which is a
wholly-owned subsidiary of North American Life Assurance Company ("NAL"), a
Canadian mutual life insurance company. NAL merged with the Manufacturers Life
Insurance Company of Canada effective January 1, 1996. The surviving company
will conduct business under the name "Manufacturers Life Insurance Company."
2. SIGNIFICANT ACCOUNTING POLICIES:
Investments are made in the portfolios of the Trust and are valued at the
reported net asset value of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of
identified cost of the investment sold.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed account have not
been registered under the Securities Act of 1933 and the Company's general
account has not been registered as an investment company under the Investment
Company act of 1940.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a Life Insurance Company under the provisions of
the Internal Revenue Code (the "Code"). Under the current provisions of the
Code, the Company does not expect to incur federal income taxes on the earnings
of the Account to the extent the earnings are credited under the contracts.
Based on this, no charge is being made currently to the Account for federal
income taxes. The Company will review periodically the status of such decision
based on changes in the tax law. Such a charge may be made in future years for
any federal income taxes that would be attributable to the contract.
3. AFFILIATED COMPANY TRANSACTIONS:
Administrative services necessary for the operation of the Account are borne by
the Company. The Company has an underwriting agreement with its wholly-owned
subsidiary, NASL Financial Services, Inc. ("NASL Financial"). NASL Financial has
a promotional agent agreement with Wood Logan Associates, Inc., an affiliate of
the Company, to promote the sales of annuity contracts.
4. CONTRACT CHARGES:
There are no deductions made from purchase payments for sales charges at the
time of purchase. In the event of a surrender, a contingent deferred sales
charge may be charged by the Company to cover sales expenses. An annual
administrative fee of $30 is deducted from each contract owners' account on the
contract anniversary date to cover contract administration costs. This charge is
waived on certain contracts.
Deductions from each sub-account are made daily for administrative fees and for
the assumption of mortality and expense risk charges, equal to an effective
annual rate of 0.15% and 1.25% of the contract value, respectively.
8
<PAGE> 58
FNAL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
5. PURCHASES AND SALES OF INVESTMENTS:
The following table shows aggregate cost of shares purchased and proceeds from
sales of each subaccount for the year ended December 31, 1995.
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Equity Portfolio $11,327,273 $ 2,602,594
Investment Quality Bond Portfolio $ 1,078,780 $ 920,895
Growth and Income Portfolio $ 8,842,776 $ 2,441,910
Pasadena Growth Portfolio $ 4,815,349 $ 2,179,549
Money Market Portfolio $13,220,347 $10,471,513
Global Equity Portfolio $ 4,985,476 $ 3,024,405
Global Government Bond Portfolio $ 855,828 $ 1,294,398
U.S. Government Securities Portfolio $ 4,191,720 $ 3,039,114
Conservative Asset Allocation Portfolio $ 1,265,997 $ 591,872
Moderate Asset Allocation Portfolio $ 3,117,549 $ 1,619,925
Aggressive Asset Allocation Portfolio $ 2,296,869 $ 1,114,911
Value Equity Portfolio $ 8,405,137 $ 1,378,006
Strategic Bond Portfolio $ 3,018,493 $ 1,197,883
International Growth and Income Portfolio $ 4,477,140 $ 168,886
</TABLE>
9
<PAGE> 59
6. UNIT VALUES:
A summary of the accumulated unit values at December 31, 1994 and 1995 and
the accumulation of units and dollar value outstanding at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- ----------------------------------------------------
Unit Unit
Value Value Units Dollars
----------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Equity sub-account $ 14.786831 $ 20.821819 1,680,198 $ 34,984,777
Investment Quality Bond 14.216516 16.751499 305,029 5,109,691
sub-account
Growth and Income sub-account 13.076664 16.660889 1,702,726 28,368,937
Pasadena sub-account 8.837480 11.026969 1,318,608 14,540,255
Money Market sub-account 13.623292 14.190910 639,836 9,079,860
Global Equity sub-account 15.500933 16.459655 1,679,043 27,636,467
Global Government Bond 14.630721 17.772344 417,838 7,425,966
sub-account
U.S. Government Securities 14.111357 16.083213 696,869 11,207,898
sub-account
Conservative Asset Allocation 12.298940 14.320582 306,895 4,394,921
sub-account
Moderate Asset Allocation 12.396295 14.752561 1,070,866 15,798,022
sub-account
Aggressive Asset Allocation 12.381395 14.990551 463,740 6,951,722
sub-account
Value Equity sub-account 11.107620 13.548849 2,700,623 36,590,339
Strategic Bond sub-account 9.965972 11.716972 878,456 10,292,840
International Growth and Income -- 10.554228 419,354 4,425,960
sub-account ------------
$216,807,655
============
</TABLE>
10
<PAGE> 60
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American Security
Life Insurance Company)
------------
FINANCIAL STATEMENTS
For the years ended December 31, 1995, 1994 and 1993
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholder of First North American
Life Assurance Company:
We have audited the accompanying statements of admitted assets, liabilities,
capital and surplus of First North American Life Assurance Company (a
wholly-owned subsidiary of North American Security Life Insurance Company) as of
December 31, 1995 and 1994, and the related statements of operations, capital
and surplus and cash flows for the years ended December 31, 1995, 1994 and 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, capital and surplus of
First North American Life Assurance Company as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for the years ended
December 31, 1995, 1994 and 1993, in conformity with accounting practices
prescribed or permitted by the New York State Insurance Department, which
practices are considered to be generally accepted accounting principles for
wholly-owned stock life subsidiaries of mutual life insurance companies.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in Schedule 1 -
Selected Financial Data, is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
As discussed in Note F to the financial statements, the Company changed its
method of accounting for Life and Annuity Actuarial Reserves in 1995.
Boston, Massachusetts
February 23, 1996
Coopers & Lybrand L.L.P.
<PAGE> 62
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY)
STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Bonds at amortized cost $ 72,506,765 $ 21,320,395
Cash and short-term investments 10,924,688 17,661,791
Accrued investment income 1,521,013 329,752
State tax recoverable 169,102 83,996
Policy loans 67,323 --
Separate account assets 216,807,655 147,613,732
------------- -------------
Total Assets $ 301,996,546 $ 187,009,666
============= =============
LIABILITIES
Aggregate reserves 80,630,795 37,890,305
Transfers from separate account, net (8,948,130) (7,792,491)
Borrowed money 2,001,417 --
Payable to Parent and affiliate 1,152,224 824,381
Asset Valuation Reserve 199,691 56,340
Interest Maintenance Reserve 364,729 (96,330)
Other liabilities 966,383 410,089
Separate account liabilities 216,807,655 147,613,732
------------- -------------
Total Liabilities 293,174,764 178,906,026
CAPITAL AND SURPLUS
Common stock (shares authorized, issued and outstanding:
2,000,000; par value $1) 2,000,000 2,000,000
Paid-in capital in excess of par value 11,500,000 8,500,000
Unassigned deficit (4,678,218) (2,396,360)
------------- -------------
Total Capital and Surplus 8,821,782 8,103,640
------------- -------------
Total Liabilities, Capital and Surplus $ 301,996,546 $ 187,009,666
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 63
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY)
STATEMENTS OF OPERATIONS
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES
Annuity considerations and deposits $ 89,142,231 $ 107,925,456 $ 81,730,234
Net investment income 4,773,019 1,048,795 504,568
------------- ------------- ------------
93,915,250 108,974,251 82,234,802
EXPENSES
Annuity benefits 13,492,673 5,576,889 606,974
Increase in reserves 41,026,784 31,083,813 6,755,716
Commissions 3,119,978 3,777,391 4,902,592
General expenses 3,554,429 3,827,352 877,425
Increase in separate account liability 33,198,775 65,510,108 69,899,151
------------- ------------- ------------
94,392,639 109,775,553 83,041,858
Loss before tax provision (477,389) (801,302) (807,056)
Federal income tax provision 101,510 65,322 82,000
------------- ------------- ------------
Net loss $ (578,899) $ (866,624) $ (889,056)
============= ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 64
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY)
STATEMENTS OF CAPITAL AND SURPLUS
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Capital and Surplus - beginning of the year $ 8,103,640 $ 9,126,537 $ 7,072,207
Net loss (578,899) (866,624) (889,056)
Change in asset valuation reserve (143,351) (48,439) (7,901)
Change in non-admitted assets 154,099 (107,834) (48,713)
Issuance of common stock -- -- 3,000,000
Change in reserve valuation basis (1,713,707) -- --
Additional paid in capital 3,000,000 -- --
----------- ----------- -----------
Capital and Surplus - end of the year $ 8,821,782 $ 8,103,640 $ 9,126,537
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 65
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash from operating activities:
Annuity considerations and deposits $ 89,142,231 $ 107,925,456 $ 81,730,234
Net investment income 3,622,972 1,082,479 439,353
Surrender benefits and other fund withdrawals paid (9,892,657) (5,195,538) (606,974)
Other benefits paid to policyholders (3,597,101) (371,351) --
Commissions, other expenses & taxes paid (6,514,600) (7,698,601) (5,608,475)
Net transfers to separate account (34,354,414) (69,221,494) (73,923,491)
Federal income taxes (101,510) (65,322) (82,000)
Policy loans (67,323) 0
------------ ------------- ------------
0
Net cash provided by operating activities 38,237,598 26,455,629 1,948,647
------------ ------------- ------------
Cash from investing activities:
Proceeds from bonds sold, matured or repaid 18,834,870 7,404,273 --
Cost of bonds acquired (69,601,394) (18,628,562) (3,970,288)
------------ ------------- ------------
Net cash used by investing activities (50,766,524) (11,224,289) (3,970,288)
------------ ------------- ------------
Other cash provided (applied):
Capital and surplus paid-in 3,000,000 -- 3,000,000
Borrowed Money 2,000,000 -- --
Other sources 882,019 589,197 996,271
Other applications (90,196) (1,046,518) (134,413)
------------ ------------- ------------
Net other cash provided (used) 5,791,823 (457,321) 3,861,858
------------ ------------- ------------
Net change in cash and short-term investments (6,737,103) 14,774,019 1,840,217
Cash and short-term investments:
Beginning of year 17,661,791 2,887,772 1,047,555
------------ ------------- ------------
End of year $ 10,924,688 $ 17,661,791 $ 2,887,772
============ ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE> 66
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS
year ended December 31, 1995
---------------
A. Organization
First North American Life Assurance Company (the "Company"), a stock
life insurance company was organized on February 10, 1992 under the
laws of the state of New York. The Company is a wholly-owned subsidiary
of North American Security Life Insurance Company ("Security Life" or
"Parent"). Security Life is a wholly-owned subsidiary of North American
Life Assurance Company ("NAL"), a Canadian mutual life insurance
company. See Note J. For subsequent event describing merger with
Manufacturers Life Insurance Company.
The Company issues fixed and variable annuity contracts in the State of
New York. Amounts invested in the fixed portion of the contracts are
allocated to the General Account of the Company. The Company invests
all assets in the General Account in fixed income securities. Amounts
invested in the variable portion of the annuity contracts are allocated
to the FNAL Variable Account, a separate account of the Company. The
assets of the FNAL Variable Account contracts are invested in shares of
the NASL Series Trust, a no-load, open-end management investment
company organized as a Massachusetts business trust.
NASL Financial Services, Inc., ("NASL Financial" or "Affiliate") a
wholly-owned subsidiary of Security Life, acts as the investment
advisor to the NASL Series Trust and as principal underwriter of the
variable annuity contracts. NASL Financial has entered into a
promotional agent agreement with Wood Logan Associates, an affiliate of
NAL, to act as the exclusive agent for promotion of annuity contract
sales.
B. Summary of Significant Accounting Policies
Basis of Reporting
The Company's financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the New York State
Insurance Department, which for stock life insurance subsidiaries of a
mutual life parent, are considered to be generally accepted accounting
principles (GAAP).
The Financial Accounting Standards Board issued Interpretation 40,
Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises, and Statement of Financial
Accounting Standards No. 120, Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration participating Contracts. The American Institute of
Certified Public Accountants issued Statement of Position 95-1,
Accounting for Certain Insurance Activities of Mutual Life Insurance
Enterprises. Neither of these groups has a role in establishing
regulatory accounting practices.
7
<PAGE> 67
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS, continued
---------------
Basis of Reporting, continued
These pronouncements will require mutual life insurance companies to
modify their financial statements in order for them to continue to be
in accordance with generally accepted accounting principles, effective
for 1996 financial statements. The manner in which policy reserves, new
business acquisition costs, asset valuations and the related tax
effects are recorded will change. Management has not determined the
impact of such changes on its financial statements.
Certain amounts in the 1994 and 1993 financial statements are presented
differently than in prior years to conform with 1995 presentation
guidelines.
Preparation of Financial Statements
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Instruments
Financial instruments reported on the balance sheet consist primarily
of investments in cash and short-term investments, marketable
securities, and debt. Fair value of financial instruments have been
determined through information obtained from market sources and
management estimates. At December 31, 1995, the fair value of cash and
short-term investments and debt approximates the carrying value due to
the short maturity and variable interest rate arrangements,
respectively. The Company's marketable securities consist primarily of
investment grade corporate securities.
Investments and Investment Income
Investments are valued in accordance with rules promulgated by the
National Association of Insurance Commissioners (NAIC). Bonds and
short-term investments, where eligible under NAIC rules, are valued at
amortized cost.
Investment income is recognized on the accrual basis. Unrealized gains
or losses on investments are recorded in unassigned surplus. Realized
gains or losses on investments sold are determined on the basis of the
specific identification method.
8
<PAGE> 68
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS, continued
---------------
Short-Term Investments
Short-term investments generally consist of 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.
Separate Account
Separate account assets represent mutual funds held for the exclusive
benefit of both variable annuity and variable life contractholders and
are reported at fair market value. Since the contractholders receive
the full benefit and bear the full risk of the separate account
investments, the income, realized and unrealized gains and losses from
such investments, is offset by an equivalent change in the liabilities
related to the separate accounts. Transfers from separate account, net,
primarily represents the difference between the contract owner's
account value and the CARVM reserve.
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 standard valuation law, as
adopted by the State of New York.
Asset Valuation Reserve and Interest Maintenance Reserve
The Asset Valuation Reserve (AVR) provides for potential market and
credit losses on general account invested assets. Changes in the AVR
are accounted for as a direct increase or decrease in unassigned
surplus. The Interest Maintenance Reserve (IMR) captures realized
capital gains and losses which result from changes in interest rates
for all fixed income securities and amortizes these capital gains and
losses into investment income over the original life of the
investments.
Recognition of Premium Revenue and Related Expenses
Premium revenues are recognized as received. Expenses, including
acquisition costs such as commissions and other costs in connection
with acquiring new business, are charged to operations as incurred.
9
<PAGE> 69
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS, continued
---------------
Federal Income Taxes
The Company, as a wholly-owned subsidiary of the Parent, will
participate as a member of the affiliated group filing a consolidated
federal income tax return with the Parent and NASL Financial. The
Company will file a separate New York State return.
The method of allocation between the companies is subject to a tax
sharing agreement. Tax liability is allocated to each member on a
pro-rata basis based on the relationship the member's tax liability
(computed on a separate return basis) bears to the tax liability of the
consolidated group. The tax charge to the Company shall not be more
than the Company would have paid on a separate return basis.
C. Related Party Transactions
The Company utilizes various services and personnel of the Parent for
accounting, actuarial, administration, and systems support. These costs
are allocated to the Company based on the percentage of time incurred
by the Parent's personnel in connection with services rendered on
behalf of the Company. The total costs allocated for these services in
1995, 1994 and 1993 were approximately $456,000, $418,000 and $310,000,
respectively.
The Company's insurance contracts are distributed through NASL
Financial pursuant to an underwriting agreement. NASL Financial is
responsible for the payment of all commissions and has agreed to charge
the Company commissions and expense allowances equal to 6% of all
annuity contract sales.
The financial statements have been prepared from the records maintained
by the Company and may not necessarily be indicative of the financial
condition or results of operations if the Company had been operated as
an unaffiliated corporation.
D. Investments on Deposit with Regulatory Authorities
A United States Treasury note with a statement value of $405,477 at
December 31, 1995 was in a custody account on behalf of the New York
State Insurance Department and is included with bonds on the Statement
of Admitted Assets, Liabilities, Capital and Surplus.
10
<PAGE> 70
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS, continued
---------------
E. Investments
Net investment income was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 4,436,994 $ 874,148 $ 481,833
Short-term investments 403,497 235,859 35,220
Amortization of IMR 5,105 (17,670) 0
Investment expenses (72,577) (43,542) (12,485)
----------- ----------- ---------
Net investment income $ 4,773,019 $ 1,048,795 $ 504,568
=========== =========== =========
</TABLE>
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Value of Financial Instruments," requires
disclosures, if practical, of fair value information about financial
instruments, whether or not recognized on the balance sheet. SFAS 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Presentation of the estimated fair
value of assets without a corresponding revaluation of liabilities
associated with insurance contracts can be misinterpreted.
11
<PAGE> 71
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS, continued
---------------
The amortized cost and estimated market values of investments in debt securities
at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government agencies $ 405 $ 17 $ 0 $ 422
Corporate securities 62,976 2,282 10 65,248
Mortgage back securities 2,507 2 0 2,509
States, Territories and
Possessions 6,619 329 0 6,948
------- ------ --- -------
Total $72,507 $2,630 $10 $75,127
======= ====== === =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government agencies $ 404 $0 $ 14 $ 390
Corporate securities 20,916 0 568 20,348
------- -- ---- -------
Totals $21,320 $0 $582 $20,738
======= == ==== =======
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1995, by the contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers or
lenders may have the right to call or prepay obligations with or without
call or prepayment penalties. The fair value of debt securities were
determined based on quoted market prices or dealer quotes.
12
<PAGE> 72
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS, continued
---------------
<TABLE>
<CAPTION>
Estimated
(in thousands) Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $25,076 $25,118
Due after one year through five years 46,337 48,898
Due after five years through ten years 1,094 1,111
------- -------
Totals $72,507 $75,127
======= =======
</TABLE>
In 1995 and 1994, gross realized gains on sales of investments in debt
securities were $466,265 and $11,321 and gross realized losses were $0
and $125,000, respectively. There were no sales of securities during
1993. Net realized gains (losses) of $466,167 and ($113,679) were
transferred to IMR in 1995 and 1994, respectively.
F. Life and Annuity Actuarial Reserves
The Company issues flexible premium deferred combination fixed and
variable annuity contracts. Reserves for these contracts are
established using the Commissioners Annuity Reserve Valuation Method
("CARVM") as adopted by the New York State Insurance Department. The
reserves for the fixed portion of the contracts are held in the general
account and the reserves for the variable portion of the contracts are
held in the separate account. In addition, the Company holds a minimum
death benefit guarantee reserve in the general account, in the amount
of $83,280, to cover the death benefit guarantees on the variable
portion of the contracts. The Company does not offer surrender values
in excess of the reserves.
Withdrawal characteristics of Annuity Actuarial Reserves are as
follows:
<TABLE>
<S> <C> <C>
(in thousands)
Subject to discretionary withdrawal with market value
adjustment $ 47,458 16.46%
Subject to discretionary withdrawal at book
value less surrender charge 32,161 11.15
Subject to discretionary withdrawal at market value 207,925 72.10
-------- ------
Subtotal 287,544 99.71%
Not subject to discretionary withdrawal provision 843 .29
-------- ------
Total annuity actuarial reserves and deposit fund liabilities $288,387 100%
======== ======
</TABLE>
For the year ended December 31, 1995, the New York State Insurance
Department instructed the Company to change from the Change in Funds
valuation basis to the Issue Year basis. This change resulted in an
increase in reserves of $1,713,707. In accordance with NAIC reporting
guidelines, this was reflected as a direct charge to surplus.
13
<PAGE> 73
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS, continued
---------------
G. Leases
The Company leases office space under an operating lease agreement. For
the years ended December 31, 1995, 1994 and 1993 the Company incurred
rent expense of $72,695, $72,695, and $71,441, respectively. The
minimum lease payments associated with the office space are as follows:
<TABLE>
<CAPTION>
Minimum
Year Lease Payments
-------------- -----------------
<S> <C>
1996 $ 72,696
1997 60,580
---------
Total $133,276
========
</TABLE>
H. Borrowed Money
The Company has an unsecured line of credit with State Street Bank and
Trust, in the amount of $5 million, bearing interest at prime or LIBOR
plus 1.25% per annum (8.5% at December 31, 1995). The outstanding
balances at December 31, 1995 was $2,000,000.
I. Employee Retirement Plan
NAL sponsors a defined benefit pension plan covering substantially all
employees. The benefits are based on years of service and the
employee's compensation during the last five years of employment. NAL's
funding policy is to contribute annually the normal cost up to the
maximum amount that can be deducted for federal income tax purposes,
and to charge each subsidiary for its allocable share of such
contributions based on a percentage of payroll. No pension cost was
allocated to the Company in 1995 as the plan was subject to the full
funding limitation under the Internal Revenue Code.
NASL sponsors a defined contribution retirement plan established
pursuant to regulation 401(k) of the Internal Revenue Code. All Company
employees are eligible after one year of service and upon attaining age
21. The Company voluntarily 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 $6,175, $4,459 and $3,257, in 1995, 1994 and 1993,
respectively.
14
<PAGE> 74
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS, continued
---------------
J. Subsequent Events
Merger
On January 1, 1995, NAL merged with Manufacturers Life Insurance
Company ("MLI") of Canada. The surviving company will conduct business
under the name "Manufacturers Life Insurance Company".
On December 22, 1995, the New York Insurance Department approved the
application submitted by MLI to acquire control of FNAL subject to
commitment letters given to the Department by MLI and FNAL. MLI agreed
to contribute or cause to be contributed, on or before June 1, 1996,
$13.3 million of additional surplus to FNAL.
Corporate Restructuring
Effective January 1, 1996, immediately following the merger, the
Company's Parent experienced a corporate restructuring which resulted
in the formation of a newly organized holding corporation, NAWL Holding
Company, Inc. ("NAWL"). NAWL holds all of the outstanding shares of the
Parent and Wood Logan Associates, Inc. ("WLA").
MLI owns all class A shares of NAWL, representing 85% of the voting
shares of NAWL. Certain employees of WLA own all class B shares, which
represent the remaining 15% voting interest in NAWL.
15
<PAGE> 75
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(A Wholly-Owned Subsidiary of North American
Security Life Insurance Company)
Annual Statement For The Year Ended December 31, 1995
Schedule 1 - Selected Financial Data
---------------
<TABLE>
<S> <C>
Investment Income Earned
Government bonds $ 25,685
Other bonds (unaffiliated) 4,411,309
Short-term investments 403,497
------------
Gross investment Income $ 4,840,491
Bonds and Short-Term Investments by
Class and Maturity:
Bonds by Maturity-Statement Value
Due within one year 37,170,719
Over 1 year through 5 years 46,337,096
Over 5 years through 10 years 1,093,506
------------
Total by Maturity $ 84,601,321
Bonds by Class - Statement Value
Class 1 78,719,511
Class 2 5,881,810
------------
Total by Class $ 84,601,321
------------
Total Bonds Publicly Traded $ 84,601,321
------------
Short-term investments - book value $ 12,094,556
============
Policy loans $ 67,323
------------
Supplementary Contracts in Force
Ordinary - Involving life contingencies
Income Payable $ 81,082
------------
Annuities
Ordinary
Immediate - Amount of income payable $ 114,576
------------
Deferred - Fully paid account balance $297,949,097
------------
</TABLE>
16
<PAGE> 76
PART C
OTHER INFORMATION
<PAGE> 77
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements of the Registrant, FNAL Variable
Account (Part B of the registration statement)
(2) Financial Statements of the Depositor, First North
American Life Assurance Company (Part B of the
registration statement)
(b) Exhibits
(1) Resolution of the Board of Directors of First North
American Life Assurance Company establishing the FNAL
Variable Account - Previously filed as Exhibit (b)(1)
to FNAL Variable Account's initial registration
statement on Form N-4 (File No 33-46217) dated March
6, 1992.
(2) Agreements for custody of securities and similar
investments - Not Applicable.
(3) (i) Underwriting Agreement between First North
American Life Assurance Company (Depositor)
and NASL Financial Services, Inc.
(Underwriter) - previously filed as exhibit
(b)(3)(i) to Form N-4 filed on September 2,
1992.
(ii) Promotional Agent Agreement between NASL
Financial Services, Inc. (Underwriter),
First North American Life Assurance Company
(Depositor) and Wood Logan Associates, Inc.
(Promotional Agent) - previously filed as
exhibit (b)(3)(ii) to Form N-4 filed on
September 2, 1992.
(iii) Broker-dealer agreement between First North
American Life Assurance Company, NASL
Financial Services, Inc. (Underwriter), Wood
Logan Associates, Inc. (Promotional Agent)
and broker-dealers - previously filed as
exhibit (b)(3)(iii) to Form N-4 filed on
September 2, 1992.
(4) Form of Specimen Flexible Purchase Payment Individual
Deferred Combination Fixed and Variable Annuity
Contract, Non-Participating - Previously
1
<PAGE> 78
filed as Exhibit (b)(4) to FNAL Variable Account's
initial registration statement on Form N-4 (File No.
33-46217) dated March 6, 1992.
(4) (i) Specimen Death Benefit Endorsement
(5) (i) Form of Specimen Application for Flexible
Purchase Payment Individual Deferred
Combination Fixed and Variable Annuity
Contract, Non-Participating Previously filed
as Exhibit (b)(5) to FNAL Variable Account's
initial registration statement on Form N-4
(File No. 33-46217) dated March 6, 1992.
(ii) Specimen Application for flexible Purchase
Payment Individual Deferred Combination
Fixed and Variable Annuity Contract,
Non-participating -- Previously filed as
Exhibit (b)(5)(ii) to FNAL Variable Account
registration statement on Form N-4 (File No.
33-46217 dated April 28, 1995.
(6) (i) Certificate of Incorporation of First North
American Life Assurance Company - Previously
filed as Exhibit (b)(6)(i) to FNAL Variable
Account's initial registration statement on
Form N-4 (File No. 33-46217) dated March 6,
1992.
(ii) By-laws of First North American Life
Assurance Company - previously filed as
exhibit (b)(6)(ii) to Form N-4 filed on
September 2, 1992.
(7) Contract of reinsurance in connection with the
variable annuity contracts being offered - Not
Applicable.
(8) Other material contracts not made in the ordinary
course of business which are to be performed in whole
or in part on or after the date the registration
statement is filed:
(i) Service Agreement between First North
American Life Assurance Company and Vantage
Computer Systems, Inc. - previously filed as
exhibit (b)(8)(i) to Form N-4 filed on
September 2, 1992. Addendum 1 and Addendum 3
-- Incorporated by reference to Exhibit
(b)(8) to Form N-4, file number 33-46217,
filed March 2, 1994.
(ii) Administrative Agreement between First North
American Life Assurance Company and North
American Security Life Insurance
Company - previously filed as exhibit
(b)(8)(ii) to Form N-4 filed on September 2,
1992.
2
<PAGE> 79
(iii) Administrative Agreement between First North
American Life Assurance Company and North
American Life Assurance Company previously
filed as exhibit (b)(8)(iii) to Form N-4
filed on September 2, 1992.
(iv) Investment Services Agreement between First
North American Life Assurance Company and
Elliott and Page, Ltd - previously filed as
exhibit (b)(8)(iv) to Form N-4 filed on
September 2, 1992.
(v) License and Service Agreement between North
American Security Life Insurance Company,
First North American Life Assurance Company,
and Mentap Systems, Inc. -- Previously filed
as Exhibit (b)(8)(v) to FNAL Variable
Account Registration Statement on Form N-4
filed on April 28, 1995.
(9) Opinion of Counsel and consent to its use as to the
legality of the securities being registered -
previously filed as exhibit (b)(9) to Form N-4 filed
on September 2, 1992.
(10) Written consent of Coopers & Lybrand, independent
certified public accountants -- filed herewith.
(11) All financial statements omitted from Item 23,
Financial Statements - Not Applicable.
(12) Agreements in consideration for providing initial
capital between or among Registrant, Depositor,
Underwriter or initial contract owners - Not
Applicable.
(13) Schedule for computation of each performance
quotation provided in the Registration Statement in
response to Item 21 -- Incorporated by reference to
Exhibit (b)(13) to Form N-4, file number 33-46217,
filed March 2, 1994. An additional schedule for
computation is filed herewith.
(14) Power of Attorney - First North American Life
Assurance Company Directors - previously filed as
exhibit (b)(14) to Form N-4 filed on February 2,
1993.
(27) Financial Data Schedule
3
<PAGE> 80
Item 25. Directors and Officers of the Depositor.
OFFICERS AND DIRECTORS OF FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS POSITION WITH FIRST
ADDRESS NORTH AMERICAN LIFE
ASSURANCE COMPANY
<S> <C>
Brian L. Moore Chairman of the
200 Bloor Street East Board of Directors
North Tower, 11th Floor
Toronto, Ontario
Canada M4W-1E5
Bruce R. Gordon Director, President
200 Bloor Street East
North Tower Main
Toronto, Ontario
Canada M4W-1E5
William J. Atherton Director
116 Huntington Avenue
Boston, MA 02116
Richard C. Hirtle Director;
116 Huntington Avenue Vice President and
Boston, MA 02116 Treasurer
John G. Vrysen Director;
73 Tremont Street Vice President and
Boston, MA 02108 Qualified Actuary
Kenneth H. Conrad Director
Somerset House
378 Commercial Street
Provincetown, MA 02657
Jamaica Plain, MA 02130
John D. DesPrez III Director
116 Huntington Avenue
Boston, MA 02116
</TABLE>
4
<PAGE> 81
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS POSITION WITH FIRST
ADDRESS NORTH AMERICAN LIFE
ASSURANCE COMPANY
<S> <C>
Peter S. Hutchison Director
200 Bloor Street East
North Tower 7
Toronto, Ontario M4W-1E5
Robert C. Perez Director
715 North Avenue
New Rochelle, NY 01801
James K. Robinson Director
7 Summit Drive
Rochester, New York 14620-3127
H. Douglas Wood Director
1445 East Putnam Avenue
Old Greenwich, CT 06870
Neil M. Merkl Esq. Director
35-35 161st Street
Flushing, New York 11358
Bruce Avedon Director
6601 Hitching Post Lane
Cincinnati, OH 45230
Ruth Ann Fleming Director
145 Western Drive
Short Hills, NJ 07078-1930
Tracy Anne Kane Secretary; Counsel
116 Huntington Avenue
Boston, MA 02116
Stephanie Elliman Vice President & Chief
International Corporate Center at Rye Administrative
555 Theodore Fremd Avenue Officer
Rye, New York 10580
</TABLE>
Item 26. Persons Controlled by or Under Common Control with Depositor or
Registrant.
Diagram provided below.
5
<PAGE> 82
THE MANUFACTURERS LIFE INSURANCE COMPANY
(Subsidiaries Organization Chart
- including certain Significant Investments)
The Manufacturers Life Insurance Company (Canada)
1. ManuLife Holdings (Hong Kong) Limited - H.K. (100%)
2. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%)
3. P.T. Asuransi Jiwa Dharmala Manulife - Indonesia (51%)
4. ManuLife (International) Limited - Bermuda (100%)
5. OUB Manulife Pte. Ltd. - Singapore (50%)
6. Manulife (Malaysia) SDN. BHD. - Malaysia (100%)
7. Manulife (Thailand) Ltd. - Thailand (100%)
8. Young Poong Manulife Insurance Company - Korea (50%)
9. Ennal, Inc. - Ohio (100%)
10. 495603 Ontario Limited - Ontario (100%)
11. 994744 Ontario Inc. - Ontario (100%)
12. 1056416 Ontario Limited - Ontario (100%)
13. 484551 Ontario Limited - Ontario (100%)
(a) 911164 Ontario Limited - Ontario (100%)
14. NAWL (North American Wood Logan Holding Company) - Delaware (85%)
(a) Wood Logan Associate Inc. - Connecticut (100%)
(b) North American Security Life Insurance Company - Delaware (100%)
(i) NASL Financial Services, Inc. - Massachusetts (100%)
(ii) First North American Life Assurance Company - New York (100%)
(iii) North American Funds - Massachusetts (100%)
(iv) NASL Series Trust - Massachusetts (100%)
6
<PAGE> 83
15. Domlife Realty Limited - Canada (100%)
16. Balmoral Developments Inc. - Canada (100%)
17. Cantay Holdings Inc. - Ontario (100%)
18. 576986 Ontario Inc. - Ontario (100%)
19. KY Holding Corporation - Canada (100%)
20. 172846 Canada Limited - Canada (100%)
21. First North American Realty, Inc. - Minnesota (100%)
22. North American Capital Corporation - Ontario (100%)
23. Elliott & Page Mutual Fund Corporation - Ontario (100%)
24. TBD Life Insurance Company - Canada (100%)
25. The North American Group Inc. - Canada (100%)
26. Capitol Bankers Life Insurance Company - Minnesota (100%)
27. Manulife Investment Management Corporation - Canada (100%)
(a) 159139 Canada Inc. - Canada (50%)
i. Altamira Management Ltd. - Canada (60.96%)
A. ACI2 Limited - Cayman (100%)
a/ Regent Pacific Group Limited-Cayman (63.8%)
a.1 Manulife Regent Investment Corporation - Barbados
(100%) (50% by Regent Pacific Group Limited and 50% by
Manulife Data Services Inc.)
b.1 Manulife Regent Investment Asia Limited - Hong Kong
(100%)
B. Altamira Financial Services Inc. - Ontario (100%)
a/ AIS Securities (Partnership) - Ontario (100%) (5% by
Altamira Financial Services, Inc. and 95% by Altamira
Investment Services Inc.)
b/ Altamira Investment Services Inc. - Ontario (100%)
(a) AIS Securities (Partnership) - Ontario (100%)(95%
by Altamira Investments Services Inc. and 5% by
Altamira Financial Services Inc.)
7
<PAGE> 84
(b) Altamira (Alberta) Ltd. - Alberta (100%)
(c) Capital Growth Financial Services Inc. - Ontario
(100%)
28. Manulife International Investment Management Limited - U.K. (100%)
(a) Manulife International Fund Management Limited - U.K. (100%)
29. ManuCab Ltd. - Canada (100%)
(a) Plazcab Service Limited - Canada (100%)
30. Manulife Data Services Inc.- Barbados (100%)
(a) Manulife Regent Investment Corporation - Barbados - (100%) (50% by
Manulife Data Services Inc. and 50% by Regent Pacific Group Limited)
(b) Manulife Regent Investment Asia Limited - Hong Kong (100%)
31. 16351 Canada Limited - Canada (100%)
32. Manufacturers Life Capital Corporation Inc. - Canada (100%)
33. Townvest Inc. - Ontario (100%)
34. Manulife Financial Holdings Limited - Ontario (100%)
(a) Family Financial Services Limited - Ontario (100%)
i. 742166 Ontario Inc. - Ontario (100%)
ii. Family Trust Corporation - Ontario (100%)
A. Family Financial Mortgage Corporation - Ontario (100%)
B. Family Realty Firstcorp Limited - Ontario (100%)
C. Thos. N. Shea Investment Corporation Limited - Ontario (100%)
(b) Manulife Bank of Canada - Canada (100%)
i. Manulife Securities International Ltd. - Canada (100%)
ii. Cabot Financial Services Corporation - Ontario (100%)
iii. Cabot Investments Limited - Ontario (100%)
35. NALACO Mortgage Corporation - Ontario (100%)
(a) Underwater Gas Developers Limited - Ontario (100%)
36. Manulife (International) Reinsurance Limited - Bermuda (100%)
(a) Manulife (International) P&C Limited - Bermuda (100%)
(b) Manufacturers P&C Limited - Bermuda (100%)
37. FNA Financial Inc. - Canada (100%)
(a) NAL Resources Management Limited - Canada (100%)
(b) First North America Insurance Company - Canada (100%)
8
<PAGE> 85
(c) NAL Trustco Inc. - Ontario (100%)
(d) North American Life Financial Services Inc. - Ontario (100%)
(e) Nalafund Investors Limited - Canada - (100%)
(f) Seamark Asset Management Ltd. - Canada (69.175%)
(g) Elliott & Page Limited - Ontario (100%)
38. NAL Resources Limited - Alberta (100%)
39. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%)
(a) Manulife Reinsurance Limited - Bermuda (100%)
(b) Manulife Holding Corporation - Delaware (100%)
i. Manufacturers Life Mortgage Securities Corporation - Delaware
(100%)
ii. Underwriters International Inc. - Delaware (50%)
iii. Capital Design Corporation - California - (100%)
iv. ManEquity, Inc. - Colorado (100%)
v. Manulife Service Corporation - Colorado (100%)
(c) The Manufacturers Life Insurance Company (U.S.A.) - Michigan (100%)
(d) The Manufacturers Life Insurance Company of America - Michigan (100%)
i. Manulife Series Fund, Inc. - Maryland (100%)
ii. Manufacturers Adviser Corporation - Colorado (100%)
40. The Manufacturers Investment Corporation - Michigan (100%)
41. Manulife Property Management of Washington, D.C., Inc. - Washington, D.C.
(100%)
9
<PAGE> 86
Item 27. Number of Contract Owners.
As of March 31, 1996, there were 3084 qualified and 4497 non-qualified contracts
of the series offered hereby outstanding.
Item 28. Indemnification.
Section IX, paragraph D of the Promotional Agent Agreement among the Company
(referred to therein as "First North American") NASL Financial and Wood/Logan
(referred to therein as "Promotional Agent") provides as follows:
a. NASL Financial and First North American 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 First North
American pursuant to Section VI, paragraph B of this Agreement.
b. Promotional Agent agrees to indemnify and hold harmless NASL Financial
and First North American, their officers, directors and employees
against any and all losses, claims, damages or liabilities to which
they may become subject under the 1933 Act, the 1934 Act or other
federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon: (i) any
oral or written misrepresentation by Promotional Agent or its officers,
directors, employees or agents unless such misrepresentation is
contained in any registration statement for the Contracts or Fund
shares, any prospectus included as a part thereof, as from time to time
amended and supplemented, or any advertisement or sales literature
approved in writing by NASL Financial pursuant to Section VI, paragraph
B of this Agreement or, (ii) the failure of Promotional Agent or its
officers, directors, employees or agents to comply with any applicable
provisions of this Agreement.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
10
<PAGE> 87
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.
Item 29. Principal Underwriters.
a. NASL Variable Account and North American Funds
<TABLE>
<CAPTION>
b. Name and Principal Positions and Offices
Business Address with Underwriter
<S> <C>
William J. Atherton** President & Director
Brian L. Moore* Chairman & Director
John D. DesPrez III** Director
John G. Vrysen**** Vice President
Richard C. Hirtle** Vice President, Treasurer
& Compliance Officer
James D. Gallagher** Vice President & General Counsel
Brian H. Buckley** Clerk
Lori Ann Herbsmann*** Assistant Clerk - New York Operations
Susan E. Heffernan** Assistant Clerk
</TABLE>
11
<PAGE> 88
<TABLE>
<CAPTION>
b. Name and Principal Positions and Offices
Business Address with Underwriter
<S> <C>
E. Paige Sabine** Assistant Clerk
</TABLE>
* 200 Bloor Street East
North Tower, 11th Floor
Toronto, Ontario
Canada M4W-1E5
** 116 Huntington Avenue
Boston, MA 02116
*** International Corporate Center at Rye
555 Theodore Fremd Avenue, Suite C-209
Rye, NY 10580
**** 73 Tremont Street
Boston, MA 02108
c. None.
Item 30. Location of Accounts and Records.
All books and records are maintained at International Corporate Center at Rye,
555 Theodore Fremd Avenue, Rye, New York 10580.
Item 31. Management Services.
First North American Life Assurance Company (the "Company") has entered into an
Administrative Services Agreement with North American Life Assurance Company
("North American"). This Agreement provides that under the general supervision
of the Board of Directors of the Company, and subject to initiation, preparation
and verification by the Chief Administrative Officer of the Company, North
American shall provide accounting services related to the provision of a payroll
support system, general ledger, accounts payable, tax and auditing services.
The Company has entered into an Administrative Services Agreement with North
American Security Life Insurance Company ("Security Life"). This Agreement
provides that subject to the direction and control of the Board of Directors of
the Company, Security Life shall provide to the Company services related to
underwriting, claims, functional support (actuarial, computer systems, legal,
purchasing) and accounting.
12
<PAGE> 89
The Company has entered into an Investment Services Agreement with Elliott and
Page, Ltd. ("Elliott and Page"). This Agreement provides that subject to the
direction and control of the Board of Directors of the Company, Elliott and Page
will act as investment advisor for the General Account of the Company. Elliott
and Page's performance of asset management services is subject to the terms,
conditions and limitations set forth in the Agreement.
Item 32. Undertakings.
Previously furnished.
13
<PAGE> 90
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, FNAL Variable Account, certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this Amendment
to the Registration Statement and has duly caused this Amendment to the
Registration Statement to be signed on its behalf, in the City of Boston, and
Commonwealth of Massachusetts on this 29th day of April, 1996.
FNAL VARIABLE ACCOUNT
(Registrant)
By: FIRST NORTH AMERICAN LIFE
ASSURANCE COMPANY
(Depositor)
By: H. Bruce Gordon
---------------
H. Bruce Gordon
President
Attest:
Tracy Anne Kane
- --------------------------
Tracy Anne Kane, Secretary
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Depositor has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned on the
29th day of April, 1996 in the City of Boston, and Commonwealth of
Massachusetts.
FIRST NORTH AMERICAN LIFE
ASSURANCE COMPANY
(Depositor)
By: H. Bruce Gordon
---------------
H. Bruce Gordon
President
Attest:
Tracy Anne Kane
- --------------------------
Tracy Anne Kane, Secretary
<PAGE> 91
As required by the Securities Act of 1933, this amended Registration
Statement has been signed by the following persons in the capacities with the
Depositor and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board April 29, 1996
--------------------- of Directors
Brian L. Moore
* H. Bruce Gordon Director, President April 29, 1996
--------------------- (Principal Executive Officer)
H. Bruce Gordon
* Director April 29, 1996
---------------------
William J. Atherton
* Director April 29, 1996
---------------------
John D. DesPrez III
* Director April 29, 1996
---------------------
Kenneth H. Conrad
* Director; Vice President April 29, 1996
--------------------- and Treasurer
Richard C. Hirtle (Principal Financial Officer)
* Director; Vice President April 29, 1996
--------------------- and Qualified Actuary
John G. Vrysen
* Director April 29, 1996
---------------------
Peter S. Hutchison
* Director April 29, 1996
---------------------
Robert C. Perez
* Director April 29, 1996
---------------------
James K. Robinson
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director April 29, 1996
---------------------
H. Douglas Wood
Director April 29, 1996
---------------------
Neil M. Merkl
* Director April 29, 1996
---------------------
Bruce Avedon
* Director April 29, 1996
---------------------
Ruth Ann Fleming
*By: Richard C. Hirtle April 29, 1996
-----------------
Richard C. Hirtle
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
(b)(4)(i) Specimen Death Benefit Endorsement
(b)(10) Consent of Coopers & Lybrand
(b)(13) Schedule for Computation
(27) Financial Data Schedule
</TABLE>
14
<PAGE> 1
DEATH BENEFIT ENDORSEMENT
PART 4, BENEFITS, DEATH BENEFIT BEFORE MATURITY DATE OF THE FLEXIBLE PURCHASE
PAYMENT DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY TO WHICH THIS
ENDORSEMENT IS ATTACHED IS REPLACED AS FOLLOWS:
DEATH BENEFIT BEFORE DEATH OF ANNUITANT WHERE YOU ARE NOT THE ANNUITANT. We
MATURITY DATE will pay the death benefit to the Beneficiary if you
are not the Annuitant and the Annuitant dies before the
Maturity Date. Payment will be made either as a lump
sum or in accordance with any Annuity Option described
in this Contract. If there is more than one Annuitant,
the death benefit will be paid on the death of the last
surviving Co-Annuitant. Upon the death of the
Annuitant, the Beneficiary becomes the Owner of the
Contract and may elect to continue the Contract rather
than to receive payment of the death benefit.
DEATH OF ANNUITANT WHERE YOU ARE THE ANNUITANT. We will
pay the death benefit to the Beneficiary if you are the
Annuitant, there is no surviving Co-Annuitant, and you
die before the Maturity Date. The Beneficiary becomes
entitled to exercise ownership rights in the Contract
and may continue the Contract. If this is a
Non-Qualified Contract, the following special
distribution rules apply. Distribution of the
Beneficiary's interest in the Contract must be made
within 5 years after your death or as an annuity which
begins within one year of death and is payable over the
life of the Beneficiary (or over a period not in excess
of the Beneficiary's life expectancy). If your spouse
is the Beneficiary, your spouse may elect to be treated
as Owner and distribution will be made no later than
the date on which distribution would be required after
the death of your spouse. If you are the Annuitant,
there is a surviving Co-Annuitant, and you die before
the Maturity Date, payment of your interest in the
Contract will be made in accordance with the Death of
Owner provision of this Contract.
DEATH BENEFIT. A death benefit will be determined as of
the date on which written notice and proof of death and
all required claim forms are received at the Company's
Annuity Service Office as follows:
If the Annuitant dies on or prior to the first of
the month following his or her 85th birthday, the
death benefit will be determined as follows:
a) During the first Contract Year, the
death benefit will be the greater of:
i) the Contract Value, or
ii) the sum of all Purchase Payments
made, less any amount deducted in
connection with partial
withdrawals.
b) During any subsequent Contract Year, the
death benefit will be the greater of:
i) the Contract Value, or
ii) the death benefit on the last day
of the previous Contract Year plus
any Purchase Payments made and less
any amounts deducted in connection
with partial withdrawals since
then.
DEATH OF OWNER. If you die before the Annuitant and
before the Maturity Date, the Successor Owner will
become the Owner of the Contract and will be entitled
to your interest in the Contract. If this is a
Non-Qualified Contract, the following special
distribution rules apply. Distribution of such interest
must be made within 5 years after your death or as an
annuity which begins within one year of death and is
payable over the life of the Successor Owner (or over a
period not in excess of the Successor Owner's life
expectancy). If your spouse is the Successor Owner,
your spouse will be treated as Owner and distribution
will be made no later than the date distribution would
be required after the death of
<PAGE> 2
your spouse. If you are not an individual, the death of
the Annuitant or Co-Annuitant, or any change in the
Annuitant or Co-Annuitant will be treated as the death
of the Owner.
If there is more than one Owner, distributions will
occur upon the death of any Owner. If both Owners are
individuals, the distributions will be made to the
remaining Owner rather than the Successor Owner or the
Beneficiary.
If there is any Debt, the death benefit equals the
amount described above less the Debt under the
Contract.
Endorsed on the Date of issue of this Contract.
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
/s/ H. Bruce Gordon
President
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 5 under the
Securities Act of 1933 and Amendment No. 6 under the Investment Company Act of
1940 to this Registration Statement on Form N-4 (File No. 33-46217 ) in Part B
of the Registration Statement of (i) our report dated February 23, 1996, on our
audit of the financial statements of First North American Life Assurance Company
and (ii) our report dated February 23, 1996, on our audit of the financial
statements of FNAL Variable Account. We also consent to the reference to our
firm under the caption "Independent Accountants."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 23, 1996
<PAGE> 1
EXHIBIT 13
TOTAL RATE OF RETURN CALCULATION
FORMULA
-------
P(1 + T)[superscript caret]n = ERV
P = A hypothetical payment of $1,000
T = Average annual total return
n = Number of years
T = (ERV/P)[superscript caret]1/n - 1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FNAL
VARIABLE ACCOUNT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<CIK> 0000884525
<NAME> FNAL VARIABLE ACCOUNT
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 191513242
<INVESTMENTS-AT-VALUE> 216807655
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 216807655
<PAYABLE-FOR-SECURITIES> 57077
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216750578
<TOTAL-LIABILITIES> 216807655
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 15243254
<SHARES-COMMON-PRIOR> 12188585
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 216807655
<DIVIDEND-INCOME> 5475997
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (2610790)
<NET-INVESTMENT-INCOME> 2988081
<REALIZED-GAINS-CURRENT> 1637492
<APPREC-INCREASE-CURRENT> 27703561
<NET-CHANGE-FROM-OPS> 32329134
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2280734
<NUMBER-OF-SHARES-REDEEMED> 430367
<SHARES-REINVESTED> 5765772
<NET-CHANGE-IN-ASSETS> 69193923
<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>
