<PAGE> 1
As Filed with the Securities and Exchange Commission on July 17, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
(Exact Name of Registrant)
NEW YORK
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
555 Theodore Fremd Avenue, Rye, New York 10580
(914) 921-1020
(Address of Registrant's Principal Executive Offices and Telephone Number)
(I.R.S. Employer Number) (Primary Standard Industrial Classification Code
13-3646501 Number) 6355
Joseph Scott, President Copy to:
First North American Life Assurance Company J. Sumner Jones, Esq.
555 Theodore Fremd Avenue Jones & Blouch L.L.P.
Rye, New York 10580 1025 Thomas Jefferson Street N.W.
(914) 921-1020 Washington DC 20007
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following : X
--
Calculation of Registration Fee
-------------------------------
<TABLE>
<CAPTION>
================================================================================
Title of Amount Being Proposed Proposed Amount of
Securities Registered Maximum Maximum Registration
Being Registered Offering Price Aggregate Fee
Per Unit Offering price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred Fixed
Annuity Contract See Note(1) See Note(1) $330,000 $100
Non-Participating
================================================================================
</TABLE>
Note (1): The proposed aggregate offering price is estimated solely for
determining the registration fee. The amount to be registered and the proposed
maximum offering price per unit are not applicable since these securities are
not issued in predetermined amounts or units.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
CROSS REFERENCE TO ITEMS REQUIRED BY FORM S-1
<TABLE>
<CAPTION>
Form S-1 Item No. and Caption Prospectus Heading
- ----------------------------- ------------------
<S> <C>
1. Forepart of the Registration Cover Pages
Statement and Outside Front Cover
of Prospectus
2. Inside Front and Outside Back Cover Cover Pages
Pages of Prospectus
3. Summary Information, Risk Factors Summary
and Ratio of Earnings to Fixed Charges
4. Use of Proceeds First North American Life Assurance Company
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution First North American Life Assurance
Company - Distribution of the Contract
9. Description of Securities to be Registered Description of the Contract and
Guarantees, First North American Life
Assurance Company
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant First North American Life Assurance Company
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
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PART 1
INFORMATION REQUIRED IN A PROSPECTUS
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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
DEFERRED FIXED ANNUITY
CONTRACT
NON-PARTICIPATING
This Prospectus describes Venture Market Value Adjusted Annuity ("Venture
MVA"), a single payment deferred fixed annuity contract, offered 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 Prospectus describes an individual deferred annuity contract designed
and offered to provide retirement programs for eligible individuals and
retirement plans. Ownership of an individual contract is evidenced by the
issuance of an individual annuity contract. The individual annuity contract is
hereafter referred to as the "contract."
The purchase payment is paid to the Company at its Annuity Service Office.
The minimum purchase payment for a contract is $5,000. The maximum purchase
payment accepted without prior approval of the Company is $500,000. The purchase
payment is allocated to the guarantee period designated by the contract owner.
Additional purchase payments for a contract will not be accepted. Additional
contracts may, however, be purchased at the then prevailing rates and terms.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE FIXED ACCOUNT AND THE CONTRACT THAT A PROSPECTIVE
PURCHASER SHOULD KNOW BEFORE INVESTING.
BECAUSE OF THE MARKET VALUE ADJUSTMENT PROVISION OF THE CONTRACT, THE CONTRACT
OWNER BEARS THE INVESTMENT RISK THAT THE GUARANTEED INTEREST RATES OFFERED BY
THE COMPANY AT THE TIME OF WITHDRAWAL, TRANSFER OR THE START OF ANNUITY PAYMENTS
MAY BE HIGHER THAN THE GUARANTEED INTEREST RATE APPLIED TO THE CONTRACT WITH THE
RESULT THAT THE AMOUNT RECEIVED UPON WITHDRAWAL, TRANSFER OR ANNUITIZATION MAY
BE REDUCED BY THE MARKET VALUE ADJUSTMENT AND MAY BE LESS THAN THE ORIGINAL
INVESTMENT IN THE CONTRACT.
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.
THESE SECURITIES ARE NOT DEPOSITS WITH, OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR ANY AFFILIATE THEREOF, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY.
The date of the Prospectus is October 1, 1997
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AVAILABLE INFORMATION
Commencing with the offering of the securities described in this Prospectus,
First North American Life Assurance Company will become subject to the
informational requirements of the Securities Exchange Act of 1934 (the "1934
Act"), as amended, and in accordance therewith will file reports and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices located at 75
Park Place, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission which is located at http://www.sec.gov.
A registration statement has been filed with the Commission under the Securities
Act of 1933, as amended, with respect to the contracts discussed in the
Prospectus. Not all the information set forth in the registration statement,
amendments and exhibits thereto has been included in this Prospectus. Statements
contained in this Prospectus concerning the content of the contracts and other
legal instruments are only summaries. For a complete statement of the terms of
these documents, reference should be made to the instruments filed with the
Commission. The Registration Statements and the exhibits thereto may be
inspected and copied, and copies can be obtained at the prescribed rates, in the
manner set forth in the preceding paragraph.
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TABLE OF CONTENTS
SPECIAL TERMS ............................................................ 4
SUMMARY .................................................................. 6
DESCRIPTION OF THE CONTRACT .............................................. 8
ACCUMULATION PROVISIONS ............................................ 8
Purchase Payments .................................................. 8
Guarantee Periods .................................................. 8
Transfers Among Guarantee Periods .................................. 9
Renewals ........................................................... 9
Withdrawals ........................................................ 9
Death Benefit Before Maturity Date ................................. 10
ANNUITY PROVISIONS ................................................. 11
General ............................................................ 11
Annuity Options .................................................... 11
Death Benefit on or After Maturity Date ............................ 12
OTHER CONTRACT PROVISIONS .......................................... 12
Ten Day Right to Review ............................................ 12
Ownership .......................................................... 12
Beneficiary ........................................................ 13
Annuitant .......................................................... 13
Modification ....................................................... 13
Company Approval ................................................... 13
MARKET VALUE ADJUSTMENT ............................................ 13
CHARGES AND DEDUCTIONS ............................................. 14
Withdrawal Charge .................................................. 14
Reduction or Elimination of Withdrawal Charge ...................... 15
Taxes .............................................................. 15
Administration Fee ................................................. 16
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY .............................. 16
Description of Business ............................................ 16
Management Discussion & Analysis ................................... 17
Selected Financial Data ............................................ 23
Officers and Directors of the Company .............................. 24
Executive Compensation ............................................. 25
FNAL Fixed Account ................................................. 28
Distribution of the Contract ....................................... 28
Legal Proceedings .................................................. 28
Legal Matters ...................................................... 28
Independent Accountants ............................................ 29
Notices and Reports to Contract Owners ............................. 29
Contract Owner Inquiries ........................................... 29
FEDERAL TAX MATTERS ...................................................... 29
Introduction ....................................................... 29
Taxation of Annuities in General ................................... 29
Qualified Retirement Plans ......................................... 32
Federal Income Tax Withholding ..................................... 33
APPENDIX A - EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE ................ 34
APPENDIX B - MARKET VALUE ADJUSTMENT EXAMPLES ............................ 35
APPENDIX C - STATE PREMIUM TAXES ......................................... 37
FINANCIAL STATEMENTS OF THE COMPANY ...................................... 39
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SPECIAL TERMS
Annuitant Any individual person or persons whose life is used
to determine the duration of annuity payments
involving life contingencies. The Annuitant is as
designated on the contract or in the application,
unless changed.
Annuity Option One of several alternative methods by which payment
of the proceeds may be made.
Annuity Service Office The service office of the company is International
Corporate Center at Rye, 555 Theodore Fremd Avenue,
Rye, New York 10580
Beneficiary The person, persons, or entity to whom the death
benefit proceeds are payable following the death of
the owner, or in certain circumstances, an
annuitant.
Company First North American Life Assurance Company.
Contingent The person, persons or entity who becomes the
Beneficiary beneficiary if the beneficiary is not alive.
Contract The individual annuity contract
Contract The anniversary of the contract date.
Anniversary
Contract Date The date of issue of the contract as designated on
the contract specifications page.
Contract Value The contract value is the sum of the net purchase
payment and accrued interest, less the sum of any
withdrawals and any administration fee, adjusted
for any transfer market value adjustment.
Contract Year The period of twelve consecutive months beginning
on the contract date or any anniversary thereafter.
Code The Internal Revenue Code of 1986, as amended.
Due Proof of Death Due Proof of Death is required upon the death of the
owner or annuitant, as applicable. One of the
following must be received at the Annuity Service
Office:
(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 the
Company.
Death benefits will be paid within 7 days of receipt
of due proof of death and all required claim forms
by the Company's Annuity Service Office.
Fixed Account The FNAL Fixed Account, which is a separate account
of the Company.
Fixed Annuity An annuity option with payments which are
predetermined and guaranteed as to dollar amount.
General Account All of the assets of the Company other than assets
in separate accounts.
Gross Withdrawal Value The portion of the contract value specified by the
owner for a full or partial withdrawal. Such amount
is determined prior to the application of any
withdrawal charge, annual administration fee and
market value adjustment.
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<PAGE> 8
Initial Guarantee Period The period of time during which the initial
guaranteed interest rate is in effect.
Initial Guaranteed The compound annual rate used to determine the
Interest Rate interest earned on the net purchase payment during
the initial guarantee period.
Market Value Adjustment An adjustment to amounts that are withdrawn,
transferred or annuitized prior to the end of the
guarantee period. It may increase or decrease the
amount available for transfer, withdrawal or
annuitization.
Maturity Date The date on which annuity benefits commence. It is
the date specified on the contract specifications
page, unless changed.
Net Purchase Payment The purchase payment less the amount of premium tax,
if any, deducted from the payment.
Non-Qualified Contracts Contracts which are not issued under Qualified
Plans.
Owner or The person, persons or entity entitled to the
Contract Owner ownership rights under the contract. The owner is as
designated on the contract specifications page or in
the application, unless changed.
Payment or An amount paid by a contract owner to the Company
Purchase Payment 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 Code.
Renewal Amount The contract value at the end of the initial
guarantee period or at the end of a renewal
guarantee period.
Renewal Guarantee Period The period of time during which a renewal guaranteed
interest rate is in effect.
Renewal Guaranteed The compound annual rate used to determine the
Interest Rate interest earned on a renewal amount during a renewal
guarantee period. In no event shall this rate be
less than 3%.
Separate Account A segregated account of the Company that is not
commingled with the Company's general assets and
obligations.
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SUMMARY
DESCRIPTION OF THE CONTRACT
The Contract. The contract offered by this Prospectus is a single
purchase payment deferred fixed annuity contract. The contract provides for the
accumulation of the contract value and the payment of annuity benefits on a
fixed basis.
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. (See "QUALIFIED RETIREMENT PLANS") Those who are
considering purchase of a contract for use in connection with a qualified
retirement plan should consider, in evaluating the suitability of the contract,
that the contract allows only a single premium purchase payment in an amount of
at least $5,000.
Purchase Payments. Purchase payments are paid to the Company at its
Annuity Service Office. The minimum purchase payment for a contract is $5,000.
The maximum purchase payment accepted without prior approval of the Company is
$500,000. The purchase payment is allocated to the guarantee period designated
by the contract owner. Additional purchase payments for a contract will not be
accepted. Additional contracts may, however, be purchased at the then prevailing
rates and terms.
Prior to the maturity date, the Company may, at its option, cancel a
contract following the third contract anniversary if both (i) the total purchase
payment made, less any withdrawals, is less than $2,000; and (ii) the higher of
the contract value or the amount available upon total withdrawal is less than
$2,000. The cancellation of contract privileges may vary in certain states in
order to comply with the requirements of insurance laws and regulations in such
states. (See "PURCHASE PAYMENTS")
Guarantee Periods. Currently, there are ten guarantee periods under the
contract: one year through ten years. The Company may offer additional guarantee
periods for any yearly period from one to twenty years. (See "INVESTMENT
OPTIONS")
Transfers Among Guarantee Periods. Before the maturity date, the contract
owner may transfer the entire contract value to a different guarantee period at
any time upon written notice to the Company. Amounts may only be transferred,
however, once per contract year and the entire amount of the account must be
transferred. Amounts transferred will be subject to a market value adjustment.
(See "TRANSFERS AMONG INVESTMENT OPTIONS")
Renewals. At the end of a guarantee period, the contract owner may choose
a renewal guarantee period from any of the then existing guarantee period
options, at the then current interest rates. (See "RENEWALS")
Withdrawals. Prior to the earlier of the maturity date or the death of
the contract owner, the owner may withdraw all or a portion of the contract
value. The amount withdrawn must be at least $300 or, if less, the entire
contract value. If a partial withdrawal plus any applicable withdrawal charge,
after giving effect to any market value adjustment would reduce the contract
value to less than $300, the Company will treat the partial withdrawal as a
total withdrawal of the contract value. A withdrawal charge and market value
adjustment may be imposed. (See "WITHDRAWALS") A withdrawal may be subject to a
penalty tax. (See "FEDERAL TAX MATTERS")
Death Benefits. The Company will pay the death benefit to the beneficiary
if any contract owner dies before the maturity date. The death benefit is equal
to the contract value. If there is a surviving contract owner, that contract
owner will be deemed to be the beneficiary. No death benefit is payable on the
death of any annuitant, except that if any contract owner is not a natural
person, the death of any annuitant will be treated as the death of an owner. The
death benefit will be determined as of the date on which written notice and
proof of death and all required claim forms are received at the Company's
Annuity Service Office.
Annuity Payments. The Company offers a variety of fixed annuity options.
Periodic annuity payments will begin on the maturity date. The contract owner
may select the maturity date, frequency of payment and annuity option. (See
"ANNUITY PROVISIONS")
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Ten Day Review. Within 10 days of receipt of a contract, the contract
owner may cancel the contract by returning it to the Company or its agent. (See
"TEN DAY RIGHT TO REVIEW")
Market Value Adjustment. Any amount withdrawn, transferred or annuitized
prior to the end of either the initial guarantee period or a renewal guarantee
period will be adjusted by the market value adjustment factor described under
"MARKET VALUE ADJUSTMENT."
Withdrawal Charge. 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 during the first seven contract years. There
is never a withdrawal charge after seven complete contract years and for certain
amounts withdrawn during the first seven contract years as described below. The
amount of the withdrawal charge and when it is assessed is discussed under
"CHARGES AND DEDUCTIONS - WITHDRAWAL CHARGE."
Tax Deferral. The status of the contract as an annuity generally allows
all earnings on the underlying investments to be tax-deferred until withdrawn or
until annuity payments begin. (See "FEDERAL TAX MATTERS"). This tax deferred
treatment may be beneficial to contract owners in building assets in a long-term
investment program.
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
First North American Life Assurance Company ("the Company") is a stock
life insurance company organized under the laws of New York in 1992. 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"
or "Parent"). Security Life is a stock life insurance company organized under
the laws of the state of Delaware in 1979 with its principal office located at
116 Huntington Avenue, Boston, Massachusetts 02116.
The ultimate parent of the Company is The Manufacturers Life Insurance
Company ("Manulife"), a Canadian mutual life insurance company based in Toronto,
Canada. Prior to January 1, 1996, the Company was a wholly owned subsidiary of
North American Life Assurance Company ("NAL"), a Canadian mutual life insurance
company. On January 1, 1996 NAL and Manulife merged with the combined company
retaining the Manulife name.
Effective January 1, 1996, immediately following the merger of NAL and
Manulife, 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
Company's Parent and Wood Logan Associates, Inc. ("WLA"). Manulife 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.
The Company issues fixed and variable annuity contracts and combinations
of both fixed and variable annuity contracts in the State of New York. Amounts
invested in the fixed contracts and fixed portion of the variable contracts are
either allocated to the General Account of the Company or in the case of the
contract described in this Prospectus, to a separate account of the Company.
Amounts invested in the variable portion of the contracts are allocated to the
separate accounts of the Company (excluding the Fixed Account).
The above summary is qualified in its entirety by the detailed information
appearing elsewhere in this Prospectus.
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DESCRIPTION OF CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service Office.
The minimum purchase payment for a contract is $5,000. The maximum purchase
payment accepted without prior approval of the Company is $500,000. The purchase
payment is allocated to the guarantee period selected by the contract owner.
Additional purchase payments for a contract will not be accepted. Additional
contracts may, however, be purchased at the then prevailing rates and terms.
Prior to the maturity date, the Company may, at its option, cancel a
contract following the third contract anniversary, if both (i) the total
purchase payment made, less any withdrawals, is less than $2,000; and (ii) the
higher of the contract value or the amount available upon total withdrawal is
less than $2,000. The cancellation of contract privileges may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such state. Upon cancellation the Company will pay the contract
owner the higher of the contract value and any annual administration fee or the
amount available upon total withdrawal. The amount paid will be treated as a
withdrawal for Federal tax purposes and thus may be subject to income tax and to
a 10% penalty tax. (See "FEDERAL TAX MATTERS")
GUARANTEE PERIODS
Currently, there are ten guarantee periods: one year through ten years.
The Company may offer additional guarantee periods for any yearly period from
one to twenty years. The contract provides for the accumulation of interest on
the purchase payment at guaranteed rates for the duration of the guarantee
period. From time to time, customers of certain broker-dealers may be offered
special initial guaranteed interest rates which are higher than the initial
guaranteed interest rate offered to the general public. In consideration of
these higher interest rates, commissions to these broker-dealers may be reduced.
The renewal guaranteed interest rate on a renewal amount allocated or
transferred to a renewal guarantee period is determined from time-to-time by the
Company in accordance with market conditions. Under certain circumstances, the
Company may offer a rate in excess of the renewal guaranteed rate for the first
year only of a renewal guarantee period. In no event will the renewal guaranteed
interest rate be less than 3%. The interest rate is guaranteed for the duration
of the guarantee period and may not be changed by the Company.
TRANSFERS AMONG GUARANTEE PERIODS
Before the maturity date the contract owner may transfer the entire
contract value to a different guarantee period at any time upon written notice
to the Company. Amounts may only be transferred, however, once per contract year
and the entire contract value must be transferred. Amounts transferred will be
subject to a transfer market value adjustment. The amount requested to be
transferred will be multiplied by the market value adjustment factor to
determine the transferred amount. (See "MARKET VALUE ADJUSTMENT"). The Company
also reserves the right to modify or terminate the transfer privilege at any
time in accordance with applicable law.
RENEWALS
At the end of a guarantee period, the contract owner may choose a renewal
guarantee period from any of the then existing guarantee periods at the then
current interest rate, 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
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 guarantee period
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.
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WITHDRAWALS
Prior to the earlier of the maturity date or the death of the contract
owner, the 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, as of the date of receipt of the
request at its Annuity Service Office, the Company will cancel the contract and
pay the following amount:
C + [ (A - B - C) x D], where:
A = the gross withdrawal value reduced by an applicable annual administration
fee;
B = the withdrawal charge;
C = the amount available without the imposition of a withdrawal charge;
D = the market value adjustment factor.
(See "CHARGES AND DEDUCTIONS" and "MARKET VALUE ADJUSTMENT")
Partial withdrawals will use the formula specified above and the gross
withdrawal value to determine the amount payable. Partial withdrawals will be
subject to market value adjustments and possible withdrawal charges. The Company
will deduct the gross withdrawal value from the contract value. The gross
withdrawal value may not exceed the contract value.
The Company may defer the payment of a full or partial withdrawal for not
more than six months (or the period permitted by applicable state law if
shorter) from the date the Company receives the withdrawal request and the
contract. If payments are deferred ten days or more, the amount deferred will
earn interest at a rate not less than 4% per year or at a rate determined by
applicable state law. The Company will not, however, defer payment for more than
thirty days for any withdrawal effective at the end of any guarantee period.
There is no limit on the frequency of partial withdrawals; however, the
amount withdrawn must be at least $300 or, if less, the entire contract value.
If a partial withdrawal plus any applicable withdrawal charge, after giving
effect to any market value adjustment would reduce the contract value to less
than $300, the Company will treat the partial withdrawal as a total withdrawal
of the contract value.
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")
DEATH BENEFIT BEFORE MATURITY DATE
In General. 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.
Determination of Death Benefit. The determination of the death benefit
will be made on the date written notice and proof of death, as well as all
required claims forms, are received at the Company's Annuity Service Office. No
person is entitled to the death benefit until this time.
Amount and Payment of Death Benefit. The Company will pay a death benefit
equal to the contract value to the beneficiary if any contract owner dies before
the maturity date. If there is a surviving contract owner, that contract owner
will be deemed to be the beneficiary. No death benefit is payable on the death
of any annuitant, except that if any contract owner is not a natural person, the
death of any annuitant will be treated as the death of an owner. On the death of
the last surviving annuitant, the contract owner, if a natural person, will
become the annuitant unless the contract owner designates another person as the
annuitant.
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The death benefit may be taken in the form of a lump sum immediately. If
not taken immediately, the contract will continue subject to the following: (1)
The beneficiary will become the contract owner. (2) No additional purchase
payments may be made. (3) If the beneficiary is not the deceased owner's spouse,
distribution of the contract owner's entire interest in the contract must be
made within five years of the owner's death, or alternatively, distribution may
be made as an annuity, under one of the annuity options described below, which
begins within one year of the owner's death and is payable over the life of the
beneficiary or over a period not extending beyond the life expectancy of the
beneficiary. If the beneficiary dies before distributions described in "(3)"
above are completed, the entire remaining contract value must be distributed in
a lump sum immediately. (4) If the owner's spouse is the beneficiary, the spouse
continues the contract as the new owner. In such a case, the distribution rules
described in "(3)" applicable when a contract owner dies will apply when the
spouse, as the owner, dies.
If any annuitant is changed and any contract owner is not a natural
person, the entire interest in the contract must be distributed to the contract
owner within five years.
Death benefits will be paid within seven days of the date the amount of
the death benefit is determined, as described above, subject to postponement
under the same circumstances that payment of withdrawals may be postponed. (See
"WITHDRAWALS")
ANNUITY PROVISIONS
GENERAL
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 benefit 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 later of the 85th birthday of the annuitant or the tenth
contract anniversary. 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 may not be later than
the maximum maturity date unless the Company consents. Maturity dates which
occur at advanced ages, e.g., past age 85, may in some circumstances have
adverse income tax consequences. (See "FEDERAL TAX MATTERS") Distributions from
qualified contracts may be required before the maturity date.
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 higher of contract value and any
annual administration fee or the amount available upon total withdrawal in one
lump sum to the annuitant on the maturity date.
ANNUITY OPTIONS
Annuity benefits are available under the contract on a fixed basis. 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 or choose an
alternate form of settlement acceptable to the Company. If an annuity option is
not selected, the Company will provide as a default option annuity payments to
be made for a period certain of 10 years and continuing thereafter during the
lifetime of the annuitant. 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.
10
<PAGE> 14
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years - An
annuity with payments guaranteed for 10 years and continuing thereafter
during the lifetime of the annuitant. Since payments are guaranteed for
10 years, annuity payments will be made to the end of such period if the
annuitant dies prior to the end of the tenth year.
Option 2(a): Joint & Survivor Non-Refund Life Annuity - An annuity with
payments during the lifetimes of the annuitant and a designated
co-annuitant. No payments are due after the death of the last survivor of
the annuitant and co-annuitant. Since there is no guarantee that any
minimum number of payments will be made, an annuitant or co-annuitant may
receive only one payment if the annuitant and co-annuitant die prior to
the date the second payment is due.
Option 2(b): Joint & Survivor Life Annuity with Payments Guaranteed for
10 Years - An annuity with payments guaranteed for 10 years and
continuing thereafter during the lifetimes of the annuitant and a
designated co-annuitant. Since payments are guaranteed for 10 years,
annuity payments will be made to the end of such period if both the
annuitant and the co-annuitant die prior to the end of the tenth year.
In addition to the foregoing annuity options which the Company is
contractually obligated to offer at all times, the Company currently offers the
following annuity options. The Company may cease offering the following annuity
options at any time and may offer other annuity options in the future.
Option 3: Life annuity with Payments Guaranteed for 5, 15 or 20 Years -
An Annuity with payments guaranteed for 5, 15 or 20 years and continuing
thereafter during the lifetime of the annuitant. Since payments are
guaranteed for the specific number of years, annuity payments will be
made to the end of the last year of the 5, 15 or 20 year period.
Option 4: Joint & Two-Thirds Survivor Non-Refund Life Annuity - An
annuity with full payments during the joint lifetime of the annuitant and
a designated co-annuitant and two-thirds payments during the lifetime of
the survivor. Since there is no guarantee that any minimum number of
payments will be made, an annuitant or co-annuitant may receive only one
payment if the annuitant and co-annuitant die prior to the date the
second payment is due.
Option 5: Period Certain Only Annuity for 5, 10, 15 or 20 years - An
annuity with payments for a 5, 10, 15 or 20 year period and no payments
thereafter.
DEATH BENEFIT ON OR AFTER MATURITY DATE
If annuity payments have been selected based on an annuity option
providing for payments for a guaranteed period, and the annuitant dies on or
after the maturity date, the Company will make the remaining guaranteed payments
to the beneficiary. Any remaining payments will be made as rapidly as under the
method of distribution being used as of the date of the annuitant's death. If no
beneficiary is living, the Company will commute any unpaid guaranteed payments
to a single sum (on the basis of the interest rate used in determining the
payments) and pay that single sum to the estate of the last to die of the
annuitant and the beneficiary.
OTHER CONTRACT PROVISIONS
TEN DAY RIGHT TO REVIEW
The contract owner may cancel the contract by returning it to the Service
Office or agent at any time within 10 days after receipt of the contract. Within
7 days of receipt of the contract by the Company, the Company will refund the
payment made for the contract.
No withdrawal charge is imposed upon return of the contract within the
ten day right to review period. The ten day right to review may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states. 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 the contract value if this is
greater than the amount otherwise payable.
11
<PAGE> 15
OWNERSHIP
In the case of an individual annuity contract, 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 contract specifications
page or as subsequently named. On and after the maturity date, the annuitant is
the contract owner. If amounts become payable to any beneficiary under the
contract, the beneficiary is the contract owner.
In the case of non-qualified contracts, ownership of the contract may be
changed or the contract may be collaterally assigned at any time 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 the Company receives the request at its Annuity
Service Office. The Company assumes no liability for any payments made or
actions taken before a change is approved or an assignment is accepted or
responsibility for the validity or sufficiency of any assignment. An absolute
assignment will revoke the interest of any revocable beneficiary.
In the case of qualified contracts, ownership of the contract 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 or as otherwise permitted by applicable IRS regulations. 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
contract specifications page or as subsequently named. However, if there is a
surviving contract owner, that person will be treated as the beneficiary. The
beneficiary may be changed subject to the rights of any irrevocable beneficiary.
Any change must be made in writing, approved by the Company and if approved,
will be effective as of the date on which written. The Company assumes no
liability for any payments made or actions taken before the change is approved.
If no beneficiary is living, the contingent beneficiary will be the beneficiary.
The interest of any beneficiary is subject to that of any assignee. If no
beneficiary or contingent beneficiary is living, the beneficiary is the estate
of the deceased contract owner. In the case of certain qualified contracts,
regulations promulgated by the Treasury Department prescribe certain limitations
on the designation of a beneficiary.
ANNUITANT
The annuitant is any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
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 designated on
the contract specifications page or in the application, unless changed.
On the death of the annuitant, the co-annuitant, if living, becomes the
annuitant. If there is no living co-annuitant, the owner becomes the annuitant.
In the case of certain qualified contracts, there are limitations on the ability
to designate and change the annuitant and the co-annuitant.
MODIFICATION
The Company will not change or modify the contract without the owner's
consent except to the extent necessary to conform to any applicable law or
regulation or any ruling issued by a government agency. The provisions of the
contract shall be interpreted so as to comply with the requirements of Section
72(s) of the Code.
COMPANY APPROVAL
The Company reserves the right to accept or reject a contract application
at its sole discretion.
MARKET VALUE ADJUSTMENT
Any amount withdrawn, transferred or annuitized prior to the end of
either the initial guarantee period or a renewal guarantee period will be
adjusted by the market value adjustment factor described below.
12
<PAGE> 16
The market value adjustment factor is determined by the following
formula: ((1+i)/(1+j))(n/12 exponent) where:
i - The initial guaranteed interest rate or renewal guaranteed interest
rate currently being earned on the contract.
j - The guaranteed interest rate available, on the date the request is
processed by the Company, for a guarantee period with the same length as
the period remaining in the initial guarantee period or renewal guarantee
period. If the guarantee period of this length is not available, the
guarantee period with the next highest duration which is maintained by
the Company will be chosen.
n - The number of complete months remaining to the end of the initial
guarantee period or renewal guarantee period.
There will be no market value adjustment in the following situations: (a)
death of the contract owner; (b) amounts withdrawn within one month prior to the
end of the guarantee period; and (c) amounts withdrawn in any contract year that
do not exceed (i) 10% of total purchase payments less (ii) any prior partial
withdrawals in that year.
The market value adjustment reflects the relationship between the initial
guaranteed interest rate or the renewal guaranteed interest rate applicable to
the contract and the then current available guaranteed interest rate. Generally,
if the initial guaranteed interest rate or the renewal guaranteed interest rate
is lower than the then current available guaranteed interest rate, then the
effect of the market value adjustment will be to reduce the amount withdrawn,
transferred or annuitized. Similarly, if the initial guaranteed interest rate or
the renewal guaranteed interest rate is higher than the then current available
guaranteed interest rate, then the effect of the market value adjustment will be
to increase the amount withdrawn, transferred or annuitized. The greater the
difference in these interest rates the greater the effect of the market value
adjustment.
The market value adjustment is also affected by the amount of time
remaining in the guarantee period. Generally, the longer the time remaining in
the guarantee period, the greater the effect of the market value adjustment on
the amount withdrawn, transferred or annuitized. This is because the longer the
time remaining in the guarantee period, the higher the compounding factor `n' in
the market value adjustment factor.
The cumulative effect of the market value adjustment and withdrawal
charges could result in a contract owner receiving total withdrawal proceeds of
less than the contract owner's investment in the contract.
BECAUSE OF THE MARKET VALUE ADJUSTMENT PROVISION OF THE CONTRACT, THE
CONTRACT OWNER BEARS THE INVESTMENT RISK THAT THE CURRENT AVAILABLE GUARANTEED
INTEREST RATE OFFERED BY THE COMPANY AT THE TIME OF WITHDRAWAL, TRANSFER OR
ANNUITIZATION MAY BE HIGHER THAN THE INITIAL OR RENEWAL GUARANTEE INTEREST RATE
APPLICABLE TO THE CONTRACT WITH THE RESULT THAT THE AMOUNT THE CONTRACT OWNER
RECEIVES UPON A WITHDRAWAL, TRANSFER OR ANNUITIZATION MAY BE SUBSTANTIALLY
REDUCED.
For more information on the market value adjustment, including examples
of its calculation, see Appendix B.
CHARGES AND DEDUCTIONS
WITHDRAWAL CHARGE
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 during the first seven contract years. There is never a
withdrawal charge after seven complete contract years and on certain amounts
withdrawn during the first seven contract years as described below. The amount
of the withdrawal charge and when it is assessed is discussed below:
13
<PAGE> 17
1. In any contract year, the amount available without the imposition of a
withdrawal charge for that year is the excess of (i) over (ii), where (i) is 10%
of the purchase payment and (ii) is all prior partial withdrawals in that
contract year.
2. If a withdrawal is made at the end of the initial guarantee period, no
withdrawal charge will be applied provided such withdrawal occurs on or after
the end of the third contract year. If a withdrawal is made at the end of any
other guarantee period, no withdrawal charge will be applied provided such
withdrawal occurs on or after the end of the fifth contract year. A request for
withdrawal at the end of a guarantee period must be received in writing during
the 30 days period preceding the end of that guarantee period.
3. The amount of the withdrawal charge is calculated by multiplying the
gross withdrawal value, less any administration fee and the amount available
without the imposition of a withdrawal charge by the applicable withdrawal
charge percentage obtained from the table below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETED WITHDRAWAL CHARGE
CONTRACT YEARS PERCENTAGE
--------------------------------------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
</TABLE>
4. There is generally no withdrawal charge on distributions made as a
result of the death of the contract owner or, if applicable, the annuitant, (see
"Death Benefit Before Maturity Date - Amount and Payment of Death Benefit").
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 may be subject to a market value adjustment in addition to the
withdrawal charge described above. (See "MARKET VALUE ADJUSTMENT")
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
The amount of the withdrawal charge on a contract or the period to which
it applies may from time to time be reduced or eliminated for sales of the
contracts to certain individuals or groups of individuals in such a manner that
results in savings of sales expenses. The Company will consider such factors as
(i) the size and type of group, (ii) the amount of the single premium and/or
(iii) other transactions where sales expenses are reduced, when considering
whether to reduce or eliminate the sales charge or the period to which it
applies.
TAXES
The Company reserves the right to charge, or provide for, certain taxes
against purchase payments, contract values, death benefits 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 Fixed Account, (ii) receipt by the Company of purchase
payments, (iii) issuance of the contracts, (iv) commencement or continuance of
annuity payments under the contracts or (v) death of the owner or annuitant. In
addition, the Company will withhold taxes to the extent required by applicable
law.
Premium taxes will be deducted from the contract value used to provide
for 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
14
<PAGE> 18
status of the contract and are subject to change by the legislature or other
authority. (See "APPENDIX B: STATE PREMIUM TAXES")
ADMINISTRATION FEE
To compensate the Company for assuming certain administrative expenses,
the Company reserves the right to charge an annual administration fee. Prior to
the maturity date, the administration fee is deducted on the last day of each
contract year. If the contract is surrendered for its contract value on any date
other than the last day of any contract year, the Company will deduct the full
amount of the administration fee from the amount paid. Currently, no fee is
being assessed.
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
DESCRIPTION OF BUSINESS
Organization and History
------------------------
First North American Life Assurance Company (the "Company") is a stock
life insurance company organized under the laws of New York in 1992. The
Company's principal office is located at International Corporate Center, 555
Theodore Fremd Avenue, Rye, New York 10580. The Company is a wholly-owned
subsidiary of North American Security Life Insurance Company, ("Security Life"
or "Parent"). 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.
The ultimate parent of the Company is The Manufacturers Life Insurance
Company ("Manulife"), a Canadian mutual life insurance company based in Toronto,
Canada. Prior to January 1, 1996, 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 Manulife name.
Effective January 1, 1996, immediately following the merger of NAL and
Manulife, Security Life 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 Security Life and
Wood Logan Associates, Inc. ("WLA"). Manulife 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.
NASL Financial Services, Inc. ("NASL Financial"), a wholly-owned
subsidiary of the Security Life, acts as principal underwriter to the contracts
issued by the Company. NASL Financial has entered into a promotional agent
agreement with WLA to act as the non-exclusive agent for the promotion of the
Company's insurance contract sales. (See "Distributor" below).
Product Lines
-------------
The Company issues fixed and variable annuity contracts in the State of
New York. Premiums received during 1996 totaled $116.7 million, all of which was
obtained through the sale of a combination fixed and variable annuity contract.
Amounts invested in the fixed portion of the Company's insurance contracts are
allocated to the General Account of the Company or in the case of the contract
described in this prospectus, to a non-unitized separate account of the Company.
Amounts invested in the variable portion of the contracts are allocated to the
FNAL Variable Account, a separate account of the Company. The separate account
assets (other than the separate account described in this prospectus) are
invested in shares of NASL Series Trust, a no-load, open end management
investment company organized as a Massachusetts business trust.
Property and Office Location
----------------------------
The Company's offices are located at International Corporate Center, 555
Theodore Fremd Avenue, Rye, New York 10580 where the Company leases office
space. The Company owns no real property which is used for business purposes.
15
<PAGE> 19
MANAGEMENT DISCUSSION & ANALYSIS
Overview
--------
The Company issues fixed and variable annuity contracts. Amounts invested in
variable contracts are allocated to a separate account of the Company. The
assets of the separate account are invested in shares of the NASL Series Trust,
a no-load, open-end management investment company organized as a Massachusetts
business trust. All sales and marketing support for the annuity business is
provided by Wood Logan Associates, Inc. Annuity products are primarily sold
through major wirehouses, regional broker dealers, financial planners and banks.
The Company's primary sources of earnings are separate account fees earned on
variable contractholders' account balances. Hence, a key factor in the Company's
profitability is sustained growth in the underlying assets through market
performance coupled with the ability to acquire and retain annuity deposits.
Yet, although strong sales position the Company for future growth in surplus,
initially under statutory accounting there is a loss from operations due to the
expensing of acquisition costs (principally commission costs) in excess of the
expense allowances provided in the reserve basis. Whenever a company experiences
rapid growth relative to the total business in force, as the Company has since
its inception in 1992, the first year losses on new business will generally
exceed the profits generated on the in force business. This result is due to the
conservative nature of statutory accounting. Eventually, as the profits on the
in force block of business become greater than the cost of writing new business,
profits will emerge.
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the New York State Insurance
Department, which practices differ from generally accepted accounting principles
(GAAP). The 1996 financial statements, presented for comparative purposes, were
prepared on the basis of statutory accounting practices which until December 31,
1995, were considered by the insurance industry to be in accordance with GAAP
for mutual life insurance companies and their wholly-owned subsidiaries.
Pursuant to FASB Interpretation 40, Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises (FIN 40),
as amended, which is effective for 1996 annual financial statements, financial
statements prepared on the basis of statutory accounting practices can no longer
be described as prepared in conformity with GAAP. A description of the
accounting policies can be found in Note 1 to the December 31, 1996 audited
financial statements.
Results of Operations
---------------------
June 30, 1997 Compared to June 30, 1996
---------------------------------------
[be filed by amendment}
1996 Compared to 1995
---------------------
The Company incurred a net gain from operations of $231 thousand in 1996 versus
a loss of $579 thousand in 1995.
The Company experienced its first profitable year since inception, in 1992,
which can be attributable to the growth in annuity deposits during a period of
favorable investment market performance.
Annuity deposits increased from $89.1 million in 1995 to $116.7 million in 1996,
a 31.0% increase. This increase was primarily the result of strong marketing
efforts supported by favorable investment performance within the NASL Series
Trust, the underlying mutual fund for the annuity product.
Annuity benefits increased from $13.5 million to $16.8 million in 1995 and
1996, respectively which was expected given the higher and more mature business
in force. Both the growth in annuity deposits and benefits are offset by the
change in separate account liabilities and general benefit reserves of $95.5
million in 1996 and 74.2 million in 1995. With the growth in separate account
assets, due to net deposits and investment performance the Company recognized an
increase in mortality and expense fees of approximately $1.7 million in 1996
versus 1995.
16
<PAGE> 20
Continuation of the strong investment performance within the NASL Series Trust
throughout 1996 resulted in an increase in potential surrender charges available
therefore reducing statutory reserves under the Commissioner Annuity Reserve
Valuation Method.
The loss of $579 thousand recognized in 1995 did reflect the establishment of
additional reserves of $1.2 million required by the NAIC under Guideline GGG.
This regulation clarified how the Commissioner's Annuity Reserve Valuation
Method ("CARVM") is to be applied with the result that reserves must be
sufficient to protect the Company against the worst possible combination of
events as part of its reserve adequacy testing.
Commission costs increased from $3.1 million to $4.1 million in 1995 and 1996,
respectively directly due to the increase in annuity deposits. Other expenses,
including general expenses and agency allowance increased from $3.6 million to
$4.8 million in 1995 and 1996, respectively as a result of the increase in
annuity deposits and added personnel and technology related costs to support the
larger in force block of annuity business.
Additionally, the Company benefited from the added investment income on the
$13.3 million of additional paid in capital provided by the Parent during 1996.
Offsetting the positive income variance from 1995 was an increase in federal
income taxes of $511.2 million.
1995 Compared to 1994
---------------------
The Company incurred a net loss from operations of $579 thousand in 1995 versus
a net loss of $867 thousand in 1994.
Annuity deposits decreased from $107.9 million in 1994 to $89.1 million in 1995.
The reduction in annuity deposits was primarily the result of below market
investment results within the NASL Series Trust and investor concern over the
downgrade in the A.M. Best rating of our previous parent company. Annuity
benefits increased from $5.6 million to $13.5 million in 1994 and 1995,
respectively which was attributed to the same concerns causing the reduction in
new business along with the maturing of the inforce business. The change in both
annuity deposits and benefits is offset by the change in separate account and
general account liabilities of $74.2 million and $96.6 million in 1995 and 1994,
respectively. Investment performance within the NASL Series Trust increased
significantly in 1995 versus 1994 resulting in an increase in potential
surrender charges available therefore reducing statutory reserves under the
Commissioner Annuity Reserve Valuation Method. This reserve decrease positively
affected earnings in 1995.
The loss of $579 thousand recognized in 1995 did reflect the establishment of
additional reserves of $1.2 million required by the NAIC under Guideline GGG.
This regulation clarified how the Commissioner's Annuity Reserve Valuation
Method ("CARVM") is to be applied with the result that reserves must be
sufficient to protect the Company against the worst possible combination of
events as part of its reserve adequacy testing.
Commission costs decreased from $3.8 million to $3.1 million in 1994 and 1995,
respectively due to the decrease in annuity deposits partially offset by
additonal promotional costs in offering the one year fixed annuity option. Other
expenses, including general expenses and agency allowance decreased from $3.8
million to $3.6 million in 1994 and 1995, respectively as a result of the
decrease in annuity deposits and partially offset by added personnel and
technology related costs to support the larger in force block of annuity
business.
Financial Position
------------------
Assets and Liabilities
June 30, 1997 Compared to December 31, 1996
-------------------------------------------
[To be Filed by Amendment]
December 31, 1996 Compared to December 31, 1995
-----------------------------------------------
17
<PAGE> 21
At December 31, 1996 total assets were $453.3 million, an increase of $151.3
million or 50.1% from 1995. Total liabilities at December 31, 1996 were $431.1
million an increase of $137.9 million over 1995. Separate account assets and
liabilities represented the majority of the change in financial position as the
separate account assets and liabilities increased by $144.5 million from 1995
directly due to the increase in annuity deposits and positive investment
performance.
Capital and Surplus
June 30, 1997 Compared to December 31, 1996
-------------------------------------------
[To be Filed by Amendment]
December 31, 1996 Compared to December 31, 1995
-----------------------------------------------
Total capital and surplus at December 31, 1996 was $22.3 million, an increase of
$13.4 million from December 31, 1995. The primary reason for the change in
surplus was due to the additional paid in capital of $13.3 million provided by
the Parent, as requested by the New York State Insurance Department. Other
surplus adjustments, including the net gain from operations netted to a positive
surplus affect of $.1 million.
Liquidity and Capital Resources
-------------------------------
The growth of the variable annuity market, particularly the substantial increase
in the Company's sales relative to its inforce business, has resulted in the
Company utilizing cash to finance the acquisition cost of writing new business.
This is driven by the fact that the Company must invest 100% of the variable
option premiums in the separate account while paying commissions on that block
of business. The New York Insurance Department requires the Company to obtain
sufficient capital currently, to fund future projected operating results. As a
result, the Company currently has sufficient capital to finance its current
growth, hence has not required additional debt financing.
As a result of the merger with Manulife, the Company became party to a
restructured lending facility that will provide sufficient cash flow needs, if
so required, at more favorable interest rate margins.
Aside from the financing needs for funding acquisition costs, the Company's cash
flows are adequate to meet the general obligations on all annuity contracts.
Reserves
--------
In accordance with insurance laws and regulations under which the Company
operates and statutory accounting principles, the Company is obligated to carry
on its books, as liabilities, actuarially determined reserves to meet its
obligations on its outstanding contracts. Reserves are based on published
mortality tables and prescribed interest rates per the State of New York and are
computed to equal amounts that, with additions from premiums to be received and
with interest on such reserves computed annually at certain assumed rates, will
be sufficient to meet the Company's contract obligations at their maturities or
in the event of the insured's death. In the financial statements included in
this Prospectus, these reserves are determined in accordance with statutory
accounting principles.
For further information on the Company's reserves, see note 5 to the
Company's financial statements in this Prospectus.
Investments
-----------
The Company's assets must be invested in accordance with requirements of
applicable state law and regulations regarding the nature and quality of
investments that may be made by insurance companies and the percentage of its
assets that may be held in certain types of investments. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state, and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments.
Competition
-----------
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<PAGE> 22
The Company is engaged in a business that is highly competitive because
of the large number of stock and mutual life insurance companies and other
entities marketing annuity products. There are approximately 2,100 stock, mutual
and other types of insurers in the life insurance business in the United States,
a significant number of which are substantially larger than the Company. As of
December 31, 1996, the Company had nine employees.[CONFIRM]
Government Regulation
---------------------
The Company is subject to the laws of the state of New York governing
insurance companies and to the regulation of the New York Insurance Department.
Regulation by an insurance department includes periodic examination to determine
the Company's contract liabilities and reserves so that the insurance department
may verify that these items are correct. Regulation by supervisory agencies
includes licensing to transact business, overseeing trade practices, licensing
agents, approving policy forms, establishing reserve requirements, fixing
maximum interest rates on life insurance policy loans and minimum rates for
accumulation of surrender values, prescribing the form and content of required
financial statements and regulation of the type and amounts of investments
permitted. The Company's books and accounts are subject to review by the
insurance department and other supervisory agencies at all times, and the
Company files annual statements with these agencies. A full examination of the
Company's operations is conducted periodically by the New York insurance
department.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for policyholder
losses incurred by insolvent companies. The amount of any future assessments on
the Company under these laws cannot be reasonably estimated. Most of these laws
do provide, however, that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal legislation that removed barriers preventing banks
from engaging in the insurance business or that changed the Federal income tax
treatment of insurance companies, insurance company products, or employee
benefit plans could significantly affect the insurance business.
19
<PAGE> 23
<TABLE>
<CAPTION>
=================================================================================================
SELECTED FINANCIAL DATA
As for the year ended December 31, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Annuity considerations and deposits $116,736 $ 89,142 $ 107,925 $ 81,730 $ 2,792
Annuity benefits 16,794 13,493 5,577 607 --
Change in reserve and Separate
Account liability 95,482 74,226 71,087 76,655 2,635
General expenses 4,843 3,554 3,827 877 479
Net income(loss) 231 (579) (867) (889) (252)
BALANCE SHEET DATA:
Separate account assets 361,310 216,808 147,614 80,329 2,739
Total assets 453,333 301,997 187,010 93,774 10,340
Total capital and surplus 22,265 8,822 8,104 9,127 7,072
</TABLE>
20
<PAGE> 24
OFFICERS AND DIRECTORS OF THE COMPANY
The following table presents certain information regarding the Directors
and executive officers of the Company including their age and principal
occupations, which, unless specific dates are shown, are of more than five years
duration.
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY PRINCIPAL OCCUPATION
<S> <C> <C>
Bruce Avedon Director* Consultant (self-employed).
Age:68
Kenneth H. Conrad Director* (To be completed.)
Age:44
John D. DesPrez III Director* Vice President, U.S.
Annuities, Manulife,
Age: 40 September 1996 to present;
Director and President,
Security Life, September
1996 to present; Vice
President, Mutual Funds,
Manulife, January 1995 to
September 1996; President
and Chief Executive Officer,
North American Funds, March
1993 to September 1996; Vice
President and General
Counsel, Security Life,
January 1991 to June 1994.
Stephanie Elliman Vice President and Chief (To be completed.)
Administration Officer
Age:
Ruth Ann Flemming Director* (To be completed.)
Age:39
Bruce Gordon Director* Vice President, Pensions,
Age:53 Manulife.
Richard C. Hirtle Director*, Vice Vice President, Chief
President and Treasurer Financial Officer,
Age: 41 Annuities, Manulife, January
1996 to present; Vice
President, Treasurer, Chief
Financial Officer, Security
Life.
Peter S. Hutchison Director* Senior Vice President,
Corporate Taxation,
Age:48 Manulife, January 1996 to
present; Executive Vice
President and Chief
Financial Officer, NAL,
September 1994 to December
31, 1995; Senior Vice
President and Chief Actuary,
NAL, April 1992 to August
1994; Vice President and
Chief Actuary, NAL,
September 1990 to March
1992.
Tracy A. Kane Secretary and Counsel (To be completed.)
Age:
Neil M. Merkl, Esq. Director* Attorney (self-employed),
April 1994 to present;
Age:66 Partner, Wilson Elser, Etc.,
1979 to 1994.
Robert C. Perez, Ph.D. Director* Associate Professor, Iona
College, Hagen Business
Age:70 School.
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY PRINCIPAL OCCUPATION
<S> <C> <C>
John Richardson Director and Chairman of Senior Vice President and
the Board of Directors* General Manager, U.S.
Age:59 Operations, Manulife,
January 1995 to present;
Senior Vice President and
General Manager, Canadian
Operations, Manulife, June
1992 to January 1995; Senior
Vice President, Financial
Services, Manulife, prior to
June 1992.
James K. Robinson Director* Attorney, Assistant
Secretary, Eastman Kodak
Age:70 Company.
Joseph Scott Director* and President President, North American
Funds, September 1996 to
Age:48 present; Vice President,
Business Development and
Marketing, North American
Funds, January 1996 to
September 1996; Vice
President, Annuities,
Manulife, January 1995 to
December 1995; Vice
President, Distribution,
Manulife, January 1991 to
December 1994.
John G. Vrysen Director*, Vice Vice President and Chief
President and Chief Financial Officer, U.S.
Age: 41 Actuary Operations, Manulife,
January 1996 to present;
Vice President and Chief
Actuary, Security Life.
H. Douglas Wood Director* President, Wood Logan
Associates, Inc.
Age:65
</TABLE>
*Each Director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and qualified.
EXECUTIVE COMPENSATION
The Company's executive officers may also serve as officers of one or more
of the Company's affiliates including Security Life and Manulife and its
affiliates. Allocations have been made as to such officers' time devoted to
duties as executive officers of the Company. The following table shows the
allocated compensation paid or awarded to or earned by the Company's Chief
Executive Officer for services provided to the Company. No other executive
officer had allocated cash compensation in excess of $100,000. [CONFIRM]
<TABLE>
Summary Compensation Table
--------------------------
<CAPTION>
- --------------------------------------------------------------------------------
Name and Year Salary Bonus Other Annual All Other
- -------- ---- ------ ----- ------------ ---------
Principal Compensation Compensation
- --------- ------------ ------------
Position (1) (2)
- -------- --- ---
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joseph Scott, 1996 $ $ $ $
Director and
President
1996 $ $ $ $
</TABLE>
(1) Other Annual Compensation includes car allowance, car expense reimbursement
and group term life insurance premiums.
(2) Other Compensation includes Company paid 401(k) plan and pension
contributions.
No executive officer participates in the formulation of his or her
compensation. The compensation of executive officers is determined by the
individual to whom the officer reports and is approved by Manulife.
22
<PAGE> 26
In addition to cash compensation, all officers are entitled to a standard
benefit package including medical, dental, pension, basic and dependent life
insurance, defined contribution plan and long- and short-term disability
coverage. There are no other benefit packages which currently enhance overall
compensation by more than 10%.[CONFIRM]
Executive officers participate in certain plans sponsored by the Company.
A short-term incentive plan is in place for all employees of the Company at the
executive level and above. Pay-outs under the short-term incentive plan are
based on a percentage of salary and the employee's level in the organization.
All employees at the Assistant Vice President level or above are eligible
for the Manulife Annual Incentive Plan. Under this plan, a reward target is
established for each organizational level of Manulife, expressed as a percentage
of the employee's base salary as of December 31st of the plan year. Incentive
payments are based on Manulife earnings and organizational level objectives as
well as individual achievement.
All employees at the Vice President level and above are eligible to
participate in the Manulife Long Term Incentive Plan. The Manulife Long Term
Incentive Plan is an appreciation rights plan. Participation in this plan is
generally granted to officers of Manulife who are recommended for participation
in the plan by the Chief Executive Officer of Manulife and the Management
Resource Compensation Committee of Manulife. Grants under the plan are
calculated based on the officer's position at Manulife as well as certain other
factors and are split evenly into two categories, cash appreciation rights and
retirement appreciation rights. Grants appreciate proportionally to the
statutory surplus of Manulife. Cash appreciation rights may be exercised on or
after the fourth anniversary of the grant whereas retirement appreciation rights
may only be exercised upon retirement.
Prior to December 31, 1995, NAL maintained a defined benefit pension plan
for all U.S. employees which vests at five years of service. This plan has been
continued by Manulife. Benefit pay-out is a function of years of service and
average earnings during the employee's last five years of service. Under the
Internal Revenue Code of 1986, as amended (the "Code"), the annual Pension
Credit is currently earned at a maximum salary of $150,000. Normal retirement
age is 65. Pay-out is an annuity based with either a single life with a 10 year
guarantee or joint life and 50% survivor. The normal retirement benefit is a
monthly pension benefit in an amount equal to the Employer Pension Credit plus
the Participant Pension Credit (The plan has been non-contributory since January
1, 1990). The Employer Pension Credit is determined as follows:
The Employer Pension Credit is generally equal to the average of the
pension Units A during the employee's last five years of employment, multiplied
by the years of benefit service earned after December 31, 1966 (not to exceed 35
years). For each year in the average period, the Pension Units A is equal to
1.1% of compensation plus 0.4% of compensation in excess of the Social Security
Taxable Wage Base. Pension Units A prior to January 1, 1981 are calculated using
only compensation less than or equal to $75,000.
Combined pension benefits at age 65 under these arrangements are as
follows:
<TABLE>
<CAPTION>
Years of Service
- ----------------------------------------------------------------------
Remuneration* 15 20 25 30 35
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$125,000 $21,881 $29,175 $36,468 $43,762 $51,056
150,000 26,995 35,994 44,992 53,990 62,989
175,000 30,239 40,318 50,398 60,478 70,557
200,000 30,510 40,680 50,850 61,020 71,190
225,000 30,510 40,680 50,850 61,020 71,190
250,000 30,510 40,680 50,850 61,020 71,190
300,000 30,510 40,680 50,850 61,020 71,190
400,000 30,510 40,680 50,850 61,020 71,190
</TABLE>
*Remuneration table is based on a 100% time allocation to the Company.
John D. DesPrez and [include all vested employees] have 6 years [and X
years] of vested service, respectively.
Effective January 1, 1996, employees of the Company with earnings
exceeding federally mandated limits and eligible for the Manulife or NAL U.S.
defined benefit pension plan, became eligible for Manulife's
23
<PAGE> 27
Supplemental Executive Retirement Plan. This is a noncontributory, non-qualified
plan intended to provide additional pension income consistent with the
executive's pre-retirement income. The pension earned under the Supplemental
Executive Retirement Plan is 60% of the average of the highest 5 years of
earnings up to $200,000 plus 30% of the average of the highest 5 years of
earnings between $200,000 and $500,000 plus 10% of the average of the highest 5
years of earnings in excess of $500,000, less 15.75% of the average of the 3
years earnings up to the Social Security Covered Compensation, multiplied by the
credited years of service (up to a maximum of 35 years), divided by 35, less the
pension earned under the Manulife or NAL U.S. defined benefit pension plan.
Combined pension benefits at age 65 under these arrangements are as
follows:
<TABLE>
<CAPTION>
Years of Service
- ----------------------------------------------------------------------
Remuneration* 15 20 25 30 35
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 $ 0 $ 0 $ 0 $ 0 $ 0
175,000 2,138 2,850 3,563 4,275 4,988
200,000 7,673 10,230 12,788 15,345 17,903
225,000 12,930 17,240 21,550 25,860 30,170
250,000 15,853 21,137 26,421 31,705 36,989
300,000 21,697 28,930 36,162 43,395 50,627
400,000 33,387 44,516 55,645 66,774 77,903
500,000 45,077 60,102 75,128 90,153 105,179
</TABLE>
The Company offers a defined contribution plan pursuant to 401(k) of the
Code which allows employees to contribute up to 6% of their base annual salary.
The Company matches 50% of the employee contributions as well as contributes a
floor amount of 2% of base pay for each pay period. The maximum total
contribution (including employer contributions), based on the maximum taxable
wage as set forth in the Code is $16,500. Company employees are 100% vested in
the Company floor contributions and personal contributions to the plan.
Employees become 100% vested in the employer matching contributions if he or she
retires on or after age 65, becomes disabled or dies. Otherwise, employees earn
a right to employer contributions through the following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Vested Portion of Company Contribution
-------------------------------------------------------------------
<S> <C>
Less than 3 None
At least 3 33 1/3%
At least 4 66 2/3%
5 or more 100%
</TABLE>
Directors of the Company, all of whom are also officers or employees of
the Company or its affiliates, receive no compensation in addition to their
compensation as officers or employees of the Company or its affiliates. No
shares of the Company or any of its affiliates are owned by any executive
officer or Director of the Company.
FNAL FIXED ACCOUNT
The Company established the Fixed Account in 1997 as a separate account
under the laws of the State of New York. The Fixed Account holds assets that are
segregated from all of the Company's other assets. The Fixed Account is
currently used only to support the obligations under the contracts offered by
this prospectus. These obligations are based on interest rates credited to the
contracts and do not depend on the investment performance of the Fixed Account.
Any gain or loss in the Fixed Account accrues solely to the Company and the
Company assumes any risk associated with the possibility that the value of the
assets in the Fixed Account might fall below the reserves and other liabilities
that must be maintained. Should the value of the assets in the Fixed Account
fall below reserve and other liabilities, the Company will transfer assets from
its General Account to the Fixed Account to make up the shortfall. The Company
reserves the right to transfer to its General Account any assets of the Fixed
Account in excess of such reserves and other liabilities and to maintain assets
in the Fixed Account which support any number of annuities which the Company
offers or may offer. The assets of the Fixed Account are not insulated from the
claims of the Company's creditors and may be charged with liabilities which
arise from other business conducted by the Company. Thus the Company may, at its
discretion if permitted by applicable state law, transfer existing Fixed Account
assets to, or place future Fixed Account allocations in, its General Account for
purposes of administration.
24
<PAGE> 28
The assets of the Fixed Account will be invested in those assets chosen by
the Company and permitted by applicable New York state laws for separate account
investment.
DISTRIBUTION OF THE CONTRACT
NASL Financial Services, Inc. ("NASL Financial"), 116 Huntington Avenue,
Boston, Massachusetts, 02116, a wholly-owned subsidiary of Security Life, is the
principal underwriter of the contract. NASL Financial is a broker-dealer
registered under the Securities Exchange Act of 1934 ("1934 Act") and a member
of the National Association of Securities Dealers, Inc. (the "NASD"). NASL
Financial has entered into an non-exclusive promotional agent agreement with
Wood Logan Associates, Inc. ("Wood Logan"). Wood Logan is a broker-dealer
registered under the 1934 Act and a member of the NASD. Wood Logan is a
wholly-owned subsidiary of a holding company that is 85% owned by Manulife and
approximately 15% owned by the principals of Wood Logan. Sales of the contract
will be made by registered representatives of broker-dealers authorized by NASL
Financial to sell the contracts. Such registered representatives will also be
licensed insurance agents of the Company. Under the promotional agent agreement,
Wood Logan will recruit and provide sales training and licensing assistance to
such registered representatives. In addition, Wood Logan will prepare sales and
promotional materials for the Company's approval. NASL Financial will pay
distribution compensation to selling brokers in varying amounts which under
normal circumstances are not expected to exceed 5% of purchase payments. NASL
Financial may from time to time pay additional compensation pursuant to
promotional contests. Additionally, in some circumstances, NASL Financial will
provide reimbursement of certain sales and marketing expenses. NASL Financial
will pay Wood Logan for providing marketing support for the distribution of the
contract.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation, to which the Company is a party or to which any of its property is
subject and, to the best knowledge of the Company, no such proceedings are
contemplated by any governmental authority.
LEGAL MATTERS
All matters of applicable state law pertaining to the contract, including the
Company's right to issue the contract thereunder, have been passed upon by James
D. Gallagher, Esq., Vice President, Secretary and General Counsel of Security
Life, the Parent of the Company.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company at December 31, 1996 included in this
Prospectus have been examined by Ernst & Young LLP, independent auditors, as
indicated in their report thereon in this Prospectus, and are included herein in
reliance upon that report and upon the authority of those accountants as experts
in accounting and auditing. The statutory balance sheet of the Company as of
December 31, 1995 and the related statutory statement of operations, changes in
capital and deficit and cash flows for the year period ended December 31, 1995,
appearing in this Prospectus, has been included herein relying on the report
(which report contains an adverse opinion to generally accepted accounting
principles and an unqualified opinion as to the statutory accounting practices
prescribed or permitted by the Insurance Department of the State if New York),
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
NOTICES AND REPORTS TO CONTRACT OWNERS
At least once each contract year, the Company will send to contract owners
a statement showing the contract value of the contract as of the date of the
statement. The statement will also show premium payments and any other
information required by any applicable law or regulation.
CONTRACT OWNER INQUIRIES
All contract owner inquiries should be directed to the Company's Annuity Service
Office at International Corporate Center, 555 Theodore Fremd Avenue, Rye, New
York 10580
25
<PAGE> 29
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the
Contracts is not exhaustive, does not purport to cover all situations, and is
not intended as tax advice. The federal income tax treatment of the Contracts is
unclear in certain circumstances, and a qualified tax adviser should always be
consulted with regard to the application of law to individual circumstances.
This discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Department regulations, and interpretations existing on the
date of this Prospectus. These authorities, however, are subject to change by
Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences
associated with the purchase of the Contracts. 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 the Code. The
assets in the separate account will be owned by the Company, and the income
derived from such assets will be includible in the Company's income for federal
income tax purposes.
TAXATION OF ANNUITIES IN GENERAL
Tax Deferral During Accumulation Period
- ---------------------------------------
Under existing provisions of the Code, except as described below, any
increase in an owner's contract value is generally not taxable to the owner or
annuitant until received, either in the form of annuity payments as contemplated
by the Contracts, or in some other form of distribution. However, this rule
applies only if the owner is an individual.
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 income on such contracts (as defined in the tax law) is taxed as ordinary
income that is received or accrued by the owner during the taxable year. There
are several exceptions to this general rule for non-natural contract owners.
First, annuity 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 exception will not apply in the case
of any employer which is the nominal owner of an annuity contract under a
non-qualified deferred compensation arrangement for its employees.
Other exceptions to the general rule for non-natural contract owners will
apply with respect to (1) annuity contracts acquired by an estate of a decedent
by reason of the death of the decedent, (2) certain annuity contracts issued in
connection with various qualified retirement plans, (3) annuity contracts
purchased by employers upon the termination of certain qualified retirement
plans, (4) certain annuity contracts used in connection with structured
settlement agreements, and (5) annuity 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.
In addition to the foregoing, if the Contract's maturity date is scheduled
to occur at a time when the annuitant is at an advanced age, such as over age
85, it is possible that the owner will be taxable currently on the annual
increase in the contract value.
The remainder of this discussion assumes that the contract will constitute
an annuity for federal tax purposes.
Taxation of Partial and Total Withdrawals
- -----------------------------------------
In the case of a partial withdrawal, amounts received generally are
includible in income to the extent the owner's contract value before the
withdrawal exceeds his or her "investment in the contract." In the case of a
total withdrawal, amounts received are includible in income to the extent they
exceed the "investment in the contract."
26
<PAGE> 30
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 as,
for example, in the case of certain employer contributions to Qualified Plans)
less any amounts previously received from the Contract which were not included
in income.
Other than in the case of Contracts issued in connection with certain
Qualified Plans (which generally cannot be assigned or pledged), 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 in 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 owner transfers a 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 his or her contract value and the investment in the contract at the time
of transfer. In such case, the transferee's investment in the contract will be
increased to reflect the increase in the transferor's income.
There is some uncertainty regarding the treatment of the market value
adjustment for purposes of determining the amount includible in income as a
result of any partial withdrawal or transfer without adequate consideration.
Congress has given the Internal Revenue Service ("IRS") regulatory authority to
address this uncertainty. However, as of the date of this Prospectus, the IRS
has not issued any regulations addressing these determinations.
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. The exclusion
amount is the amount determined by multiplying (1) the payment by (2) the ratio
of the investment in the contract, 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
this ratio, 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.
There may be special income tax issues present in situations where the
owner and the annuitant are not the same person or are not married. A tax
advisor should be consulted in those situations.
Taxation of Death Benefit Proceeds
- ----------------------------------
Amounts may be distributed from a non-qualified contract because of the
death of an owner or the annuitant. Prior to the maturity date, 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. After the maturity date, where a
guaranteed period exists under an annuity option and the annuitant dies before
the end of that period, payments made to the beneficiary for the remainder of
that period are includible in income as follows: (1) if received in a lump sum,
they are includible in income to the extent that they exceed the unrecovered
investment in the contract at that time, or (2) if distributed in accordance
with the existing annuity option selected, they are fully excludable from income
until the remaining investment in the contract is deemed to be recovered, and
all annuity payments thereafter are fully includible in income.
Penalty Tax on Premature Distributions
- --------------------------------------
Where a Contract has not been issued in connection with a Qualified Plan,
there generally is a 10% penalty tax on the taxable amount of any payment from
the Contract unless the payment is: (a) received on or after the owner reaches
age 59 1/2; (b) attributable to the owner's becoming disabled (as defined in the
tax law); (c) made on or after the death of the owner or, if the owner is not an
individual, on or after the death of the primary annuitant (as defined in the
tax law); (d) made as a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life expectancy) of the
annuitant or the joint lives (or joint life expectancies) of the annuitant and a
"designated beneficiary" (as defined in the tax law), or (e) made under a
27
<PAGE> 31
Contract purchased with a single premium when the maturity date is no later than
a year from purchase of the Contract and substantially equal periodic payments
are made, not less frequently than annually, during the annuity period.
Aggregation of Contracts
- ------------------------
In certain circumstances, the IRS 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 annuity contracts owned by an individual which are
not issued in connection with a Qualified Plan. 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 for purposes of determining
whether any payment not received as an annuity (including withdrawals prior to
the maturity date) is includible in income. Thus, if during a calendar year a
person buys two or more of the Contracts offered by this Prospectus (which might
be done, for example, in order to invest amounts in different guarantee
periods), all of such Contracts would be treated as one Contract in determining
whether withdrawals from any of such Contracts are includible in income.
The effects of such aggregation are not clear and depend on the
circumstances. However, aggregation could affect the amount of a withdrawal that
is taxable and the amount that might be subject to the 10% penalty tax described
above.
QUALIFIED RETIREMENT PLANS
In General
- ----------
The Contracts are also designed for use in connection with certain types
of qualified retirement plans which receive favorable treatment under the Code.
Those who are considering purchase of a contract for use in connection with a
qualified retirement plan should consider, in evaluating the suitability of the
contract, that the contract allows only a single premium purchase payment in an
amount of at least $5,000.
The tax rules applicable to qualified plans 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.
Also, 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 loan must be repaid. (Owners
should always consult their tax advisors and retirement plan fiduciaries prior
to exercising their loan privileges.) Both the amount of the contribution that
may be made, and the tax deduction or exclusion that the owner may claim for
such contribution, are limited under qualified plans. If this Contract is used
in connection with a Qualified Plan, the owner and annuitant must be the same
individual. If a co-annuitant is named, all distributions made while the
annuitant is alive must be made to the annuitant. Also, if a co-annuitant is
named who is not the annuitant's spouse, the annuity options which are available
may be limited, depending on the difference in ages between the annuitant and
co-annuitant. Furthermore, the length of any guarantee period may be limited in
some circumstances to satisfy certain minimum distribution requirements under
the Code.
In addition, 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 IRAs, 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. In the case of certain other Qualified Plans, distributions
of such minimum amounts generally must commence by the later of this date or
April 1 of the calendar year following the calendar year in which the employee
retires.
There is also a 10% penalty tax on the taxable amount of any payment from
certain qualified contracts. (The amount of the penalty tax is 25% of the
taxable amount of any payment received from a "SIMPLE retirement account" during
the 2 year period beginning on the date the individual first participated in any
qualified salary
28
<PAGE> 32
reduction agreement (as defined in the tax law) maintained by the individual's
employer.) 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"), including a "SIMPLE IRA," exceptions provide that the penalty tax does
not apply to a payment (a) received on or after the 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 for the joint lives (or joint life expectancies) of
the owner and designated beneficiary (as defined in the tax 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).
When issued in connection with a Qualified Plan, a Contract will be
amended as generally necessary to conform to the requirements of the plan.
However, owners, annuitants, and beneficiaries are cautioned that the rights of
any person to any benefits under Qualified Plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract. In addition, the Company shall not be bound by terms and
conditions of Qualified Plans to the extent such terms and conditions contradict
the Contract, unless the Company consents.
Qualified Plan Types
- --------------------
Following are brief descriptions of various types of Qualified Plans in
connection with which the Company may issue a Contract.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA." IRAs are subject to limits on the
amounts that may be contributed, the persons who may be eligible and on the time
when distributions may commence. Also, distributions from certain Qualified
Plans may be "rolled over" on a tax-deferred basis into an IRA.
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.
SIMPLE IRAs. Section 408(p) of the Code permits certain small employers to
establish "SIMPLE retirement accounts," including SIMPLE IRAs, for their
employees. Under SIMPLE IRAs, certain deductible contributions are made by both
employees and employers. SIMPLE IRAs are subject to various requirements,
including limits on the amounts that may be contributed, the persons who may be
eligible, and the time when distributions may commence.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND
PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. 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.
Section 403(b) Policies contain restrictions on withdrawals of (i)
contributions made pursuant to a salary reduction agreement in years beginning
after December 31, 1988, (ii) earnings on those contributions, and (iii)
29
<PAGE> 33
earnings in such years on amounts held as of the last year beginning before
January 1, 1989. These amounts can 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 cannot 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 Rollover Rules
- ---------------------
In the case of Contracts used in connection with a pension,
profit-sharing, or annuity plan qualified under Sections 401(a) or 403(a) of the
Code, or in the case of a Section 403(b) tax sheltered annuity, any "eligible
rollover distribution" from the Contract will be subject to direct rollover and
mandatory withholding requirements. 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) tax sheltered 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, withholding at a rate of 20% will be imposed on
any eligible rollover distribution. In addition, the participant in these
qualified retirement plans 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 participant elects
to have amounts directly transferred to certain qualified retirement plans (such
as to an Individual Retirement Annuity). Prior to receiving an eligible rollover
distribution, a notice will be provided explaining generally the direct rollover
and mandatory withholding requirements and how to avoid the 20% withholding by
electing a direct rollover.
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. The withholding rates applicable to the
taxable portion of periodic annuity payments are the same as the withholding
rates generally applicable to payments of wages. The withholding rate applicable
to the taxable portion of non-periodic payments (including withdrawals prior to
the maturity date) is 10%. As described above, the withholding rate applicable
to eligible rollover distributions is 20%.
30
<PAGE> 34
APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
EXAMPLE 1 - Assume a single payment of $50,000 is made into the contract, there
are no transfers or partial withdrawals and the withdrawal is not made at the
end of a guarantee period. The table below illustrates three examples of the
withdrawal charges that would be imposed if the contract is completely withdrawn
during the contract year shown, based on hypothetical contract values and
assuming no market value adjustment.
<TABLE>
<CAPTION>
HYPOTHETICAL AMOUNT AMOUNT
CONTRACT CONTRACT AVAILABLE SUBJECT TO WITHDRAWAL
YEAR VALUE WITHOUT WITHDRAWAL CHARGE
IMPOSITION OF CHARGE
WITHDRAWAL
CHARGE
-----------------
PERCENT AMOUNT
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 55,000 5,000(a) 50,000 6% 3,000
6 60,000 5,000(b) 55,000 2% 1,100
8 70,000 5,000 0(c) 0% 0
</TABLE>
(a) During any contract year the amount available without the imposition of a
withdrawal charge is 10% of the single payment made under the contract
less any prior partial withdrawals in that contract year. Ten percent of
payments less prior withdrawals equals $5,000 ($5,000-0). Consequently, on
total withdrawal $5,000 is withdrawn without imposition of the withdrawal
charge and the withdrawal charge is assessed against the remaining balance
of $50,000 (contract value less amount available without imposition of a
withdrawal charge).
(b) The amount available without imposition of a withdrawal charge is again
equal to $5,000 and the withdrawal charge is applied to the remaining
balance of $55,000 (contract value less amount available without
imposition of a withdrawal charge).
(c) There is no withdrawal charge after 7 contract years.
EXAMPLE 2 - Assume a single payment of $50,000 is made into the contract and
that no transfers are made. The table below illustrates two partial withdrawals
made during the third contract year of $2,000 and $7,000 and assumes no market
value adjustment applies.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL AMOUNT AMOUNT
CONTRACT WITHDRAWAL AVAILABLE SUBJECT TO WITHDRAWAL
VALUE REQUESTED WITHOUT WITHDRAWAL CHARGE
IMPOSITION CHARGE
OF
WITHDRAWAL
CHARGE
------------------
PERCENTAGE AMOUNT
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
65,000 2,000 2,000(a) 0 5% 0
63,000 7,000 3,000(b) 4,000 5% 200
</TABLE>
(a) The amount available without imposition of a withdrawal charge during any
contract year is 10% of the single payment made under the contract less
any prior withdrawals in that contract year. Ten percent of the payment
less prior withdrawals equals $5,000 ($5,000-0). The amount requested
($2,000) is less than the amount available without imposition of a
withdrawal charge; therefore, no withdrawal charge applies.
(b) Since $2,000 has already been withdrawn in the current contract year, the
remaining amount available without imposition of a withdrawal charge
during the third contract year is $3,000. The $7,000 partial withdrawal
will consist of $3,000 without imposition of withdrawal charge, and the
remaining $4,000 will be subject to a withdrawal charge.
Withdrawals may be subject to a market value adjustment in addition to the
withdrawal charge described above (see "MARKET VALUE ADJUSTMENT").
31
<PAGE> 35
APPENDIX B
MARKET VALUE ADJUSTMENT EXAMPLES
The market value adjustment factor is determined by the following formula:
((1+i)/(1+j))(n/12 exponent) where:
i - The initial guaranteed interest rate or renewal guaranteed interest
rate currently being earned on the contract.
j - The guaranteed interest rate available, on the date the request is
processed by the Company, for a guarantee period with the same length as
the period remaining in the initial guarantee period or renewal guarantee
period. If the guarantee period of this length is not available, the
guarantee period with the next highest duration which is maintained by the
Company will be chosen.
n - The number of complete months remaining to the end of the initial
guarantee period or renewal guarantee period.
<TABLE>
<CAPTION>
Example 1
- ---------
<S> <C>
Payment $100,000
Initial guarantee period 5 years
Initial guaranteed interest rate 5.00% per annum
Guaranteed interest rate for
three year guarantee period 6.00% per annum
Transfer to a different
guarantee period middle of contract year 3
Contract value at middle of
contract year 3 = $100,000 x 1.05(2.5 exponent) = $112,972.63
Amount transferred to a
different guarantee period = $112,972.63 x market value adjustment factor
Market value adjustment factor = ((1+i)/(1+j))(n/12 exponent)
i = .05
j = .06
n = 30
= (1.05/1.06)(30/12 exponent)
= 0.9765817
Amount transferred to a
different guarantee period = $112,972.63 x 0.9765817
= $110,327.00
</TABLE>
32
<PAGE> 36
<TABLE>
<CAPTION>
Example 2
- ---------
<S> <C>
Payment $100,000
Initial guarantee period 5 years
Initial guaranteed interest rate 5.00% per annum
Guaranteed interest rate for
three year guarantee period 4.00% per annum
Transfer to a different
guarantee period middle of contract year 3
Contract value at middle of = $100,000 x 1.05(2.5 exponent) = $112,972.63
contract year 3
Amount transferred to a
different guarantee period = $112,972.63 x market value adjustment factor
Market value adjustment factor = ((1+i)/(1+j))(n/12 exponent)
i = .05
j = .04
n = 30
= (1.05/1.04)(30/12 exponent)
= 1.0242121
Amount transferred to a
different guarantee period = $112,972.63 x 1.0242121
= $115,707.93
</TABLE>
33
<PAGE> 37
APPENDIX C
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>
34
<PAGE> 38
FINANCIAL STATEMENTS OF THE COMPANY
35
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<PAGE> 40
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
Securities and Exchange Commission Registration Fee $
Printing $
Edgarization Expenses $
Accounting fees and expenses $
Legal fees and expenses $
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 10 of the Charter of the Company provides as follows:
TENTH: No director of the Corporation shall be personally liable to the
Corporation or any of its shareholders for damages for any breach of duty as a
director; provided, however, the foregoing provision shall not eliminate or
limit (i) the liability of a director if a judgment or other final adjudication
adverse to such director established his or her such acts or omissions were in
bad faith or involved intentional misconduct or were acts or omissions (a) which
he or she knew or reasonably should have known violated the New York Insurance
Law or (b) which violated a specific standard of care imposed on directors
directly, and not by reference, by a provision of the New York Insurance Law (or
any regulations promulgated thereunder) or (c) which constituted a knowing
violation of any other law, or establishes that the director personally gained
in fact a financial profit or other advantage to which the director was not
legally entitled or (ii) the liability of a director for any act or omission
prior to the adoption of this Article by the shareholders of the Corporation.
Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
Article VII of the By-laws of the Company provides as follows:
SECTION VII.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation may
indemnify any person made, or threatened to be made, a party to an action by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he or she, his or her testator, testatrix or intestate, is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him or her in connection with the defense or settlement of such
action, or in connection with an appeal therein, if such director or officer
acted, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
<PAGE> 41
the best interests of the Corporation, except that no indemnification under this
Section shall be made in respect of (1) a threatened action, or a pending action
which is settled or is otherwise disposed of, or (2) any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation, unless and only to the extent that the court in which the action
was brought, or , if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such portion of
the settlement amount and expenses as the court deems proper.
The Corporation may indemnify any person made, or threatened to be made, a party
to an action or proceeding (other than one by or in the right of the Corporation
to procure a judgment in its favor), whether civil or criminal, including an
action by or in the right of any other corporation of any type or kind, domestic
or foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the Corporation served in any
capacity at the request of the Corporation, by reason of the fact that he or
she, his or her testator, testatrix or intestate, was a director or officer of
the Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he or she reasonably believed to be in, or, in the
case of service for any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to, the best
interests of the Corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his or her conduct was
unlawful.
The termination of any such civil or criminal action or proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, of its equivalent,
shall not in itself create a presumption that any such director or officer did
not act, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
the best interest of the Corporation or that he or she had reasonable cause to
believe that his or her conduct was unlawful.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
<PAGE> 42
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 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
Exhibit No. Description
- ----------- -----------
1(a) Underwriting Agreement between First North
American Life Assurance Company (the "Company")
and NASL Financial Services, Inc. (Underwriter)1/
1(b) Promotional Agent Agreement among NASL Financial
Services, Inc. (Underwriter), the Company and Wood
Logan Associates, Inc. (Promotional Agent) 2/
2 Not Applicable
3(i) Article of Incorporation of the Company 3/
3(ii) By-Laws of the Company 4/
4(i) Form of Individual Single Payment Deferred Fixed
Annuity Non-Participating Contract is filed herein
4(ii) Individual Retirement Annuity Endorsement is filed
herein
4(iii) ERISA Tax-Sheltered Annuity Endorsement is filed
herein
4(iv) Tax-Sheltered Annuity Endorsement is filed herein
4(v) Section 401 Plans Endorsement is filed herein
5 Opinion and Consent of James D. Gallagher, Esq. -
to be filed by amendment
6 Not Applicable
7 Not Applicable
8 Not Applicable
9 Not Applicable
10 Form of broker-dealer agreement between the
Company, NASL Financial Services, Inc.
(Underwriter), Wood Logan Associates, Inc.
(Promotional Agent) and broker-dealers is filed
herein
11 Not Applicable
12 Not Applicable
13 Not Applicable
14 Not Applicable
15 Not Applicable
16 Not Applicable
17 Not Applicable
<PAGE> 43
18 Not Applicable
19 Not Applicable
20 Not Applicable
21 Not Applicable
22 Not Applicable
23(I) Consent of Ernst & Young. LLP- To be filed by
amendment
23(ii) Consent of Coopers & Lybrand L.L.P.- To be filed
by amendment
24 Power of Attorney 6/
25 Not Applicable
26 Not Applicable
27 Financial Data Schedule - To be filed by amendment
28 Not Applicable
1/ Incorporated by reference to Exhibit (b)(3)(i) to Form N-4, file number
33-79112, filed September 2, 1992 on behalf of the FNAL Variable Account of the
Company
2/ Incorporated by reference to Exhibit (b)(3)(ii) to Form N-4, file number
33-79112, filed September 2, 1992 on behalf of the FNAL Variable Account of the
Company
3/ Incorporated by reference to Exhibit (b)(6)(i) to the Registration Statement
on Form N-4, file number 33-79112, filed September 2, 1992 on behalf of the FNAL
Variable Account of the Company
4/ Incorporated by reference to Exhibit (b)(6)(ii) to the Registration Statement
on Form N-4, file number 33-79112, filed September 2, 1992 on behalf of the FNAL
Variable Account of the Company
5/ Incorporated by reference to Exhibit (b)(3)(iii) to Form N-14, file number
33-79112, filed September 2, 1991 on behalf of the FNAL Variable Account of the
Company
6/ Incorporated by reference to Exhibit (b)(14) to Form N-4, file number
33-79112, filed February 2, 1993 on behalf of the FNAL Variable Account of the
Company
(b) FINANCIAL STATEMENT SCHEDULES - TO BE FILED BY AMENDMENT
Schedule I - Summary of Investments
Schedule II - Supplementary Insurance Information
Schedule IV - Reinsurance
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
<PAGE> 44
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
<PAGE> 45
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has caused this Registration Statement to be signed on its behalf, by
the undersigned, thereunto duly authorized in the City of Boston and
Commonwealth of Massachusetts on this 16th day of July, 1997.
FIRST NORTH AMERICAN LIFE
ASSURANCE COMPANY
-------------------------
(Registrant)
By: /s/ Joseph Scott
------------------------------------
Joseph Scott, President
Attest:
/s/ Tracy A. Kane
- --------------------------------
Tracy A. Kane, Secretary
<PAGE> 46
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities with the
Registrant and on the dates indicated.
SIGNATURE TITLE DATE
Joseph Scott Director and President July 16, 1997
- ------------------------- (Principal Executive -------------
Joseph Scott Officer) (Date)
* Chairman of the Board July 16, 1997
- ------------------------- of Directors -------------
John D. Richardson (Date)
* Director July 16, 1997
- ------------------------- -------------
John G. Vrysen (Date)
* Director July 16, 1997
- ------------------------- -------------
Kenneth H. Conrad (Date)
* Director July 16, 1997
- ------------------------- -------------
John D. DesPrez, III (Date)
* Director July 16, 1997
- ------------------------- -------------
Ruth Ann Flemming (Date)
* Director July 16, 1997
- ------------------------- -------------
Peter S. Hutchinson (Date)
* Director July 16, 1997
- ------------------------- -------------
Neil M. Merkl (Date)
* Director July 16, 1997
- ------------------------- -------------
Robert C. Perez (Date)
* Director July 16, 1997
- ------------------------- -------------
James K. Robinson (Date)
<PAGE> 47
* Director July 16, 1997
- ------------------------- -------------
H. Douglas Wood (Date)
* Director July 16, 1997
- ------------------------- -------------
Bruce Avedon (Date)
* Director July 16, 1997
- ------------------------- -------------
Bruce Gordon (Date)
Richard C. Hirtle Director, Vice President and July 16, 1997
- ------------------------- Treasurer (Principal -------------
Richard C. Hirtle Financial and Accounting (Date)
Officer)
*By: Tracy A. Kane July 16, 1997
------------------------ -------------
Tracy A. Kane (Date)
Attorney-in-Fact Pursuant
to Powers of Attorney
<PAGE> 48
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
4(i) Form of Individual Single Payment
Deferred Fixed Annuity
Non-Participating Contract
4(ii) Individual Retirement Annuity
Endorsement
4(iii) ERISA Tax-Sheltered Annuity
Endorsement
4(iv) Tax-Sheltered Annuity Endorsement
4(v) Section 401 Plans Endorsement
<PAGE> 1
EXHIBIT 4(i)
<PAGE> 2
[LOGO]
FIRST NORTH AMERICAN LIFE
ASSURANCE COMPANY
- --------------------------------------------------------------------------------
HOME OFFICE:
International Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, NY 10580
THIS IS A LEGAL CONTRACT - READ IT CAREFULLY.
WE AGREE to pay the benefits of this Contract in accordance with its terms.
THIS CONTRACT is issued in consideration of the Payment.
TEN DAY RIGHT TO REVIEW
THE CONTRACT OWNER MAY CANCEL THE CONTRACT BY RETURNING IT TO OUR 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 US, WE WILL REFUND THE
PAYMENT MADE TO THE CONTRACT OWNER.
WHEN THE CONTRACT IS ISSUED AS AN INDIVIDUAL RETIREMENT ANNUITY, DURING THE
FIRST 7 DAYS OF THIS 10 DAY PERIOD, WE WILL RETURN THE GREATER OF (i) THE
CONTRACT VALUE OR (ii) THE PAYMENT.
SIGNED FOR THE COMPANY at its Executive Office, Rye, New York, on the
Contract Date.
Secretary President
Single Payment Deferred Fixed Annuity
Non-Participating
AMOUNTS PAYABLE UNDER THIS CONTRACT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT
PRIOR TO A DATE OR DATES SPECIFIED IN THIS CONTRACT. APPLICATION OF THE MARKET
VALUE ADJUSTMENT MAY RESULT IN BOTH UPWARD AND DOWNWARD ADJUSTMENTS IN CASH
WITHDRAWAL BENEFITS.
<PAGE> 3
INTRODUCTION
This is a single payment deferred fixed annuity. This Contract provides that
prior to the Maturity Date, the Contract Value for an Owner will accumulate
based on interest rates guaranteed by the Company for the period selected.
Amounts withdrawn prior to the end of the selected period are subject to a
market value adjustment and possible withdrawal charges which could reduce the
withdrawal amount below original payment.
You must allocate the Payment to one Initial Guarantee Period.
On the Maturity Date, if the Annuitant and Owner are still living, the Contract
will provide for annuity payments to the Annuitant based upon the Annuity Option
selected. Fixed annuity dollar amounts are guaranteed by the Company.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Contract Specifications Page Page
PART 1 - DEFINITIONS 1
PART 2 - GENERAL PROVISIONS 3
PART 3 - OWNERSHIP 4
PART 4 - BENEFITS 4
PART 5 - PAYMENTS 6
PART 6 - INVESTMENT PROVISIONS 6
PART 7 - ANNUITY PROVISIONS 7
PART 8 - TRANSFERS 7
PART 9 - WITHDRAWAL PROVISIONS 7
PART 10 - FEES AND DEDUCTIONS 9
PART 11 - PAYMENT OF CONTRACT BENEFITS 9
<PAGE> 4
CONTRACT SPECIFICATIONS PAGE
<TABLE>
<S> <C> <C>
TYPE OF CONTRACT: [QUALIFIED] PLAN TYPE: [403B]
CONTRACT DATE: [01/07/1994] MATURITY DATE: [01/07/2044]
PAYMENT: [$ 10,000.00] CONTRACT NUMBER: [000000001]
GOVERNING LAW: NEW YORK INITIAL GUARANTEE PERIOD: [5 YEARS]
INITIAL GUARANTEED INTEREST RATE: [5.05%] INITIAL GUARANTEE PERIOD
EXPIRES: [01/07/1999]
</TABLE>
THIS PLAN IS INTENDED TO QUALIFY UNDER THE INTERNAL REVENUE CODE FOR TAX-FAVORED
STATUS. LANGUAGE CONTAINED IN THIS CONTRACT REFERRING TO FEDERAL TAX STATUS OR
RULES IS INFORMATIONAL AND INSTRUCTIONAL AND THIS LANGUAGE IS NOT SUBJECT TO
APPROVAL OR DISAPPROVAL BY THE STATE OF NEW YORK. PLEASE SEEK THE ADVICE OF YOUR
OWN TAX ADVISOR REGARDING YOUR INDIVIDUAL TAX TREATMENT.
<TABLE>
<S> <C> <C>
OWNER: JOHN DOE CO-OWNER:
ANNUITANT: JOHN DOE ANNUITANT AGE: 35
CO-ANNUITANT: BENEFICIARY: JANE DOE
</TABLE>
<PAGE> 5
CONTRACT SPECIFICATIONS PAGE
<TABLE>
<S> <C> <C>
TYPE OF CONTRACT: [NON-QUALIFIED] PLAN TYPE:
CONTRACT DATE: [01/07/1994] MATURITY DATE: [01/07/2044]
PAYMENT: [$ 10,000.00] CONTRACT NUMBER: [000000001]
GOVERNING LAW: NEW YORK
INITIAL GUARANTEED INTEREST RATE: [5.05%] INITIAL GUARANTEE PERIOD: [5 YEARS]
INITIAL GUARANTEE PERIOD [01/07/1999]
EXPIRES:
OWNER: JOHN DOE CO-OWNER:
ANNUITANT: JOHN DOE ANNUITANT AGE: 35
CO-ANNUITANT: BENEFICIARY: JANE DOE
</TABLE>
<PAGE> 6
PART 1 DEFINITIONS
- --------------------------------------------------------------------------------
WE AND YOU "We", "us" and "our" means First North
American Life Assurance Company. "You" or
"your" means the Owner of this Contract.
ANNUITANT Any individual person or persons whose life
is used to determine the duration of annuity
payments involving life contingencies. The
Annuitant is as designated on the Contract
Specifications Page and application, unless
changed.
ANNUITY OPTION The method selected by you for annuity
payments made by us.
ANNUITY SERVICE OFFICE Any office designated by us for the
receipt of Payments and processing of
Contract Owner requests.
BENEFICIARY The person, persons or entity to whom
certain benefits are payable following the
death of an Owner, or in certain
circumstances, an Annuitant.
CONTINGENT BENEFICIARY The person, persons or entity who becomes
the Beneficiary if the Beneficiary is not
alive.
CONTRACT ANNIVERSARY The anniversary of the Contract Date.
CONTRACT DATE The date of issue of this Contract as
specified on the Contract Specifications
Page.
CONTRACT VALUE The value of the Contract which is the sum
of the Net Payment and accrued interest,
less the sum of any Gross Withdrawal Values
and any annual Administration Fees deducted,
adjusted for any Transfer Market Value
Adjustments.
CONTRACT YEAR The period of twelve consecutive months
beginning on the Contract Date or any
anniversary thereafter.
FIXED ACCOUNT The FNAL Fixed Account, which is a Separate
Account of the First North American Life
Assurance Company.
GENERAL ACCOUNT All the assets of First North American Life
Assurance Company other than assets in
separate accounts.
GROSS WITHDRAWAL VALUE The portion of the Contract Value specified
by you for a full or partial withdrawal.
Such amount is determined prior to the
application of any withdrawal charge, annual
Administration Fee and Market Value
Adjustment.
INITIAL GUARANTEE PERIOD The period of time during which the Initial
Guaranteed Rate is in effect.
INITIAL GUARANTEED INTEREST RATE The compound annual rate used to determine
the interest earned on the Net Payment
during the Initial Guarantee Period.
ISSUE DATE The date on which the Contract becomes
effective.
INTERNAL REVENUE CODE (IRC) The Internal Revenue Code of 1986, as
amended from time to time, and any successor
statute of similar purposes.
MARKET VALUE ADJUSTMENT An adjustment to amounts that are withdrawn
or transferred prior to the end of the
Initial Guarantee Period or Renewal
Guarantee Period. It may increase or
decrease the amount available for transfer
or withdrawal.
MATURITY DATE The date on which annuity benefits commence.
It is the date specified on the Contract
Specifications Page, unless changed.
NET PAYMENT The Payment less the amount of premium tax,
if any, deducted from the Payment.
1
<PAGE> 7
NON-QUALIFIED CONTRACTS Contracts which are not issued under
Qualified Plans.
OWNER OR CONTRACT OWNER The person, persons or entity entitled to
the ownership rights under this Contract.
The Owner is as designated on the Contract
Specifications Page and application, unless
changed.
PAYMENT An amount paid to us by you as consideration
for the benefits provided by this Contract.
QUALIFIED CONTRACTS Contracts issued under Qualified Plans.
QUALIFIED PLANS Retirement plans which receive favorable tax
treatment under section 401, 403, 408 or
457, of the Internal Revenue Code of 1986,
as amended.
RENEWAL AMOUNT The Contract Value as of the end of the
Initial Guarantee Period or at the end of a
Renewal Guarantee Period.
RENEWAL GUARANTEE PERIOD The period of time during which a Renewal
Guaranteed Interest Rate is in effect.
RENEWAL GUARANTEED INTEREST RATE The compound annual rate used to determine
the interest earned on a Renewal Amount
during a Renewal Guarantee Period. In no
event shall this rate be less than 3%.
SEPARATE ACCOUNT A segregated account of First North American
Life Assurance Company that is not
commingled with our general assets and
obligations.
PART 2 GENERAL PROVISIONS
- --------------------------------------------------------------------------------
ENTIRE CONTRACT The entire contract consists of this
Contract, any Contract endorsements, and a
copy of the application if one is attached
to this Contract when issued. Only our
President, Vice-President or Secretary may
agree to change or waive any provisions of
this Contract. The change or waiver must be
in writing.
We will not change or modify this Contract
without your consent except as may be
required to make it conform to any
applicable law or regulation or any ruling
issued by a government agency.
The benefits and values available under this
Contract are not less than the minimum
required by any statute of the state of New
York. We have filed a detailed statement of
the method used to calculate the benefits
and values with the Department of Insurance
in the state of New York, if required by
law.
BENEFICIARY The Beneficiary is as designated in the
Contract Specifications Page and
application, unless changed. However, if
there is a surviving Owner, that person will
be treated as the Beneficiary. If no such
Beneficiary is living, the Beneficiary is
the "Contingent Beneficiary". If no
Beneficiary or Contingent Beneficiary is
living, the Beneficiary is the estate of the
deceased Owner.
CHANGE OF MATURITY DATE Prior to the Maturity Date, you may request
in writing a change of the Maturity Date.
Any extension of the Maturity Date will be
subject to our prior approval and any
Governing Law regulations.
ASSIGNMENT You may assign this Contract at any time
prior to the Maturity Date. No assignment
will be binding on us unless it is written
in a form acceptable to us and received at
the Annuity Service Office. We will not be
liable for any payments made or actions we
take before the assignment is accepted by
us. An absolute assignment will revoke the
interest of any revocable Beneficiary. We
will not be responsible for the validity of
any assignment.
2
<PAGE> 8
CLAIMS OF CREDITORS To the extent permitted by law, no benefits
payable under this Contract will be subject
to the claims of your, the Beneficiary's or
the Annuitant's creditors.
MISSTATEMENT AND PROOF OF AGE, We may require proof of age, sex or survival
SEX OR SURVIVAL of any upon whose age, sex or survival any
payments depend. If the age or sex of the
Annuitant has been misstated, the benefits
will be those which the payment would have
provided for the correct age and sex. If we
have made incorrect annuity payments, the
amount of any underpayment, adjusted with
interest at 4% per annum, will be paid
immediately. The amount of any overpayment
will be deducted from future annuity
payments.
NON-PARTICIPATING Your Contract is non-participating and will
not share in our profits or surplus
earnings. We will pay no dividends on your
Contract.
REPORTS At least once each year we will send you a
report containing information required by
the applicable state law.
CURRENCY AND PLACE OF All payments made to or by us shall be made
in the lawful currency of the United States
PAYMENTS of America at the Annuity Service Office or
elsewhere if we consent.
NOTICES AND ELECTIONS To be effective, all notices and elections
you make under this Contract must be in
writing, signed by you and received by us at
the Annuity Service Office. Unless otherwise
provided in this Contract, all notices,
requests and elections will be effective
when received by us, complete with all
necessary information and your signature, at
the Annuity Service Office.
GOVERNING LAW This Contract will be governed by the laws
of the state of New York.
SECTION 72(s) The provisions of this Contract shall be
interpreted so as to comply with the
requirements of Section 72(s) of the
Internal Revenue Code.
PART 3 OWNERSHIP
- --------------------------------------------------------------------------------
GENERAL Before the Maturity Date, the Owner of this
Contract shall be the person, persons or
entity designated on the Contract
Specifications Page and application or the
latest change filed with us. On the Maturity
Date, the Annuitant becomes the Owner of the
Contract. If amounts become payable to the
Beneficiary under the Contract, the
Beneficiary becomes the Owner of the
Contract.
CHANGE OF OWNER, ANNUITANT, Subject to the rights of an irrevocable
BENEFICIARY Beneficiary, you may change the Owner,
Annuitant, or Beneficiary by written request
in a form acceptable to us and which is
received at the Annuity Service Office. The
Annuitant may not be changed after the
Maturity Date. You need not send us the
Contract unless we request it. Any change
must be approved by us. If approved, any
change in Beneficiary will take effect on
the date you signed the request. If
approved, any change in Owner or Annuitant
will take effect on the date we received the
request at the Annuity Service Office. We
will not be liable for any payments or
actions taken before the change is approved.
If any Annuitant is changed and any Owner is
not an individual, the entire interest in
the Contract must be distributed to the
Owner within five years of the change.
PART 4 BENEFITS
- --------------------------------------------------------------------------------
3
<PAGE> 9
ANNUITY BENEFITS We will pay a monthly income to the
Annuitant, if living, on the Maturity Date.
Annuity benefits will commence on the
Maturity Date and continue for the period of
time provided for under the Annuity Option
selected.
We may pay the higher of Contract Value and
any annual Administration Fee or the amount
available upon total withdrawal on the
Maturity Date in one lump sum if the monthly
income is less than $20.
On or before the Maturity Date you must
select how the Contract Value will be used
to provide the monthly income. Unless you
indicate otherwise, we will provide a fixed
annuity with guaranteed fixed annuity
payments continuing for 10 years or the
lifetime of the Annuitant, if longer.
The portion of the Contract Value adjusted
by the Transfer Market Value Adjustment used
to effect a fixed annuity will be applied to
the appropriate guaranteed fixed annuity
payment table contained in this Contract. If
the table in use by us on the Maturity Date
is more favorable to you, we will use that
table. We guarantee the dollar amount of
fixed annuity payments.
DEATH BENEFIT BEFORE A Death Benefit will be determined as of
MATURITY DATE the date on which written notice and proof
of death and all required claim forms are
received at the Company's Annuity Service
Office.
DEATH OF ANNUITANT: On the death of the last
surviving Annuitant, the Owner becomes the
new Annuitant, if the Owner is an
individual. If any Owner is not an
individual the death of any Annuitant is
treated as the death of an Owner and the
Death Benefit will be determined by
substituting the Annuitant for the Owner as
described below.
DEATH OF OWNER: We will pay a Death Benefit
equal to the Contract Value to the
Beneficiary if any Owner dies prior to the
Maturity Date. This amount will not be
subject to a Market Value Adjustment. The
Death Benefit may be taken in one sum
immediately, in which case the Contract will
terminate. If the Death Benefit is not taken
in one sum immediately, the Contract will
continue subject to the following
provisions:
(a) The Beneficiary becomes the Contract
Owner.
(b) No additional Payments may be applied to
the Contract.
(c) If the Beneficiary is not the deceased
Owner's spouse, the entire interest
in the Contract must be distributed
under one of the following options:
(i) The entire interest in the
Contract must be
distributed over the life
of the Beneficiary, or
over a period not
extending beyond the life
expectancy of the
Beneficiary, with
distributions beginning
within one year of the
Owner's death; or
(ii) the entire interest in the
Contract must be
distributed within 5 years
of the Owner's Death.
If the Beneficiary dies before the
distributions required by (i) or
(ii) are complete, the entire
remaining Contract Value must be
distributed in a lump sum
immediately.
(d) If the Beneficiary is the deceased
Owner's spouse, the Contract will
continue with the surviving spouse
as the new Owner. The surviving
spouse may name a new Beneficiary
(and, if no Beneficiary is so
named, the surviving spouse's
estate will be the Beneficiary).
Upon the death of the surviving
spouse, the Death Benefit will
equal the Contract Value at the
time of the surviving spouse's
death, and the entire interest in
the Contract must be distributed to
the new Beneficiary in accordance
with the provisions of (c)
4
<PAGE> 10
(i) or (c) (ii) above.
If there is more than one Beneficiary, the
foregoing provisions will independently
apply to each Beneficiary.
DEATH BENEFIT ON OR If annuity payments have been selected based
AFTER MATURITY DATE 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.
PROOF OF DEATH Proof of death is required upon the death of
the Annuitant or the Owner. Proof of death
is one of the following received at the
Annuity Service Office:
(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.
(c) Any other proof satisfactory to us.
PART 5 PAYMENTS
- --------------------------------------------------------------------------------
GENERAL The Payment under this Contract is payable
at the Annuity Service Office or such other
place as we may designate.
The minimum Payment will
be $5,000 and must be paid at the
time of application. The maximum
Payment without prior approval will
be $500,000. Payments may not be
made subsequent to issue.
Following the third Contract Anniversary and
prior to the Maturity Date, if both:
(a) the Payment made, less any partial
withdrawals, is less than $2,000;
and
(b) the higher of the Contract Value or the
amount available upon total
withdrawal is less than $2,000;
We may cancel the Contract and pay you the
higher of Contract Value and any annual
Administration Fee or the amount available
upon total withdrawal.
ALLOCATION OF NET PAYMENT When we receive the Payment, the Net Payment
will be allocated to the Initial Guarantee
Period as shown on the Contract
Specifications Page.
PART 6 INVESTMENT PROVISIONS
- --------------------------------------------------------------------------------
GUARANTEE PERIODS You may allocate the Net Payment into any
one of the Initial Guaranteed Periods
offered under this Contract.
The Initial Guarantee Period and Renewal
Guarantee Period are measured from the date
either a Net Payment or Renewal Amount is
allocated to the guarantee period. Amounts
cannot be allocated to a guarantee period
that would extend beyond the Maturity Date.
5
<PAGE> 11
During the Initial Guarantee Period, amounts
will earn interest, compounded annually, at
the Initial Guaranteed Interest Rate.
RENEWALS A notice will be mailed at least 15 but not
more than 45 days prior to the end of any
Initial Guarantee Period or Renewal
Guarantee Period. We will automatically
renew the Renewal Amount into the same
guarantee period that it is renewing from,
unless you specify otherwise in writing. If
a particular Renewal Guarantee Period would
extend beyond the Maturity Date, the Renewal
Amount may not be renewed in that Renewal
Guarantee Period. The Renewal Amount will be
applied to the longest Renewal Guarantee
Period that does not extend beyond the
Maturity Date.
During the Renewal Guarantee Period, amounts
will earn interest, compounded annually, at
the Renewal Guaranteed Interest Rate.
MARKET VALUE ADJUSTMENT FACTOR Any amounts withdrawn or transferred from
the Contract at any other date other than
the end of either the Initial Guarantee
Period or a Renewal Guarantee Period will be
adjusted by
the Market Value Adjustment Factor described
below. The Market Value Adjustment Factor is
determined by the following formula:
((1+i)/(1+j)) (n/12 exponent)
Where i, j and n are defined as follows:
i - The Initial Guaranteed Interest Rate
or Renewal Guaranteed Interest Rate
currently being earned on this Contract.
j - The guaranteed interest rate available,
on the date the request is processed,
for a guarantee period with the same
length as the period remaining in the
Initial Guarantee Period or Renewal
Guarantee Period. If a guarantee period
of this length is not available, the
guarantee period with the next highest
duration which is maintained by the
Company will be chosen.
n - The number of complete months remaining
to the end of the Initial Guarantee
Period or Renewal Guarantee Period.
The amount of Market Value Adjustment, if
any, upon transfer is specified in Part 8,
Transfer Provisions, and upon withdrawal as
specified in Part 9, Withdrawal Provisions.
PART 7 ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
FIXED ANNUITY PAYMENTS The amount of each fixed annuity payment is
determined by applying the portion of the
Contract Value adjusted by the Transfer
Market Value Adjustment used to effect such
payments measured as of a date not more than
10 business days prior to the Maturity Date
(minus any applicable premium taxes) to the
appropriate table contained in this
Contract. If the table in use by us on the
Maturity Date is more favorable to you, we
will use that table.
We guarantee the dollar amount of fixed
annuity payments.
PART 8 TRANSFERS
- --------------------------------------------------------------------------------
6
<PAGE> 12
TRANSFERS Before the Maturity Date you may transfer
the entire Contract Value to a different
guarantee period then being offered by the
Company. There is no transaction charge for
transfers, however, Contract Value
transferred prior to the end of a guaranteed
period will be subject to a Transfer Market
Value Adjustment.
The maximum number of transfers you may make
per Contract Year is one.
You must transfer the entire Contract Value
each time you make a transfer. In addition,
the entire amount must be transferred into
one guarantee period.
TRANSFER MARKET VALUE ADJUSTMENT Amounts transferred will be subject to a
Market Value Adjustment. The amount
requested to be transferred will be
multiplied by the Market Value Adjustment
Factor to determine the actual transferred
amount.
PART 9 WITHDRAWAL PROVISIONS
- --------------------------------------------------------------------------------
PAYMENT OF WITHDRAWALS You may withdraw part or all of the Contract
Value at any time before the earlier of your
death or the Maturity Date, by sending us a
written request. We will pay all withdrawals
within seven days of receipt at the Annuity
Service Office subject to postponement in
certain circumstances, as specified below.
SUSPENSION OF PAYMENTS We may defer the payment resulting from a
request for total or partial withdrawal for
not more than six months, or for the period
permitted by New York state law if shorter,
from the day we receive written request and
the Contract, if required. If such payments
are deferred 10 days or more, the amount
deferred will earn interest at a rate not
less than 4% per year or at a rate
determined by New York state law.
TOTAL WITHDRAWAL Upon receipt of your request to withdraw
all of your Contract Value, we will
terminate the Contract and pay you the
following amount:
C + [( A - B - C) x D] , where:
A = the Gross Withdrawal Value reduced
by any applicable annual
Administration Fee;
B = the Withdrawal Charge;
C = the amount available without
imposition of a withdrawal charge;
D = the Market Value Adjustment Factor.
PARTIAL WITHDRAWAL Partial withdrawals will use the formula
specified in Part 9 Total Withdrawal above
and the Gross Withdrawal Value to determine
the amount payable to you. Partial
withdrawals will be subject to Market Value
Adjustments and possible withdrawal charges.
We will deduct the Gross Withdrawal Value
from the Contract Value. The Gross
Withdrawal Value may not exceed the Contract
Value.
WITHDRAWAL CHARGE If a withdrawal is made from the Contract
before the Maturity Date, a Withdrawal
Charge (contingent deferred sales charge)
may be assessed during the first 7 Contract
Years. No Withdrawal Charge will be applied
after the 7th Contract Year. The amount of
the Withdrawal Charge and when it is
assessed
7
<PAGE> 13
are discussed below:
1. The amount available without imposition
of a withdrawal charge is defined as the
excess of (a) over (b), where:
(a) equals 10% of Payment,
(b) equals 100% of all prior
partial withdrawals, in that
Contract Year.
The amount available without imposition
of a withdrawal charge may be withdrawn
free of a Withdrawal Charge and is not
subject to a Market Value Adjustment.
2. If a withdrawal is made at the end of the
Initial Guarantee Period, no withdrawal
charge will be applied provided such
withdrawal occurs on or after the end of
the third Contract Year. If a withdrawal
is made at the end of any other guarantee
period, no withdrawal charge will be
applied provided such withdrawal occurs
on or after the end of the fifth Contract
Year. A request for withdrawal at the end
of a guarantee period must be received in
writing during the 30 day period
preceding the end of that guarantee
period.
3. The Withdrawal Charge is determined by
multiplying the Gross Withdrawal Value
less any annual Administration Fee and
the amount available without imposition
of a withdrawal charge by the applicable
Withdrawal Charge Percentage obtained
from the table below.
<TABLE>
<CAPTION>
Number of Complete Contract Withdrawal Charge
--------------------------- -----------------
Years Percentage
----- ----------
<S> <C>
0 7%
1 6
2 5
3 4
4 3
5 2
6 1
7+ 0
</TABLE>
WITHDRAWAL MARKET VALUE Amounts withdrawn will be subject to a
ADJUSTMENT Market Value Adjustment. The Market Value
Adjustment will be determined in accordance
with the formula specified in Part 9 Total
Withdrawal above.
There will be no Market Value Adjustment on
withdrawals in the following situations: (a)
death of the Owner, (b) amounts withdrawn
within one month prior to the end of the
guarantee period, and (c) the amount
available without imposition of a withdrawal
charge.
FREQUENCY AND AMOUNT OF You may make as many partial withdrawals as
PARTIAL WITHDRAWAL you wish. Any withdrawal from the Contract
must be at least $300 or the entire balance
of the Contract Value if less. If a partial
withdrawal would reduce the Contract Value
to less than $300, then we will treat the
partial withdrawal request as a total
withdrawal of the Contract Value.
PART 10 FEES AND DEDUCTIONS
- --------------------------------------------------------------------------------
TAXES We reserve the right to charge certain taxes
against your Payment (either at the time of
payment or liquidation), Contract Value,
payment of Death Benefit or annuity
payments, as appropriate. Such taxes may
include any premium taxes
8
<PAGE> 14
or other taxes levied by any government
entity which we, in our sole discretion,
determine to have resulted from the
establishment or maintenance of the Separate
Account, or from the receipt by us of
Payments, or from the issuance of this
Contract, or from the commencement or
continuance of annuity payments under this
Contract.
PART 12 PAYMENT OF CONTRACT BENEFITS
- --------------------------------------------------------------------------------
GENERAL Benefits payable under this Contract may be
applied in accordance with one or more of
the Annuity Options described below, subject
to any restrictions of Internal Revenue Code
section 72(s).
ALTERNATE ANNUITY OPTIONS Instead of settlement in accordance with the
Annuity Options described below, you may
choose an alternate form of settlement
acceptable to us.
DESCRIPTION OF ANNUITY OPTIONS Option 1: Life Annuity
(a) Life Non-Refund. We will make payments
during the lifetime of the
Annuitant. No payments are due
after the death of the Annuitant.
(b) Life 10-Year Certain. We will make
payments for 10 years and after
that during the lifetime of the
Annuitant. No payments are due
after the death of the Annuitant
or, if later, the end of the
10-year period certain.
Option 2: Joint and Survivor Life Annuity
The second Annuitant named shall be referred
to as the Co-Annuitant.
(a) Joint and Survivor Non-Refund. We will
make payments during the joint
lifetime of the Annuitant and
Co-Annuitant. Payments will then
continue during the remaining
lifetime of the survivor. No
payments are due after the death of
the last survivor of the Annuitant
and Co-Annuitant.
(b) Joint and Survivor with 10-Year Certain.
We will make payments for 10 years
and after that during the joint
lifetime of the Annuitant and
Co-Annuitant. Payments will then
continue during the remaining
lifetime of the survivor. No
payments are due after the death of
the survivor of the Annuitant and
Co-Annuitant or, if later, the end
of the 10-year period certain.
ANNUITY PAYMENT RATES The annuity payment rates on the attached
tables show, for each $1,000 applied, the
dollar amount of the monthly fixed annuity
payment. These rates are based on the 1983
Table A projected at Scale G with interest
at the guaranteed rate of 3% per annum and
assume births in year 1942. The amount of
each annuity payment will depend upon the
sex and adjusted age of the Annuitant, the
Co-Annuitant, if any, or other payee. The
adjusted age is determined from the actual
age nearest birthday at the time the first
monthly annuity payment is due, as follows:
<TABLE>
<CAPTION>
Calendar Year of Adjustment Calendar Year Adjustment
Birth to Actual Age of Birth to Actual Age
<S> <C> <C> <C>
1899-1905 +6 1946-1951 -1
1906-1911 +5 1952-1958 -2
1912-1918 +4 1959-1965 -3
1919-1925 +3 1966-1972 -4
1926-1932 +2 1973-1979 -5
1933-1938 +1 1980-1986 -6
</TABLE>
9
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
1939-1945 0 1987+ -7
</TABLE>
The dollar amount of annuity payment for any
age or combination of ages not shown, for
any other form of Annuity Option agreed to
by us, or for payments made on a less
frequent basis (quarterly, semiannual or
annual) will be quoted on request.
10
<PAGE> 16
AMOUNT OF MONTHLY PAYMENT
PER $1000 OF CONTRACT VALUE
OPTION 1: LIFE ANNUITY
<TABLE>
<CAPTION>
Option 1(A): Non-Refund Option 1(B): 10-Year Certain
--------------------------------------------- ----------------------------------------------
Adjusted Age Adjusted Age
of Annuitant Male Female of Annuitant Male Female
--------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
55 4.27 3.86 55 4.22 3.84
60 4.69 4.19 60 4.61 4.15
65 5.25 4.61 65 5.10 4.55
70 6.02 5.19 70 5.71 5.07
75 7.01 5.99 75 6.42 5.73
80 8.34 7.10 80 7.20 6.52
85 10.13 8.64 85 7.97 7.37
</TABLE>
OPTION 2: JOINT AND SURVIVOR LIFE ANNUITY
<TABLE>
<CAPTION>
Option 2(A): Non-Refund
Age of Co-Annuitant
-----------------------------------------------------------------------------------------------
Adjusted
Age of Male 10 Years 5 Years Same 5 Years 10 Years
Annuitant Younger Younger Age Older Older
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
55 3.25 3.39 3.55 3.72 3.87
60 3.41 3.60 3.81 4.02 4.21
65 3.62 3.87 4.14 4.41 4.67
70 3.89 4.21 4.57 4.95 5.29
75 4.24 4.67 5.17 5.67 6.11
80 4.71 5.30 5.97 6.63 7.19
85 5.35 6.15 7.05 7.92 8.60
<CAPTION>
Option 2(B): 10 Year Certain
Age of Co-Annuitant
-----------------------------------------------------------------------------------------------
Adjusted
Age of Male 10 Years 5 Years Same 5 Years 10 Years
Annuitant Younger Younger Age Older Older
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
55 3.25 3.39 3.55 3.72 3.87
60 3.41 3.60 3.80 4.01 4.21
65 3.62 3.86 4.13 4.41 4.66
70 3.89 4.21 4.56 4.92 5.24
75 4.24 4.66 5.13 5.58 5.95
80 4.69 5.25 5.85 6.39 6.78
85 5.28 6.00 6.71 7.27 7.67
-----------------------------------------------------------------------------------------------
</TABLE>
Monthly installments for ages not shown will be furnished on request.
11
<PAGE> 17
- --------------------------------------------------------------------------------
FIRST NORTH AMERICAN LIFE
ASSURANCE COMPANY
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 4(ii)
<PAGE> 2
INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
Notwithstanding any provision contained therein to the contrary, the Contract to
which this Endorsement is attached is amended as follows:
OWNER AND ANNUITANT
1. The Owner must be one individual and the Annuitant. Neither the Owner
nor the Annuitant can be changed, except as otherwise permitted under
the IRC and applicable regulations.
NONFORFEITABLE
2. The Owner's interest in the Contract is established for the exclusive
benefit of the Owner or his or her Beneficiaries and the interest of
the Owner is nonforfeitable.
NONTRANSFERABLE
3. The Owner may not assign, sell, transfer, discount or pledge his
interest in the Contract as collateral for a loan or as security for
the performance of any obligation or for any other purpose (other than
a transfer incident to a divorce or separation instrument in accordance
with IRC Section 408(d)(6)) to any person other than us.
MAXIMUM PAYMENTS
4. The payment to this IRA shall not include any amounts other than (a) a
rollover contribution described in IRC Sections 408(d)(3), 402(c),
403(a)(4) or 403(b)(8); (b) a contribution made in accordance with a
Simplified Employee Pension Program as described in IRC Section 408(k);
(c) a non-taxable transfer from an individual retirement account under
IRC Section 408(a) or another IRA under IRC Section 408(b); and (d) a
contribution in cash not to exceed the lesser of $2,000 or 100% of
compensation.
To the extent necessary to preserve qualification under the Internal
Revenue Code, we may refund a payment. Any refund of a payment (other
than those attributable to excess contributions) will be applied,
before the close of the calendar year following the refund, toward the
purchase of additional benefits.
DISTRIBUTIONS DURING OWNER'S LIFE
5. The Owner's entire interest in the Contract shall be distributed as
required under IRC Section 408(b)(3) and applicable regulations. Unless
deferral is otherwise permitted under applicable regulations, the
Owner's entire interest shall be distributed no later than the
"required beginning date," or shall be distributed beginning no later
than the "required beginning date" over (a) the life of the Owner or
the joint lives of the Owner and an individual who is his or her
designated beneficiary (within the meaning of IRC Section 401(a)(9)),
or (b) a period not extending beyond the life expectancy of the Owner,
or joint life and last survivor expectancy of the Owner and the
designated beneficiary.
The "required beginning date" shall mean April 1 of the calendar year
following the calendar year in which the Owner attains age 70 1/2, or
other such date provided by law.
If the Owner's interest is to be distributed over a period greater than
one year, then the amount to be distributed by December 31 of each year
(including the year in which the required beginning date occurs) shall
be determined in accordance with the requirements of IRC Section
401(a)(9), including the incidental death benefit requirements of IRC
Section 401(a)(9)(G), and the regulations thereunder, including the
minimum distribution incidental benefit requirement of Proposed
Treasury Regulation Section 1.401(a)(9)-2.
ANNUITY OPTIONS
6. Except to the extent Treasury regulations allow us to offer additional
Annuity Options that are acceptable to us, only Annuity Options 1 and 2
shall be offered unless we consent to the use of an additional option.
Annuity Option 1(b) is not available for an Owner whose life expectancy
is less than 10 years. Under Annuity Options 2(a) and 2(b) the
designated Co-Annuitant must be the Owner's spouse. Annuity Option 2(b)
is not available for an Owner and his or her spouse where the life
expectancy of the Owner and such spouse is less than 10 years.
<PAGE> 3
DISTRIBUTIONS AFTER OWNER'S DEATH
7. If an Owner dies on or after the required beginning date and after
distribution of his or her interest has begun (or if distributions have
begun before the required beginning date as irrevocable annuity
payments), the remaining portion of the Owner's interest (if any) shall
be distributed at least as rapidly as under the method of distribution
in effect as of the Owner's death.
If the Owner dies before the required beginning date and an irrevocable
annuity distribution has not begun, the Owner's entire interest shall
be distributed by December 31 of the calendar year containing the fifth
anniversary of the Owner's death, except that
(a) if the interest is payable to an individual who is the
Owner's designated beneficiary, the designated beneficiary may
elect to receive the entire interest over the life of the
designated beneficiary or over a period not extending beyond
the life expectancy of the designated beneficiary, commencing
on or before December 31 of the calendar year immediately
following the calendar year in which the Owner died; or
(b) if the designated beneficiary is the Owner's surviving
spouse, the surviving spouse may elect to receive the entire
interest over the life of the surviving spouse or over a
period not extending beyond the life expectancy of the
surviving spouse, commencing at any date prior to the later of
(i) December 31 of the calendar year immediately
following the calendar year in which the Owner died,
and
(ii) December 31 of the calendar year in which the
Owner would have attained age 70 1/2.
If the surviving spouse dies before distributions
begin, the limitations of this section shall be
applied as if the surviving spouse were the Owner. An
irrevocable election of the method of distribution by
a designated beneficiary who is the surviving spouse
must be made no later than the earlier of December 31
of the calendar year containing the fifth anniversary
of the Owner's death or the date distributions are
required to begin pursuant to this provision (b).
If the designated beneficiary is the Owner's
surviving spouse, the spouse may irrevocably elect to
treat the Owner's interest in the Contract as his or
her own individual retirement arrangement (IRA). This
election will be deemed to have been made if such
surviving spouse (i) fails to elect that his or her
interest will be distributed in accordance with one
of the preceding provisions, or (ii) makes a rollover
from the Contract.
An irrevocable election of the method of distribution by a
designated beneficiary who is not the surviving spouse must be
made within one year of the Owner's death, and if no election
is made, the entire interest will be distributed by December
31 of the calendar year containing the fifth anniversary of
the Owner's death.
In the "Death Benefit Before Maturity Date" section of part 4 of the
Contract, (a) the provision entitled "Death of Annuitant" is deleted;
and (b) in the "Death of Owner" provision, the distribution
requirements of provisions "(c)" and "(d)" are deleted.
LIFE EXPECTANCY CALCULATIONS
8. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
If benefits under the Contract are payable in accordance with an
Annuity Option provided under the Contract, life expectancy shall not
be recalculated. If benefits are payable under an alternate form
acceptable to us, life expectancies shall not be recalculated unless
annual recalculations are elected at the time distributions are
required to begin (a) by the Owner, or (b) for purposes of
distributions beginning after the Owner's death, by the surviving
spouse. Such an election shall be irrevocable as to the Owner or the
surviving spouse, and shall apply to all subsequent years.
The life expectancy of a non-spouse designated beneficiary (a) may not
be recalculated, and (b) shall be calculated using the attained age of
such designated beneficiary during the calendar year in which
distributions
<PAGE> 4
are required to begin pursuant to this Endorsement. Payments for any
subsequent calendar year shall be calculated based on such life
expectancy reduced by one for each calendar year which has elapsed
since the calendar year life expectancy was first calculated.
CANCELLATION FOR NONPAYMENT
9. Following the second Contract Anniversary and prior to the Maturity
Date, if both (a) the Payment made, less any partial withdrawals, is
less than $2,000; and (b) the higher of the Contract Value or the
amount available upon total withdrawal is less than $2,000; and if the
paid-up annuity benefit at the Maturity Date at the end of such period
would be less than $20 per month, We may cancel the Contract and
participation under the Contract and pay you the higher of Contract
Value less the Debt and any annual Administration Fee or the amount
available upon total withdrawal.
IRC SECTION 72(S)
10. All references in the Contract to IRC Section 72(s) are deleted.
Endorsed on the Contract Date of this Contract.
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
/S/RICHARD C. HIRTLE
Vice-President
<PAGE> 1
EXHIBIT 4(iii)
<PAGE> 2
ERISA TAX-SHELTERED ANNUITY ENDORSEMENT
Notwithstanding any provision contained therein to the contrary, the Contract to
which this Endorsement is attached is amended as follows:
OWNER AND ANNUITANT
1. The Owner must be either an organization described in IRC Section
403(b)(1)(A) or an employee of such an organization. If the Owner is an
organization described in IRC Section 403(b)(1)(A), the term "Employee"
as used in this Endorsement shall mean the individual employee for
whose benefit the organization has established an annuity plan under
IRC Section 403(b). Such employee shall be the Annuitant. If the Owner
is an employee of an organization described in IRC Section
403(b)(1)(A), the Annuitant must be the same employee.
If this Contract is used as a funding mechanism for a rollover under
IRC Sections 403(b) or 408(d)(3) or a nontaxable transfer from another
contract qualifying under IRC Section 403(b) or from a custodial
account qualifying under IRC Section 403(b)(7), the Owner must be one
individual, that same individual must be the Annuitant, and the term
"Employee" shall mean that individual.
The Annuitant cannot be changed, except as otherwise permitted under
the IRC and applicable regulations. Prior to the Maturity Date, the
Co-Annuitant can be changed, but such change shall not require any
distributions to be made under the Contract.
NONTRANSFERABLE
2. The interest of the Employee in the Contract is non-transferable within
the meaning of IRC Section 401(g) and applicable regulations and is
nonforfeitable. In particular, the Employee's interest in the Contract
may not be sold, assigned, discounted, or pledged as collateral for a
loan or as security for the performance of any obligation or for any
other purpose, to any person other than us.
PAYMENT
3. The payment must be made by an organization described in IRC Section
403(b)(1)(A), except in the case of rollover contributions under IRC
Sections 403(b)(8) and 408(d)(3) or a nontaxable transfer from another
contract qualifying under IRC Section 403(b) or from a custodial
account qualifying under IRC Section 403(b)(7). The Employee must be an
employee of such organization.
A payment made pursuant to a salary reduction agreement shall be
limited to the extent provided in IRC Section 402(g). The payment shall
not exceed the amount allowed by IRC Sections 415 or 403(b)(2). To the
extent such payment exceeds amounts permitted under IRC Sections
402(g), 415, or 403(b), the Company may distribute amounts equal to the
excess as permitted by applicable law.
REQUIRED BEGINNING DATE
4. The Employee's entire interest in the Contract shall be distributed as
required under IRC Section 403(b)(10) and applicable regulations.
As used in this Endorsement, the term "required beginning date" shall
mean April 1 of the calendar year following the calendar year in which
the Employee attains age 70 1/2, or such later date provided by law.
For an Employee who attains age 70 1/2 before January 1, 1988, or for
an Employee in a governmental plan or a church plan (as defined in IRC
Section 401(a)(9)(C)), the required beginning date shall mean April 1
of the calendar year following the later of (i) the calendar year in
which the Employee attains age 70 1/2, or (ii) the calendar year in
which the Employee retires, or such later date provided by law.
DISTRIBUTIONS DURING EMPLOYEE'S LIFE
5. The Employee's entire interest shall be distributed no later than the
required beginning date, or shall be distributed, beginning no later
than the required beginning date, over (a) the life of the Employee or
the joint lives of the Employee and an individual who is his or her
designated beneficiary (within the meaning of IRC Section 401(a)(9)),
or (b) a period not extending beyond the life expectancy of the
Employee, or the joint life and last survivor expectancy of the
Employee and the designated beneficiary.
If the Employee's interest is to be distributed over a period greater
than one year, then the amount to be distributed by December 31 of each
year (including the year in which the required beginning date occurs)
shall be made in accordance with the requirements of IRC Section
401(a)(9), including the incidental death benefit requirements of IRC
Section 401(a)(9)(G), and the regulations thereunder, including the
minimum distribution incidental benefit requirement of Proposed
Treasury Regulation Section 1.401(a)(9)-2.
<PAGE> 3
DEATH BENEFIT
6. If, in the event of the Employee's death prior to the Maturity Date,
the Death Benefit is not paid to the employer plan, it shall be paid to
(1) the surviving spouse of the Employee in the form required by
section 205 of the Employee Retirement Income Security Act of 1974
(ERISA), unless the spouse elects otherwise in accordance with the
requirements of such section 205 or applicable regulations; or (2) if
there is no surviving spouse, or if the surviving spouse has consented
in the manner required by section 205 of ERISA, or if the applicable
regulations otherwise permit, to the Beneficiary under the Contract.
In the "Death Benefit Before Maturity Date" section of part 4 of the
Contract, the first sentence of the paragraph "Death of Annuitant" is
deleted, and the second sentence is modified to read as follows: "If
any Owner is not an individual, the death of the Annuitant (but not of
the Co-Annuitant) is treated as the death of an Owner."
DISTRIBUTIONS AFTER EMPLOYEE'S DEATH
7. If an Employee dies on or after the required beginning date (or if
distributions have begun before the required beginning date as
irrevocable annuity payments), the remaining portion of the Employee's
interest (if any) shall be distributed at least as rapidly as under the
method of distribution in effect as of the Employee's death.
If the Employee dies before the required beginning date and an
irrevocable annuity distribution has not begun, the Employee's entire
interest shall be distributed by December 31 of the calendar year
containing the fifth anniversary of the Employee's death, except that
(a) if the interest is payable to an individual who is the
Employee's designated beneficiary, the designated beneficiary
may elect to receive the entire interest over the life of the
designated beneficiary or over a period not extending beyond
the life expectancy of the designated beneficiary, commencing
on or before December 31 of the calendar year immediately
following the calendar year in which the Employee died; or
(b) if the designated beneficiary is the Employee's surviving
spouse, the surviving spouse may elect to receive the entire
interest over the life of the surviving spouse or over a
period not extending beyond the life expectancy of the
surviving spouse, commencing at any date prior to the later
of:
(i) December 31 of the calendar year immediately
following the calendar year in which the Employee
died, and
(ii) December 31 of the calendar year in which the
Employee would have attained age 70 1/2.
If the surviving spouse dies before distributions
begin, the limitations of this section shall be
applied as if the surviving spouse were the Employee.
An irrevocable election of the method of distribution
by a designated beneficiary who is the surviving
spouse must be made no later than the earlier of
December 31 of the calendar year containing the fifth
anniversary of the Employee's death or the date
distributions are required to begin pursuant to this
provision (b). If no election is made, the entire
interest will be distributed in accordance with the
method of distribution in this provision (b).
An irrevocable election of the method of distribution by a
designated beneficiary who is not the surviving spouse must be
made within one year of the Employee's death. If no election
is made, the entire interest will be distributed by December
31 of the calendar year containing the fifth anniversary of
the Employee's death.
In the "Death of Owner" section of the "Death Benefit Before Maturity
Date" part of the Contract, the distribution requirements of provisions
"(c)" and "(d)" are deleted.
LIFE EXPECTANCY CALCULATIONS
8. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
If benefits under the Contract are payable in accordance with an
Annuity Option provided under the Contract, life expectancy shall not
be recalculated. If benefits are payable under an alternate form
acceptable to us, life expectancies shall not be recalculated unless
annual recalculations are elected at the time distributions are
required to begin (a) by the Employee, or (b) for purposes of
distributions beginning after the
<PAGE> 4
Employee's death, by the surviving spouse. Such an election shall be
irrevocable as to the Employee or the surviving spouse, and shall apply
to all subsequent years.
The life expectancy of a non-spouse designated beneficiary (a) may not
be recalculated, and (b) shall be calculated using the attained age of
such designated beneficiary during the calendar year in which
distributions are required to begin pursuant to this Endorsement.
Payments for any subsequent calendar year shall be calculated based on
such life expectancy reduced by one for each calendar year which has
elapsed since the calendar year life in which expectancy was first
calculated.
ANNUITY OPTIONS
9. Except to the extent Treasury regulations allow us to offer different
Annuity Options that are agreed to by us, only Annuity Options 1 and 2
shall be available to an Employee. All Annuity Options must meet the
requirements of IRC Section 403(b)(10), including the requirement that
payments to persons other than Employees are incidental.
Annuity Option 1(b) is not available for an Employee whose life
expectancy is less than 10 years. Under Annuity Options 2(a) and 2(b),
the designated Co-Annuitant must be the Employee's spouse. Annuity
Option 2(b) is not available for an Employee and his or her spouse
where the life expectancy of the Employee and such spouse is less than
10 years.
Except as hereinafter provided, only Annuity Option 2(a) is available
to a married Employee. A married Employee may elect another Annuity
Option, provided his or her spouse consents in accordance with the
requirements of section 205 of ERISA (and applicable regulations), or
provided such election is otherwise permitted under such applicable
regulations. An unmarried Employee will be deemed to have elected
annuity Option 1(a) unless he or she makes a different election in the
manner required under section 205 of ERISA (and applicable
regulations).
ELECTIONS AND CONSENTS
10. Elections and consents required by ERISA may be revoked in the form,
time, and manner prescribed in section 205 of ERISA (and applicable
regulations). All elections and consents required by ERISA shall adhere
to the requirements of the applicable regulations interpreting section
205 of ERISA (or any other applicable law), including the requirements
as to the timing of any elections or consents.
If a withdrawal is permitted by the employer's plan, no withdrawal,
partial or total, may be made without consent of the Employee and the
Employee's spouse in the manner required by section 205 of ERISA (and
applicable regulations), except to the extent that such consent is not
required under such applicable regulations. Any withdrawal made must be
made in the form required under section 205 of ERISA (and applicable
regulations), unless the Employee (and spouse, if applicable) makes an
election in the form and manner permitted under such regulations, to
receive the benefit in another form.
WITHDRAWAL OF SALARY REDUCTION CONTRIBUTIONS
11. Withdrawals and other distributions attributable to contributions made
pursuant to a salary reduction agreement after December 31, 1988, and
the earnings on such contributions and on amounts held as of December
31, 1988, shall not be paid unless the Employee has reached age 59 1/2,
separated from service, died, become disabled (within the meaning of
IRC Section 72(m)(7)) or incurred a hardship as determined by the
organization described in Section 3 of this Endorsement; provided, that
amounts permitted to be distributed in the event of hardship shall be
limited to actual salary deferral contributions (excluding earnings
thereon); and provided further that amounts may be distributed pursuant
to a qualified domestic relations order to the extent permitted by IRC
Section 414(p).
WITHDRAWAL OF CUSTODIAL ACCOUNT CONTRIBUTIONS
12. Payments made by a nontaxable transfer from a custodial account
qualifying under IRC Section 403(b)(7) (or amounts attributable to such
an account), and earnings of such amounts, shall not be paid or made
available before the Employee dies, attains age 59 1/2, separates from
service, becomes disabled (within the meaning of IRC Section 72(m)(7))
or in the case of such amounts attributable to contributions made under
the custodial account pursuant to a salary reduction agreement,
encounters financial hardship; provided, that such amounts permitted to
be paid or made available in the event of financial hardship shall be
limited to amounts attributable to actual salary deferral contributions
made under the custodial account (excluding earnings thereon); and
provided further that amounts may be distributed pursuant to a
qualified domestic relations order to the extent permitted by IRC
Section 414(p).
MATURITY VALUE
<PAGE> 5
13. If the Employee's Contract Value is greater than $3,500, as determined
on the first day of the month preceding the Maturity Date, in
accordance with section 205 of ERISA (and applicable regulations), we
will not exercise our right to pay the Contract Value of an Employee on
the Maturity Date in one lump sum in lieu of annuity benefits.
DIRECT ROLLOVERS
14. A distributee may elect, at the time and in the manner prescribed by
us, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in
a direct rollover.
An eligible rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include (1) any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; (2) any distribution to the
extent such distribution is required under IRC Section 401(a)(9); and
(3) the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
An eligible retirement plan is an annuity described in IRC Section
403(b), an individual retirement account described in IRC Section
408(a), or an individual retirement annuity described in IRC Section
408(b), that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
A distributee includes an Employee or former Employee. In addition, the
Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternative payee
under a qualified domestic relations order, as defined in IRC Section
414(p), are distributees with regard to the interest of the spouse or
former spouse.
A direct rollover is a payment by the plan administrator or us to the
eligible retirement plan specified by the distributee.
IRC SECTION 72(S)
15. All references in the Contract to IRC Section 72(s) are deleted.
Endorsed on the Contract Date of this Contract.
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
/S/ RICHARD C. HIRTLE
Vice-President
<PAGE> 1
EXHIBIT 4(iv)
<PAGE> 2
TAX-SHELTERED ANNUITY ENDORSEMENT
Notwithstanding any provision contained therein to the contrary, the Contract to
which this Endorsement is attached is amended as follows:
OWNER AND ANNUITANT
1. The Owner must be either an organization described in IRC Section
403(b)(1)(A) or an employee of such an organization. If the Owner is an
organization described in IRC Section 403(b)(1)(A), the term "Employee"
as used in this Endorsement shall mean the individual employee for
whose benefit the organization has established an annuity plan under
IRC Section 403(b). Such employee shall be the Annuitant. If the Owner
is an employee of an organization described in IRC Section
403(b)(1)(A), the Annuitant must be the same employee.
If this Contract is used as a funding mechanism for a rollover under
IRC Sections 403(b) or 408(d)(3) or a nontaxable transfer from another
contract qualifying under IRC Section 403(b) or from a custodial
account qualifying under IRC Section 403(b)(7), the Owner must be one
individual, that same individual must be the Annuitant, and the term
"Employee" shall mean that individual.
The Annuitant cannot be changed except as otherwise permitted under the
IRC and applicable regulations. Prior to the Maturity Date, the
Co-Annuitant can be changed, but such change shall not require any
distributions to be made under the Contract. In the "Death Benefit
Before Maturity Date" section of part 4 of the Contract, the first
sentence of the paragraph "Death of Annuitant" is deleted, and the
second sentence is modified to read as follows: "If any Owner is not an
individual, the death of the Annuitant (but not of the Co-Annuitant) is
treated as the death of an Owner."
NONTRANSFERABLE
2. The interest of the Employee in the Contract is non-transferable within
the meaning of IRC Section 401(g) and applicable regulations and is
nonforfeitable. In particular, the Employee's interest in the Contract
may not be sold, assigned, discounted, or pledged as collateral for a
loan or as security for the performance of any obligation or for any
other purpose, to any person other than us.
PAYMENT
3. The payment must be made by an organization described in IRC Section
403(b)(1)(A), except in the case of rollover contributions under IRC
Sections 403(b)(8) and 408(d)(3) or a nontaxable transfer from another
contract qualifying under IRC Section 403(b) or from a custodial
account qualifying under IRC Section 403(b)(7). The Employee must be an
employee of such organization.
A payment made pursuant to a salary reduction agreement shall be
limited to the extent provided in IRC Section 402(g). The payment shall
not exceed the amount allowed by IRC Sections 415 or 403(b)(2). To the
extent such payment exceeds amounts permitted under IRC Sections
402(g), 415, or 403(b), the Company may distribute amounts equal to the
excess as permitted by applicable law.
REQUIRED BEGINNING DATE
4. The Employee's entire interest in the Contract shall be distributed as
required under IRC Section 403(b)(10) and applicable regulations.
As used in this Endorsement, the term "required beginning date" shall
mean April 1 of the calendar year following the calendar year in which
the Employee attains age 70 1/2 or such later date provided by law. For
an Employee who attains age 70 1/2 before January 1, 1988, or for an
Employee in a governmental plan or a church plan (as defined in IRC
Section 401(a)(9)(C)), the required beginning date shall mean April 1
of the calendar year following the later of (i) the calendar year in
which the Employee attains age 70 1/2, or (ii) the calendar year in
which the Employee retires, or such later date provided by law.
DISTRIBUTIONS DURING EMPLOYEE'S LIFE
5. The Employee's entire interest shall be distributed no later than the
required beginning date, or shall be distributed, beginning no later
than the required beginning date, over (a) the life of the Employee or
the joint lives of the Employee and an individual who is his or her
designated beneficiary (within the meaning of IRC Section 401(a)(9)),
or (b) a period not extending beyond the life expectancy of the
Employee, or the joint life and last survivor expectancy of the
Employee and the designated beneficiary.
If the Employee's interest is to be distributed over a period greater
than one year, then the amount to be distributed by December 31 of each
year (including the year in which the required beginning date occurs)
shall be made in accordance with the requirements of IRC Section
401(a)(9), including the incidental death benefit requirements of IRC
Section 401(a)(9)(G), and the regulations thereunder, including the
minimum distribution incidental benefit requirement of Proposed
Treasury Regulation Section 1.401(a)(9)-2.
<PAGE> 3
DISTRIBUTIONS AFTER EMPLOYEE'S DEATH
6. If an Employee dies on or after the required beginning date (or if
distributions have begun before the required beginning date as
irrevocable annuity payments), the remaining portion of the Employee's
interest (if any) shall be distributed at least as rapidly as under the
method of distribution in effect as of the Employee's death.
If the Employee dies before the required beginning date and an
irrevocable annuity distribution has not begun, the Employee's entire
interest shall be distributed by December 31 of the calendar year
containing the fifth anniversary of the Employee's death, except that
(a) if the interest is payable to an individual who is the
Employee's designated beneficiary, the designated beneficiary
may elect to receive the entire interest over the life of the
designated beneficiary or over a period not extending beyond
the life expectancy of the designated beneficiary, commencing
on or before December 31 of the calendar year immediately
following the calendar year in which the Employee died; or
(b) if the designated beneficiary is the Employee's surviving
spouse, the surviving spouse may elect to receive the entire
interest over the life of the surviving spouse or over a
period not extending beyond the life expectancy of the
surviving spouse, commencing at any date prior to the later
of:
(i) December 31 of the calendar year immediately
following the calendar year in which the Employee
died, and
(ii) December 31 of the calendar year in which the
Employee would have attained age 70 1/2.
If the surviving spouse dies before distributions
begin, the limitations of this section shall be
applied as if the surviving spouse were the Employee.
An irrevocable election of the method of distribution
by a designated beneficiary who is the surviving
spouse must be made no later than the earlier of
December 31 of the calendar year containing the fifth
anniversary of the Employee's death or the date
distributions are required to begin pursuant to this
provision (b). If no election is made, the entire
interest will be distributed in accordance with the
method of distribution in this provision (b).
An irrevocable election of the method of distribution by a
designated beneficiary who is not the surviving spouse must be
made within one year of the Employee's death. If no election
is made, the entire interest will be distributed by December
31 of the calendar year containing the fifth anniversary of
the Employee's death.
In the "Death of Owner" section of the "Death Benefit Before Maturity
Date" part of the Contract, the distribution requirements of provisions
"(c)" and "(d)" are deleted.
LIFE EXPECTANCY CALCULATIONS
7. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
If benefits under the Contract are payable in accordance with an
Annuity Option provided under the Contract, life expectancy shall not
be recalculated. If benefits are payable under an alternate form
acceptable to us, life expectancies shall not be recalculated unless
annual recalculations are elected at the time distributions are
required to begin (a) by the Employee, or (b) for purposes of
distributions beginning after the Employee's death, by the surviving
spouse. Such an election shall be irrevocable as to the Employee or the
surviving spouse, and shall apply to all subsequent years.
The life expectancy of a non-spouse designated beneficiary (a) may not
be recalculated, and (b) shall be calculated using the attained age of
such designated beneficiary during the calendar year in which
distributions are required to begin pursuant to this Endorsement.
Payments for any subsequent calendar year shall be calculated based on
such life expectancy reduced by one for each calendar year which has
elapsed since the calendar year life in which expectancy was first
calculated.
ANNUITY OPTIONS
8. Except to the extent Treasury regulations allow us to offer different
Annuity Options that are agreed to by us, only Annuity Options 1 and 2
shall be available to an Employee. All Annuity Options must meet the
requirements of IRC Section 403(b)(10), including the requirement that
payments to persons other than Employees are incidental.
<PAGE> 4
Annuity Option 1(b) is not available for an Employee whose life
expectancy is less than 10 years. Under Annuity Options 2(a) and 2(b),
the designated Co-Annuitant must be the Employee's spouse. Annuity
Option 2(b) is not available for an Employee and his or her spouse
where the life expectancy of the Employee and such spouse is less than
10 years.
WITHDRAWAL OF SALARY REDUCTION CONTRIBUTIONS
9. Withdrawals and other distributions attributable to contributions made
pursuant to a salary reduction agreement after December 31, 1988, and
the earnings on such contributions and on amounts held as of December
31, 1988, shall not be paid unless the Employee has reached age 59 1/2,
separated from service, died, become disabled (within the meaning of
IRC Section 72(m)(7)) or incurred a hardship as determined by the
organization described in Section 3 of this Endorsement; provided, that
amounts permitted to be distributed in the event of hardship shall be
limited to actual salary deferral contributions (excluding earnings
thereon); and provided further that amounts may be distributed pursuant
to a qualified domestic relations order to the extent permitted by IRC
Section 414(p).
WITHDRAWAL OF CUSTODIAL ACCOUNT CONTRIBUTIONS
10. Payments made by a nontaxable transfer from a custodial account
qualifying under IRC Section 403(b)(7) (or amounts attributable to such
an account), and earnings of such amounts, shall not be paid or made
available before the Employee dies, attains age 59 1/2, separates from
service, becomes disabled (within the meaning of IRC Section 72(m)(7))
or in the case of such amounts attributable to contributions made under
the custodial account pursuant to a salary reduction agreement,
encounters financial hardship; provided, that such amounts permitted to
be paid or made available in the event of financial hardship shall be
limited to amounts attributable to actual salary deferral contributions
made under the custodial account (excluding earnings thereon); and
provided further that amounts may be distributed pursuant to a
qualified domestic relations order to the extent permitted by IRC
Section 414(p).
LOANS
11. Loans are not permitted under this Contract.
DIRECT ROLLOVERS
12. A distributee may elect, at the time and in the manner prescribed by
us, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in
a direct rollover.
An eligible rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include (1) any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; (2) any distribution to the
extent such distribution is required under IRC Section 401(a)(9); and
(3) the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
An eligible retirement plan is an annuity described in IRC Section
403(b), an individual retirement account described in IRC Section
408(a), or an individual retirement annuity described in IRC Section
408(b), that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
A distributee includes an Employee or former Employee. In addition, the
Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternative payee
under a qualified domestic relations order, as defined in IRC Section
414(p), are distributees with regard to the interest of the spouse or
former spouse.
A direct rollover is a payment by the plan administrator or us to the
eligible retirement plan specified by the distributee.
IRC SECTION 72(s)
13. All references in the Contract to IRC Section 72(s) are deleted.
Endorsed on the Contract Date of this Contract.
<PAGE> 5
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
/S/ RICHARD C. HIRTLE
Vice-President
<PAGE> 1
EXHIBIT 4(v)
<PAGE> 2
SECTION 401 PLANS ENDORSEMENT
Notwithstanding any provision contained therein to the contrary, the Contract to
which this Endorsement is attached is amended as follows:
OWNER AND ANNUITANT
1. The Owner must be either a trustee of a qualified retirement plan under
IRC Sections 401(a) or 403(a) or an employee covered by such a plan. If
the Owner is a trustee, the term "Participant" as used in this
Endorsement shall mean the individual employee for whose benefit the
employer has established the plan. If the Owner is an employee, the
term "Participant" shall mean the employee.
In all cases, the Annuitant shall be the Participant and the Annuitant
cannot be changed, except as otherwise permitted under the IRC and
applicable regulations. Prior to the Maturity Date, the Co-Annuitant
can be changed, but such change shall not require any distributions
under the Contract.
NONTRANSFERABLE
2. An Owner may not transfer his interest in the Contract except: (1) to
the Participant; (2) to a trustee or successor trustee of a retirement
plan qualified under IRC Sections 401(a) or 403(a); or (3) as otherwise
permitted by applicable regulations of the Internal Revenue Service.
If the Owner is the Participant, he may not assign, sell, transfer, or
discount his interest in the Contract, or pledge it as collateral for a
loan or as security for the performance of an obligation or for any
other purpose, other than to us.
REQUIRED BEGINNING DATE
3. The Participant's entire interest in the Contract shall be distributed
as required by IRC Section 401(a)(9), and the regulations thereunder,
including the minimum distribution incidental benefit requirement of
Prop. Treas. Reg. Section 1.401(a)(9)-2.
As used in this Endorsement, the term "required beginning date" shall
mean April 1 of the calendar year following the calendar year in which
(1) the Participant reaches age 70 1/2, or (2) the Participant retires
from the employment of the employer sponsoring the retirement plan with
respect to which the Contract was purchased, whichever is later, or
such later date permitted by law. Clause (2) shall only apply to a
Participant who has attained age 70 1/2 before January 1, 1988, and is
not a "5-percent owner" (within the meaning of IRC Section 416(i)) at
any time during the plan year ending with or within the calendar year
in which such owner attained age 66 1/2, and any subsequent plan year.
If the Participant becomes a "5-percent owner" in a year after the year
in which he or she attains age 70 1/2, the required beginning date
shall be April 1 of the calendar year following the calendar year in
which such subsequent plan year ends.
For a Participant in a governmental plan or a church plan (as defined
in IRC Section 401(a)(9)(C)), the required beginning date shall be
April 1 of the calendar year following the later of (1) the calendar
year in which the Participant attains age 70 1/2, or (2) the calendar
year in which the Participant retires, or such later date permitted by
law.
The requirements of Sections 3,4, and 6 of this Endorsement do not
apply with respect to a benefit to which a proper designation is in
effect under section 242(b)(2) of the Tax Equity and Fiscal
Responsibility Act of 1982.
DISTRIBUTIONS DURING PARTICIPANT'S LIFE
4. The Participant's entire interest shall be distributed no later than
the required beginning date, or shall be distributed, beginning no
later than the required beginning date over (a) the life of the
Participant or the joint lives of the Participant and an individual who
is his or her designated beneficiary (within the meaning of IRC Section
401(a)(9)), or (b) a period not extending beyond the life expectancy of
the Participant, or the joint life and last survivor expectancy of the
Participant and the designated beneficiary.
If the Participant's interest is to be distributed over a period
greater than one year, then the amount to be distributed by December 31
of each year (including the year in which the required beginning date
occurs) shall be determined in accordance with the requirements of IRC
Section 401(a)(9), including the incidental death benefit requirements
of IRC Section 401(a)(9)(G), and the regulations thereunder, including
the minimum distribution incidental benefit requirements of Proposed
Treasury Regulation Section 1.401(a)(9)-2.
DEATH BENEFIT
5. If, in the event of the Participant's death prior to the Maturity Date,
the Death Benefit is not paid to the trustee of a retirement plan
qualified under IRC Sections 401(a) or 403(a), it shall be paid to (1)
the surviving spouse of the Participant in the form required by IRC
Section 417(c), unless the spouse elects otherwise in accordance with
the requirements of IRC Section 417 or regulations promulgated
thereunder, or (2) if there is no surviving spouse, or if the surviving
spouse has consented in the manner required by IRC Section 417, or if
regulations promulgated by the Treasury Department under IRC Section
417 otherwise permit, to the Beneficiary under the Contract.
<PAGE> 3
In the "Death Benefit Before Maturity Date" section of part 4 of the
Contract, the first sentence of the paragraph "Death of Annuitant" is
deleted, and the second sentence is modified to read as follows: "If
any Owner is not an individual, the death of the Annuitant (but not of
the Co-Annuitant) is treated as the death of an Owner."
DISTRIBUTIONS AFTER PARTICIPANT'S DEATH
6. If the Participant dies on or after the required beginning date (or if
distributions have begun before the required beginning date as
irrevocable annuity payments), the remaining portion of the
Participant's interest (if any) shall be distributed at least as
rapidly as under the method of distribution in effect as of the
Participant's death.
If the Participant dies before the required beginning date and an
irrevocable annuity distribution has not begun, the Participant's
entire interest shall be distributed by December 31 of the calendar
year containing the fifth anniversary of the Participant's death,
except that
(a) if the interest is payable to an individual who is the
Participant's designated beneficiary, the designated
beneficiary may elect to receive the entire interest over the
life of the designated beneficiary or over a period not
extending beyond the life expectancy of the designated
beneficiary, commencing on or before December 31 of the
calendar year immediately following the calendar year in which
the Participant died; or
(b) if the designated beneficiary is the Participant's
surviving spouse, the surviving spouse may elect to receive
the entire interest over the life of the surviving spouse or
over a period not extending beyond the life expectancy of the
surviving spouse, commencing at any date prior to the later
of:
(i) December 31 of the calendar year immediately
following the calendar year in which the Participant
died, and
(ii) December 31 of the calendar year in which the
Participant would have attained age 70 1/2. If the
surviving spouse dies before distributions begin, the
limitations of this section shall be applied as if
the surviving spouse were the Participant.
An irrevocable election of the method of distribution
by a designated beneficiary who is the surviving
spouse must be made no later than the earlier of
December 31 of the calendar year containing the fifth
anniversary of the Participant's death or the date
distributions are required to begin pursuant to this
provision (b). If no election is made, the entire
interest will be distributed in accordance with the
method of distribution in this provision (b).
An irrevocable election of the method of distribution by a
designated beneficiary who is not the surviving spouse must be
made within one year of the Participant's death. If no
election is made, the entire interest will be distributed by
December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
In the "Death of Owner" section of the "Death Benefit Before Maturity
Date" part of the Contract, the distribution requirements of provisions
"(c)" and "(d)" are deleted.
LIFE EXPECTANCY CALCULATIONS
7. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
If benefits under the Contract are payable in accordance with an
Annuity Option provided under the Contract, life expectancy shall not
be recalculated. If benefits are payable under an alternate form
acceptable to us, life expectancies shall not be recalculated unless
annual recalculations are elected at the time distributions are
required to begin (a) by the Participant, or (b) for purposes of
distributions beginning after the Participant's death, by the surviving
spouse. Such an election shall be irrevocable as to the Participant or
the surviving spouse, and shall apply to all subsequent years.
The life expectancy of a non-spouse designated beneficiary (a) may not
be recalculated, and (b) shall be calculated using the attained age of
such designated beneficiary during the calendar year in which
distributions are required to begin pursuant to this Endorsement.
Payments for any subsequent calendar year shall be calculated based on
such life expectancy reduced by one for each calendar year which has
elapsed since the calendar year life in which expectancy was first
calculated.
ANNUITY OPTIONS
<PAGE> 4
8. Except to the extent Treasury regulations allow us to offer different
Annuity Options that are agreed to by us and are stated in the
employer's plan, only Annuity Options 1 and 2 shall be available to the
Participant. All Annuity Options must meet the requirements of IRC
Section 401(a)(9), including the requirement of IRC Section
401(a)(9)(G) that payments to persons other than Participants are
incidental.
Annuity Option 1(b) is not available for a Participant whose life
expectancy is less than 10 years. Under Annuity Option 2(a) and 2(b)
the designated Co-Annuitant must be the Participant's spouse. Annuity
Option 2(b) is not available for a Participant and his or her spouse
where the joint life expectancy of the Participant and such spouse is
less than 10 years.
Except as hereinafter provided, only Annuity Option 2(a) is available
to a married Participant. A married Participant may elect another
Annuity Option, provided his or her spouse consents in accordance with
the requirements of IRC Section 417 or provided such election is
otherwise permitted under Treasury Regulations. An unmarried
Participant will be deemed to have elected Annuity Option 1(a) unless
he or she makes a different election in the manner required under IRC
Section 417 (and applicable regulations).
ELECTIONS AND CONSENTS
9. Elections and consents made pursuant to the Contract may be revoked in
the form, time, and manner prescribed in IRC Section 417 (and
applicable regulations). All elections and consents required by the
Contract shall adhere to the requirements of the applicable regulations
interpreting IRC Section 417 (or any other applicable law), including
the requirements as to the timing of any elections or consents.
No amount may be paid from the Contract in a lump sum unless such
payment is allowed under both the retirement plan with regard to which
the Contract is purchased and the Internal Revenue Code and related
regulations. A Participant who is married must have the consent of his
or her spouse to withdraw all or part of the Contract Value.
MATURITY VALUE
10. If the Contract Value is greater than $3,500, as determined on the
first day of the month preceding the Maturity Date, in accordance with
the requirements of IRC Sections 411(a)(11) and 417 (and applicable
regulations), we will not exercise our right to pay the Contract Value
on the Maturity Date in one lump sum in lieu of annuity benefits.
<PAGE> 5
DIRECT ROLLOVERS
11. Notwithstanding any provision of the Contract to the contrary that
would otherwise limit a distributee's election under this Section 11, a
distributee may elect, at the time and in the manner prescribed by us,
to have any portion of an eligible rollover distribution paid directly
to an eligible retirement plan specified by the distributee in a direct
rollover.
An eligible rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution that
is one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent
such distribution is required under IRC Section 401(a)(9); and the
portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
An eligible retirement plan is an individual retirement account
described in IRC Section 408(a), an individual retirement annuity
described in IRC Section 408(b), an annuity plan described in IRC
Section 403(a), or a qualified trust described in IRC Section 401(a),
that accepts the distributee's eligible rollover distribution. However,
in the case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement account
or individual retirement annuity.
A distributee includes a Participant. In addition, the Participant's
surviving spouse and the Participants's spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as
defined in IRC Section 414(p), are distributees with regard to the
interest of the spouse or former spouse.
A direct rollover is a payment by us to the eligible retirement plan
specified by the distributee.
IRC SECTION 72(s)
12. All references in the Contract to IRC Section 72(s) are deleted from
the Contract.
Endorsed on the Contract Date of this Contract.
FIRST NORTH AMERICAN LIFE ASSURANCE COMPANY
/S/ RICHARD C. HIRTLE
Vice President
